<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1998
REGISTRATION NO. 333-64449-02
REGISTRATION NO. 333-64449-01
REGISTRATION NO. 333-64449
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
COAXIAL LLC
COAXIAL FINANCING CORP.
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
DELAWARE 4841 APPLIED FOR
DELAWARE 4841 APPLIED FOR
DELAWARE 4841 13-4017803
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBERS) IDENTIFICATION NUMBERS)
INCORPORATION OR
ORGANIZATION)
C/O INSIGHT COMMUNICATIONS COMPANY, L.P.
126 EAST 56TH STREET
NEW YORK, NEW YORK 10022
(212) 371-2266
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
---------------
SIDNEY R. KNAFEL
CHAIRMAN
INSIGHT COMMUNICATIONS, INC.
126 EAST 56TH STREET
NEW YORK, NEW YORK 10022
(212) 371-2266
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
ROBERT L. WINIKOFF, ESQ.
ELLIOT E. BRECHER, ESQ.
COOPERMAN LEVITT WINIKOFF LESTER & NEWMAN, P.C.
800 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 688-7000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to 462(d) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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<PAGE>
PROSPECTUS
COAXIAL LLC
COAXIAL FINANCING CORP.
EXCHANGE OFFER
FOR
$55,869,000 AGGREGATE PRINCIPAL AMOUNT AT MATURITY
OF
12 7/8% SENIOR DISCOUNT NOTES DUE 2008
GUARANTEED ON A CONDITIONAL BASIS BY INSIGHT COMMUNICATIONS OF CENTRAL OHIO,
LLC
Terms of Exchange Offer
. Expires 5:00 p.m., New York City time, on , , unless extended.
. Subject to certain customary conditions, which may be waived by Coaxial LLC
and Coaxial Financing Corp.
. All outstanding notes that are validly tendered and not withdrawn will be
exchanged.
. Tenders of outstanding notes may be withdrawn any time prior to the expira-
tion of the Exchange Offer.
. The exchange of the outstanding notes will not be a taxable exchange for
U.S. federal income tax purposes.
. We will not receive any cash proceeds from the Exchange Offer.
. The terms of the exchange notes to be issued are substantially identical to
the outstanding notes, except for certain transfer restrictions and regis-
tration rights relating to the outstanding notes.
. Any outstanding notes not validly tendered will remain subject to existing
transfer restrictions.
SEE "RISK FACTORS" BEGINNING ON PAGE 23 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR NOTES IN THE EXCHANGE
OFFER.
There has not been previously any public market for the notes that will be
issued in the Exchange Offer. We do not intend to list these exchange notes on
any national stock exchange or on the Nasdaq Stock Market. There can be no as-
surance that an active market of such notes will develop.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COM-
MISSION HAS APPROVED OR DISAPPROVED THE NOTES TO BE DISTRIBUTED IN THE EX-
CHANGE OFFER, NOR HAVE ANY OF THESE ORGANIZATIONS PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
, 1999
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights selected information from this Prospectus
and may not contain all of the information that is important to you. This Pro-
spectus includes specific terms of the notes we are offering, as well as infor-
mation regarding the business of the guarantor of the notes and detailed finan-
cial data. We encourage you to read this Prospectus in its entirety.
THE PRIVATE OFFERING OF YOUR NOTES
Coaxial LLC and Coaxial Financing Corp. completed on August 21, 1998 a pri-
vate offering of $55,869,000 aggregate principal amount at maturity of their 12
7/8% Senior Discount Notes due 2008 in connection with the "Financing Plan"
discussed below, which included the acquisition by Insight Communications of
Central Ohio, LLC ("Insight Ohio") of substantially all of the assets compris-
ing the cabletelevision system (the "System") of Coaxial Communications of Cen-
tral Ohio, Inc. ("Coaxial"). Coaxial LLC and Coaxial Financing Corp. have only
nominal assets except for Coaxial LLC's ownership of 67.5% of the common stock
of Coaxial and notes of Coaxial DJM LLC and Coaxial DSM LLC, which are secured
by the remaining 32.5% of the common stock of Coaxial. Coaxial LLC and Coaxial
Financing Corp. do not conduct any business. The notes are guaranteed on a con-
ditional basis by Insight Ohio.
THE EXCHANGE OFFER
Coaxial LLC, Coaxial Financing Corp. and Insight Ohio entered into a Discount
Notes Registration Rights Agreement with CIBC Oppenheimer Corp. ("CIBC"), the
initial purchaser in the private offering, in which they agreed, among other
things, to deliver to you this Prospectus and to complete the Exchange Offer on
or prior to February 17, 1999. You are entitled to exchange in the Exchange Of-
fer your notes for registered notes with substantially identical terms. If the
Exchange Offer is not completed on or prior to February 17, 1999, the interest
rate on your notes will be increased until the Exchange Offer is completed. You
should read the discussion under the heading "--Summary of Terms of the
Exchange Notes" and "Description of the Notes" for further information regard-
ing the registered notes.
We believe that the notes issued in the Exchange Offer may be resold by you
without compliance with the registration and prospectus delivery provisions of
the Securities Act of 1933, provided that (i) the notes issued in the Exchange
Offer are being acquired in the ordinary course of your business; (ii) you are
not participating, and have no arrangement or understanding with any person to
participate, in the distribution of the notes issued to you in the Exchange Of-
fer; and (iii) you are not an "affiliate" of Coaxial LLC, Coaxial Financing
Corp. or Insight Ohio. You should read the discussion under the headings "--
Summary of the Exchange Offer" and "The Exchange Offer" for further information
regarding the Exchange Offer and the resale of notes.
SEPARATE EXCHANGE OFFER BY AFFILIATES OF COAXIAL LLC AND COAXIAL FINANCING
CORP.
Simultaneously with the closing of the private offering of your notes and
also in connection with the Financing Plan, Coaxial and Phoenix Associates, an
affiliated general partnership ("Phoenix"), completed a private offering of
their 10% Senior Notes due 2006 (the "Senior Notes"). The Senior Notes are also
guaranteed on a conditional basis by Insight Ohio. The conditional guarantee of
your notes is subordinated to the conditional guarantee of the Senior Notes.
During the same time as the Exchange Offer, Coaxial and Phoenix will be con-
ducting an exchange offer of the Senior Notes on terms similar to the Exchange
Offer.
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BACKGROUND OF THE PRIVATE OFFERINGS
The private offerings of your notes and the Senior Notes were part of a fi-
nancing plan (the "Financing Plan") implemented to facilitate the organization
of Insight Ohio, the acquisition of the System by Insight Ohio and to provide
for the System's liquidity and operational and financial flexibility. Under of
the Financing Plan:
. Coaxial contributed to Insight Ohio substantially all of the assets compris-
ing the System for which Coaxial received a 25% non-voting common membership
interest in Insight Ohio as well as voting preferred membership interests in
Insight Ohio;
. Insight Holdings of Ohio, LLC ("IHO") contributed $10.0 million in cash to
Insight Ohio for which it received a 75% non-voting common membership inter-
est in Insight Ohio;
. Coaxial LLC and Coaxial Financing Corp. effected the private offering of your
notes;
. Coaxial and Phoenix effected the private offering of the Senior Notes; and
. a portion of the existing bank indebtedness of Coaxial and Phoenix and cer-
tain of their affiliates was repaid and the balance was purchased by CIBC and
restructured in accordance with an agreement among the parties.
The private offerings of your notes and the Senior Notes were consummated
concurrently with the consummation of each of the other components of the Fi-
nancing Plan. Insight Ohio entered into a $25 million senior credit facility
(the "Senior Credit Facility") on October 7, 1998 for the purpose of financing
its future working capital requirements, including the upgrade of the System's
cable plant and the introduction of new video services. You should read the
discussion under "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and "Description of Certain Indebtedness--Senior Credit Facility" for further
information regarding the Financing Plan and the Senior Credit Facility.
THE INSIGHT OHIO SYSTEM
Overview
Insight Ohio was formed for the purpose of acquiring Coaxial's cable televi-
sion system in the Columbus, Ohio metropolitan area. As of September 30, 1998,
the System passed approximately 170,000 homes and served approximately 90,300
basic subscribers in the eastern portion of the City of Columbus and the sur-
rounding suburban communities. All of the System's subscribers are served from
a single headend allowing for efficient capital deployment for new services.
Columbus, located in the 34th largest geographic television advertising market
or designated market area (DMA) in the United States, is the capital of Ohio
and home of The Ohio State University.
Manager of Insight Ohio
IHO, a wholly-owned subsidiary of Insight Communications Company, L.P. ("In-
sight"), serves as the manager of the System. Insight is one of the top 20 ca-
ble television operators in the United States. Based on the number of subscrib-
ers served, Insight management estimates that Insight owns or manages cable
television systems with over 506,000 subscribers in six states with over 90% of
the subscribers clustered in Illinois, Indiana and Ohio. You should read the
discussion under "Business--The Manager" and "--Insight Business Strategy" for
further information regarding Insight and its business strategies.
Operating Strategy of Insight Ohio
Portions of the System operate in a competitive environment. Subscribers in
those areas have access to two wired cable television providers--the System and
a cable subsidiary of Ameritech Corporation ("Ameritech"), the telephone local
exchange carrier for Columbus.
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The areas of the System that are also served by Ameritech pass approximately
121,500 homes, representing 71% of the System's total homes passed.
The prior strategy to compete with Ameritech has included the following:
. selectively constructing fiber optic cable deeper into areas where the System
and Ameritech compete to create additional channel capacity;
. adding more movies, music, news, live sports and exclusive programming such
as TV Land and Central Ohio Sport! Television on the higher bandwidth;
. decreasing the System's standard rate to be slightly below that offered by
Ameritech;
. repackaging the System's pay services and selectively using promotions;
. significantly increasing the use of focused target marketing; and
. stressing local customer service.
In addition, IHO intends to aggressively implement Insight's upgrade strategy
in Columbus, which includes the following:
. increasing channel capacity in order to broaden core analog service
offerings;
. adding new services such as digital cable, high-speed modems and other newly
developing telecommunications services as upgrades are completed;
. repackaging channel offerings to more advantageously compete without reducing
revenue per subscriber;
. utilizing its relationship with MediaOne (formerly Continental Cablevision),
to provide programming discounts; and
. implementing additional cost savings measures, including specific employee
reductions.
MEMBERS OF INSIGHT OHIO
IHO owns 75% of the non-voting common membership interests and Coaxial owns
25% of the non-voting common membership interests in Insight Ohio. Coaxial also
owns two separate series of voting preferred membership interests of Insight
Ohio (the "Series A Preferred Interests" and the "Series B Preferred
Interests") which provide for distributions to Coaxial. The distributions from
the Series BPreferred Interests will be used to pay the principal and interest
on your notes and the notes to be issued in the Exchange Offer. The distribu-
tions from the Series A Preferred Interests will be used to pay the principal
and interest on the Senior Notes and the Senior Notes to be issued in the ex-
change offer being conducted by Coaxial and Phoenix. The ability of Insight
Ohio to make such preferred distributions is subject to certain financial cove-
nants and other conditions in the Senior Credit Facility.
IHO also serves as manager of Insight Ohio and each of the three limited lia-
bility companies that own Coaxial (the "Individual LLCs"), including Coaxial
LLC, and thereby has effective control of the management and affairs of the In-
dividual LLCs, Coaxial and Insight Ohio. IHO and Insight will not have any lia-
bility for your notes or the notes to be issued in the Exchange Offer.
3
<PAGE>
RISK FACTORS
In connection with an investment in the notes to be issued in the Exchange
Offer, you should consider, among other things, that:
. the notes issued in the Exchange Offer will be considered to be issued with
original issue discount;
. the ability of Coaxial LLC and Coaxial Financing Corp. to make scheduled pay-
ments with respect to the notes will depend on the financial and operating
performance of Insight Ohio;
. a substantial portion of Insight Ohio's cash flow from operations is required
to be dedicated to the payment of principal and interest on its indebtedness
and the required distributions with respect to the Series A Preferred Inter-
ests and the Series B Preferred Interests, thereby reducing the funds avail-
able to Insight Ohio for its operations and future business opportunities;
. the combined earnings of Coaxial LLC, Coaxial Financing Corp., Coaxial, Phoe-
nix and Insight Ohio on pro forma basis would have been insufficient to cover
their combined fixed charges for the year ended December 31, 1997 and for the
nine months ended September 30, 1998;
. Coaxial LLC and Coaxial Financing Corp. have no significant assets available
to the holders of the notes other than common equity of Coaxial and notes is-
sued by Coaxial DJM LLC and Coaxial DSM LLC to Coaxial LLC;
. since Insight Ohio only conditionally guarantees the payment of principal of
and interest on the notes, your claims effectively will be, for the most
part, subordinated to all existing and future claims of the creditors of In-
sight Ohio;
. the notes are non-recourse secured obligations of Coaxial LLC and Coaxial Fi-
nancing Corp. and are secured only by a first priority pledge of the common
equity of Coaxial and the notes issued by Coaxial DJM LLC and Coaxial DSM LLC
to Coaxial LLC;
. payments on the guarantee of the notes by Insight Ohio will be subordinated
in right of payment to the prior payment in full of all obligations under the
Senior Notes guarantees; and
. the indenture governing the terms of the notes imposes restrictions on Coax-
ial LLC, Coaxial Financing Corp. and Insight Ohio and the Senior Credit Fa-
cility imposes restrictions on Insight Ohio.
See "Risk Factors."
4
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OWNERSHIP STRUCTURE
The following chart illustrates the ownership structure of Coaxial LLC, Coax-
ial Financing Corp., Coaxial, Phoenix and Insight Ohio:
[CHART APPEARS HERE]
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* Managed by IHO.
5
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
Registration Rights You are entitled to exchange your notes for reg-
Agreement................... istered notes with substantially identical terms.
The Exchange Offer is intended to satisfy these
rights. After the Exchange Offer is complete, you
will no longer be entitled to any exchange or
registration rights with respect to your notes.
The Exchange Offer.......... We are offering to exchange $1,000 principal
amount at maturity of our 12 7/8% Senior Discount
Notes due 2008, which have been registered under
the Securities Act of 1933, for each $1,000
principal amount at maturity of our outstanding
12 7/8% Senior Discount Notes due 2008 which were
issued on August 21, 1998 in the private
offering. In order to be exchanged, an
outstanding note must be properly tendered and
accepted. All outstanding notes that are validly
tendered and not withdrawn will be exchanged.
As of this date there are $55,869,000 aggregate
principal amount at maturity of notes
outstanding.
We will issue registered notes on or promptly
after the expiration of the Exchange Offer.
Resale...................... We believe that the notes issued in the Exchange
Offer may be offered for resale, resold and
otherwise transferred by you without compliance
with the registration and prospectus delivery
provisions of the Securities Act of 1933 provided
that:
. the notes issued in the Exchange Offer are
being acquired in the ordinary course of
your business;
. you are not participating, and have no ar-
rangement or understanding with any person
to participate, in the distribution of the
notes issued to you in the Exchange Offer;
and
. you are not an "affiliate" of Coaxial LLC,
Coaxial Financing Corp. or Insight Ohio.
If our belief is inaccurate and you transfer any
note issued to you in the Exchange Offer without
delivering a prospectus meeting the requirements
of the Securities Act of 1933 or without an
exemption from registration of your notes from
such requirements, you may incur liability under
the Securities Act of 1933. We do not assume or
indemnify you against such liability.
6
<PAGE>
Each broker-dealer that is issued notes in the
Exchange Offer for its own account in exchange
for notes which were acquired by such broker-
dealer as a result of market-making or other
trading activities, must acknowledge that it will
deliver a prospectus meeting the requirements of
the Securities Act of 1933 in connection with any
resale of the notes issued in the Exchange Offer.
A broker-dealer may use this Prospectus for an
offer to resell, resale or other retransfer of
the notes issued to it in the Exchange Offer.
Expiration Date............. The Exchange Offer will expire at 5:00 p.m., New
York City time, , , unless we decide to
extend the expiration date.
Conditions to the Exchange The Exchange Offer is subject to certain
Offer....................... customary conditions, which may be waived by us.
Procedures for Tendering
Outstanding Notes...........
If you wish to accept the Exchange Offer, you
must complete, sign and date the accompanying
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained in
this Prospectus and in the Letter of Transmittal,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the
outstanding notes and any other required
documentation to Bank of Montreal Trust Company
at the address set forth in the Letter of
Transmittal. By executing the Letter of
Transmittal, you will represent to us, among
other things, that:
. the notes issued in the Exchange Offer are
being acquired in the ordinary course of
your business;
. you are not participating, and have no
arrangement or understanding with any person
to participate, in the distribution of the
notes issued to you in the Exchange Offer;
and
. you are not an "affiliate" of Coaxial LLC,
Coaxial Financing Corp. or Insight Ohio.
See "The Exchange Offer--Purpose and Effect of
the Exchange Offer" and "--Procedures for
Tendering."
Special Procedures for
Beneficial Owners...........
If you are a beneficial owner whose notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and you wish to tender such notes in the Exchange
Offer, you should contact such registered holder
promptly and instruct such registered holder to
tender such notes on your behalf.
7
<PAGE>
Guaranteed Delivery If you wish to tender your notes and time will
Procedures.................. not permit your required documents to reach the
Exchange Agent by the Expiration Date, or the
procedure for book-entry transfer cannot be com-
pleted on time or certificates for registered
notes cannot be delivered on time, you may tender
your notes pursuant to the procedures described
in this Prospectus under the heading "The Ex-
change Offer--Guaranteed Delivery Procedures."
Withdrawal Rights........... You may withdraw the tender of your notes at any
time prior to 5:00 p.m. New York City time on
, .
Acceptance of Outstanding
Notes and Delivery of
Exchange Notes..............
We will accept for exchange any and all outstand-
ing notes which are properly tendered in the Ex-
change Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The registered
notes issued pursuant to the Exchange Offer will
be delivered on or promptly after the Expiration
Date. See "The Exchange Offer--Terms of the Ex-
change Offer."
Shelf Registration If we are not permitted to effect the Exchange
Statement................... Offer or if for any other reason the Exchange Of-
fer is not consummated by February 17, 1999, we
will file a shelf registration statement covering
resales of the outstanding notes, use our reason-
able best efforts to cause such registration
statement to be declared effective and use our
reasonable best efforts to keep effective such
registration statement until two years after its
effective date.
Untendered Outstanding Following the consummation of the Exchange Offer,
Notes....................... holders of outstanding notes eligible to partici-
pate but who do not tender their notes will not
have any further exchange rights and such notes
will continue to be subject to certain restric-
tions on transfer. Accordingly, the liquidity of
the market for such notes could be adversely af-
fected.
Consequences of Failure to
Exchange....................
The outstanding notes that are not exchanged pur-
suant to the Exchange Offer will remain re-
stricted securities. Accordingly, such notes may
be resold only:
. to Coaxial LLC, Coaxial Financing Corp. and
Insight Ohio;
. pursuant to Rule 144A or Rule 144 under the
Securities Act of 1933 or pursuant to an-
other exemption under the Securities Act of
1933;
8
<PAGE>
. outside the United States to a foreign per-
son pursuant to the requirements of Rule
904 under the Securities Act of 1933;
. to certain institutional "accredited in-
vestors" within the meaning of Rule 501(a)
under the Securities Act of 1933 subject to
a minimum principal amount of $250,000; or
. pursuant to an effective registration
statement under the Securities Act of 1933.
U.S. Federal Income Tax
Consequences................
The exchange of notes will not be a taxable ex-
change for United States federal income tax pur-
poses. You will not recognize any taxable gain or
loss or any interest income as a result of such
exchange.
Use of Proceeds............. We will not receive any proceeds from the issu-
ance of notes pursuant to the Exchange Offer. We
will pay all expenses incident to the Exchange
Offer.
Exchange Agent.............. Bank of Montreal Trust Company is serving as ex-
change agent in connection with the Exchange Of-
fer.
9
<PAGE>
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The form and terms of the notes to be issued in the Exchange Offer are the
same as the form and terms of the outstanding notes except that the notes to be
issued in the Exchange Offer will be registered under the Securities Act of
1933 and, therefore, will not bear legends restricting their transfer and will
not be entitled to further registration under the Securities Act of 1933. The
notes issued in the Exchange Offer will evidence the same debt as the outstand-
ing notes and both the outstanding notes and the notes to be issued are gov-
erned by the same indenture (the "Indenture").
Securities Offered.......... $55,869,000 aggregate principal amount at matu-
rity of 12 7/8% Senior Discount Notes due 2008 of
Coaxial LLC and Coaxial Financing Corp.
Maturity Date............... August 15, 2008.
Original Issue Discount.....
The outstanding notes were issued at a
substantial discount to their principal amount at
maturity. The issue price to investors per
outstanding note was $536.98, which represents a
yield to maturity on the notes of 12 7/8% per
annum (computed on a semi-annual bond equivalent
basis). You will be required to include the
accretion of the original issue discount as gross
income for U.S. federal income tax purposes prior
to the receipt of the cash payments to which such
income is attributable. See "Certain U.S. Federal
Income Tax Considerations--Investments in
Exchange Notes by U.S. Holders--Original Issue
Discount."
Interest Payment Dates...... Cash interest on your notes will not accrue or be
payable prior to August 15, 2003. Thereafter,
cash interest on your notes will accrue at a rate
of 12 7/8% per annum, on the principal amount at
maturity of your notes, and will be payable in
cash semi-annually on each February 15 and August
15, commencing on February 15, 2004.
Security.................... The notes are our joint and several non-recourse
obligations and are secured by a pledge of all
issued and outstanding common equity of Coaxial
and notes issued by Coaxial DJM LLC and Coaxial
DSM LLC to Coaxial LLC (together, the "LLC Mirror
Notes").
Series B Preferred The Series B Preferred Interests have an initial
Interests................... liquidation preference of $30.0 million. All Se-
ries B Preferred Interests were issued to Coaxi-
al; Insight Ohio will pay distributions to Coax-
ial in an amount equal to the interest payments
on your notes. Coaxial will use the distributions
received by it in respect of the Series B Pre-
ferred Interests to pay dividends on its common
stock. Pursuant to the LLC Mirror Notes, Coaxial
DJM LLC and Coaxial DSM LLC will pay dividends re-
10
<PAGE>
ceived by them to Coaxial LLC. Coaxial LLC will
utilize cash dividends from the Coaxial common
stock and cash interest payments from the LLC
Mirror Notes to make payments on your notes. The
Series B Preferred Interests will become non-vot-
ing upon the enforcement of remedies under the
securities pledge agreement between Bank of Mon-
treal Trust Company and Coaxial (the "Pledge
Agreement"). Though the Series B Preferred Inter-
ests will make distributions in amounts equal to
the interest payments on your notes, the Series B
Preferred Interests will not serve as collateral
for your notes and you will not have any direct
claim with respect to the Series B Preferred In-
terests.
The Series B Preferred Interests are mandatorily
redeemable upon acceleration of indebtedness un-
der the notes, enforcement of remedies under the
Pledge Agreement in respect of the common equity
of Coaxial and the LLC Mirror Notes, the passage
of ten days and the request by the holders of the
notes. The Series B Preferred Interests are re-
deemable at the option of Insight Ohio, so long
as the proceeds thereof are used by Coaxial to
make a redemption of the notes or an offer to
purchase the notes, in each case, in accordance
with the terms of the Indenture. Except for the
pledge to Bank of Montreal Trust Company for the
benefit of the holders of the notes, the exercise
of remedies in respect of such pledge or any
transfer after enforcement of such remedies under
such pledge, common stock of Coaxial and the LLC
Mirror Notes are nontransferable. The Series B
Preferred Interests are non-transferable.
The Series A Preferred Interests have a priority
over the Series B Preferred Interests with re-
spect to both distributions and redemption.
Guarantees..................
The notes are conditionally guaranteed on a se-
nior unsecured basis by Insight Ohio and any fu-
ture Restricted Subsidiaries (as defined on page
116 in this Prospectus) (other than Coaxial) of
Coaxial LLC and Coaxial Financing Corp. (the
"Guarantors"). The guarantees will only be effec-
tive to the extent and at the time the holders of
the notes are unable to realize proceeds from the
enforcement of the mandatory redemption provi-
sions of the Series B Preferred Interests. In-
sight Ohio is currently the only Guarantor in ex-
istence. The guarantees of the notes will be sub-
ordinated to the prior payment in full of all ob-
ligations of the Guarantors with respect to the
Senior Notes guarantees. See "Risk Factors--Con-
ditional Guaran -
11
<PAGE>
tees; Structural Subordination," "--Subordination
of Guarantees," "Description of the Notes--Guar-
antees" and "--Subordination of Guarantees."
Ranking.....................
The notes are non-recourse senior obligations of
Coaxial LLC and Coaxial Financing Corp. who are
not permitted under the Indenture to incur any
other indebtedness. Once effective, the guaran-
tees will rank equal in right of payment with all
existing and future unsubordinated indebtedness
of Insight Ohio and any Restricted Subsidiaries
and senior in right of payment to all existing
and future subordinated indebtedness of Insight
Ohio and any Restricted Subsidiaries. The notes
and any guarantee are effectively subordinated in
right of payment to all secured indebtedness of
the Guarantors to the extent of the value of the
assets securing such indebtedness, including in-
debtedness under the Senior Credit Facility. In
addition, the notes are effectively subordinated
to all indebtedness of the subsidiaries (includ-
ing Coaxial) of Coaxial LLC and Coaxial Financing
Corp. that are not Guarantors. As of December 22,
1998, no funds had been borrowed under the Senior
Credit Facility and as a result the notes and
guarantees were not subordinated in right of pay-
ment to any secured indebtedness of the Guaran-
tors (presently Insight Ohio). As of December 22,
1998, the notes and guarantees were subordinated
to the $140.0 million indebtedness of Coaxial
represented by the Senior Notes. There are cur-
rently no other subsidiaries of Coaxial LLC and
Coaxial Financing Corp. that are not Guarantors.
See "Risk Factors--Conditional Guarantees; Struc-
tural Subordination" and "Description of the
Notes."
Optional Redemption......... The notes are redeemable at our option, in whole
or in part, at any time on or after August 15,
2003, at the redemption prices described in this
Prospectus under the heading "Description of the
Notes--Optional Redemption," together with ac-
crued and unpaid interest thereon to the redemp-
tion date. See "Description of the Notes--Op-
tional Redemption."
Change of Control...........
Upon a change of control, we are required to of-
fer to repurchase all of the notes then outstand-
ing at a purchase price equal to (i) 101% of the
Accreted Value thereof (as defined on page 106 in
this Prospectus), if the repurchase date is on or
prior to August 15, 2003 or (ii) 101% of the
principal amount at maturity thereof, together
with accrued and unpaid interest thereon, if any,
to the repurchase date, if such date is after Au-
gust 15, 2003. See "Description of the Notes--
Change of Control Offer."
12
<PAGE>
Certain Covenants........... The Indenture contains covenants that, among
other things, restrict the ability of Coaxial
LLC, Coaxial Financing Corp., Insight Ohio and
any of their Restricted Subsidiaries to:
. incur additional indebtedness;
. pay dividends and make distributions;
. issue stock of subsidiaries to third par-
ties;
. make certain investments;
. repurchase stock;
. create liens;
. enter into transactions with affiliates;
. enter into sale and leaseback transactions;
. create dividend or other payment restric-
tions affecting Restricted Subsidiaries;
. merge or consolidate in a transaction in-
volving all or substantially all of the as-
sets of Coaxial LLC, Coaxial Financing
Corp. and their Restricted Subsidiaries,
taken as a whole;
. transfer or sell assets;
. use dividends received on the Coaxial com-
mon stock and any payments received in re-
spect of the LLC Mirror Notes for any pur-
pose other than required payments of inter-
est and principal on the notes; and
. swap assets.
These covenants are subject to a number of impor-
tant exceptions. See "Description of the Notes--
Certain Covenants."
Asset Sale Proceeds......... We are obligated in certain instances to make an
offer to repurchase the notes at a purchase price
equal to (i) 100% of the Accreted Value thereof,
if the repurchase date is on or prior to August
15, 2003, or (ii) 100% of the principal amount at
maturity thereof, plus accrued and unpaid inter-
est thereon to the repurchase date, if the repur-
chase date is after August 15, 2003, with the net
cash proceeds of certain asset sales. See "De-
scription of the Notes--Certain Covenants--Limi-
tation on Certain Asset Sales."
Asset Swap Offer............ We are obligated in certain instances to make an
offer to repurchase the notes at the redemption
prices described in this Prospectus under the
heading "Description of the Notes--Certain Cove-
nants--Limitation on Asset Swaps," plus accrued
and unpaid interest, if any, to the redemption
date in connection with certain asset swaps.
13
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain of the information contained in this Prospectus, including
information with respect to the plans and strategy of Insight Ohio for its
business and its financing, are forward-looking statements. For a discussion of
important factors that could cause actual results to differ materially from the
forward-looking statements, see "Risk Factors."
PRINCIPAL EXECUTIVE OFFICE
Our principal office is located at Insight Communications Company, L.P., 126
East 56th Street, New York, New York 10022; telephone number (212) 371-2266.
WHERE YOU CAN FIND MORE INFORMATION
Coaxial LLC, Coaxial Financing Corp. and Insight Ohio have filed with the Se-
curities and Exchange Commission (the "SEC") a Registration Statement on Form
S-4 under the Securities Act of 1933 covering the notes to be issued in the Ex-
change Offer. This Prospectus does not contain all of the information included
in the Registration Statement. Any statement made in this Prospectus concerning
the contents of any contract, agreement or other document is not necessarily
complete. If we have filed any such contract, agreement or other document as an
exhibit to the Registration Statement, you should read the exhibit for a more
complete understanding of the document or matter involved. Each statement re-
garding a contract, agreement or other document is qualified in its entirety by
reference to the actual document.
Following the Exchange Offer, we will be required to file periodic reports
and other information with the SEC under the Securities Exchange Act of 1934.
Our obligation to file periodic reports with the SEC will be suspended if the
notes issued in the Exchange Offer are held of record by fewer than 300 holders
as of the beginning of any year. However, the Indenture nevertheless requires
us to file with the SEC financial and other information for public
availability. In addition, the Indenture requires us to deliver to you, or to
Bank of Montreal Trust Company for forwarding to you, copies of all reports
that we file with the SEC without any cost to you. We will also furnish such
other reports as we may determine or as the law requires.
You may read and copy the Registration Statement, including the attached ex-
hibits, and any reports, statements or other information that we file at the
SEC's public reference room in Washington, D.C. You can request copies of these
documents, upon payment of a duplicating fee, by writing the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the pub-
lic reference rooms. Our SEC filings will also be available to the public on
the SEC Internet site (http://www.sec.gov).
You should rely only on the information provided in this Prospectus. No per-
son has been authorized to provide you with different information.
We are not making an offer to exchange notes in any jurisdiction where the
offer is not permitted.
The information in this Prospectus is accurate as of the date on the front
cover. You should not assume that the information contained in this Prospectus
is accurate as of any other date.
14
<PAGE>
SUMMARY HISTORICAL AND COMBINED PRO FORMA
FINANCIAL AND OPERATING DATA
Coaxial LLC and Coaxial Financing Corp., the co-issuers of your notes, were
formed on July 24, 1998. As such, these entities were not in existence for the
historical periods presented in the following tables. The historical informa-
tion of Coaxial is shown as it represents the predecessor entity which will be
consolidated by Coaxial LLC. The financial information of Phoenix is presented
as Coaxial is a joint and several obligor and co-issuer of the Senior Notes
with Phoenix. The financial information of the System is presented as the Sys-
tem is the predecessor company to Insight Ohio. Coaxial, based on cash flow
from the System, provides the funding for the repayment of your notes and the
Senior Notes.
As mentioned above, the following tables present summary historical financial
data for Coaxial, Phoenix and the System for the three years ended December 31,
1997, which have been derived from the audited financial statements of Coaxial,
Phoenix and the System, and unaudited historical financial data for the nine
months ended September 30, 1997 and 1998, which have been derived from the un-
audited interim financial statements of Coaxial, Phoenix and the System. In the
opinion of management, such unaudited financial statements have been prepared
on the same basis as the audited financial statements and include all normal
and recurring adjustments and accruals necessary for a fair presentation of
such information. Financial results for the nine months ended September 30,
1998 are not necessarily indicative of the results that may be expected for the
full year.
In addition, the following tables present unaudited combined summary pro
forma financial data for Coaxial LLC (which includes Coaxial and Coaxial's con-
solidated subsidiary, Insight Ohio) and Phoenix for the year ended December 31,
1997 and as of and for the nine months ended September 30, 1998, as adjusted to
give pro forma effect to the Financing Plan and certain other adjustments, in
the case of the statement of operations and other financial and operating data
as if they had occurred on the first day of the respective periods, and in the
case of balance sheet data as if they had occurred as of such date. The pro
forma financial data of Coaxial LLC (which includes Coaxial) and Phoenix are
combined because (i) both entities have common ownership, (ii) Coaxial and
Phoenix are co-issuers of the Senior Notes and (iii) Coaxial LLC and Phoenix
have no operating activities and the combined data serves to illustrate how the
total debt of Coaxial LLC, Coaxial and Phoenix will be serviced from the Sys-
tem's operations.
The unaudited combined summary pro forma financial data have been prepared by
the management of Coaxial LLC, Coaxial and Phoenix based upon their historical
financial statements and do not purport to represent what the results of opera-
tions or financial condition of Coaxial LLC (which includes Coaxial) and Phoe-
nix would have actually been or what operations in any future period would be
if the transactions that give rise to the pro forma adjustments had occurred on
the dates assumed. Management believes that the combined pro forma data is a
meaningful presentation because Phoenix has no operations for the presented pe-
riods, and the ability of Coaxial LLC, Coaxial and Phoenix to satisfy debt and
other obligations is dependent upon cash flow from the System. The following
information is qualified by reference to and should be read in conjunction with
"Selected Historical and Combined Pro Forma Financial and Operating Data,"
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Pro Forma Financial Statements" and the financial
statements and notes thereto included elsewhere in this Prospectus.
15
<PAGE>
COAXIAL LLC
(DOLLARS IN THOUSANDS, EXCEPT SUBSCRIBER DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------- ----------------------------------------
PRO FORMA PRO FORMA
COMBINED HISTORICAL COMBINED HISTORICAL
INFORMATION --------------------------- INFORMATION -----------------------
1997 1997 1996 1995 1998 1998 1997
----------- -------- -------- ------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................. $48,229 $ 48,229 $ 50,418 $46,831 $ 35,809 $ 35,809 $ 36,321
Operating expenses:
Service and
administrative......... 26,302 27,391 25,236 21,920 20,716 21,663 20,065
Severance and
transaction structure
costs.................. -- -- -- -- -- 4,822 --
Management fee.......... -- -- -- -- 142 142 --
Home office............. 1,498 1,498 1,697 1,695 1,131 1,131 1,312
Depreciation and
amortization........... 5,299 5,256 5,350 4,837 3,852 3,825 4,157
------- -------- -------- ------- ---------- ---------- -----------
Total operating
expenses............... 33,099 34,145 32,283 28,452 25,841 31,583 25,534
Operating income......... 15,130 14,084 18,135 18,379 9,968 4,226 10,787
Interest expense, net... 15,919 1,230 426 1,033 12,967 1,067 1,039
Other expense........... 360 271 248 251 496 433 188
------- -------- -------- ------- ---------- ---------- -----------
Net income (loss) before
extraordinary item...... (1,149) 12,583 17,461 17,095 (3,495) 2,726 9,560
Extraordinary item--debt
retirement............. -- -- -- -- -- (847) --
------- -------- -------- ------- ---------- ---------- -----------
Net income (loss)........ $(1,149) $ 12,583 $ 17,461 $17,095 $ (3,495) $ 1,879 $ 9,560
======= ======== ======== ======= ========== ========== ===========
FINANCIAL RATIOS AND
OTHER DATA:
System Cash Flow(1)...... $21,927 $ 20,838 $ 25,182 $24,911 $ 15,093 $ 14,146 $ 16,256
System Cash Flow margin.. 45.5% 43.2% 49.9% 53.2% 42.1% 39.5% 44.7%
Annualized System Cash
Flow(2)................. 21,152 20,052 20,040
Operating Cash Flow(3)... 20,429 19,340 23,485 23,216 13,820 12,873 14,944
Adjusted Operating Cash
Flow(4)................. 20,429 19,340 23,485 23,216 14,800 13,853 14,944
Adjusted Operating Cash
Flow margin............. 42.4% 40.1% 46.6% 49.6% 41.3% 38.7% 41.1%
Annualized Adjusted
Operating Cash
Flow(2)(4).............. 20,138(14) 18,868 17,604
Capital expenditures..... 5,570 5,570 5,998 5,724 4,214 4,214 3,520
Ratio of Adjusted Operating Cash Flow
to interest expense............................................ 1.1x
Ratio of total debt of Coaxial LLC and
Phoenix to Annualized Adjusted Operating
Cash Flow...................................................... 8.4x
Ratio of earnings to
fixed charges(5)........ -- (16) 3.1x 4.0x 4.1x -- (16) 1.6x 3.2x
Net cash provided by
(used in) operating
activities.............. 18,622 18,622 24,369 21,895 7,704 7,704 13,678
Net cash provided by
(used in) investing
activities.............. (15,242) (15,242) (19,551) (19,914) (4,214) (4,214) (13,667)
Net cash provided by
(used in) financing
activities.............. (3,712) (3,712) (4,582) (1,623) 784 784 224
OPERATING DATA:
(AT END OF PERIOD, EXCEPT
AVERAGE AND ANNUALIZED
DATA)
Homes passed(6).......... 166,306 166,306 161,018 156,613 170,003 170,003 164,690
Basic subscribers(7)..... 91,873 91,873 88,056 86,041 90,314 90,314 89,499
Basic penetration(8)..... 55.2% 55.2% 54.7% 54.9% 53.1% 53.1% 54.3%
Premium service
units(9)................ 80,013 80,013 68,720 74,087 82,624 82,624 76,682
Premium penetration(10).. 87.1% 87.1% 78.0% 86.1% 91.5% 91.5% 85.7%
Average monthly revenue
per basic
subscriber(11).......... $ 44.67 $ 44.67 $ 48.27 $ 46.40 $ 43.68 $ 43.68 $ 45.46
Annualized System Cash
Flow per basic
subscriber(12).......... $243.73 $ 231.62 $ 289.28 $296.20 $ 232.20 $ 220.12 $ 225.73
Annualized Adjusted
Operating Cash Flow per
basic subscriber(13).... $227.08 $ 214.97 $ 269.79 $276.04 $ 221.07 $ 207.13 $ 198.29
BALANCE SHEET DATA:
(AT END OF PERIOD)
Total assets............. $110,829 $102,099 $87,946 $ 51,104 $ 111,111
Total debt............... 47,236 50,442 40,375 65,135 51,461
Total liabilities........ 56,502 59,767 50,927 75,890 59,807
Total shareholders' and
partners' equity
(deficit)............... 54,327 42,332 37,019 (24,786) 51,304
</TABLE>
(footnotes to follow)
16
<PAGE>
PHOENIX ASSOCIATES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
HISTORICAL HISTORICAL
------------------------------- -------------------
1997 1996 1995 1998 1997
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Interest expense, net... 12,094 $ 12,490 $ 12,362 $ 9,604 $ 8,911
Other expense........... 89 106 120 63 71
--------- --------- --------- --------- --------
Net loss before
extraordinary item...... (12,183) (12,596) (12,482) (9,667) (8,982)
Extraordinary item--gain
on settlement of former
limited partner notes... 3,315 -- -- 100 --
--------- --------- --------- --------- --------
Net loss................. $ (8,868) $ (12,596) $ (12,482) $ (9,567) $ (8,982)
========= ========= ========= ========= ========
FINANCIAL RATIOS AND
OTHER DATA:
Ratio of earnings to
fixed charges(5)....... -- -- -- -- --
BALANCE SHEET DATA: (AT
END OF PERIOD)
Total assets............. $ 7,954 $ 9,218 $ 8,592 $ 4,378 $ 9,482
Total debt............... 178,365 170,762 157,448 105,565 80,008
Total liabilities........ 178,366 170,762 157,540 106,767 80,008
Total partners' deficit.. (170,412) (161,544) (148,948) (102,389) (70,526)
</TABLE>
(footnotes to follow)
17
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
(DOLLARS IN THOUSANDS, EXCEPT SUBSCRIBER DATA)
<TABLE>
<CAPTION>
FOR THE PERIOD NINE MONTHS
YEAR ENDED JANUARY 1, 1998 ENDED
DECEMBER 31, TO AUGUST 21, SEPTEMBER 30,
----------------------------- --------------- -------------
HISTORICAL HISTORICAL
----------------------------- ------------------------------
1997 1996 1995 1998 1997
--------- -------- -------- --------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 48,229 $ 50,418 $ 46,831 $30,584 $ 36,321
Operating expenses:
Service and
administrative........ 27,391 25,236 21,920 19,050 20,065
Severance and
transaction structure
costs................. -- -- -- 4,822 --
Home office............ 1,498 1,697 1,695 1,131 1,312
Depreciation and
amortization.......... 5,238 5,334 4,823 3,412 4,146
--------- -------- -------- ------- --------
Total operating
expenses.............. 34,127 32,267 28,438 28,415 25,523
Operating income........ 14,102 18,151 18,393 2,169 10,798
Interest (income)
expense, net.......... (70) (29) (38) (22) (52)
Other expense.......... 271 248 251 433 188
--------- -------- -------- ------- --------
Net income.............. $ 13,901 $ 17,932 $ 18,180 $ 1,758 $ 10,662
========= ======== ======== ======= ========
FINANCIAL RATIOS AND
OTHER DATA:
System Cash Flow (1).... $ 20,838 $ 25,182 $ 24,911 $11,534 $ 16,256
System Cash Flow
margin................. 43.2% 49.9% 53.2% 37.7% 44.8%
Annualized System Cash
Flow (2)............... 18,045 (18) 20,040
Operating Cash
Flow (3)............... 19,340 23,485 23,216 10,403 14,944
Adjusted Operating Cash
Flow (4)............... 19,340 23,485 23,216 11,383 14,944
Adjusted Operating Cash
Flow margin............ 40.1% 46.6% 49.6% 37.2% 41.1%
Annualized Adjusted
Operating Cash
Flow (2)(4)............ 18,789 (18) 17,604
Capital expenditures.... 5,529 5,992 5,702 3,803 3,479
Net cash provided by
(used in) operating
activities............. 19,454 21,975 22,192 6,441 14,209
Net cash provided by
(used in) investing
activities............. (5,554) (5,711) (5,955) (3,730) (3,526)
Net cash provided by
(used in) financing
activities............. (14,232) (16,028) (15,879) (3,285) (10,448)
OPERATING DATA:
(AT END OF PERIOD,
EXCEPT AVERAGES)
Homes passed (6)........ 166,306 161,018 156,613 169,452 164,690
Basic subscribers (7)... 91,873 88,056 86,041 90,896 89,499
Basic penetration (8)... 55.2% 54.7% 54.9% 53.6% 54.3%
Premium service
units (9).............. 80,013 68,720 74,087 84,832 76,682
Premium
penetration (10)....... 87.1% 78.0% 86.1% 93.3% 85.7%
Average monthly revenue
per basic
subscriber (11)........ $ 44.67 $ 48.27 $ 46.40 $ 43.63 (18) $ 45.46
Annualized System Cash
Flow per basic
subscriber (12)........ $ 231.62 $ 289.28 $ 296.18 $197.46 $ 225.73
Annualized Adjusted
Operating Cash Flow per
basic subscriber (13).. $ 214.97 $ 269.79 $ 276.04 $205.60 $ 198.29
BALANCE SHEET DATA: (AT
END OF PERIOD)
Total assets............ $ 33,553 $ 34,062 $ 33,226 $ -- (17) $ 33,292
Total debt.............. 407 615 651 -- (17) 476
Total liabilities....... 7,982 8,425 9,728 -- (17) 7,245
Net assets to be
contributed............ 25,571 25,637 23,499 -- (17) 26,047
</TABLE>
(footnotes on following page)
18
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
(DOLLARS IN THOUSAND, EXCEPT SUBSCRIBER DATA)
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 21, -
SEPTEMBER 30,
--------------
HISTORICAL
--------------
1998
--------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................................... $ 5,225
Operating expenses:
Service and administrative................................... 2,613
Management fee............................................... 142
Depreciation and amortization................................ 413
---------
Total operating expenses................................... $ 3,168
Operating income............................................... 2,057
Interest expense, net........................................ 5
---------
Net Income..................................................... 2,052
Accrual of Preferred Interests................................. 2,034
---------
Income on common............................................... $ 18
=========
FINANCIAL RATIOS AND OTHER DATA:
System Cash Flow(1)............................................ $ 2,612
System Cash Flow margin........................................ 50.0%
Operating Cash Flow(3)......................................... 2,470
Adjusted Operating Cash Flow(4)................................ 2,470
Adjusted Operating Cash Flow margin............................ 47.3%
Capital expenditures........................................... 472
Net cash provided by (used in) operating activities............ 3,095
Net cash provided by (used in) investing activities............ (472)
Net cash provided by (used in) financing activities............ 2,225
OPERATING DATA:
(AT END OF PERIOD, EXCEPT AVERAGE AND ANNUALIZED DATA)
Homes passed(6)................................................ 170,003
Basic subscribers(7)........................................... 90,314
Basic penetration(8)........................................... 53.1%
Premium service units(9)....................................... 82,264
Premium penetration(10)........................................ 91.5%
Average monthly revenue per basic subscriber(11)............... $ 43.35(19)
BALANCE SHEET DATA:
(AT END OF PERIOD)
Total assets................................................... $ 39,056
Total debt..................................................... 259
Total liabilities and Preferred Interests...................... 182,660
Total members' deficit......................................... (143,604)
</TABLE>
19
<PAGE>
NOTES TO SUMMARY HISTORICAL AND COMBINED PRO FORMA
FINANCIAL AND OPERATING DATA
(1) Represents Operating Cash Flow (as defined below in Note 3) plus home
office expense for periods prior to the acquisition by Insight Ohio of the
System (the "System Acquisition"), and Operating Cash Flow plus management
fees for periods after or which give effect to the System Acquisition.
Management believes that System Cash Flow is a meaningful measure
of performance because it is commonly used in the cable television
industry to analyze and compare cable television companies on the basis of
operating performance, leverage and liquidity. However, System Cash Flow
is not intended to be a performance measure that should be regarded as an
alternative to, or more meaningful than, either operating income or net
income as an indicator of operating performance or cash flows as a measure
of liquidity, as determined in accordance with generally accepted
accounting principles. System Cash Flow, as computed by management, is not
necessarily comparable to similarly titled amounts of other companies. See
the financial statements, including the Statements of Cash Flows, included
elsewhere in this Prospectus.
(2) Represents results for the three months ended September 30 multiplied by
four.
(3) Represents net income before depreciation, amortization, severance and
transaction structure costs, interest expense, other expenses and extraor-
dinary item. Management believes that Operating Cash Flow is a meaningful
measure of performance because it is commonly used in the cable television
industry to analyze and compare cable television companies on the basis of
operating performance, leverage and liquidity. However, Operating Cash
Flow is not intended to be a performance measure that should be regarded
as an alternative to, or more meaningful than, either operating income or
net income as an indicator of operating performance or cash flows as a
measure of liquidity, as determined in accordance with generally accepted
accounting principles. Operating Cash Flow, as computed by management, is
not necessarily comparable to similarly titled amounts of other companies.
See the financial statements, including the Statements of Cash Flows, in-
cluded elsewhere in this Prospectus.
(4) Represents Operating Cash Flow plus launch fees, which are deferred and
amortized over the applicable contract period for financial reporting pur-
poses. Adjusted Operating Cash Flow for the nine months ended September
30, 1998 and Annualized Adjusted Operating Cash Flow includes approxi-
mately $980,000 of launch fees.
(5) For purposes of calculating the ratio of earnings to fixed charges, earn-
ings are defined as income (loss) before taxes, extraordinary items and
fixed charges. Fixed charges consist of interest expense incurred (includ-
ing amortization of debt issuance costs) and the estimated interest compo-
nent of rent expense (approximately one-third). For Coaxial LLC, earnings
were inadequate to cover fixed charges by $2.6 million for the nine months
ended September 30, 1998. For Phoenix, earnings were inadequate to cover
fixed charges by $12.4 million, $12.5 million and $12.2 million for the
years ended December 31, 1995, 1996 and 1997, respectively, and by $8.9
million and $9.6 million for the nine months ended September 30, 1997 and
1998, respectively.
(6) Refers to estimates by management of the approximate number of dwelling
units in a particular community that can be connected to the System.
20
<PAGE>
(7) A home with one or more television sets connected to a cable system is
counted as one basic subscriber. Bulk accounts are included on an equiva-
lent basic unit basis in which the total monthly bill for the account is
divided by the basic monthly charge for a single outlet in the area.
(8) Calculated as basic subscribers as a percentage of homes passed.
(9) Includes only single channel services offered for a monthly fee per chan-
nel and does not include tiers of channels offered as a package for a sin-
gle monthly fee. A subscriber may purchase more than one premium service,
each of which is counted as a separate premium service unit.
(10) Calculated as premium service units as a percentage of basic subscribers.
(11) Represents revenues of the System during the respective period divided by
the months in the period divided by the average number of basic subscrib-
ers (beginning of period plus end of period divided by two) for such re-
spective period.
(12) Represents Annualized System Cash Flow during the respective period di-
vided by the average number of basic subscribers (beginning of period plus
end of period divided by two) for such respective period.
(13) Represents Annualized Adjusted Operating Cash Flow during the respective
period divided by the average number of basic subscribers (beginning of
period plus end of period divided by two) for such respective period.
(14) Management believes that the following adjustments to historical
annualized Operating Cash Flow for the three months ended September 30,
1998 are relevant to evaluating the operating performance of the System.
These annualized pro forma adjustments reflect: (i) headcount reductions
primarily due to duplication within the finance and accounting depart-
ments; and (ii) elimination of rent expense due to the contribution of an
office building to the System as part of the Contribution Agreement. Man-
agement believes these adjustments to be reasonable. In addition,
annualized pro forma adjusted Operating Cash Flow reflects a supplemental
adjustment for launch fees for Fox News, Great American Country and the
Ohio News Network. The System has received launch fees in the past, and
management believes it will continue to receive launch fees in the normal
course of business. It should be noted that data included in this Note
(14) is not computed or determined in accordance with GAAP and should not
be considered an alternative to operating income, net income or cash flows
which have been determined in accordance with GAAP.
21
<PAGE>
The following table reflects the effects of these items on historical
annualized Operating Cash Flow:
<TABLE>
<S> <C>
Historical annualized Operating Cash Flow*......................... $17,888
Annualized pro forma adjustments:
Headcount reductions.............................................. 1,162
Elimination of rent expense of contributed property............... 108
-------
Annualized pro forma Operating Cash Flow........................... 19,158
Launch fees for Fox News, Great American Country and the Ohio News
Network.......................................................... 980
-------
Annualized pro forma adjusted Operating Cash Flow.................. $20,138
=======
</TABLE>
- --------
* Represents Operating Cash Flow for the three months ended September 30, 1998
multiplied by four.
(15) Represents Adjusted Operating Cash Flow to interest expense on the total
debt of Coaxial LLC and Phoenix.
(16) Represents pro forma ratio of earnings to fixed charges for Coaxial LLC
and Phoenix. Earnings were inadequate to cover fixed charges by $1.1 mil-
lion for the year ended December 31, 1997 and $3.4 million for the period
ended September 30, 1998.
(17) On August 21, 1998, the net assets of Central Ohio Cable System Operating
Unit were contributed to Insight Ohio.
(18) Calculation adjusted to reflect the period January 1, 1998 through August
21, 1998 being 7.67 months.
(19) Calculation adjusted to reflect the period August 21, 1998 through Septem-
ber 30, 1998 being 1.33 months.
22
<PAGE>
RISK FACTORS
An investment in the registered notes to be issued pursuant to this
Prospectus (the "Exchange Notes") is subject to a number of risks. You should
carefully consider the following factors, as well as the more detailed
descriptions cross-referenced to the body of this Prospectus and the other
matters described in this Prospectus, in evaluating Coaxial LLC, Coaxial
Financing Corp. (together, the "Issuers"), Insight Ohio, the Exchange Notes,
the System and the cable television industry. The term "Note" or "Notes" means
the outstanding 12 7/8% Senior Discount Notes due 2008 (the "Original Notes")
and the Exchange Notes. Unless otherwise indicated, the term "Management"
includes the management of IHO and those members of Coaxial management who have
remained with the System since its acquisition by Insight Ohio.
ORIGINAL ISSUE DISCOUNT
The Exchange Notes will be considered to be issued with original issue dis-
count. Holders of the Exchange Notes will be required to include the accretion
of the original issue discount in gross income for U.S. federal income tax pur-
poses in advance of receipt of the cash payments to which such income is at-
tributable. See "Certain U.S. Federal Income Tax Considerations--Investments in
Exchange Notes by U.S. Holders--Original Issue Discount" for a more detailed
discussion of certain U.S. federal income tax consequences of the purchase,
ownership and disposition of the Exchange Notes. If a bankruptcy case is com-
menced by or against Insight Ohio under the United States Bankruptcy Code after
the issuance of the Exchange Notes, the claim of a holder of Exchange Notes
with respect to the principal amount thereof may be limited to an amount equal
to the sum of (i) the purchase price, and (ii) that portion of the original is-
sue discount which has been amortized as of any such bankruptcy filing.
HIGHLY LEVERAGED CAPITAL STRUCTURE
The Issuers' ability to make scheduled payments with respect to the Notes
will depend on the financial and operating performance of Insight Ohio. As of
September 30, 1998, Insight Ohio had outstanding redeemable Series A Preferred
Interests and Series B Preferred Interests (together the "Preferred Interests")
with an aggregate liquidation preference of $170.0 million. The Indenture and
the indenture under which the Senior Notes have been, and the new Senior Notes
are being, issued (the "Senior Notes Indenture") permit Insight Ohio and its
subsidiaries to incur or guarantee additional indebtedness, subject to certain
limitations. In addition, Insight Ohio has borrowing capacity on a revolving
credit basis under the Senior Credit Facility. See "Description of Certain In-
debtedness--Senior Credit Facility." Insight Ohio is subject to prevailing eco-
nomic and competitive conditions and to certain financial, business and other
factors beyond its control, including interest rates, increased operating costs
and regulatory developments. There can be no assurance that Insight Ohio will
maintain a level of cash flow from operations necessary to pay the required
distributions on the Preferred Interests and sufficient to permit the Issuers
to pay the principal, premium, if any, and interest on the Notes.
Insight Ohio's high degree of debt service and preferred distribution re-
quirements could have important consequences to the holders of the Notes, in-
cluding, but not limited to, the following:
. Insight Ohio's ability to obtain additional financing for working capi-
tal, capital expenditures, acquisitions, debt service and preferred dis-
tribution requirements, general corporate purposes and other purposes may
be impaired in the future;
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. a substantial portion of Insight Ohio's cash flow from operations is re-
quired to be dedicated to the payment of principal and interest on its
indebtedness and the required distributions with respect to the Preferred
Interests, thereby reducing the funds available to Insight Ohio for other
purposes, including its operations and future business opportunities;
. the indebtedness outstanding under the Senior Credit Facility is secured
by substantially all of the assets of Insight Ohio and will mature prior
to the maturity of the Notes; and
. Insight Ohio's leveraged position and the covenants contained in its debt
instruments could limit its flexibility to adjust to changing market con-
ditions and ability to withstand competitive pressures, and Insight Ohio
may be more vulnerable to a downturn in general economic conditions or in
its business or be unable to carry out capital spending that is important
to its growth and productivity improvement programs.
If Insight Ohio's cash flow and capital resources are insufficient to fund
debt service and preferred distribution obligations, Insight Ohio and the Is-
suers may be forced to reduce or delay capital expenditures, sell assets or
seek to obtain additional equity capital or restructure or refinance debt (in-
cluding the Notes). There can be no assurance that such alternative measures
would be successful or would permit Insight Ohio and the Issuers to meet their
scheduled debt service and preferred distribution obligations. In the absence
of such operating results and resources, Insight Ohio could face substantial
liquidity problems and might be required to dispose of material assets or oper-
ations to meet debt service and preferred distribution and other obligations.
Insight Ohio's Operating Agreement, the Indenture, the Senior Notes Indenture
and the Senior Credit Facility restrict the Issuers' and Insight Ohio's ability
to sell assets and use the proceeds therefrom. There can be no assurance as to
the ability of the Issuers or Insight Ohio to consummate such sales or that the
proceeds which they could realize therefrom would be adequate to meet the obli-
gations then due.
INSUFFICIENCY OF EARNINGS TO COVER FIXED CHARGES
On a pro forma basis after giving effect to the Financing Plan, the combined
earnings of the Issuers, Coaxial, Phoenix and Insight Ohio would have been in-
sufficient to cover their combined fixed charges for the year ended December
31, 1997 by approximately $1.1 million and for the nine months ended September
30, 1998 by approximately $3.4 million. The ability of the Issuers to meet
their debt service obligations under the Notes will depend upon the future per-
formance of Insight Ohio and its ability to make the required distributions on
the Preferred Interests which, in turn, is subject to general economic condi-
tions and to financial, competitive, regulatory and other factors, many of
which are beyond its control. Management believes that Insight Ohio will con-
tinue to generate cash and obtain financing sufficient to meet such require-
ments in the future; however, there can be no assurance that the Issuers or In-
sight Ohio will be able to meet their debt service, preferred distribution and
other obligations. If the Issuers and Insight Ohio were unable to do so, they
would have to pursue one or more alternatives, such as refinancing their in-
debtedness or obtaining new financing, reducing or delaying capital expendi-
tures, selling assets of Insight Ohio or raising equity capital financing.
There can be no assurance that the Issuers or Insight Ohio would be able to re-
finance or obtain such new financing in the future or that, if the Issuers or
Insight Ohio were able to do so, the terms available would be favorable to the
Issuers or Insight Ohio. See "Selected Historical and Combined Pro Forma Finan-
cial and Operating Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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CONDITIONAL GUARANTEES; STRUCTURAL SUBORDINATION
The Issuers have no significant assets available to the holders of the Notes
other than Coaxial LLC's common equity of Coaxial and the LLC Mirror Notes. The
Issuers' ability to make interest and principal payments when due to holders of
the Notes is dependent upon Coaxial's receipt of sufficient funds from Insight
Ohio with respect to the Series B Preferred Interests. Under the terms of the
Senior Credit Facility, upon the occurrence of an event of default or if cer-
tain financial performance tests or other conditions are not met, Insight Ohio
will be restricted from making distributions on the Preferred Interests. There
can be no assurance that Insight Ohio will be able to satisfy the financial
tests and the related conditions set forth in the Senior Credit Facility to
make such distributions, or that Insight Ohio will not be in default of its fi-
nancial covenants or otherwise under the Senior Credit Facility which could
prevent the Issuers from making any payments in respect of the Notes. In addi-
tion, because the Guarantors only conditionally guarantee the payment of prin-
cipal of and interest on the Notes (the "Guarantees"), the claims of holders of
the Notes effectively will be, for the most part, subordinated to all existing
and future claims of the creditors of the Guarantors, including the lenders un-
der the Senior Credit Facility and the Guarantors' trade creditors, until all
conditions to which the Guarantees are subject have been satisfied. The ability
of the holders of the Notes to realize upon any of Insight Ohio's (or any other
Guarantor's) assets upon its liquidation or reorganization will be subject to
the prior claims of Insight Ohio's (or any other Guarantor's) creditors includ-
ing the lenders under the Senior Credit Facility until the effectiveness of the
Guarantees, which will only be effective to the extent and at the time the
holders of the Notes are unable to realize proceeds from the enforcement of the
mandatory redemption provisions of the Series B Preferred Interests. The hold-
ers of the Notes will be required to prosecute a claim until adjudication
against Insight Ohio for failure to redeem the Series B Preferred Interests be-
fore it can be determined that such a failure to realize proceeds has occurred.
This process may entail protracted and time consuming litigation. In addition,
the indebtedness outstanding from time to time under the Senior Credit Facility
is secured by substantially all of the assets of Insight Ohio and any of its
future subsidiaries, and the lenders thereunder will have a claim on such as-
sets prior to the claims of holders of the Notes. See "--Certain Bankruptcy
Considerations" below, "Management's Discussion and Analysis of Financial Con-
dition and Results of Operations--Liquidity and Capital Resources," "Descrip-
tion of Certain Indebtedness" and "Description of the Notes."
NON-RECOURSE DEBT; ABILITY TO REALIZE ON COLLATERAL
The Notes are non-recourse obligations of the Issuers. The Notes are secured
only by a first priority pledge of the common equity of Coaxial owned by Coax-
ial LLC and the LLC Mirror Notes, which are secured by a pledge (which is as-
signed to the trustees of the Notes) of the common equity of Coaxial owned by
Coaxial DJM LLC and Coaxial DSM LLC (together, the "Discount Notes Collater-
al"). As non-recourse obligations, the only remedy available to holders will be
to enforce their rights under the Pledge Agreement in respect of the Discount
Notes Collateral. Any remedy will be limited to the value of the Discount Notes
Collateral and holders will have no claim against the Issuers for any differ-
ences between the amounts due under the Notes and amounts recovered in respect
of the Discount Notes Collateral. Coaxial will hold all of the issued and out-
standing Preferred Interests and a 25% common membership interest in Insight
Ohio. The Preferred Interests will become non-voting upon the enforcement of
remedies under the Pledge Agreement and will become mandatorily redeemable upon
the acceleration of the Notes and the Senior Notes, the enforcement of remedies
under the Pledge Agreement and the passage of ten days. The Series A Preferred
Interests will have a priority over the Series B Preferred Interests with re-
spect to any redemption. If an event of default occurs with respect to the
Notes, there can be no assurance that the liquidation of the Discount Notes
Collateral will produce proceeds in an amount sufficient to pay the principal
of or
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accrued and unpaid interest, if any, on the Notes. IHO, the manager of Insight
Ohio, will have discretion in certain circumstances in accordance with Insight
Ohio's Operating Agreement to make payments under the Preferred Interests. See
"--Certain Bankruptcy Considerations."
SUBORDINATION OF GUARANTEES
Payments on the Guarantees by the Guarantors will be subordinated, as set
forth in the Indenture, in right of payment to the prior payment in full of all
obligations under the Senior Notes guarantees (as defined in the Senior Notes
Indenture).
Upon any distribution to holders of the Notes in a liquidation or dissolution
of the Issuers or in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Issuers or their property, an assignment for
the benefit of creditors or any marshalling of the Issuers' assets and liabili-
ties, the holders of the Senior Notes will be entitled to receive payment in
full of all obligations guaranteed by Insight Ohio and any future guarantor due
in respect of the Senior Notes (including interest after the commencement of
any such proceeding at the rate specified in the Senior Notes Indenture) pursu-
ant to the Senior Notes guarantees before the holders of Notes will be entitled
to receive any payment with respect to the Notes pursuant to the Guarantees,
and until all obligations guaranteed by Insight Ohio and any future guarantor
with respect to the Senior Notes guarantees are paid in full, any distribution
by Insight Ohio and any future guarantor to which the holders of Notes would be
entitled pursuant to the Guarantees shall be made to the holders of Senior
Notes (except that holders of Notes may receive payments made from the trust
described under "Description of Notes--Defeasance and Covenant Defeasance") if
a default in the payment of the principal of or premium, if any, or interest on
the Senior Notes occurs and is continuing beyond any applicable period of
grace.
Because of the subordination provision of the Guarantees, holders of the
Notes may recover less, ratably, than holders of the Senior Notes. See "De-
scription of the Notes--Subordination of Guarantees."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture and the Senior Notes Indenture with respect to the Issuers and
their subsidiaries (including Insight Ohio) and the Senior Credit Facility with
respect to Insight Ohio impose (i) restrictions, that, among other things,
limit the amount of additional indebtedness that may be incurred and (ii) limi-
tations on, among other things, investments, loans and other payments, certain
transactions with affiliates and certain mergers and acquisitions. The Senior
Credit Facility also restricts the ability of Insight Ohio and its subsidiaries
to pay dividends or make capital contributions, including distributions on the
Preferred Interests that are required to pay the Notes and Senior Notes in the
event of a payment default under the Senior Credit Facility, and requires In-
sight Ohio to maintain specified financial ratios and meet certain financial
tests. The ability of Insight Ohio to comply with such covenants and restric-
tions can be affected by events beyond its control, and there can be no assur-
ance that Insight Ohio will achieve operating results that would permit compli-
ance with such provisions. The breach of certain provisions of the Senior
Credit Facility would, under certain circumstances, result in defaults thereun-
der, permitting the lenders thereunder to prevent distributions with respect to
the Preferred Interests and to accelerate the indebtedness thereunder. If In-
sight Ohio were unable to repay the amounts due in respect of the Senior Credit
Facility, the lenders thereunder could foreclose upon the assets pledged to se-
cure such repayment. Any of such events would adversely affect the Issuers'
ability to service the Notes or comply with the redemption provisions of the
Series B Preferred Interests.
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CERTAIN BANKRUPTCY CONSIDERATIONS
Creditors' Rights
The right of the trustee, which holds the Discount Notes Collateral on behalf
of the holders of the Notes, to repossess and dispose of the collateral upon
the occurrence of an event of default under the Indenture is likely to be sig-
nificantly impaired by applicable bankruptcy law if a bankruptcy case were to
be commenced by or against the Issuers, whether by a holder of the Notes or an-
other creditor, prior to such repossession and disposition. Under applicable
bankruptcy law, secured creditors, such as the holders of the Notes, are auto-
matically stayed from repossessing their security from a debtor in a bankruptcy
case, or from disposing of collateral in their possession, without bankruptcy
court approval. Moreover, applicable bankruptcy law permits the debtor to con-
tinue to retain and use the collateral even though the debtor is in default un-
der the applicable debt instruments, provided that the secured creditor is
given "adequate protection." The meaning of the term "adequate protection" may
vary according to circumstances, but it is intended in general to protect the
secured creditor from diminution in the value of the collateral as a result of
the stay of repossession or disposition or any use of the collateral by the
debtor during the pendency of the bankruptcy case. "Adequate protection" may
include cash payments or the granting of additional security at such time and
in such amount as the court may determine. In view of the lack of a precise
definition of the term "adequate protection," the broad discretionary powers of
a bankruptcy court and the possible complexity of valuation issues, it is im-
possible to predict how long payments under the Notes could be delayed follow-
ing commencement of a bankruptcy case, whether or when the trustee could repos-
sess or dispose of the collateral or whether or to what extent the holders of
the Notes would be compensated for any delay in payment of loss of value of the
collateral through the requirement for "adequate protection."
Limited Liability Companies
Coaxial LLC, the other Individual LLCs and Insight Ohio are limited liability
companies organized under the laws of the State of Delaware. Limited liability
companies ("LLCs") are relatively recent creations not only under the laws of
the State of Delaware but also under the laws of other jurisdictions. Generally
stated, LLCs are intended to provide both the limited liability of the corpo-
rate form for their members and certain advantages of partnerships, including
"pass-through" income tax treatment for members, and thus have attributes of
both corporations and partnerships. Given their recent creation, LLCs and their
members have been involved in relatively few bankruptcy cases as debtors, and
there has been little reported judicial authority addressing bankruptcy issues
as they pertain to LLCs. Moreover, the existing judicial authority on such is-
sues in bankruptcies of analogous entities (e.g., partnerships) is not well
settled. Consequently, a bankruptcy of any LLC, their members or any of their
affiliates or a claim with respect to the collateral may be litigated and de-
cided in the absence of dispositive judicial precedent, and thus, no assurance
can be made as to any particular outcome including with respect to the contrac-
tual claims associated with enforcing rights as a holder of the Preferred In-
terests after foreclosing on the collateral.
FRAUDULENT CONVEYANCE
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the Notes in
favor of other existing or future creditors of the Issuers. If a court in a
lawsuit on behalf of any unpaid creditor of the Issuers or a representative of
the Issuers' creditors were to find that, at the time the Issuers issued the
Notes, the Issuers (x)
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intended to hinder, delay or defraud any existing or future creditor or contem-
plated insolvency with a design to prefer one or more creditors to the exclu-
sion in whole or in part of others or (y) did not receive fair consideration or
reasonably equivalent value for issuing the Notes and the Issuers (i) were in-
solvent, (ii) were rendered insolvent by reason of such issuance, (iii) were
engaged or about to engage in a business or transaction for which their remain-
ing assets constituted unreasonably small capital to carry on their business or
(iv) intended to incur, or believed that they would incur, debts beyond their
ability to pay such debts as they matured, such court could void the Issuers'
obligations under the Notes and void such transactions. Alternatively, in such
event, claims of the holders of the Notes could be subordinated to claims of
the other creditors of the Issuers. Based upon financial and other information
currently available to them, the Issuers believe that the Notes are being in-
curred for proper purposes and in good faith and that the Issuers are solvent
and will continue to be solvent after issuing the Notes, will have sufficient
capital for carrying on their business after such issuance and will be able to
pay their debts as they mature.
In addition, the Guarantees may be subject to review under relevant federal
and state fraudulent conveyance and similar statutes in a bankruptcy or reorga-
nization case or a lawsuit by or on behalf of creditors of any of the Guaran-
tors. In such a case, the analysis set forth above generally would apply. A
court could avoid a Guarantor's obligation under its Guarantee, subordinate the
Guarantee to other indebtedness of such Guarantor or take other action detri-
mental to the holders of the Notes.
SIGNIFICANT CAPITAL EXPENDITURES
Consistent with its business strategy, Management expects to make capital ex-
penditures to upgrade the System over the next several years. Insight Ohio's
potential inability to fund these capital expenditures could adversely affect
its ability to upgrade the System which could have a material adverse effect on
its operations and competitive position. See "Business" and "Management's Dis-
cussion and Analysis of Financial Condition and Results of Operations--Liquid-
ity and Capital Resources."
SIGNIFICANT COMPETITION IN THE CABLE TELEVISION INDUSTRY; OVERBUILDS
Cable television systems face competition from alternative methods of receiv-
ing and distributing television signals and from other sources of news, infor-
mation and entertainment, such as off-air television broadcast programming,
newspapers, movie theaters, live sporting events, online computer services and
home video products, including videotape cassette recorders. Because Insight
Ohio's franchises are generally non-exclusive, there is the potential for com-
petition with its systems from others (such as the situation with Ameritech de-
scribed below) including systems operated by local governmental authorities.
Other distribution systems capable of delivering programming to homes or busi-
nesses, including satellite master antenna television service ("SMATV"), direct
broadcast satellite ("DBS") systems and multichannel, multipoint distribution
service ("MMDS") systems now compete with the System. In recent years, there
has been significant national growth in the number of subscribers to DBS serv-
ices and such growth is expected to continue. See "Business--Competition." The
number of choices available to the System's subscribers as a result of other
distribution systems may lead to a reduction in its market share. There can be
no assurance that the System will be able to obtain or maintain subscribers.
Additionally, recent changes in federal law and recent administrative and ju-
dicial decisions have removed certain of the restrictions that have limited en-
try into the cable television business by poten-
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tial competitors such as telephone companies, registered utility holding compa-
nies and their subsidiaries. Such developments will enable local telephone com-
panies to provide a wide variety of video services in the telephone company's
own service area which will be directly competitive with services provided by
cable television systems. Other new technologies, including Internet-based
services, may also become competitive with services that cable television oper-
ators can offer.
In 1996, Ameritech, the telephone local exchange carrier for Columbus, ob-
tained a citywide cable television franchise for the City of Columbus.
Ameritech began offering cable television service in June 1996 and to date has
substantially built its entire citywide franchise, both in the System's service
area and in the Time Warner service area on the west side of Columbus. The Time
Warner system and the System service virtually distinct areas and therefore do
not compete with each other. The overbuild (as defined in the "Glossary") by
Ameritech passes approximately 71% of the homes passed by the System (approxi-
mately 121,500 homes), effectively allowing approximately 58,000 of the Sys-
tem's basic subscribers to choose between Ameritech and the System. Ameritech
has cable television franchise applications pending in two surrounding communi-
ties covering an additional 2,000 of the System's homes and 1,200 of the Sys-
tem's subscribers. See "Business--Overbuild."
The System competes for advertising revenue with other television programming
services described above, as well as with other national and international ca-
ble television programming services, superstations, broadcast television net-
works, local over-the-air television stations, radio and print media, in addi-
tion to alternative delivery services that now exist or are expected to develop
in the future. More generally, the System competes with various other leisure-
time activities such as home videos, movie theaters, personal computers and
other alternative sources of entertainment and information. See "Business--Com-
petition."
Many of the System's potential competitors have substantially greater re-
sources and Management cannot predict the extent to which competition will ma-
terialize in its franchise areas from other cable television operators, other
distribution systems for delivering video programming and other broadband tele-
communications services to the home, or from other potential competitors, or,
if such competition materializes, the extent of its effect on the System. See
"Business--Competition" and "Legislation and Regulation."
RISKS RELATING TO BUSINESS STRATEGY
Management plans to upgrade selectively the System to enhance the potential
for increasing revenues through the introduction of new technologies and serv-
ices, such as cable Internet access and high-speed data transmission. See
"Business--Insight's System Operating Strategy." While Management is optimistic
about the prospects for these new lines of business, there can be no assurance
that it will be able to enter them successfully or to generate additional cash
flow. Moreover, many of these new lines of business are likely to have signifi-
cant competition from businesses that may have substantial financial resources
and market presence such as local telephone companies, long distance
interexchange carriers and traditional online Internet service providers.
Historically, an element of Insight's strategy has been to swap assets in or-
der to, among other things, geographically consolidate its holdings. Subject to
certain limitations, the Indenture and the Senior Notes Indenture permit asset
swaps. Management will consider potential opportunities to swap cable televi-
sion systems. There can be no assurance that Management will be able to inte-
grate successfully any acquired systems, realize any efficiencies from any swap
or that any acquisition or swap will improve operating results.
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RAPID TECHNOLOGICAL ADVANCES
The cable television business is characterized by rapid technological change
and the introduction of new products and services. There can be no assurance
that Insight Ohio will be able to fund the capital expenditures necessary to
keep pace with technological developments or that the System will successfully
anticipate the demand of its subscribers for products or services requiring new
technology. Insight Ohio's inability to provide enhanced services in a timely
manner or to anticipate the demands of the marketplace could have a material
adverse effect on the System's business, results of operations and financial
condition. See "Business--Competition."
In addition, the System's introduction of new technologies or services is
subject to uncertainties regarding subscriber demand, future competition, ap-
propriate pricing, and the costs and timing with respect to marketing and sales
efforts. There can be no assurances as to the effect of such technological
changes on the System's business, results of operations and financial condition
or that Insight Ohio will not be required to expend substantial financial re-
sources to implement new technologies, that capital expenditures for new tech-
nologies or services will approximate Management's expectations, or that suffi-
cient demand exists to recoup such expenditures.
NON-EXCLUSIVE FRANCHISES; NON-RENEWAL OR TERMINATION OF FRANCHISES
Cable television companies operate under non-exclusive franchises granted by
local authorities which are subject to renewal and renegotiation from time to
time. A franchise is generally granted for a fixed term ranging from five to
fifteen years, but in many cases is terminable if the franchisee fails to com-
ply with its material provisions. The System's business is dependent upon the
retention and renewal of its local franchises. Franchises typically impose con-
ditions relating to the operation of cable television systems, including re-
quirements relating to the payment of fees, bandwidth capacity, customer serv-
ice requirements, franchise renewal and termination. The Cable Television Con-
sumer Protection and Competition Act of 1992 (the "1992 Cable Act") prohibits
franchising authorities from granting exclusive cable television franchises and
from unreasonably refusing to award additional competitive franchises; it also
permits municipal authorities to operate cable television systems in their com-
munities without franchises. The Cable Communication Policy Act of 1984 (the
"1984 Cable Act" and, together with the 1992 Cable Act, the "Cable Acts") pro-
vides, among other things, for an orderly franchise renewal process in which
franchise renewal will not be unreasonably withheld or, if renewal is denied
and the franchising authority acquires ownership of the system or effects a
transfer of the system to another person, the operator generally is entitled to
the "fair market value" for the system covered by such franchise. Historically,
franchises have been renewed for cable operators that have provided satisfac-
tory services and have complied with the terms of their franchises. Although
Management believes that it generally has good relationships with its franchise
authorities, no assurance can be given that the System will be able to retain
or renew such fran- chises or that the terms of any such renewals will be on
terms as favorable as its existing franchises. Furthermore, it is possible that
a franchise authority might grant a franchise to another cable company. The
non-renewal or termination of franchises relating to a significant portion of
the Sys- tem would have a material adverse effect on the System's results of
operations. See "Business-- Franchises."
REGULATION IN THE CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive regulation by federal,
local and, in some instances, state governmental agencies. The Cable Acts, both
of which amended the Communications Act of 1934 (as amended, the "Communica-
tions Act"), established a national policy to guide the development and regula-
tion of cable television systems. The Communications Act was recently sub-
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stantially amended by the Telecommunications Act of 1996 (the "1996 Telecom
Act"). Principal responsibility for implementing the policies of the Cable Acts
and the 1996 Telecom Act has been allocated between the FCC and state or local
regulatory authorities. It is not possible to predict the effect that ongoing
or future developments might have on the cable communications industry or on
the operations of the System. See "Legislation and Regulation."
Federal Law and Regulation
The 1992 Cable Act and the FCC's rules implementing such act generally have
resulted in additional regulatory oversight by the FCC and local or state fran-
chise authorities. In addition, they have resulted in increased administrative
and operational expenses for cable television systems. The Cable Acts and the
corresponding FCC regulations have established, among other things:
. rate regulations;
. mandatory carriage and retransmission consent requirements that require a
cable television system under certain circumstances to carry a local
broadcast station or to obtain consent to carry a local or distant
broadcast station;
. rules for franchise renewals and transfers; and
. other requirements covering a variety of operational areas such as equal
employment opportunity, technical standards and customer service
requirements.
The 1996 Telecom Act deregulates rates for cable programming services tiers
("CPST") commencing in March 1999 and, for certain small cable operators, imme-
diately eliminates rate regulation of CPST, and, in certain limited circum-
stances, basic services. The FCC is currently developing permanent regulations
to implement the rate deregulation provisions of the 1996 Telecom Act. Manage-
ment is currently unable to predict the ultimate effect of the 1992 Cable Act
or the 1996 Telecom Act.
The FCC and Congress continue to be concerned that rates for regulated pro-
gramming services are rising at a rate exceeding inflation. It is therefore
possible that the FCC will further restrict the ability of cable television op-
erators to implement rate increases and/or Congress will enact legislation
which would, for example, delay or suspend the scheduled March 1999 termination
of CPST rate regulation.
State and Local Regulation
Cable television systems generally operate pursuant to non-exclusive fran-
chises, permits or licenses granted by a municipality or other state or local
governmental entity. The terms and conditions of franchises vary materially
from jurisdiction to jurisdiction. A number of states subject cable television
systems to the jurisdiction of centralized state governmental agencies. Cur-
rently, Ohio, the state in which the System currently operates, has not enacted
state level regulation. Management cannot predict whether such state will en-
gage in such regulation in the future. See "Legislation and Regulation."
DEPENDENCE ON IHO AND KEY PERSONNEL OF IHO
The System's success depends on its management by IHO and, therefore, on
IHO's ability to continue to attract, motivate and retain highly qualified man-
agement, sales and technical personnel. In the event IHO is unable to continue
to do so, the operations and growth prospects of the System
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could be adversely affected. In the event IHO were to lose the services of key
personnel, its ability to conduct its business, which will include management
of the System, could be adversely affected. In addition, Insight's management
of cable systems other than the System may limit the availability and accessi-
bility of certain IHO personnel, which could adversely affect IHO's ability to
manage the System.
ABILITY TO PURCHASE NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a change of control, the Issuers will be required to
make an offer to purchase all outstanding Notes at a purchase price equal to
101% of the principal amount or accreted value thereof, together with accrued
and unpaid interest, if any, to the date of repurchase. If a change of control
were to occur, there can be no assurance that the Issuers would have suffi-
cient financial resources, or would be able to arrange financing or be permit-
ted under the terms of other outstanding or future indebtedness arrangements,
to pay the purchase price for all Notes tendered by holders thereof. In addi-
tion, the Senior Credit Facility includes a "change of control" provision that
permits the lenders thereunder to accelerate the repayment of indebtedness
thereunder. The Senior Credit Facility does not permit Insight Ohio to make
distributions so as to permit the Issuers to effect a purchase of the Notes
upon a change of control without the prior satisfaction of certain financial
tests and other conditions. See "--Conditional Guarantees; Structural Subordi-
nation" above and "Description of Certain Indebtedness." Any future credit
agreements or other agreements relating to other indebtedness to which Insight
Ohio becomes a party may contain similar restrictions and provisions. In the
event a change of control occurs at a time when the Issuers are unable to pur-
chase the Notes, the Issuers could seek the consent of their lenders under
such indebtedness to repurchase Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Issuers do not obtain such
consent or repay such borrowing, the Issuers would remain prohibited from re-
purchasing the Notes. In such case, the Issuers' failure to repurchase ten-
dered Notes would constitute an Event of Default under the Indenture. In the
event of a change of control, and as a result of the inability of the Issuers
to repurchase the Notes, the holder of the Notes would have no recourse
against the Issuers other than any remedies they may have against the collat-
eral or, failing that, the conditional guarantee of Insight Ohio. See "--Non-
Recourse Debt; Ability to Realize on Collateral."
INDUSTRY AND ECONOMIC CONDITIONS
The operating results of the System are subject to various factors that af-
fect the cable television industry as a whole. The System may be affected by
numerous factors, including:
. changes in audience tastes;
. priorities of advertisers;
. new laws and governmental regulations and policies;
. changes in technical requirements;
. technological changes;
. proposals to eliminate the tax deductibility of expenses incurred by
advertisers; and
. changes in the willingness of financial institutions and other lenders to
finance cable television system acquisitions and operations.
32
<PAGE>
Insight Ohio cannot predict which, if any, of these or other factors might
have a significant impact on the cable television industry in the future, nor
can it predict what impact, if any, the occurrence of these or other events
might have on its operations. Generally, advertising tends to decline during
economic recession or downturn. Consequently, the System's cable television
revenue is likely to be adversely affected by a recession or downturn in the
United States economy or other events or circumstances that adversely affect
advertising activity. In addition, Insight Ohio's operating results in
individual geographic markets could be adversely affected by local regional
economic downturns.
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
Prior to the Exchange Offer, there was no public market for the Original
Notes. The Original Notes have not been registered under the Securities Act of
1933 (the "Securities Act") and will be subject to restrictions on transfera-
bility to the extent that they are not exchanged for Exchange Notes by holders
who are entitled to participate in this Exchange Offer. The holders of Origi-
nal Notes (other than any such holder that is an "affiliate" of the Issuers
and Insight Ohio within the meaning of Rule 405 under the Securities Act) who
are not eligible to participate in the Exchange Offer are entitled to certain
registration rights, and the Issuers and Insight Ohio are required to file a
Shelf Registration Statement with respect to such Original Notes. The Exchange
Notes will constitute a new issue of securities with no established trading
market. Although CIBC has informed the Issuers that it currently intends to
make a market in the Exchange Notes, it is not obligated to do so and any such
market making may be discontinued at any time without notice in the sole dis-
cretion of CIBC. In addition, such market making activity will be subject to
the limits imposed by the Securities Act and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and may be limited during the pendency
of the Exchange Offer or the effectiveness of a shelf registration statement
in lieu thereof. Accordingly, there can be no assurance as to the development
or liquidity of any market for the Exchange Notes. The Exchange Notes are ex-
pected to be eligible for trading by qualified buyers in the PORTAL market. If
an active public market does not develop, the market price and liquidity of
the Exchange Notes may be adversely affected. If a trading market develops for
the Exchange Notes, the future trading prices thereof will depend on many fac-
tors including, among other things, Insight Ohio's results of operations, pre-
vailing interest rates, the market for securities with similar terms and the
market for securities of other companies in similar businesses. The Issuers do
not intend to apply for listing of the Exchange Notes on any securities ex-
change or for their quotation through an automated dealer quotation system.
The Original Notes were offered in reliance upon an exemption from registra-
tion under the Securities Act and applicable state securities laws. Therefore,
the Original Notes may be transferred or resold only in a transaction regis-
tered under, or exempt from, the Securities Act and applicable state securi-
ties laws. Pursuant to the Registration Rights Agreement among Coaxial LLC,
Coaxial Financing Corp., Insight Ohio and CIBC (the "Registration Rights
Agreement"), Coaxial LLC, Coaxial Financing Corp. and Insight Ohio have agreed
to file the Exchange Offer Registration Statement with the SEC and to use
their reasonable best efforts to cause such registration statement to become
effective with respect to the Exchange Notes. After the registration statement
becomes effective, the Exchange Notes generally will be permitted to be resold
or otherwise transferred (subject to the restrictions described under "The Ex-
change Offer--Resale of Exchange Notes") by each holder without the require-
ment of further registration. The Exchange Notes, however, also will consti-
tute a new issue of securities with no established trading market and will be
issued only in the amount of Original Notes being tendered for exchange. No
assurance can be given as to the liquidity of the trading market for the Ex-
change Notes, or, in the case of non-tendering holders of Original Notes, the
trading market for the Original Notes following the Exchange Offer.
33
<PAGE>
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Notes in exchange for the Original Notes pursuant
to the Exchange Offer will be made only after a timely receipt by Bank of Mon-
treal Trust Company of such Original Notes, a properly completed and duly exe-
cuted Letter of Transmittal and all other required documents. Therefore, hold-
ers of the Original Notes desiring to tender such Original Notes in exchange
for Exchange Notes should allow sufficient time to ensure timely delivery. The
Issuers are under no duty to give notification of defects or irregularities
with respect to the tenders of Original Notes for exchange. Original Notes
that are not tendered or are tendered but not accepted will, following the
consummation of the Exchange Offer, continue to be subject to the existing re-
strictions upon transfer thereof and, upon consummation of the Exchange Offer,
certain registration rights under the Registration Rights Agreement will ter-
minate. In addition, any holder of Original Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
may be deemed to have received restricted securities and, if so, will be re-
quired to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transactions. Each holder of
the Original Notes who wishes to exchange the Original Notes for Exchange
Notes in the Exchange Offer will be required to represent in the Letter of
Transmittal that at the time of the consummation of the Exchange Offer:
. it is not an affiliate of the Issuers or Insight Ohio or, if it is such
an affiliate, such holder will comply with the registration and prospec-
tus delivery requirements of the Securities Act to the extent applicable;
. the Exchange Notes to be received by it are being acquired in the ordi-
nary course of its business; and
. it has no arrangement or understanding with any person to participate in
the distribution of the Original or Exchange Notes within the meaning of
the Securities Act.
Each broker-dealer (a "Participating Broker-Dealer") that receives Exchange
Notes for its own account in exchange for Original Notes, where such Original
Notes were acquired by such Participating Broker-Dealer as a result of market-
making activities or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. See
"Plan of Distribution." To the extent that Original Notes are tendered and ac-
cepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Original Notes could be adversely affected. See "The Exchange
Offer."
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements," including statements
containing the words "believes," "anticipates," "expects" and words of similar
import. All statements other than statements of historical fact included in
this Prospectus, including, without limitation, the statements under "Prospec-
tus Summary," "Risk Factors," "Management's Discussion and Analysis of Finan-
cial Condition and Results of Operations," "Business," "The System Acquisi-
tion," and elsewhere in this Prospectus, regarding the Issuers or any of the
transactions described in this Prospectus, including the timing, financing,
strategies and effects of such transactions, are forward-looking statements.
Although the Issuers believe that the expectations reflected in such forward-
looking statements are reasonable, they can give no assurance that such expec-
tations will prove to have been correct. Important factors that could cause
actual results to differ materially from expectations are disclosed in this
Prospectus, including, without limitation, in conjunction with the forward-
looking statements in this Prospectus and/or under "Risk Factors." The Issuers
do not intend to update these forward-looking statements.
34
<PAGE>
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Issuers'
obligations under the Registration Rights Agreement. The Issuers will not
receive any cash proceeds from the issuance of the Exchange Notes in the
Exchange Offer.
The private offering of the Original Notes (the "Original Notes Offering")
was part of the Financing Plan, which was implemented to facilitate the
organization of Insight Ohio, the acquisition of the System by Insight Ohio
and to provide for the System's liquidity and operational and financial
flexibility. Pursuant to the Financing Plan:
. Coaxial contributed to Insight Ohio substantially all of the assets
comprising the System for which Coaxial received a 25% non-voting common
membership interest in Insight Ohio as well as the Preferred Interests in
Insight Ohio (such Preferred Interests will provide for distributions to
Coaxial, which will be used (directly and indirectly) to pay interest and
principal on the Notes and the Senior Notes, subject to certain financial
covenants and other conditions set forth in the Senior Credit Facility);
. IHO contributed $10.0 million in cash to Insight Ohio for which it
received a 75% non-voting common membership interest in Insight Ohio;
. Coaxial LLC and Coaxial Financing Corp. effected the Original Notes
Offering;
. Coaxial and Phoenix effected the private offering of the Senior Notes
(the "Senior Notes Offering"); and
. a portion of the existing bank indebtedness of the Issuers and certain of
their affiliates was repaid and the balance was purchased by CIBC and
restructured in accordance with an agreement among the parties.
The gross proceeds received by the Issuers from the Original Notes Offering
were $30.0 million. Proceeds from such private offering were used for the
repayment of outstanding indebtedness (approximately $28.9 million). CIBC
purchased certain outstanding indebtedness (approximately $136.4 million) of
Coaxial and Phoenix (together, the "Senior Notes Issuers") and restructured
that debt in accordance with the Financing Plan. CIBC funded such purchase
with proceeds from the Senior Notes Offering. The remaining proceeds from the
Original Notes Offering and the Senior Notes Offering and the $10.0 million
cash contribution from IHO were used for working capital (approximately $2.9
million), deferred compensation and severance payments (approximately $3.0
million) and fees and expenses (approximately $8.8 million). The outstanding
indebtedness consisted of principal and accrued interest under a senior credit
facility among the Issuers, certain of their affiliated entities, The Chase
Manhattan Bank, as agent, and certain lenders (the "Chase Credit Facility").
The outstanding indebtedness under the Chase Credit Facility had a final
maturity date of December 31, 1999. For the period January 1, 1998 through
August 21, 1998, the interest rates for loans outstanding under the Chase
Credit Facility ranged from 9.13% to 10.75%. Loans obtained under the Chase
Credit Facility during the one year prior to the Financing Plan were for
capital expenditures and working capital of the Issuers and their affiliated
entities.
Upon the closing of the Original Notes Offering, Coaxial LLC loaned 22.5% of
the gross proceeds (approximately $6.75 million) to Coaxial DJM LLC and 10% of
such proceeds (approximately $3.0 million) to Coaxial DSM LLC in order to
allow for distributions to their respective holders for purposes of repaying
the amounts outstanding under the Chase Credit Facility. Each of the LLC
Mirror Notes incorporates the terms of the Notes with respect to payments and
otherwise. Accordingly, Coaxial LLC will rely on the provisions of the LLC
Mirror Notes in requiring payments from Coaxial DJM LLC and Coaxial DSM LLC in
order to make corresponding payments on the Notes. The LLC Mirror Note issued
by Coaxial DJM LLC is in the amount of $12,570,525 (i.e, 22.5% of the
principal amount at maturity of the Notes) and is secured by 22.5% of the
outstanding common equity of Coaxial. The LLC Mirror Note issued by Coaxial
DSM LLC is in the amount of $5,586,900 (i.e., 10% of the principal amount at
maturity of the Notes) and is secured by 10% of the outstanding common equity
of Coaxial. The relationship among Coaxial LLC, on the one hand, and Coaxial
DJM LLC and
35
<PAGE>
Coaxial DSM LLC, on the other, produces the same effect as if the three
entities were co-issuers of the Notes, with the same effect as a pledge of all
of the equity of Coaxial. It was determined that it would provide an easier
presentation to investors by having a single issuer of the Notes. Coaxial
Financing Corp. was included as a co-issuer of the Notes to provide for a
joint obligor with corporate characteristics, as is required by many
investors.
On October 7, 1998, Insight Ohio entered into the Senior Credit Facility for
the purpose of financing its future working capital requirements, including
the upgrade of the System's cable plant and the introduction of new video
services. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Description of
Certain Indebtedness--Senior Credit Facility."
36
<PAGE>
CAPITALIZATION
The following table sets forth the combined capitalization of the Issuers as
of September 30, 1998 which reflects the effect of each of the components of
the Financing Plan. The information contained in this table should be read in
conjunction with the "Selected Historical and Combined Pro Forma Financial and
Operating Data" and the financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
------------------------
ACTUAL
------------------------
(IN THOUSANDS)
<S> <C> <C>
Total debt:
Senior Notes..................................... $ 140,000
Original Notes................................... 30,440
Capital lease obligations........................ 259
---------
Total debt................................... 170,699
---------
Shareholders' and partners' deficit................ (127,175)
---------
Total capitalization......................... $ 43,524
=========
</TABLE>
37
<PAGE>
SELECTED HISTORICAL AND COMBINED PRO FORMA FINANCIAL AND OPERATING DATA
Coaxial LLC and Coaxial Financing Corp., the co-issuers of the Notes, were
formed on July 24, 1998. As such, these entities were not in existence for the
historical periods presented in the following tables. The historical
information of Coaxial is shown as it represents the predecessor entity which
will be consolidated by Coaxial LLC. The financial information of Phoenix is
presented as Coaxial is a joint and several obligor and co-issuer of the
Senior Notes with Phoenix. The financial information of the System is
presented as the System is the predecessor company to Insight Ohio. Coaxial,
based on cash flow from the System, provides the funding for the repayment of
the Notes and the Senior Notes.
As mentioned above, the following tables present selected historical
financial data for Coaxial, Phoenix and the System as of and for the five
years ended December 31, 1997, and unaudited selected historical financial
data as of and for the nine months ended September 30, 1997 and 1998. The
statement of operations data for the periods ended December 31, 1997, 1996,
and 1995 and balance sheet data as of December 31, 1997 and 1996 have been
derived from the audited financial statements of Coaxial, Phoenix and the
System. The financial data of all other periods are derived from the unaudited
financial statements of Coaxial, Phoenix and the System included elsewhere in
this Prospectus. In the opinion of management, such unaudited financial
statements have been prepared on the same basis as the audited financial
statements and include all normal and recurring adjustments and accruals
necessary for a fair presentation of such information. Financial results for
the nine months ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the full year.
In addition, the following tables present unaudited combined selected pro
forma financial data for Coaxial LLC (which includes Coaxial and Coaxial's
consolidated subsidiary, Insight Ohio) and Phoenix for the year ended December
31, 1997 and as of and for the nine months ended September 30, 1998, as
adjusted to give pro forma effect to the Financing Plan and certain other
adjustments, in the case of the statement of operations and other financial
and operating data as if they had occurred on the first day of the respective
periods, and in the case of balance sheet data as if they had occurred as of
such date. The pro forma financial data of Coaxial LLC (which includes
Coaxial) and Phoenix are combined because (i) both entities have common
ownership, (ii) Coaxial and Phoenix are co-issuers of the Senior Notes and
(iii) Coaxial LLC and Phoenix have no operating activities and the combined
data serves to illustrate how the total debt of Coaxial LLC, Coaxial and
Phoenix will be serviced from the System's operations.
The unaudited combined selected pro forma financial data have been prepared
by the management of Coaxial LLC, Coaxial and Phoenix based upon their
historical financial statements and do not purport to represent what the
results of operations or financial condition of Coaxial LLC (which includes
Coaxial) and Phoenix would have actually been or what operations in any future
period would be if the transactions that give rise to the pro forma
adjustments had occurred on the dates assumed. Management believes that the
combined pro forma data is a meaningful presentation because Phoenix has no
operations for the presented periods, and the ability of Coaxial LLC, Coaxial
and Phoenix to satisfy debt and other obligations is dependent upon cash flow
from the System. The following information is qualified by reference to and
should be read in conjunction with "Capitalization," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Pro Forma
Financial Statements" and the financial statements and notes thereto included
elsewhere in this Prospectus.
38
<PAGE>
COAXIAL LLC
(DOLLARS IN THOUSANDS, EXCEPT SUBSCRIBER DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------------- -------------------------------
PRO FORMA PRO FORMA
COMBINED HISTORICAL COMBINED HISTORICAL
INFORMATION --------------------------------------------- INFORMATION -----------------
1997 1997 1996 1995 1994 1993 1998 1998 1997
----------- -------- -------- ------- ------- ------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $48,229 $ 48,229 $ 50,418 $46,831 $43,546 $41,020 $35,809 $35,809 $ 36,321
Operating expenses:
Service and
administrative........ 26,302 27,391 25,236 21,920 20,830 19,490 20,716 21,663 20,065
Severance and
transaction structure
costs................. -- -- -- -- -- -- -- 4,822 --
Management fee......... -- -- -- -- -- -- 142 142 --
Home office............ 1,498 1,498 1,697 1,695 1,316 1,622 1,131 1,131 1,312
Depreciation and
amortization.......... 5,299 5,256 5,350 4,837 4,010 4,005 3,852 3,825 4,157
------- -------- -------- ------- ------- ------- ------- ------- --------
Total operating
expenses.............. 33,099 34,145 32,283 28,452 26,156 25,117 25,841 31,583 25,534
Operating income........ 15,130 14,084 18,135 18,379 17,390 15,903 9,968 4,226 10,787
Interest expense, net.. 15,919 1,230 426 1,033 864 1,337 12,967 1,067 1,039
Other expense.......... 360 271 248 251 261 241 496 433 188
------- -------- -------- ------- ------- ------- ------- ------- --------
Net income (loss) before
extraordinary item..... (1,149) 12,583 17,461 17,095 16,265 14,325 (3,495) 2,726 9,560
Extradordinary item-
debt retirement....... -- -- -- -- (130) -- -- (847) --
------- -------- -------- ------- ------- ------- ------- ------- --------
Net income (loss)....... $(1,149) $ 12,583 $ 17,461 $17,095 $16,135 $14,325 $(3,495) $ 1,879 $ 9,560
======= ======== ======== ======= ======= ======= ======= ======= ========
FINANCIAL RATIOS AND
OTHER DATA:
System Cash Flow(1)..... $21,927 $ 20,838 $ 25,182 $24,911 $22,716 $21,530 $15,093 $14,146 $ 16,256
System Cash Flow
margin................. 45.5% 43.2% 49.9% 53.2% 52.2% 52.5% 42.1% 39.5% 44.7%
Annualized System Cash
Flow(2)................ 21,152 20,052 20,040
Operating Cash Flow(3).. 20,429 19,340 23,485 23,216 21,400 19,908 13,820 12,873 14,944
Adjusted Operating Cash
Flow(4)................ 20,429 19,340 23,485 23,216 21,400 19,908 14,800 13,853 14,944
Adjusted Operating Cash
Flow margin............ 42.4% 40.1% 46.6% 49.6% 49.1% 48.5% 41.3% 38.7% 41.1%
Annualized Adjusted
Operating Cash
Flow(2)(4)............. 20,138(14) 18,868 17,604
Capital expenditures.... 5,570 5,570 5,998 5,724 5,486 2,812 4,214 4,214 3,520
Ratio of Adjusted Operating Cash
Flow to interest expense...................................................... 1.1x
Ratio of total debt of Coaxial LLC
and Phoenix to Annualized Adjusted
Operating Cash Flow........................................................... 8.4x
Ratio of earnings to
fixed charges(5)....... --(16) 3.1x 4.0x 4.1x 6.6x 7.7x --(16) 1.6x 3.2x
Net cash provided by
(used in) operating
activities............. 18,622 18,622 24,369 21,895 5,266 6,735 7,704 7,704 13,678
Net cash provided by
(used in) investing
activities............. (15,242) (15,242) (19,551) (19,914) (5,441) (2,998) (4,214) (4,214) (13,667)
Net cash provided by
(used in) financing
activities............. (3,712) (3,712) (4,582) (1,623) (525) (4,025) 784 784 224
OPERATING DATA:
(AT END OF PERIOD,
EXCEPT AVERAGE AND
ANNUALIZED DATA)
Homes passed(6)......... 166,306 166,306 161,018 156,613 152,562 147,952 170,003 170,003 164,690
Basic subscribers(7).... 91,873 91,873 88,056 86,041 82,166 80,216 90,314 90,314 89,499
Basic penetration(8).... 55.2% 55.2% 54.7% 54.9% 53.9% 54.2% 53.1% 53.1% 54.3%
Premium service
units(9)............... 80,013 80,013 68,720 74,087 74,529 69,922 82,624 82,624 76,682
Premium
penetration(10)........ 87.1% 87.1% 78.0% 86.1% 90.7% 87.2% 91.5% 91.5% 85.7%
Average monthly revenue
per basic
subscriber(11)......... $ 44.67 $ 44.67 $ 48.27 $ 46.40 $ 44.70 $ 43.33 $ 43.68 $ 43.68 $ 45.46
Annualized System Cash
Flow per basic
subscriber(12)......... $243.73 $ 231.62 $ 289.28 $296.20 $279.78 $272.89 $232.20 $220.12 $ 225.73
Annualized Adjusted
Operating Cash Flow per
basic subscriber(13)... $227.08 $ 214.97 $ 269.79 $276.04 $263.58 $252.33 $221.07 $207.13 $ 198.29
BALANCE SHEET DATA:
(AT END OF PERIOD)
Total assets............ $110,829 $102,099 $87,946 $71,677 $47,809 $51,104 $111,111
Total debt.............. 47,236 50,442 40,375 34,123 27,485 65,135 51,461
Total liabilities....... 56,502 59,767 50,927 44,062 34,685 75,890 59,807
Total shareholders' and
partners' equity
(deficit).............. 54,327 42,332 37,019 27,615 13,124 (24,786) 51,304
</TABLE>
(footnotes to follow)
39
<PAGE>
PHOENIX ASSOCIATES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- -------------------
1997 1996 1995 1994 1993 1998 1997
--------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Home office............ -- -- -- $ 4 -- -- --
--------- --------- --------- --------- --------- --------- --------
Total operating
expenses............. -- -- -- 4 -- -- --
Operating loss.......... -- -- -- (4) -- -- --
Interest expense, net.. $ 12,094 $ 12,490 $ 12,362 $ 7,265 $ 6,947 $ 9,604 $ 8,911
Other expense.......... 89 106 120 167 278 63 71
--------- --------- --------- --------- --------- --------- --------
Net loss before
extraordinary item..... (12,183) (12,596) (12,482) (7,436) (7,225) (9,667) (8,982)
Extraordinary item-
(loss) gain............ 3,315 -- -- (755) -- 100 --
--------- --------- --------- --------- --------- --------- --------
Net loss................ $ (8,868) $ (12,596) $ (12,482) $ (8,191) $ (7,225) $ (9,567) $ (8,982)
========= ========= ========= ========= ========= ========= ========
FINANCIAL RATIOS AND
OTHER DATA:
Ratio of earning to
fixed charges(5)....... -- -- -- -- -- -- --
BALANCE SHEET DATA: (AT
END OF PERIOD)
Total assets............ $ 7,954 $ 9,218 $ 8,592 $ 8,105 $ 7,336 $ 4,378 $ 9,482
Total debt.............. 178,365 170,762 157,448 144,514 134,014 105,565 80,008
Total liabilities....... 178,366 170,762 157,540 144,572 135,612 106,767 80,008
Total partners'
deficit................ (170,412) (161,544) (148,948) (136,466) (128,275) (102,389) (70,526)
</TABLE>
(footnotes to follow)
40
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
(DOLLARS IN THOUSANDS, EXCEPT SUBSCRIBER DATA)
<TABLE>
<CAPTION>
FOR THE PERIOD NINE MONTHS
JANUARY 1, 1998 ENDED
YEAR ENDED DECEMBER 31, TO AUGUST 21, SEPTEMBER 30,
------------------------------------------- --------------- -------------
HISTORICAL HISTORICAL
------------------------------------------- ------------------------------
1997 1996 1995 1994 1993 1998 1997
------- ------- ------- ------- ------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $48,229 $50,418 $46,831 $43,546 $41,020 $ 30,584 $ 36,321
Operating expenses:
Service and
administrative........ 27,391 25,236 21,920 20,830 19,490 19,050 20,065
Severance and
transaction structure
costs................. -- -- -- -- -- 4,822 --
Home office............ 1,498 1,697 1,695 1,316 1,622 1,131 1,312
Depreciation and
amortization.......... 5,238 5,334 4,823 3,978 3,972 3,412 4,146
------- ------- ------- ------- ------- -------- --------
Total operating
expenses.............. 34,127 32,267 28,438 26,124 25,084 28,415 25,523
Operating income........ 14,102 18,151 18,393 17,422 15,936 2,169 10,798
Interest (income)
expense, net.......... (70) (29) (38) (22) (14) (22) (52)
Other expense.......... 271 248 251 239 233 433 188
------- ------- ------- ------- ------- -------- --------
Net income.............. $13,901 $17,932 $18,180 $17,205 $15,717 $ 1,758 $ 10,662
======= ======= ======= ======= ======= ======== ========
FINANCIAL RATIOS AND
OTHER DATA:
System Cash Flow(1)..... $20,838 $25,182 $24,911 $22,716 $21,530 $ 11,534 $ 16,256
System Cash Flow
margin................. 43.2% 49.9% 53.2% 52.2% 52.5% 37.7% 44.8%
Annualized System Cash
Flow(2)................ 18,045(18) 20,040
Operating Cash Flow(3).. 19,340 23,485 23,216 21,400 19,908 10,403 14,944
Adjusted Operating Cash
Flow(4)................ 19,340 23,485 23,216 21,400 19,908 11,383 14,944
Adjusted Operating Cash
Flow margin............ 40.1% 46.6% 49.6% 49.1% 48.5% 37.2% 41.1%
Annualized Adjusted
Operating Cash
Flow(2)(4)............. 18,789(18) 17,604
Capital Expenditures.... 5,529 5,992 5,702 5,479 2,810 3,803 3,479
Net cash provided by
(used in) operating
activities............. 19,454 21,975 22,192 21,208 20,051 6,441 14,209
Net cash provided by
(used in) investing
activities............. (5,554) (5,711) (5,955) (5,435) (2,997) (3,730) (3,526)
Net cash provided by
(used in) financing
activities............. (14,232) (16,028) (15,879) (16,473) (17,344) (3,285) (10,448)
OPERATING DATA:
(AT END OF PERIOD,
EXCEPT AVERAGE AND
ANNUALIZED DATA)
Homes passed(6)......... 166,306 161,018 156,613 152,562 147,952 169,452 164,690
Basic subscribers(7).... 91,873 88,056 86,041 82,166 80,216 90,896 89,499
Basic penetration(8).... 55.2% 54.7% 54.9% 53.9% 54.2% 53.6% 54.3%
Premium service
units(9)............... 80,013 68,720 74,087 74,529 69,922 84,832 76,682
Premium
penetration(10)........ 87.1% 78.0% 86.1% 90.7% 87.2% 93.3% 85.7%
Average monthly revenue
per basic
subscriber(11)......... $ 44.67 $ 48.27 $ 46.40 $ 44.70 $ 43.33 $ 43.63(18) $ 45.46
Annualized System Cash
Flow per basic
subscriber(12)......... $231.62 $289.28 $296.18 $279.78 $272.89 $ 197.46 $ 225.73
Annualized Adjusted
Operating Cash Flow per
basic subscriber(13)... $214.97 $269.79 $276.04 $263.58 $252.33 $ 205.60 $ 198.29
BALANCE SHEET DATA: (AT
END OF PERIOD)
Total assets............ $33,553 $34,062 $33,226 $30,398 $28,577 $ -- (17) $ 33,292
Total debt.............. 407 615 651 654 -- -- (17) 476
Total liabilities....... 7,982 8,425 9,728 9,384 7,199 -- (17) 7,245
Net assets to be
contributed............ 25,571 25,637 23,499 21,014 21,377 -- (17) 26,047
</TABLE>
(footnotes on following page)
41
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
(DOLLARS IN THOUSAND, EXCEPT SUBSCRIBER DATA)
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 21, -
SEPTEMBER 30,
--------------
HISTORICAL
--------------
<S> <C>
1998
---------
STATEMENT OF OPERATIONS DATA:
Revenues....................................................... $ 5,225
Operating expenses:
Service and administrative................................... 2,613
Management fee............................................... 142
Depreciation and amortization................................ 413
---------
Total operating expenses................................... 3,168
Operating income............................................... 2,057
Interest expense, net........................................ 5
---------
Net income..................................................... 2,052
Accrual of Preferred Interests................................. 2,034
---------
Income on common............................................... $ 18
=========
FINANCIAL RATIOS AND OTHER DATA:
System Cash Flow(1)............................................ $ 2,612
System Cash Flow margin........................................ 50.0%
Operating Cash Flow(3)......................................... 2,470
Adjusted Operating Cash Flow(4)................................ 2,470
Adjusted Operating Cash Flow margin............................ 47.3%
Capital expenditures........................................... 472
Net cash provided by (used in) operating activities............ 3,095
Net cash provided by (used in) investing activities............ (472)
Net cash provided by (used in) financing activities............ 2,225
OPERATING DATA:
(AT END OF PERIOD, EXCEPT AVERAGE AND ANNUALIZED DATA)
Homes passed(6)................................................ $ 170,003
Basic subscribers(7)........................................... 90,314
Basic penetration(8)........................................... 53.1%
Premium service units(9)....................................... 82,264
Premium penetration(10)........................................ 91.5%
Average monthly revenue per basic subscriber(11)............... $ 43.35(19)
BALANCE SHEET DATA:
(AT END OF PERIOD)
Total assets................................................... $ 39,056
Total debt..................................................... 259
Total liabilities and Preferred Interests...................... 182,660
Total members' deficit......................................... (143,604)
</TABLE>
42
<PAGE>
NOTES TO SELECTED HISTORICAL AND PRO FORMA
FINANCIAL AND OPERATING DATA
(1) Represents Operating Cash Flow (as defined below in Note 3) plus home
office expense for periods prior to the System Acquisition, and Operating
Cash Flow plus management fees for periods after or which give effect to
the System Acquisition. Management believes that System Cash Flow is a
meaningful measure of performance because it is commonly used in the
cable television industry to analyze and compare cable television
companies on the basis of operating performance, leverage and liquidity.
However, System Cash Flow is not intended to be a performance measure
that should be regarded as an alternative to, or more meaningful than,
either operating income or net income as an indicator of operating
performance or cash flows as a measure of liquidity, as determined in
accordance with generally accepted accounting principles. System Cash
Flow, as computed by management, is not necessarily comparable to
similarly titled amounts of other companies. See the financial
statements, including the Statements of Cash Flows, included elsewhere in
this Prospectus.
(2) Represents results for the three months ended September 30 multiplied by
four.
(3) Represents net income before depreciation, amortization, severance and
transaction structure costs, interest expense, other expenses, and
extraordinary item. Management believes that Operating Cash Flow is a
meaningful measure of performance because it is commonly used in the
cable television industry to analyze and compare cable television
companies on the basis of operating performance, leverage and liquidity.
However, Operating Cash Flow is not intended to be a performance measure
that should be regarded as an alternative to, or more meaningful than,
either operating income or net income as an indicator of operating
performance or cash flows as a measure of liquidity, as determined in
accordance with generally accepted accounting principles. Operating Cash
Flow, as computed by management, is not necessarily comparable to
similarly titled amounts of other companies. See the financial
statements, including the Statements of Cash Flows included elsewhere in
this Prospectus.
(4) Represents Operating Cash Flow plus launch fees, which are deferred and
amortized over the applicable contract period for financial reporting
purposes. Adjusted Operating Cash Flow for the nine months ended
September 30, 1998 and Annualized Adjusted Operating Cash Flow includes
approximately $980,000 of launch fees.
(5) For purposes of calculating the ratio of earnings to fixed charges,
earnings are defined as income (loss) before taxes, extraordinary items
and fixed charges. Fixed charges consist of interest expense incurred
(including amortization of debt issuance costs) and the estimated
interest component of rent expense (approximately one-third). For Coaxial
LLC, earnings were inadequate to cover fixed charges by $2.6 million for
the nine months ended September 30, 1998. For Phoenix, earnings were
inadequate to cover fixed charges by $7.0 million, $7.2 million, $12.4
million, $12.5 million and $12.2 million for the years ended December 31,
1993, 1994, 1995, 1996 and 1997, respectively, and by $8.9 million and
$9.6 million for the nine months ended September 30, 1997 and 1998,
respectively.
(6) Refers to estimates by management of the approximate number of dwelling
units in a particular community that can be connected to the System.
(7) A home with one or more television sets connected to a cable system is
counted as one basic subscriber. Bulk accounts are included on an
equivalent basic unit basis in which the total monthly bill for the
account is divided by the basic monthly charge for a single outlet in the
area.
(8) Calculated as basic subscribers as a percentage of homes passed.
(9) Includes only single channel services offered for a monthly fee per
channel and does not include tiers of channels offered as a package for a
single monthly fee. A subscriber may purchase more than one premium
service, each of which is counted as a separate premium service unit.
(10) Calculated as premium service units as a percentage of basic subscribers.
(11) Represents revenues of the System during the respective period divided by
the months in the period divided by the average number of basic
subscribers (beginning of period plus end of period divided by two) for
such respective period.
43
<PAGE>
(12) Represents Annualized System Cash Flow during the respective period
divided by the average number of basic subscribers (beginning of period
plus end of period divided by two) for such respective period.
(13) Represents Annualized Adjusted Operating Cash Flow during the respective
period divided by the average number of basic subscribers (beginning of
period plus end of period divided by two) for such respective period.
(14) Management believes that the following adjustments to historical
annualized Operating Cash Flow for the three months ended September 30,
1998 are relevant to evaluating the operating performance of the System.
These annualized pro forma adjustments reflect: (i) headcount reductions
primarily due to duplication within the finance and accounting
departments; and (ii) elimination of rent expense due to the contribution
of an office building to the System as part of the Contribution
Agreement. Management believes these adjustments to be reasonable. In
addition, annualized pro forma adjusted Operating Cash Flow reflects a
supplemental adjustment for launch fees for Fox News, Great American
Country and the Ohio News Network. The System has received launch fees in
the past, and management believes it will continue to receive launch fees
in the normal course of business. It should be noted that data included
in this Note (14) is not computed or determined in accordance with GAAP
and should not be considered an alternative to operating income, net
income or cash flows which have been determined in accordance with GAAP.
The following table reflects the effects of these items on historical
annualized Operating Cash Flow:
<TABLE>
<S> <C>
Historical annualized Operating Cash Flow*......................... $17,888
Annualized pro forma adjustments:
Headcount reductions.............................................. 1,162
Elimination of rent expense of contributed property............... 108
-------
Annualized pro forma Operating Cash Flow........................... 19,158
Launch fees for Fox News, Great American Country and the Ohio News
Network.......................................................... 980
-------
Annualized pro forma adjusted Operating Cash Flow.................. $20,138
=======
</TABLE>
--------
* Represents Operating Cash Flow for the three months ended September 30,
1998 multiplied by four.
(15) Represents Adjusted Operating Cash Flow to interest expense on the total
debt of Coaxial LLC and Phoenix.
(16) Represents pro forma ratio of earnings to fixed charges for Coaxial LLC
and Phoenix. Earnings were inadequate to cover fixed charges by $1.1
million for the year ended December 31, 1997 and $3.4 million for the
period ended September 30, 1998.
(17) On August 21, 1998, the net assets of Central Ohio Cable System Operating
Unit were contributed to Insight Ohio.
(18) Calculation adjusted to reflect the period January 1, 1998 through August
21, 1998 being 7.67 months.
(19) Calculation adjusted to reflect the period August 21, 1998 through
September 30, 1998 being 1.33 months.
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and related notes which are included elsewhere in this Prospectus.
This Prospectus contains certain forward-looking statements that involve risks
and uncertainties. Future results could differ materially from those discussed
in this Prospectus. Factors that could cause or contribute to such differences
include, but are not limited to, those set forth under "Risk Factors" and
elsewhere in this Prospectus.
ACQUISITION OF SYSTEM BY INSIGHT OHIO
On August 21, 1998, as part of the Financing Plan, Coaxial contributed to
Insight Ohio substantially all of the assets comprising the System, and IHO
contributed to Insight Ohio $10.0 million in cash. As a result of the
Financing Plan, IHO and Coaxial own 75% and 25%, respectively, of the non-
voting common membership interests of Insight Ohio. Coaxial also owns 100% of
the voting Preferred Interests having distribution priorities which will
provide for distributions to Coaxial that will be used to pay interest and
principal on the Senior Notes and to pay dividends to the Individual LLCs that
will be used to pay interest and principal on the Notes. Distributions by
Insight Ohio will be subject to certain financial covenants and other
conditions set forth in the Senior Credit Facility. Coaxial Financing Corp.
has nominal assets and was formed for the sole purpose of being an issuer of
the Notes. Coaxial LLC's principal assets are 67.5% of the common equity of
Coaxial and the LLC Mirror Notes. Coaxial's principal assets are non-voting
common membership interests and the voting Preferred Interests in Insight
Ohio. None of the Issuers conduct any business. The Issuers are dependent upon
the cash flow of Insight Ohio to meet their obligations under the Notes. See
"Risk Factors--Conditional Guarantees; Structural Subordination" and "The
System Acquisition."
The following discussion relates to the historical operations of the System
for the periods indicated. Such historical information reflects the operation
and management of the System by Coaxial through August 21, 1998 as set forth
in the financial statements of Central Ohio Cable System Operating Unit and
does not reflect for such periods any changes in the operation or management
of the System that IHO intends to make and is not necessarily indicative of
the historical results that would have been achieved had the System been
managed and operated by IHO during all of the periods with respect to which
financial information is presented in this Prospectus. Such historical
information reflects the operation and management of the System by IHO from
August 21, 1998 to September 30, 1998 as set forth in the financial statements
of Insight Communications of Central Ohio, LLC. The historical operating
results of the System presented below, in effect, represent the predecessor
operations of Insight Ohio, which was formed for the purpose of acquiring the
System. The historical operating results of the System presented below do not
reflect the actual results of Coaxial as presented in the financial statements
of Coaxial appearing elsewhere in this Prospectus, which also include
activities unrelated to the operations of the System. As the Issuers' ability
to service the Notes is dependent upon cash generated from the operations of
the System, it is more meaningful to compare the historical results of the
System, which results appear in the financial statements under the headings
"Central Ohio Cable System Operating Unit" and "Insight Communications of
Central Ohio, LLC" elsewhere in this Prospectus. See page F-1 in this
Prospectus.
Subsequent to the consummation of the Financing Plan, (i) Insight Ohio is
deemed to be a subsidiary of Coaxial and, as such, the financial statements of
Insight Ohio are consolidated into the financial statements of Coaxial and
(ii) Coaxial is deemed to be a subsidiary of Coaxial LLC and, as such, the
financial statements of Coaxial are consolidated into the financial statements
of Coaxial LLC.
OVERVIEW
Revenues generated by the System are primarily attributable to monthly
subscription fees charged to basic subscribers for basic and premium cable
television programming services. Basic revenues consist of monthly
subscription fees for all services (other than premium programming) as well as
monthly charges for customer equipment rental. Premium revenues primarily
consist of monthly subscription fees for programming provided
45
<PAGE>
on a per channel basis. In addition, other revenues are derived from
installation and reconnection fees charged to basic subscribers to commence or
discontinue service, pay-per-view charges, late payment fees, franchise fees,
advertising revenues and commissions related to the sale of goods by home
shopping services.
System operating expenses consist of service and administrative expenses,
home office expenses and depreciation and amortization. Service and
administrative expenses include direct costs, such as fees paid to programming
suppliers, expenses related to copyright fees, bad debt expense, and franchise
and use fees. Programming fees have historically increased at rates in excess
of inflation due to increases in the number of programming services offered by
the System and improvements in the quality of programming. Service and
administrative expenses also include costs attributable to the operation of
the System, including wages and salaries and other expenses related to plant
operating activities, customer service operations, marketing, billing,
advertising sales and video production. Prior to August 21, 1998, service and
administrative expenses also included costs attributable to finance and
accounting, human resources and other administrative functions. Upon
consummation of the Financing Plan, such expenses were replaced by the
management fee.
The System relies on IHO for all of its strategic, managerial, financial and
operational oversight and advice. IHO also centrally purchases programming and
equipment and provides the associated discounts to the System. In exchange for
all such services provided to the System and subject to certain restrictions
contained in the covenants with respect to the Senior Credit Facility, the
Notes and the Senior Notes, IHO is entitled to receive management fees of 3.0%
of gross operating revenues of the System. Such management fee is payable only
after distributions have been made in respect of the Preferred Interests and
only to the extent that such payment would be permitted by an exception to the
restricted payments covenants of the Notes and the Senior Notes as well as the
Senior Credit Facility. Such management fee is included in service and
administrative expenses. See "Description of the Notes--Certain Covenants--
Limitation on Restricted Payments" and "The System Acquisition."
COMPETITIVE OVERVIEW
In 1996, Ameritech, the telephone local exchange carrier for Columbus,
obtained a citywide cable television franchise for the City of Columbus.
Ameritech began offering cable television service in June 1996 and to date has
substantially built its entire citywide franchise, both in the System's
service area and in the Time Warner service area on the west side of Columbus.
The Time Warner system and the System service virtually distinct areas and
therefore do not compete with each other. The overbuild by Ameritech passes
approximately 71% of the homes passed by the System (approximately 121,500
homes). Ameritech has cable television franchise applications pending in two
surrounding communities covering an additional 2,000 of the System's homes and
1,200 of the System's subscribers.
Management's strategy to compete with the overbuild has included the
following:
. Management implemented technological upgrades in areas likely to be
overbuilt by constructing additional fiber optic cable and creating new
nodes. At the present time, the System has constructed 17 distinct
"enhanced areas" encompassing all of the overbuilt homes.
. The effective bandwidth of each enhanced area was increased from 450 MHz
to 490 MHz, allowing for more movies, music, news, live sports and
exclusive programming such as TV Land and Central Ohio Sport! Television.
This brought the standard and premium offerings very close to what
Ameritech is able to provide on its newly constructed 750 MHz system.
. The System developed a packaging and pricing strategy that it believes
was seen as a value by customers, providing the System with a competitive
advantage over Ameritech.
. Marketing efforts were expanded in the enhanced areas by increasing the
number of promotional video spots targeted specifically to the
competitive area advertising the advantages of System service. Mail drops
were increased to at least twice monthly in each enhanced area with a
constantly changing series of promotional programs.
46
<PAGE>
The promotions offered to certain of the System's subscribers had a negative
impact on operating results. Management believes that the adverse impact of
its promotional activities will be reduced in the future as the promotions
began expiring in July 1998. Management believes that the System has been
effective in competing with Ameritech and maintaining its overall subscriber
base. Since the beginning of the overbuild in June 1996, the System's
subscriber base has increased from approximately 87,700 to approximately
90,300 as of September 30, 1998. In the overbuild area, the System currently
serves approximately 58,000 subscribers. As of September 30, 1998, the
System's net loss in the overbuild area has been limited to approximately
2,937 subscribers since Ameritech entered the market as the System has
increased penetration from 46.1% to 48.0%.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September
30, 1997
Revenues for the nine months ended September 30, 1998 were $35.8 million,
compared to $36.3 million for the nine months ended September 30, 1997.
Revenues from basic, standard and premium services decreased by $1.6 million,
or 5.7%, from $28.3 million for the 1997 period to $26.7 million for the 1998
period. This reduction reflects promotional rates offered to certain
subscribers in the last half of 1997. As noted above, promotional activities
were reduced at the beginning of 1998 but will continue to affect revenues
through much of 1998 as the year-long promotion ends and customers are then
charged the System's standard rates. The reduction in revenues also reflects
the approximately 24,400 additional subscribers on average which were subject
to the competitive environment during the nine months ended September 30,
1998, as compared to the same period in 1997. Other revenues increased
slightly from $1.2 million to $1.6 million, or 33.3%. Advertising revenues
increased from $2.7 million to $3.1 million, or 14.8%.
Total average monthly revenue per subscriber was $43.68 for the nine months
ended September 30, 1998 as compared with $45.46 for the nine months ended
September 30, 1997. This decrease reflects the impact of promotional activity
which depressed average monthly revenue per subscriber for the nine months by
$1.99.
Service and administrative expenses (including home office expenses and the
management fee as described above) increased to $22.9 million for the nine
months ended September 30, 1998, compared to $21.4 million for the same period
in 1997, an increase of $1.5 million, or 7.0%. Programming expenses increased
by 16.5%, from $9.1 million in 1997 to $10.6 million in 1998, reflecting
additional channels provided in the competitive areas (as discussed above), an
increase in subscribers and annual increases in programming rates. Fees for
basic and standard programming increased by $1.1 million, from $4.8 million in
1997 to $5.9 million in 1998, while premium services programming costs
increased by $400,000, from $3.5 million in 1997 to $3.9 million in 1998, or
11.4%. Fees for pay-per-view programming decreased by $13,000, or 1.9%. The
System was charged home office expenses that include costs incurred by the
owners of Coaxial and their direct employees relating to the System including
salaries, benefits, legal fees, travel and entertainment, accounting fees and
other office expenses. For the nine months ended September 30, 1998, such
expenses totaled $1.1 million, a decrease of $181,000, or 13.8%. Upon
consummation of the System Acquisition, IHO commenced management services to
the System for which it receives a management fee. Service and administrative
expenses, which accounted for 66.0% of total revenue for the period ended
August 21, accounted for only 52.7% of total revenue from August 21 through
the end of the quarter reflecting the System's new cost structure. In
particular, programming fees were approximately 16.3% less on a per subscriber
basis due to discounts available to the System. In addition, personnel
expenses were less by approximately 14.7% due to the elimination of
duplicative administrative personnel.
Severance and transaction structure costs of $4.8 million were incurred for
the nine months ended September 30, 1998 as a result of the Financing Plan and
the related System Acquisition. These costs consisted of severance costs of
$960,000 and professional fees of $3.8 million.
Depreciation and amortization relating to the System decreased by $332,000,
or 8.0%, due primarily to certain franchising costs having become fully
amortized.
47
<PAGE>
The accrual of the Preferred Interests represents the distribution to be
made to Coaxial. The amount accrued is equal to the sum of the interest
payable on the Senior Notes for the period August 21, 1998 to September 30,
1998 and the interest accreted on the Notes for the same period.
Net income after the effect of the accrual of the Preferred Interests
decreased to $1.8 million for the nine months ended September 30, 1998 from
$10.7 million for the nine months ended September 30, 1997 for the reasons set
forth above.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues for the year ended December 31, 1997 were $48.2 million, compared
to $50.4 million for the year ended December 31, 1996, a decrease of $2.2
million, or 4.3%. Basic, standard and premium revenues accounted for nearly
all of the decrease, declining from $41.3 million in the 1996 period to $39.2
million in the 1997 period, a decrease of $2.1 million, or 5.1%. This decline
in revenue reflects the full impact of the competitive environment for
approximately 23,000 subscribers who were overbuilt in the last half of 1996,
the addition of approximately 23,000 subscribers to the overbuilt areas during
1997 and the effect of a promotional campaign used to grow subscribers in the
last half of 1997. The overall result of the rate reductions and promotional
campaign was alleviated by subscriber growth during 1997, from approximately
88,000 at the end of 1996 to approximately 91,900 at year-end 1997, an
increase of 4.4%. Other revenue declined by $157,000, or 7.2%, to $2.0 million
for 1997, from $2.2 million in 1996, primarily due to installation revenues
which were lower due to promotional offerings. Advertising revenues increased
to $3.4 million for 1997, from $3.1 million in 1996, an increase of 9.7%.
Service and administration expenses (including home office) rose to $28.9
million for the year ended December 31, 1997, compared to $26.9 million for
the same period in 1996, an increase of 7.4%. Fees for basic and standard
programming were $6.4 million in 1997, compared to $4.9 million in 1996, an
increase of 30.6%. The increase in programming costs reflected additional
services added in the competitive areas, subscriber growth and fee increases.
Home office expenses were $1.5 million in 1997, a decrease of $200,000, or
11.8%, from $1.7 million in 1996. The reduction resulted primarily from the
elimination of salaries for shareholder officers. In addition to programming
costs, other expenses increased from $14.4 million in 1996 to $15.2 million in
1997, an increase of $800,000, or 5.6%. Of this increase, $500,000 occurred in
general and administrative and personnel accounts due to increases in benefit
costs, legal fees and office rent.
Depreciation and amortization decreased by $100,000, or 1.8%, to a total of
$5.2 million in 1997.
Interest income and other income (expense) remained relatively consistent
for the years ended December 31, 1997 and 1996.
Net income decreased to $13.9 million for the year ended December 31, 1997
from $17.9 million for the year ended December 31, 1996 for the reasons set
forth above.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues for the year ended December 31, 1996 were $50.4 million, compared
to $46.8 million for the year ended December 31, 1995, an increase of $3.6
million, or 7.7%. Basic, standard and premium revenues accounted for most of
the increase, rising $2.4 million, or 6.2%, from $38.9 million in 1995 to
$41.3 million in 1996, due to subscriber growth at a compound annual growth
rate ("CAGR") of approximately 2.3% and modest increases in rates. Pay-per-
view revenues increased 33.3% to $2.4 million in 1996, compared to $1.8
million in 1995. Advertising revenues rose from $2.8 million in 1995 to $3.1
million in 1996, an increase of 10.7%, and other revenue increased by $285,000
to $2.2 million in 1996.
Service and administration expenses (including home office) rose to $26.9
million for the year ended December 31, 1996, an increase of $3.3 million, or
14.0%, compared to 1995. Programming fees accounted for 61.0% of this
increase, rising from $8.9 million in 1995 to $10.9 million in 1996, an
increase of 22.5%. In
48
<PAGE>
addition to programming costs, other expenses increased by 8.8% in 1996. Sales
and marketing expenses were $1.1 million in 1996, an increase of 27.1%,
primarily due to increased campaign costs associated with the beginning of the
competitive overbuild. Customer service and collection expenses increased by
13.7% to $1.5 million in 1996 due to higher collection costs and wage
increases intended to decrease turnover. Personnel expenses increased by 17.2%
to $819,000 in 1996 due to higher benefits costs. Home office expenses were
$1.7 million in 1996 and 1995, respectively.
Depreciation and amortization were $5.3 million in 1996, an increase of
$500,000, or 10.6%, compared to 1995, due primarily to increased construction
in 1996 associated with the competitive environment.
Interest income and other income (expense) remained relatively consistent
for the years ended December 31, 1996 and 1995.
Net income decreased $17.9 million for the year ended December 31, 1996 from
$18.2 million for the year ended December 31, 1995 for the reasons set forth
above.
LIQUIDITY AND CAPITAL RESOURCES
The cable television business is a capital intensive business that generally
requires financing for the upgrade, expansion and maintenance of the technical
infrastructure. The capital expenditures of Coaxial relating to the System
totaled $5.7 million, $6.0 million and $5.6 million for the years ended
December 31, 1995, 1996 and 1997, respectively, and $4.3 million for the nine
months ended September 30, 1998. These expenditures were primarily for serving
new homes, the rebuild of cable plant, equipment purchases, the upgrade and
replacement of service vehicles and routine maintenance and replacement of
cable plant and related equipment. Prior to August 21, 1998, the capital
expenditures were financed through borrowings under the Chase Credit Facility
and cash flows from operations. Subsequent to August 21, 1998, the capital
expenditures were financed by cash received from the Financing Plan and cash
flows from operations.
IHO plans to further enhance the technical platform of the System by
upgrading the plant serving the majority of subscribers. The capability for
high-speed data transmission, impulse pay-per-view, digital tiers of service
and additional analog channels is intended to be provided by further
deployment of fiber optics, an increase in the bandwidth to 870 MHz,
activation of the reverse plant to allow two-way communications and the
installation of digital equipment.
Capital expenditures are expected to approximate $30.0 million over the next
12 months to support not only ongoing plant extensions, new customer additions
and maintenance capital, but also to fund an upgrade of a significant portion
of the plant to 870 MHz and to activate plant for 2-way transmission, which is
necessary to facilitate the deployment of interactive services. It costs
approximately $1,500/mile to activate 2-way or reverse plant. IHO expects to
complete the upgrade of the plant with 2-way activation within 16 months. IHO
had originally planned to rebuild the plant to 750 MHz, but upon further
review, decided to expand the plant capacity to 870 MHz. In addition, IHO
decided to enlarge the upgrade by approximately 400 miles. The combination of
these changes resulted in incremental capital costs of approximately $8.0
million. In September 1998, IHO announced that it would fund the additional
costs by an additional infusion of $8.0 million of equity into Insight Ohio.
The Original Notes Offering was part of the Financing Plan implemented to
facilitate the organization of Insight Ohio, the acquisition of the System by
Insight Ohio and to provide for the System's liquidity and operational and
financial flexibility. Pursuant to the Financing Plan:
. Coaxial contributed to Insight Ohio substantially all of the assets
comprising the System for which Coaxial received a 25% non-voting common
membership interest in Insight Ohio as well as the voting Preferred
Interests in Insight Ohio, which provide for distributions to Coaxial
that will be used to pay interest and principal on the Senior Notes and
to pay dividends to the Individual LLCs that will be used to pay interest
and principal on the Notes;
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. IHO contributed $10.0 million in cash to Insight Ohio for which it
received a 75% non-voting common membership interest in Insight Ohio;
. the Issuers effected the Original Notes Offering;
. the Senior Notes Issuers effected the Senior Notes Offering; and
. a portion of the existing bank indebtedness of the Issuers and certain of
their affiliates was repaid and the balance was purchased by CIBC and
restructured in accordance with an agreement among the parties.
The gross proceeds received by the Issuers from the Original Notes Offering
were approximately $30.0 million. Proceeds from such private offering were
used for the repayment of outstanding indebtedness (approximately $28.9
million). CIBC purchased certain outstanding indebtedness (approximately
$136.4 million) of Coaxial and Phoenix and restructured that debt in
accordance with the Financing Plan. CIBC funded such purchase with proceeds
from the Senior Notes Offering. The remaining proceeds from the Original Notes
Offering and the Senior Notes Offering and the $10.0 million cash contribution
from IHO were used for working capital (approximately $2.9 million), deferred
compensation and severance payments (approximately $3.0 million) and fees and
expenses (approximately $8.8 million). See "Use of Proceeds."
Insight Ohio entered into the Senior Credit Facility on October 7, 1998 with
Canadian Imperial Bank of Commerce (which is an affiliate of CIBC), as agent
("Canadian Imperial Bank"), for the purpose of financing its future capital
expenditures and for working capital and general purposes, including the
planned upgrade of the System's technical capability, as discussed above. The
Senior Credit Facility is a six-year $25 million reducing revolving credit
facility. To date, no borrowings have been made under the Senior Credit
Facility and $25 million remains available for borrowing. See "Description of
Certain Indebtedness--Senior Credit Facility."
The Issuers expect to make interest payments on the Notes from funds
distributed to Coaxial in respect of the Series B Preferred Interests in
Insight Ohio to the extent permitted under the terms of the Senior Credit
Facility. Insight Ohio accrues preferred dividends in respect of the Series B
Preferred Interests in amounts necessary to make payments under the Notes. See
"The System Acquisition," "Description of Governing Documents" and
"Description of Certain Indebtedness--Senior Credit Facility."
Insight Ohio's obligations under the Senior Credit Facility are secured by
substantially all the tangible and intangible assets of Insight Ohio. Loans
under the Senior Credit Facility bear interest, at Insight Ohio's option, at
Canadian Imperial Bank's prime rate or at a Eurodollar rate. In addition to
the index rates, Insight Ohio pays an additional margin percentage tied to its
ratio of total debt to adjusted annualized operating cash flow, in the case of
prime rate loans, 0.75% or, if under a 5:1 ratio, 0.25%; and in the case of
Eurodollar loans, 2.0% or, if under a 5:1 ratio, 1.5%.
The Senior Credit Facility contains a number of covenants that, among other
things, restricts the ability of Insight Ohio and its subsidiaries to make
capital expenditures, dispose of assets, incur additional indebtedness, incur
guaranty obligations, pay dividends or make capital distributions, including
distributions on the Preferred Interests that are required to pay the Notes
and the Senior Notes in the event of a payment default under the Senior Credit
Facility, create liens on assets, make investments, make acquisitions, engage
in mergers or consolidations, engage in certain transactions with subsidiaries
and affiliates and otherwise restrict certain activities. In addition, the
Senior Credit Facility requires compliance with certain financial ratios,
including with respect to total leverage, interest coverage and pro forma debt
service coverage. Management does not expect that such covenants will
materially impact the ability of Insight Ohio to operate its business.
The Indenture and the Senior Notes Indenture impose (i) restrictions, that,
among other things, limit the amount of additional indebtedness that may be
incurred by the Issuers and their subsidiaries (including Insight Ohio) and
(ii) limitations on, among other things, investments, loans and other
payments, certain transactions with affiliates and certain mergers and
acquisitions.
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The ability of Insight Ohio to comply with the covenants and restrictions of
the Indenture, the Senior Notes Indenture and the Senior Credit Facility can
be affected by events beyond its control, and there can be no assurance that
Insight Ohio will achieve operating results that would permit compliance with
such provisions. The breach of certain provisions of the Senior Credit
Facility would, under certain circumstances, result in defaults thereunder,
permitting the lenders thereunder to prevent distributions with respect to the
Preferred Interests and to accelerate the indebtedness thereunder. If Insight
Ohio were unable to repay the amounts due in respect of the Senior Credit
Facility, the lenders thereunder could foreclose upon the assets pledged to
secure such repayment. Any of such events would adversely affect the ability
of the Issuers to service the Notes or comply with the redemption provisions
of the Series B Preferred Interests.
Cash provided by operations for the nine months ended September 30, 1998 was
$9.5 million compared to $14.2 million for the same period in 1997. This
decrease in the System's net cash flow from operations is primarily the result
of a decrease in net income from the continued effects of competition.
The System used cash in investing activities for the nine months ended
September 30, 1998 and 1997 of $4.3 million and $3.5 million, respectively.
For the nine months ended September 30, 1998 and 1997, the System had capital
expenditures of $4.3 million and $3.5 million, respectively, to build plant
and purchase equipment needed to service customers.
Cash provided by financing activities, excluding activities not included in
net assets to be contributed, for the nine months ended September 30, 1998 and
1997 was $1.7 million. Cash provided by financing activities was primarily
generated from the issuance of the Notes, the Senior Notes and the $10 million
contribution by IHO which was subsequently offset by approximately $8.1
million of capital distributions to Coaxial. For the nine months ended
September 30, 1997, cash used in financing activities, excluding activities
not included in net assets to be contributed, was $196,000. This cash was used
primarily for capital lease payments.
Cash provided by operations for the year ended December 31, 1997 was $19.5
million compared to $22.0 million for the same period in 1996. This decrease
in the System's net cash flow from operations was primarily the result of a
decrease in net income from the effects of competition. This decrease was
offset by better management of subscriber receivables and accrued liabilities.
The Systems's cash used in investing activities for the year ended December
31, 1997 and 1996 was flat at $5.6 million and $5.7 million, respectively. The
System continued to use capital expenditures to build plant and purchase
equipment for subscriber acquisition. Capital expenditures were $5.6 million
for the year ended December 31, 1997 compared to $6.0 million for the year
ended December 31, 1996.
Cash used in financing activities for the years ended December 31, 1997 and
1996 was $14.2 million and $16.0 million, respectively. Cash used for
financing activities was primarily used by the System for lending to related
parties.
Management anticipates that cash flows from operations, together with the
$8.0 infusion by IHO and amounts available under the Senior Credit Facility,
will be sufficient to finance the operating requirements of the System, debt
service requirements, distributions on the Preferred Interests and anticipated
capital expenditures for the next five years.
INFLATION AND CHANGING PRICES
The System's costs and expenses are subject to inflation and price
fluctuations. Although changes in costs can be passed through to subscribers,
such changes may be constrained by competition. Management does not expect
inflation to have a material effect on the System's results of operations.
YEAR 2000
The Year 2000 ("Y2K") will pose a unique set of challenges to those
industries reliant on information technology. As a result of the methods
employed by early programmers, many software applications and operational
programs may be unable to distinguish the Year 2000 from the Year 1900. If not
effectively
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addressed, this problem could result in the production of inaccurate data, or,
in the worst cases, the inability of the systems to continue to function
altogether. Insight Ohio and other companies in the same business are
vulnerable to their dependence on distribution and communications systems.
Insight Ohio's greatest Y2K exposure is presented by its third party billing
system which is responsible for mailing monthly bills to customers and
maintaining customer data. Insight Ohio has recently implemented the Convergys
billing system. Convergys has informed Insight Ohio that testing of the
billing system will be completed by the first quarter of 1999.
Management believes that the remaining systems of Insight Ohio will be fully
Y2K compliant by the end of the third quarter of 1999. Insight Ohio has
completed an inventory of all areas which are at risk and is in the process of
replacing and upgrading all equipment and software as needed. Due to Insight's
affiliation with TeleCommunications, Inc. ("TCI"), Insight Ohio is a member of
TCI's Y2K task force. This allows Insight Ohio access to TCI's extensive
database which details various vendors', suppliers' and programmers' Y2K
compliance. Management estimates that the total cumulative costs relating to
its efforts to make its systems Y2K compliant will be approximately $120,000,
of which $20,000 has been incurred as of September 30, 1998.
Management believes that the expenditures required to bring Insight Ohio's
systems into compliance will not have a materially adverse effect on Insight
Ohio's performance. However, the Y2K problem is pervasive and complex and can
potentially affect any computer process. Accordingly, no assurance can be
given that Y2K compliance can be achieved without additional unanticipated
expenditures and uncertainties that might affect future financial results.
Moreover, to operate its business, Insight Ohio relies on governmental
agencies, utility companies, telecommunications companies, shipping companies,
suppliers and other third party service providers over which it can assert
little control. Insight Ohio's ability to conduct its business is dependent
upon the ability of these third parties to avoid Y2K related disruptions.
Insight Ohio is in the process of contacting its third party service providers
about their Y2K readiness, but Insight Ohio has not yet received any
assurances from any such third parties about their Y2K compliance. If Insight
Ohio's key third party service providers do not adequately address their Y2K
issues, Insight Ohio's business may be materially affected, which could result
in a materially adverse effect on Insight Ohio's results of operations and
financial condition.
Insight Ohio has not, as of the date of this Prospectus, developed any
contingency plans, as such plans will depend on the responses from its third
party service providers, in the event Insight Ohio or any key third party
providers should fail to become Y2K compliant.
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BUSINESS
THE SYSTEM
Coaxial and Phoenix are private entities, which are each owned indirectly by
Barry Silverstein (67.5%), Dennis J. McGillicuddy (22.5%) and D. Stevens McVoy
(10%). Since 1970, Coaxial has owned and operated a cable television system in
the Columbus, Ohio metropolitan area. Recently, Coaxial determined that it was
in the best interests of its principals and customers to seek strategic
alternatives for the System, including creating a partnership with a larger
MSO or selling the System in order to better position the System for future
growth. The principals believed that a larger entity with broad financial
resources, purchasing efficiencies and management depth would better serve the
System toward the development of new and expanded technology and services.
Consequently, Insight Ohio was formed for the purpose of acquiring Coaxial's
cable television system in the Columbus, Ohio metropolitan area. As a result
of the Financing Plan, IHO owns 75% of the common membership interests of
Insight Ohio. IHO manages the operations of the System and has effective
control over its business. As a result of the Financing Plan, Coaxial owns a
25% common membership interest in Insight Ohio and 100% of the voting
Preferred Interests.
As of September 30, 1998, the System passed approximately 170,000 homes and
served approximately 90,300 basic subscribers in the eastern portion of the
City of Columbus and the surrounding suburban communities. Columbus, located
in the 34th largest designated market area ("DMA") in the United States, is
the capital of Ohio and home of The Ohio State University. In addition to the
state government and university, the Columbus economy is well diversified with
a significant presence of prominent companies such as The Limited, Merck,
Wendy's, Nationwide Insurance, Borden and Worthington Industries. The area's
strong economy provides for a well-paid employment base with an unemployment
rate of 2.9%. The average household income of the System's service area is
approximately $51,000 per year.
Portions of the System operate in a competitive environment. Subscribers in
those areas have access to two wired cable television providers--the System
and Ameritech's cable subsidiary, Ameritech New Media--as well as DBS systems
and MMDS systems. The areas of the System served by two wireline operators
pass approximately 121,500 homes, representing 71% of the System's total homes
passed. Even in this competitive environment, the System's basic subscribers
increased from approximately 86,000 at the end of 1995, prior to Ameritech's
entry into the marketplace, to approximately 90,300 as of September 30, 1998,
a CAGR of 2.3%.
Offsetting some of the impact of competition, the System enjoys a high level
of population growth in the suburban communities east of Columbus. Over the
past three years, more than 15,800 homes passed have been added to the System
through new plant extensions, primarily in new housing developments. This
represents a 3.0% CAGR of homes passed for the System, which Management
believes is one of the highest levels in the cable television industry for a
major cable system.
IHO expects in the near future to upgrade the technical capability of the
System by increasing its bandwidth to 870 MHz. Currently, the System has
approximately 800 miles of 490 MHz plant and approximately 1,700 miles of 468
MHz plant. There also are approximately 175 miles of fiber optic cable
deployed in the System (approximately 7.3% of total cable miles). The increase
in bandwidth will allow the System to deliver new services such as digital
cable, high-speed Internet connections, two-way data, and other
telecommunications services.
The System has developed an award winning local-origination and production
team which has created a firm foundation for its position in the community as
a "good citizen." An impressive list of awards has further enhanced the
System's strong local presence, including:
.1997 OCTA Image Award: System Marketing
.1997 OCTA Image Award: Advertising
.1997 OCTA Image Award: Sports Programming
.1996 Pinnacle Award: Women In Cable & Telecommunications
.1996 OCTA Image Award: Best Overall Commitment to the Community
.1996 OCTA Image Award: Excellence in Local Programming
.1996 OCTA Image Award: Excellence Community Service
.1996 OCTA Image Award: Sports Programming
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.1996 OCTA Image Award: Advertising
.1996 ESPN Coaches Corner: Advertising Sales Team of the Year
.1996 CAB Individual Sales Achievement Award
THE MANAGER
Insight is one of the top 20 multiple system operators ("MSOs") in the
United States based on the number of subscribers served. For the past five
years, Insight's largely suburban properties have resulted in average growth
rates for homes passed and subscribers of 4.8% and 5.9%, respectively, among
the fastest growth rates achieved in the industry. Insight was co-founded in
1985 by Sidney R. Knafel, Chairman of Insight, and Michael S. Willner,
President and Chief Executive Officer of Insight, both of whom have been
active in the cable business since the early 1970's. Kim D. Kelly joined
Insight in 1990 as Executive Vice President and Chief Financial Officer and
recently was named Chief Operating Officer. In addition to many years of
conventional cable television experience, Insight's management team has been
intimately involved in the development and deployment of full service
telecommunications networks. In 1989, through an affiliated entity, Insight
Communications Company U.K., L.P., Insight entered the U.K. cable television
market, where today modern hybrid fiber-coaxial networks are deployed widely.
Messrs. Knafel and Willner remain on the board of NTL, Inc., the publicly
traded successor to the Insight U.K. affiliate and one of the three major
cable television operators in the competitive U.K. market with franchises
covering over five million homes, including pending acquisitions.
A series of swaps, acquisitions and a joint venture have recently been
executed resulting in the current composition of Insight. The largest of these
transactions was the equal partnership between Insight and TCI, the largest
MSO in the United States, in which, among other things, the two companies
contributed most of their Indiana cable systems into a joint venture which
Insight manages and controls. Prior to those transactions, as of September 30,
1998, Insight's systems were located in seven states with approximately 65% of
the subscribers clustered in Illinois and Indiana. At the conclusion of all of
its currently signed transactions, Insight management estimates that Insight
owns or manages cable television systems with over 506,000 subscribers in six
states with over 90% of the subscribers clustered in Illinois, Indiana and
Ohio.
Insight's relationship with TCI provides Insight with a depth of knowledge
and understanding regarding principal and material issues and challenges
presently facing the cable television industry. Because of this relationship,
Insight has participated in TCI affiliate meetings to discuss important
industry topics such as digital technology, new generation converter designs,
cable modems, and most recently the impact of the proposed AT&T acquisition of
TCI both on TCI's affiliates and on the industry as a whole. Based on such
meetings, Insight has indicated that while the AT&T acquisition of TCI will
not directly impact Insight Ohio or the System, AT&T has expressed an interest
in working with TCI's affiliates, not only in affiliated systems, but in other
systems owned by the affiliates in areas such as co-marketing
telecommunications services.
THE INSIGHT SYSTEMS
The following table summarizes certain historical data relating to the cable
television systems operated by Insight during the five years ended December
31, 1997. Since there were no material acquisitions or divestitures of cable
systems during the period, the results depicted reflect only internal changes,
year-to-year:
<TABLE>
<CAPTION>
% % % % FOUR YEAR
1993 1994 CHANGE 1995 CHANGE 1996 CHANGE 1997(1) CHANGE CAGR
--------- ------- ------ ------- ------ ------- ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Homes passed............ 277,588 291,305 4.9% 304,261 4.4% 320,713 5.4% 335,347 4.6% 4.8%
Basic subscribers....... 142,327 153,523 7.9% 163,923 6.8% 171,164 4.4% 179,043 4.6% 5.9%
Basic penetration....... 51.3% 52.7% 2.8% 53.9% 2.2% 53.4% (0.9)% 53.4% 0.0% 1.0%
Revenue(2) ($000)....... $ 51,009 $52,820 3.6% $54,108 2.4% $61,839 14.3% $67,513 9.2% 7.3%
Operating Cash
Flow($000)............. $ 24,456 $25,645 4.9% $28,115 9.6% $31,003 10.3% $34,090 10.0% 8.7%
Operating Income($000).. $ 4,616 $10,996 138.2% $14,178 28.9% $15,309 8.0% $16,598 8.4% 45.9%
Net Income
(Loss)($000)........... $ (15,999) $(5,670) 64.6% $(4,601) 18.9% $(2,815) 38.8% $ 6,469 329.8% 113.0%
Average revenue per
subscriber............. $ 30.89 $ 29.93 (3.1)% $ 30.10 0.6% $ 30.87 2.6% $ 32.01 3.7% 0.9%
Operating Cash Flow
margin................. 47.9% 48.6% 1.3% 52.0% 7.0% 50.1% (3.5)% 50.5% 0.7% 1.3%
</TABLE>
- --------
(1) For presentation purposes, 1997 data does not reflect the swap of
Insight's systems in Phoenix, Arizona for systems in Lafayette, Indiana,
which occurred on December 15, 1997.
(2) Revenue excludes franchise fees effective September 1, 1993.
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The table illustrates Insight's success in acquiring high-growth cable
television systems in growing markets. From 1993 to 1997, the CAGR for homes
passed and basic subscribers was 4.8% and 5.9%, respectively. During 1994,
when the effect of the re-regulation of the cable industry impacted the
financial statements of the companies, Insight's revenue-per-subscriber was
reduced by over 3%. However, unlike most of the industry, Operating Cash Flow
still increased by nearly 5%.
INSIGHT BUSINESS STRATEGY
Two years ago, Insight initiated a strategic plan designed to augment its
core business of delivering multi-channel video. The strategy calls for:
. the upgrade of plant to a minimum of 750 MHz hybrid fiber-coaxial
platforms from which to deploy new value-added services such as high-
speed data access, digital video and telephony services;
. the reconfiguration of existing systems in a series of swaps to achieve
subscriber clusters with a strong market presence; and
. an acquisition plan focused on markets with attractive demographics and a
high ratio of subscribers to headends.
The acquisition of the System by Insight Ohio is an integral part of
Insight's long-term business strategy. The System has a strong market presence
in a state capital and academic center with a diverse, growing economy. All of
the System's subscribers are served from a single headend allowing for
efficient capital deployment for new services.
SYSTEM OPERATING STRATEGY
The System fits the profile of cable television systems that Insight seeks
to own and operate. The System is large enough to have a significant market
presence and all subscribers are serviced from one headend. In addition,
Columbus is geographically proximate to other Insight cable systems with a
subscriber universe having the type of demographic profile that Insight
believes will widely accept new telecommunications offerings. IHO intends to
aggressively implement Insight's upgrade strategy in Columbus.
During the first year after the System Acquisition, Management expects to
increase the System's channel capacity in order to broaden its core analog
service offerings. Management also expects to increase revenues as the System
upgrade is completed by adding new services such as digital cable, high-speed
modems and other newly developing telecommunications services. Insight already
has a national affiliation agreement with @Home to provide high-speed Internet
connections over its cable television system infrastructure. Management either
will extend that agreement to the System or will affiliate the System with
Time Warner's Road Runner Internet service which is presently available in
Time Warner's Columbus cable system.
With respect to programming, Management believes it can effectively
repackage the channel offerings to more advantageously compete without
reducing revenue per subscriber. Management's strategy is to compete in the
marketplace with its exclusive local programming, higher quality local service
and increased new technology offerings as opposed to promotional discounts.
Due to its relationship with MediaOne (formerly Continental Cablevision),
Insight will provide programming discounts to the System through November
1999. After such date, Insight believes that through its strategic alliances
with other major MSOs, utilizing programming cooperatives or through its own
purchasing power, it will be able to continue to obtain programming for the
System at a cost lower than that presently available to Coaxial. Management
also plans to implement additional cost savings measures, including specific
employee reductions.
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OVERBUILD
In 1996, Ameritech, the telephone local exchange carrier for Columbus,
obtained a citywide cable television franchise for the City of Columbus.
Ameritech began offering cable television service in June 1996 and to date has
substantially built its entire citywide franchise, both in the System's
service area and in the Time Warner service area on the west side of Columbus.
The Time Warner system and the System service virtually distinct areas and
therefore do not compete with each other. The overbuild by Ameritech passes
approximately 71% of the homes passed by the System (approximately 121,500
homes). Ameritech has cable television franchise applications pending in two
surrounding communities covering an additional 2,000 of the System's homes and
1,200 of the System's subscribers.
Coaxial's strategy to compete with the overbuild has included the following:
. selectively constructing fiber optic cable deeper into the overbuild area
to create additional channel capacity;
. adding more movies, music, news, live sports and exclusive programming
such as TV Land and Central Ohio Sport! Television on the higher
bandwidth;
. decreasing the System's standard rate to be slightly below that offered
by Ameritech;
. repackaging the System's pay services and selectively using promotions;
. significantly increasing the use of focused target marketing; and
. stressing local customer service.
The promotions offered to certain of the System's subscribers had a negative
impact on operating results. Management believes that the adverse impact of
its promotional activities will be reduced as the level of promotional
activity has abated since mid-year.
Management believes that the System has been effective in competing with
Ameritech and maintaining its overall subscriber base. Since the beginning of
the overbuild in June 1996, the System's subscriber base has increased from
approximately 87,700 to approximately 90,300 as of September 30, 1998. In the
overbuild area, the System currently serves approximately 58,000 subscribers.
As of September 30, 1998, the System's net loss in the overbuild area has been
limited to approximately 2,937 subscribers since Ameritech entered the market
as the System has increased penetration from 46.1% to 48.0%. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Competitive Overview."
TECHNOLOGICAL DEVELOPMENTS
Management believes that in order to achieve consistently high levels of
customer service, maintain a strong competitive posture and deploy important
new technologies, a robust technical platform needs to be maintained.
Presently the System is comprised of approximately 2,500 miles of plant
passing approximately 170,000 homes resulting in a density of 68 homes per
mile. Approximately 32% of the plant has been expanded to 490 MHz and
approximately 68% is built at 468 MHz. The System is 100% addressable, with
approximately 86% of the basic subscribers having addressable converters.
The System's deployment of fiber optic cable began in 1989. Its use was
originally for two main purposes: to improve end-of-the-line performance and
to increase reach for service of areas as yet uncabled. In addition, the fiber
program created a redundant network allowing for automatic backup in case of
system failure. Presently, 72 nodes are active, allowing for narrow casting
and differentiation of channel lineups from the single headend.
A direct result of this fiber-rich platform is an improvement in picture
quality, and the impact of System outages has been diminished because outages
impact much smaller areas (especially in terms of commercial power problems).
The System now has the capability to run four separate lineups from a single
headend and has the ability to narrow-cast in terms of cross-channel
advertisement and zone areas for commercial insertion. In
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addition, this platform will allow for the roll out of future new revenue
streams such as high-speed data, Internet access and interactive services. A
self-healing ring is also in place that feeds the optical transition hub
building to prevent catastrophic failure in all associated areas. Internet
high-speed data services were launched in May 1998.
IHO plans to further enhance the technical platform of the System by
upgrading the plant serving the majority of subscribers. The capability for
high-speed data transmission, impulse pay-per-view, digital tiers of service
and additional analog channels is intended to be provided by further
deployment of fiber optics, an increase in the bandwidth to 870 MHz,
activation of the reverse plant to allow two-way communications and the
installation of digital equipment.
All of the System's basic subscribers currently have access to addressable
technology and approximately 86% have addressable converters in their homes.
Addressable technology enables the System to electronically control the cable
television services being delivered to the customer's home. As a result, the
System can electronically upgrade or downgrade services to a customer
immediately, from its customer service center, without the delay or expense
associated with dispatching a technician to the customer's home. Addressable
technology also reduces premium service theft, is an effective enforcement
tool in the collection of delinquent payments and enables the System to offer
pay-per-view services, including movies and special events.
Management believes that active use of fiber optic technology as an
alternative to coaxial cable is expected to play a major role in expanding
channel capacity and improving the performance of the System. Fiber optic
strands are capable of carrying hundreds of video, data and voice channels
over extended distances without the extensive signal amplification typically
required for coaxial cable. The System will continue to deploy fiber optic
cable further reducing amplifier cascades while improving picture quality and
system reliability.
Recently, high-speed cable modems and set-top boxes using digital
compression technology have become commercially viable. These developments
allow for the introduction of high-speed data services and Internet access and
will increase the programming services available to customers. Digital
compression technology provides for a significant expansion of channel
capacity with up to 12 digital channels to be carried in the bandwidth of one
analog channel. Insight has experimented with 3Com cable modems in its
Noblesville, Indiana system and plans to deploy a high-speed Internet service
in some systems before the end of 1998. Insight has a national affiliation
agreement with @Home, the largest high-speed Internet cable service.
Management intends to install two-way capability in the System rebuild and a
wide-spread rollout is planned for 1999.
MARKETING, PROGRAMMING AND RATES
Marketing
The System's marketing programs and campaigns are based upon offering a
variety of cable services creatively packaged and tailored to appeal to its
different markets and to segments within its markets. The System surveys its
customer base to ensure that it is meeting the demands of its customers and
stays abreast of its competition in order to effectively counter competitors'
promotional campaigns. The System uses a coordinated array of marketing
techniques to attract and retain customers and to increase premium service
penetration, including door-to-door and direct mail solicitation,
telemarketing, media advertising, local promotional events typically sponsored
by programming services and cross-channel promotion of new services and pay-
per-view. Using a skilled team of marketing professionals, the System has
competed by supporting an innovative variety of marketing activities,
including the following:
Promotion. The System's marketing team functions as an in-house ad agency
handling graphic design, art direction, television scripting and radio
scripting at significant savings over outside agencies. Using state-of-the-art
software packages, the marketing team is able to produce direct mail, video,
print and collateral marketing materials in-house. In addition, sophisticated
in-house capabilities allow for the quick and inexpensive production of
promotional and competitive educational spots to air on any of 20 channels for
which the System has inserted
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advertising spots. Management zones the System's service areas into two
regions: competitive and non-competitive. This zoning provides separate and
distinct channel line-ups to subscribers in the competitive and non-
competitive regions of the System. The System also has its CableData homes
passed database zoned similarly. This provides a significant advantage by
delivering a customized "competitive" message to only those subscribers in the
zoned competitive area. The System has run an average of 15,000 marketing
commercials per month, fully utilizing any unsold advertising spots.
Telemarketing. The System's in-house telemarketing operation consists of an
eight-person team including a supervisor and an order-entry person. A Telecorp
predictive dialer is used which allows the telemarketing group to achieve
better sales calls results. The telemarketing group also collects customer
surveys and provides additional phone capacity to customer service
representatives during peak periods such as heavy media campaigns.
Guide. The System produces a 200-page monthly programming guide. The guide
features extensive custom features including the cover, pay-per-view, sports
calendars, VCR+ Codes and a 16-page advertiser supported coupon section. The
guide also gives the System a vehicle to provide subscriber notifications and
any technical information that is traditionally delivered via more expensive
bill inserts or direct mail. It is also customized and zoned to competitive
and non-competitive areas. The guide is profitable with a 68% penetration.
Market Analysis. The System employs a full-time marketing analyst and
utilizes a wide variety of software programs, including Paradox and Claritas
Prism Cluster Coding. This support function supplies analysis and reporting
capabilities not normally available within cable industry MIS operations that
are traditionally supported by billing systems. This type of market analysis
is particularly effective in tracking competitive activity and promotional
offers in the overbuild areas.
Apartment Management. Approximately 36% of the System's subscribers reside
in apartment housing units or Multiple Dwelling Units ("MDUs"). Management
believes that in a competitive environment, the management of the MDU market
and the apartment owners will grow in importance. The apartment group provides
support for the entire MDU customer base. The group works with apartment
managers throughout the System to manage move-in and move-out lists in an
effort to maximize penetration within the market. It has developed strong
working relationships with key apartment owners and managers and is an active
member in The Greater Columbus Apartment Association. As of September 30,
1998, the group had executed exclusive contracts with apartment complexes
representing 26,000 of the System's homes passed, providing a significant
competitive advantage in the overbuilt market.
Network Spot Sales. In addition to customer fees, the System derives a
modest amount of revenue from the sale of local spot advertising time on
locally originated and satellite-delivered programming. The advertising sales
operation currently inserts advertising spots on the following 20 channels:
A&E, BET, Comedy Central, CNN, Discovery, ESPN, ESPN-2, Fox Family Channel,
Fox Sports, Golf, Headline News, Home & Garden, Lifetime, MTV, Nickelodeon,
TBS, TNN, TNT, TV Land and USA. The System utilizes digital insertion
technology supplied by SeaChange Digital. As a result of the latest insertion
equipment and an experienced and talented advertising team, the System
generates approximately $36.00 of total advertising revenue per subscriber on
an annual basis, placing it near the top of the industry in spot sales
revenue.
Home Shopping. The System also derives a modest amount of revenue from
affiliations with home shopping services (which offer merchandise for sale to
customers and compensate system operators with a percentage of their sales
receipts). Utilizing two full-time networks and one part-time network, the
System generated home shopping revenues of $3.95 per subscriber in 1997.
Other Advertising Sales. The System has also developed a classified channel
designed both to attract new advertising clients as well as to create value-
added programs which enhance subscriber satisfaction. Among the System's
programming are several real estate programs, a career search program, leased
access and a membership marketing program called "Cable Saver" which offers
discounts at local merchants to subscribers,
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thus helping subscribers partially offset their cable bills. The System
expects to generate approximately $7.30 per subscriber on an annual basis from
classifieds. When combined with network spot sales, the System's strong
advertising business affords it the top spot among MSOs when ranked by gross
advertising revenue per basic subscriber.
Central Ohio Sport! Television. In early 1998, the System teamed up with the
local Time Warner cable system to develop a local sports programming package
under the brand "Sport!". This exclusive package is not available to
Ameritech's cable subscribers. "Sport!" features as its cornerstone 31 Ohio
State University games including women's basketball, men's ice hockey, women's
volleyball, men's baseball and the annual Spring Football Game. In addition
"Sport!" will offer 40 to 50 additional professional, collegiate and high
school sporting events on the same exclusive basis.
Production. The System produces all of the local programming for Central
Ohio Sport! Television, as well as other events as varied as harness racing
and marching band competitions. The System has a state-of-the-art commercial
production facility, including a 1996 mobile production vehicle, electronic
field production ("EFP") equipment and an on-line edit suite. The combination
of the mobile truck, EFP equipment and the edit suite allow the vast majority
of commercial production work to be done in-house at significant cost savings
over outside production facilities.
High Speed Internet Access. In May 1998, the System began offering high-
speed Internet access via asymmetrical (telephone return) cable modems under
the brand name Coaxial Express. The service is provided in a "turnkey" fashion
under an agreement with Frontier Global Center. Customers can download files
and information from the Internet at speeds up to 1.5 megabits per second, or
30 to 50 times faster than traditional dial up Internet access services.
Customers can upload files and information to the Internet at speeds up to
33.6 kilobits per second. The System currently has approximately 140
subscribers to this service. Ameritech does not offer high speed Internet
access in the System's service area, providing the System with a competitive
advantage in the Internet access market.
Programming
The System has various contracts to obtain basic and premium programming for
the System from program suppliers whose compensation is typically based on a
fixed fee per customer. Due to its relationship with MediaOne (formerly
Continental Cablevision), Insight will provide programming discounts to the
System through November 1999. After such date, Insight believes that through
its strategic alliances with other major MSOs, utilizing programming
cooperatives or through its own purchasing power, it will be able to continue
to obtain programming for the System at a cost lower than that presently
available to Coaxial.
Some program suppliers provide volume discount pricing structures or offer
marketing support to the System. The System's successful marketing of multiple
premium service packages emphasizing customer value enables the System to take
advantage of such cost incentives. The System's programming costs are expected
to increase in the future due to additional programming being provided to its
customers, increased costs to purchase programming, inflationary increases and
other factors affecting the cable television industry. The System also has
various retransmission consent arrangements with commercial broadcast stations
which generally expire in December 1999 and beyond. None of these consents
require payment of fees for carriage; however, the System has entered into
agreements with certain stations to carry satellite-delivered cable
programming which is affiliated with the network carried by those stations.
See "Legislation and Regulation."
The System offers a "basic service tier," consisting of local television
channels (network and independent stations) available over-the-air, and local
public, governmental and educational access channels. The System offers, for a
monthly fee, an expanded basic tier of various satellite-delivered, non-
broadcast channels (such as CNN, MTV, USA, ESPN and TNT). In addition to these
services, the System provides premium services such as HBO, Cinemax, Showtime,
The Movie Channel and Starz!, which are combined in different formats to
appeal to the various segments of the viewing audience. These services are
satellite-delivered channels consisting principally of feature films, original
programming, live sports events, concerts and other special entertainment
features, usually presented without commercial interruption. Such premium
programming services are offered by
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the System both on a per-channel basis and as part of premium service packages
designed to enhance customer value and to enable the System to take advantage
of programming agreements offering cost incentives based on premium service
unit growth. Subscribers may subscribe to one or more premium service units. A
"premium service unit" is a single premium service for which a subscriber must
pay an additional monthly fee in order to receive the service. Management
plans to upgrade the System using fiber optic technology, which will allow the
System to expand the number of multiplexed premium screens (additional
channels such as Showtime 2 and HBO Family) providing greater value for the
subscriber. The upgrade will also give the System the ability to use "tiered"
packaging strategies for marketing premium services and promoting niche
programming services. Management believes that this ability will increase
basic and premium penetration as well as revenue per basic subscriber. The
System also provides five pay-per-view services purchased from independent
suppliers such as Viewer's Choice and Showtime Event Television. These
services are satellite-delivered channels, consisting principally of feature
films, adult movies, live sporting events, concerts and other special events,
usually presented without commercial interruption. Such pay-per-view services
are offered by the System on a "per viewing" basis, with subscribers only
paying for programs which they select for viewing.
Rates
Monthly customer rates for services vary from market to market, primarily
according to the amount of programming provided. At September 30, 1998, the
System's stated monthly basic service rate for residential customers was
$11.47, the System's monthly expanded basic service rates for residential
customers ranged from $14.93 to $18.65, and per-channel premium service rates
(not including special promotions) ranged from $5.95 to $12.95 per service. At
September 30, 1998, because of System promotional offerings, the weighted
average revenue (including special promotions) for the System's monthly
combined basic and expanded basic service was approximately $25.55.
A one-time installation fee, which the System may wholly or partially waive
during a promotional period, is charged to new customers. The System charges
monthly fees for converters and remote control devices. The System also
charges administrative fees for delinquent payments for service. Customers are
free to discontinue service at any time without additional charge and may be
charged a reconnection fee to resume service. Commercial customers, such as
hotels, motels and hospitals, are charged negotiated monthly fees and a non-
recurring fee for the installation of service. Multiple dwelling unit accounts
may be offered a bulk rate in exchange for single-point billing and basic
service to all units.
On February 11, 1997, a Petition for Determination of Effective Competition
filed by Coaxial challenging the certification of the City of Columbus was
granted by the FCC. This petition effectively revoked the City of Columbus'
right to regulate the System's basic cable and equipment rates.
EMPLOYEES
As of September 30, 1998, the System employed approximately 185 full-time
equivalent employees, none of whom are represented by a union or covered by a
collective bargaining agreement. Management believes that its relations with
its employees are good. Approximately 50% of the full-time employees have
tenure of five years or longer. Although the Columbus area has relatively low
unemployment and competition in hiring is intense, Management believes that it
will continue to be successful in attracting and retaining highly qualified
employees and maintaining good working relationships with its current
employees.
PROPERTIES
The System's principal physical assets consist of cable television operating
plant and equipment, including signal receiving, encoding and decoding
devices, headend and distribution systems and customer house drop equipment
for its cable television systems. The signal receiving apparatus includes a
tower, antenna, ancillary electronic equipment and earth stations for
reception of satellite signals. The headend, consisting of associated
electronic equipment necessary for the reception, amplification and modulation
of signals, is located near the
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receiving devices. Most basic subscribers of the System utilize converters
that can be addressed by sending coded signals from the headend facility over
the cable network. See "--Technological Developments" above. The System's
distribution system consists primarily of coaxial and fiber optic cables and
related electronic equipment.
The System owns parcels of real property for signal reception sites (one
antenna tower and one headend). The System also leases one small office and
one hub location. Management believes that its properties, both owned and
leased, are in suitable condition adequate for the System's operations.
The System's cables generally are attached to utility poles under pole
rental agreements with local public utilities, although in some areas the
distribution cable is buried in underground ducts or trenches. The physical
components of the System require periodic upgrading to improve system
performance and capacity.
CUSTOMER SERVICE AND COMMUNITY RELATIONS
The System is dedicated to quality customer service. Plans to make
significant system improvements are designed in part to strengthen customer
service through greater system reliability and the introduction of new
services. Management seeks a high level of customer satisfaction by also
employing a well-trained staff of customer service representatives and
experienced field technicians.
Overall, the System employs 54 customer service representatives, an average
of one for every 1,672 subscribers, who answer phone calls and handle walk-in
traffic. The System utilizes an automated response unit system to track and
monitor subscriber calls, which allows customers to perform common functions
such as checking account balances, recent payments or scheduled appointments
using a touch-tone phone, without talking to a customer service
representative. Customers can also use the automated response unit system to
instantly upgrade premium services or order pay-per-view movies and events, as
well as report service problems. All newly hired customer service
representatives and technicians are trained in-house. Programmers and vendors
provide training and product updates via representatives who visit the System
office on a continual basis. Technicians are on call 24 hours per day, 365
days per year. All on-call technicians are equipped with pagers and two-way
radios. During the work day, technicians communicate with the System office
via business radios. The majority of re-connects and new connects or drop
replacements are performed by in-house personnel. All disconnects are
performed in-house.
In addition, the System is dedicated to fostering strong community relations
in the communities served by the System. The System supports local charities
and community causes through staged events and promotional campaigns,
including Children's Hospital Miracle Network Telethon, the Penny-A-Day for
Children Program, strong United Way support and Red Cross Blood Drive
donations. The System also installs and provides free cable television service
and Internet access to public schools, government buildings and not-for-profit
hospitals in its franchise areas. Management believes that its relations with
the communities in which the System operates are generally excellent.
FRANCHISES
Cable television systems are generally operated under non-exclusive
franchises granted by local governmental authorities. These franchises
typically contain many conditions, such as:
. time limitations on commencement and completion of construction;
. conditions of service, including number of channels, types of programming
and the provision of free service to schools and certain other public
institutions; and
. the maintenance of insurance and indemnity bonds.
The provisions of local franchises are subject to federal regulation under
the Communications Act. See "Legislation and Regulation."
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The System provides cable television service to residents of 41 governmental
jurisdictions. Within each of these governmental jurisdictions, the System
operates under authority granted by the local community or the State of Ohio.
Actual franchise agreements are maintained with the 28 jurisdictions that
possess the legal basis to grant such franchises consistent with federal and
state law. These franchises, which are non-exclusive, provide for the payment
of fees to the issuing authority. In the System, such franchise fees are
passed through directly to the customers. The Cable Acts prohibit franchising
authorities from imposing franchise fees in excess of 5% of gross revenue and
also permit the cable television system operator to seek renegotiation and
modification of franchise requirements if warranted by changed circumstances.
See "Legislation and Regulation."
The majority of the System's basic subscribers are in governmental
jurisdictions that require a franchise. The table below groups all of the
System's governmental jurisdictions by date of expiration of the authority to
operate and presents the approximate number and percentage of basic
subscribers for each group as of December 22, 1998.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NUMBER OF TOTAL TOTAL BASIC
YEAR OF FRANCHISE EXPIRATION FRANCHISES FRANCHISES SUBSCRIBERS
- ---------------------------- ---------- ------------- -------------
<S> <C> <C> <C>
1998 through 2001......................... 8 20% 20%
2002 and thereafter....................... 33 80% 80%
--- ---- ----
Total................................... 41 100% 100%
=== ==== ====
</TABLE>
The Cable Acts provide, among other things, for an orderly franchise renewal
process in which franchise renewal will not be unreasonably withheld or, if
renewal is denied and the franchising authority acquires ownership of the
system or effects a transfer of the system to another person, the operator
generally is entitled to the "fair market value" for the system covered by
such franchise. In addition, the Cable Acts established comprehensive renewal
procedures which require that an incumbent franchisee's renewal application be
assessed on its own merits and not as part of a comparative process with
competing applications. See "Legislation and Regulation."
Management believes that it generally has good relationships with its
franchising communities. The System has never had a franchise revoked or
failed to have a franchise renewed. In addition, all of the franchises of the
System eligible for renewal have been renewed or extended at or prior to their
stated expirations, and no franchise community has refused to consent to a
franchise transfer to the System.
THE CABLE TELEVISION INDUSTRY
The cable television industry developed in the United States in the late
1940's and early 1950's in response to the needs of residents in predominantly
rural and mountainous areas of the country where the quality of off-air
television reception was inadequate due to factors such as topography and
remoteness from television broadcast towers. In the late 1960's, cable
television systems also developed in small and medium-sized cities and
suburban areas that had a limited availability of clear off-air television
station signals. All of these markets are regarded within the cable industry
as "classic" cable television station markets. In more recent years, cable
television systems have been constructed in large urban cities and nearby
suburban areas, where good off-air reception from multiple television stations
usually is already available, in order to provide the numerous, satellite-
delivered channels carried by cable television systems which are not otherwise
available via broadcast television reception.
A cable television system receives television, radio and data signals that
are transmitted to the system's headend site by means of off-air antennas,
microwave relay systems and satellite earth stations. These signals are then
modulated, amplified and distributed, primarily through coaxial, and in some
instances, fiber optic cable, to customers who pay a fee for this service.
Cable television systems may also originate their own television programming
and other information services for distribution through the system. Cable
television systems generally are constructed and operated pursuant to non-
exclusive franchises or similar licenses granted by local governmental
authorities for a specified term of years, generally for extended periods of
up to 15 years.
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Cable television systems offer customers various levels (or "tiers") of
cable television services consisting of:
. off-air television signals of local network, independent and educational
stations;
. various satellite-delivered, non-broadcast channels (such as CNN, MTV,
USA Network, ESPN and TNT);
. certain programming originated locally by the cable television system
(such as public, governmental and educational access programs); and
. informational displays featuring news, weather, stock market and
financial reports and public service announcements.
For an extra monthly charge, cable television systems also offer premium
television services to their customers. These services (such as Home Box
Office, Showtime and regional sports networks) are satellite-delivered
channels consisting principally of feature films, live sports events, concerts
and other special entertainment features, usually presented without commercial
interruption.
A customer generally pays an initial installation charge and fixed monthly
fees for basic and premium television services and for other services (such as
the rental of converters and remote control devices). Such monthly service
fees constitute the primary source of revenue for cable television operators.
In addition to customer revenue from these services, cable television
operators generate revenue from additional fees paid by customers for pay-per-
view programming of movies and special events and from the sale of available
advertising spots on advertiser-supported programming. Cable television
operators frequently also offer to their customers home shopping services,
which pay the systems a share of revenue from sales of products in the
systems' service areas. See "--Marketing, Programming and Rates" above.
COMPETITION
The major source of competition for the System is Ameritech. Ameritech has
overbuilt approximately 121,500 homes passed in the System's service areas, or
approximately 71% of the total homes in the service territory as of September
30, 1998. See "--Overbuild" above and "Risk Factors--Significant Competition
in the Cable Television Industry; Overbuilds."
Cable television systems face competition from alternative methods of
receiving and distributing television signals and from other sources of news,
information and entertainment such as off-air television broadcast
programming, newspapers, movie theaters, live sporting events, interactive
online computer services and home video products, including videotape cassette
recorders. The extent to which a cable television system is competitive
depends, in part, upon that system's ability to provide, at a reasonable price
to customers, a greater variety of programming and other communications
services than those which are available off-air or through other alternative
delivery sources and upon superior technical performance and customer service.
Cable television systems generally operate pursuant to franchises granted on
a non-exclusive basis. The 1992 Cable Act prohibits franchising authorities
from unreasonably denying requests for additional franchises and permits
franchising authorities to operate cable television systems. See "Legislation
and Regulation." Well-financed businesses from outside the cable television
industry (such as the public utilities that own the poles to which cable is
attached) may become competitors for franchises or providers of competing
services. Competition from other video service providers exists in areas
served by the System. In a number of the franchise areas served by the System,
the System faces direct competition from other franchised cable television
operators. There can be no assurance, however, that additional cable
television systems will not be constructed in other franchise areas of the
System.
Cable television operators also face competition from private satellite
master antenna television ("SMATV") systems that serve condominiums, apartment
and office complexes and private residential developments. SMATV systems offer
both improved reception of local television stations and many of the same
satellite-delivered program services offered by franchised cable television
systems. SMATV operators often enter
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into exclusive agreements with building owners or homeowners associations,
although some states have enacted laws that authorize franchised cable
television operators access to such private complexes. These laws have been
challenged in the courts with varying results. In addition, some companies are
developing and/or offering to these private residential and commercial
developments packages of telephony, data and video services. Under the 1996
Telecom Act, SMATV systems can interconnect non-commonly owned buildings
without having to comply with local, state and federal regulatory requirements
that are imposed on cable television systems providing similar services, as
long as they do not use public rights-of-way. For instance, while a franchised
cable television system typically is obligated to extend service to all areas
of a community regardless of population density or economic risk, a SMATV
system may confine its operation to small areas that are easy to serve and are
more likely to be profitable. The System passes over 300 MDU complexes within
its service territory and currently has entry agreements, either exclusive or
non-exclusive, with complexes totaling approximately 60,000 MDUs. The System
currently provides programming to just under 32,000 of these MDUs, or 53.3% of
the total MDUs passed. The ability of the System to compete for customers in
residential and commercial developments served by SMATV operators is
uncertain.
The FCC has recently allocated a sizable amount of spectrum in the 27 to 31
GHz band for use by a new wireless service, Local Multipoint Distribution
Service ("LMDS"), which, among other uses, can deliver over 100 channels of
programming directly to consumers' homes. The FCC completed an auction of this
spectrum to the public in March 1998, in which the participation of cable
television operators and local telephone companies was restricted. The extent
to which the winning licensees in this service will use this spectrum in
particular regions of the country to deliver multichannel video programming
and other services to subscribers, and therefore provide competition to
franchised cable television systems, is uncertain at this time.
Individuals presently have the option to purchase earth stations, which
allow the direct reception of satellite-delivered broadcast and non-broadcast
program services formerly available only to cable television subscribers. Most
satellite-distributed program signals are electronically scrambled so as to
permit reception only with authorized decoding equipment for which the
consumer must pay a fee. The 1992 Cable Act enhances the right of satellite
distributors and other competitors to purchase non-broadcast satellite-
delivered programming. The fastest growing method of satellite distribution is
by high-powered direct broadcast satellites ("DBS") utilizing video
compression technology. This technology has the capability of providing more
than 100 channels of programming over a single high-powered DBS satellite with
significantly higher capacity available if multiple satellites are placed in
the same orbital position. DBS service can be received virtually anywhere in
the United States through the installation of a small rooftop or side-mounted
antenna. DBS service is presently being heavily marketed on a nationwide basis
by three service providers. The 1996 Telecom Act and FCC regulations preempt
certain local restrictions on the location and use of DBS and other satellite
receiver dishes.
DBS systems currently have certain advantages over cable television systems
with respect to programming and digital quality, as well as disadvantages that
include high upfront costs and a lack of local programming, service and
equipment distribution. One DBS provider, EchoStar, has announced plans to
offer some local signals in a limited number of markets. A review by the U.S.
Copyright Office is underway to determine if such offerings are permissible
under the copyright law. In addition, legislation has been introduced in
Congress to include carriage of local signals by DBS providers under the
copyright law. The ability of DBS to deliver local signals would eliminate a
significant advantage that cable television operators currently have over DBS
providers. The System will magnify its competitive service price points and
seek to maintain programming parity with DBS by selectively increasing channel
capacities of the System and introducing new premium channels, pay-per-view
and other services. Management estimates that there are approximately 5,700
DBS subscribers in its service area. Management believes that DBS erosion will
be minimal due to the marketing department's ability to properly educate
subscribers regarding pricing and packaging and offering high value-added
channel line-ups.
Cable television systems also compete with wireless program distribution
services such as MMDS, which uses low-power microwave frequencies to transmit
video programming over the air to customers. Wireless distribution services
generally provide many of the programming services provided by cable
television systems, and digital compression technology is likely to increase
significantly the channel capacity of their systems.
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MMDS service requires unobstructed "line of sight" transmission paths. In the
majority of the System's franchise service areas, prohibitive topography and
"line of sight" access have and are likely to continue to limit competition
from MMDS systems. Moreover, in the majority of the System's franchise areas
MMDS operators face significant barriers to growth since the lower population
densities make these areas less attractive. Management is not aware of any
significant MMDS operation currently within its cable television franchise
service areas. American Telecasting Inc. ("ATI") is an MMDS operator providing
service in the Columbus area and covering most of the System's service areas.
The System has run numerous competitive ad campaigns educating consumers
regarding the shortfalls of the ATI product, such as the limited number of
channels, the massive antennae required and service issues. Management
estimates that ATI has built a subscriber base of less than 500 subscribers in
the System's service areas.
Other new technologies, including Internet-based services, may become
competitive with services that cable television systems can offer. The 1996
Telecom Act directed the FCC to establish, and the FCC has adopted,
regulations and policies for the issuance of licenses for digital television
("DTV") to incumbent television broadcast licensees. DTV is expected to
deliver high definition television pictures, multiple digital-quality program
streams, as well as CD-quality audio programming and advanced digital
services, such as data transfer or subscription video. The FCC also has
authorized television broadcast stations to transmit textual and graphic
information useful both to consumers and businesses. The FCC also permits
commercial and noncommercial FM stations to use their subcarrier frequencies
to provide nonbroadcast services including data transmissions. The FCC
established an over-the-air Interactive Video and Data Service that will
permit two-way interaction with commercial and educational programming along
with informational and data services. LECs and other common carriers provide
facilities for the transmission and distribution to homes and businesses of
video services, including interactive computer-based services like the
Internet, data and other nonvideo services.
The 1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utilities Holding Company Act of 1935,
as amended. Electric utilities must establish separate subsidiaries known as
"exempt telecommunications companies" and must apply to the FCC for operating
authority. Due to their financial resources, electric utilities could be
formidable competitors to traditional cable television systems.
Advances in communications technology as well as changes in the marketplace
and the regulatory and legislative environments are constantly occurring.
Thus, it is not possible to predict the effect that ongoing or future
developments might have on the cable industry or on the operations of the
System.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which any of the Issuers
or Insight Ohio is a party or to which any of their properties are subject.
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LEGISLATION AND REGULATION
The cable television industry is regulated by the FCC, some state
governments and the applicable local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
Congress and various federal agencies have in the past, and may in the future,
materially affect the System and the cable television industry. The following
is a summary of federal laws and regulations materially affecting the growth
and operation of the cable television industry and a description of certain
state and local laws. Management believes that the regulation of its industry
remains a matter of interest to Congress, the FCC and other regulatory
authorities. There can be no assurance as to what, if any, future actions such
legislative and regulatory authorities may take or the effect thereof on the
System.
FEDERAL LEGISLATION
The principal federal statute governing the cable television industry is the
Communications Act. As it affects the cable television industry, the
Communications Act has been significantly amended on three occasions, by the
1984 Cable Act, the 1992 Cable Act and the 1996 Telecom Act. The 1996 Telecom
Act altered the regulatory structure governing the nation's telecommunications
providers. It removed barriers to competition in both the cable television
market and the local telephone market. Among other things, it also reduced the
scope of cable rate regulation. In addition, the 1996 Telecom Act required the
FCC to undertake a host of rulemakings to implement the 1996 Telecom Act, the
final outcome of which cannot yet be determined.
FEDERAL REGULATION
The FCC, the principal federal regulatory agency with jurisdiction over
cable television, has adopted regulations covering such areas as cross-
ownership between cable television systems and other communications
businesses, carriage of television broadcast programming, cable rates,
consumer protection and customer service, leased access, indecent programming,
programmer access to cable television systems, programming agreements,
technical standards, consumer electronics equipment compatibility, ownership
of home wiring, program exclusivity, equal employment opportunity, consumer
education and lockbox enforcement, origination cablecasting and sponsorship
identification, children's programming, signal leakage and frequency use,
maintenance of various records, and antenna structure notification, marking
and lighting. The FCC has the authority to enforce these regulations through
the imposition of substantial fines, the issuance of cease and desist orders
and/or the imposition of other administrative sanctions, such as the
revocation of FCC licenses needed to operate certain transmission facilities
often used in connection with cable operations. A brief summary of certain of
these federal regulations as adopted to date follows.
Rate Regulation
The 1984 Cable Act codified existing FCC preemption of rate regulation for
premium channels and optional nonbasic program tiers. The 1984 Cable Act also
deregulated basic cable rates for cable television systems determined by the
FCC to be subject to effective competition. The 1992 Cable Act substantially
changed the previous statutory and FCC rate regulation standards. The 1992
Cable Act replaced the FCC's old standard for determining effective
competition, under which most cable television systems were not subject to
rate regulation, with a statutory provision that resulted in nearly all cable
television systems becoming subject to rate regulation of basic service. The
1996 Telecom Act expands the definition of effective competition to cover
situations where a local telephone company or its affiliate, or any
multichannel video provider using telephone company facilities, offers
comparable video service by any means except DBS. Satisfaction of this test
deregulates both basic and nonbasic tiers. Additionally, the 1992 Cable Act
required the FCC to adopt a formula for franchising authorities to assure that
basic cable rates are reasonable; allowed the FCC to review rates for cable
programming service tiers ("CPST") (other than per-channel or per-program
services) in response to complaints filed by franchising authorities and/or
cable customers; prohibited cable television systems from requiring basic
subscribers to purchase service tiers above basic service in order to purchase
premium services if the system is technically
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capable of doing so; required the FCC to adopt regulations to establish, on
the basis of actual costs, the price for installation of cable service, remote
controls, converter boxes and additional outlets; and allowed the FCC to
impose restrictions on the retiering and rearrangement of cable services under
certain limited circumstances. The 1996 Telecom Act limits the class of
complainants regarding CPST rates to franchising authorities only, after first
receiving two rate complaints from local basic subscribers, and ends FCC
regulation of CPST rates immediately for small systems owned by small cable
operators and on March 31, 1999 for all other cable television systems. The
System is not a "small cable operator" under the 1996 Telecom Act.
The FCC's implementing regulations contain standards for the regulation of
basic service and CPST rates (other than per-channel or per-program services).
Local franchising authorities and the FCC, respectively, are empowered to
order a reduction of existing rates which exceed the maximum permitted level
for either basic and CPST services and associated equipment, and refunds can
be required. The FCC adopted a benchmark price cap system for measuring the
reasonableness of existing basic service and CPST rates. Alternatively, cable
operators have the opportunity to make cost-of-service showings which, in some
cases, may justify rates above the applicable benchmarks. The rules also
require that charges for cable-related equipment (e.g., converter boxes and
remote control devices) and installation services be unbundled from the
provision of cable service and based upon actual costs plus a reasonable
profit. The regulations also provide that future rate increases may not exceed
an inflation-indexed amount, plus increases in certain costs beyond the cable
operator's control, such as taxes, franchise fees and increased programming
costs. Cost-based adjustments to these capped rates can also be made in the
event a cable television operator adds or deletes channels. In addition, new
product tiers consisting of services new to the cable television system can be
created free of rate regulation as long as certain conditions are met, such as
not moving services from existing tiers to the new tier. There is also a
streamlined cost-of-service methodology available to justify a rate increase
on basic and regulated CPST tiers for "significant" system rebuilds or
upgrades.
As a further alternative, in 1995 the FCC adopted a simplified cost-of-
service methodology which can be used by "small cable systems" owned by "small
cable companies" (the "small system rules"). A "small system" is defined as a
cable television system which has, on a headend basis, 15,000 or fewer basic
subscribers. A "small cable company" is defined as an entity serving a total
of 400,000 or fewer basic subscribers that is not affiliated with a larger
cable television company (i.e., a larger cable television company does not own
more than a 20 percent equity share or exercise de jure control). This small
system rate-setting methodology almost always results in rates which exceed
those produced by the cost-of-service rules applicable to larger cable
television operators. Once the initial rates are set they can be adjusted
periodically for inflation and external cost changes as described above. When
an eligible "small system" grows larger than 15,000 basic subscribers, it can
maintain its then current rates but it cannot increase its rates in the normal
course until an increase would be warranted under the rules applicable to
systems that have more than 15,000 subscribers. When a "small cable company"
grows larger than 400,000 basic subscribers, the qualified systems it then
owns will not lose their small system eligibility. If a small cable company
sells a qualified system, or if the company itself is sold, the qualified
systems retain that status even if the acquiring company is not a small cable
company. The System was a "small cable company" prior to the October 30, 1998
consummation by Insight of the TCI transaction but it no longer enjoys this
status.
On February 11, 1997, a Petition for Determination of Effective Competition
filed by Coaxial challenging the certification of the City of Columbus was
granted by the FCC. This petition revoked the City of Columbus' right to
regulate the System's basic cable and equipment rates, and the FCC's right to
regulate the System's CPST rates.
Finally, there are regulations which require cable television systems to
permit customers to purchase video programming on a per channel or a per
program basis without the necessity of subscribing to any tier of service,
other than the basic service tier, unless the cable television system is
technically incapable of doing so. Generally, this exemption from compliance
with the statute for cable television systems that do not have such technical
capability is available until a cable television system obtains the
capability, but not later than December 2002.
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Carriage of Broadcast Television Signals
The 1992 Cable Act contains signal carriage requirements which allow
commercial television broadcast stations that are "local" to a cable
television system (i.e., the system is located in the station's Area of
Dominant Influence) to elect every three years whether to require the cable
television system to carry the station, subject to certain exceptions, or
whether the cable television system will have to negotiate for "retransmission
consent" to carry the station. The next election between must-carry and
retransmission consent will be October 1, 1999. A cable television system is
generally required to devote up to one-third of its activated channel capacity
for the carriage of local commercial television stations whether pursuant to
mandatory carriage requirements or retransmission consent requirements of the
1992 Cable Act. Local non-commercial television stations are also given
mandatory carriage rights, subject to certain exceptions, within the larger
of: (i) a 50 mile radius from the station's city of license; or (ii) the
station's Grade B contour (a measure of signal strength). Unlike commercial
stations, noncommercial stations are not given the option to negotiate
retransmission consent for the carriage of their signal. In addition, cable
television systems have to obtain retransmission consent for the carriage of
all "distant" commercial broadcast stations, except for certain
"superstations" (i.e., commercial satellite-delivered independent stations
such as WGN). To date, compliance with the "retransmission consent" and "must
carry" provisions of the 1992 Cable Act has not had a material effect on the
System, although this result may change in the future depending on such
factors as market conditions, channel capacity and similar matters when such
arrangements are renegotiated. The FCC has initiated a rulemaking proceeding
on the carriage of television signals in high definition and digital formats.
The outcome of this proceeding could have a material effect on the number of
services that a cable operator will be required to carry.
Franchise Fees
Although franchising authorities may impose franchise fees under the 1984
Cable Act, such payments cannot exceed 5% of a cable television system's
annual gross revenues. Under the 1996 Telecom Act, franchising authorities may
not exact franchise fees from revenues derived from telecommunications
services, although they may be able to exact some additional compensation for
the use of public rights-of-way. Franchising authorities are also empowered,
in awarding new franchises or renewing existing franchises, to require cable
television operators to provide cable-related facilities and equipment and to
enforce compliance with voluntary commitments. In the case of franchises in
effect prior to the effective date of the 1984 Cable Act, franchising
authorities may enforce requirements contained in the franchise relating to
facilities, equipment and services, whether or not cable-related. The 1984
Cable Act, under certain limited circumstances, permits a cable operator to
obtain modifications of franchise obligations.
Renewal of Franchises
The 1984 Cable Act and the 1992 Cable Act establish renewal procedures and
criteria designed to protect incumbent franchisees against arbitrary denials
of renewal and to provide specific grounds for franchising authorities to
consider in making renewal decisions, including a franchisee's performance
under the franchise and community needs. Even after the formal renewal
procedures are invoked, franchising authorities and cable television operators
remain free to negotiate a renewal outside the formal process. Nevertheless,
renewal is by no means assured, as the franchisee must meet certain statutory
standards. Even if a franchise is renewed, a franchising authority may impose
new and more onerous requirements such as upgrading facilities and equipment,
although the municipality must take into account the cost of meeting such
requirements. Similarly, if a franchising authority's consent is required for
the purchase or sale of a cable television system or franchises, such
authority may attempt to impose burdensome or onerous franchise requirements
in connection with a request for such consent. Historically, franchises have
been renewed for cable television operators that have provided satisfactory
services and have complied with the terms of their franchises. At this time,
Management is not aware of any current or past material failure on its part to
comply with its franchise agreements. Management believes that it has
generally complied with the terms of its franchises and has provided quality
levels of service.
The 1992 Cable Act makes several changes to the process under which a cable
television operator seeks to enforce his renewal rights which could make it
easier in some cases for a franchising authority to deny renewal.
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Franchising authorities may consider the "level" of programming service
provided by a cable television operator in deciding whether to renew. For
alleged franchise violations occurring after December 29, 1984, franchising
authorities are no longer precluded from denying renewal based on failure to
substantially comply with the material terms of the franchise where the
franchising authority has "effectively acquiesced" to such past violations.
Rather, the franchising authority is estopped if, after giving the cable
television operator notice and opportunity to cure, it fails to respond to a
written notice from the cable television operator of its failure or inability
to cure. Courts may not reverse a denial of renewal based on procedural
violations found to be "harmless error."
Channel Set-Asides
The 1984 Cable Act permits local franchising authorities to require cable
television operators to set aside certain television channels for public,
educational and governmental access programming. The 1984 Cable Act further
requires cable television systems with thirty-six or more activated channels
to designate a portion of their channel capacity for commercial leased access
by unaffiliated third parties to provide programming that may compete with
services offered by the cable television operator. The 1992 Cable Act requires
leased access rates to be set according to a formula determined by the FCC.
Competing Franchises
Questions concerning the ability of municipalities to impose certain
franchise restrictions upon cable television companies have been considered in
several recent federal appellate and district court decisions. These decisions
have been somewhat inconsistent and, until the U.S. Supreme Court rules
definitively on the scope of cable television's First Amendment protections,
the legality of the franchising process and of various specific franchise
requirements is likely to be in a state of flux. It is not possible at the
present time to predict the constitutionally permissible bounds of cable
franchising and particular franchise requirements. However, the 1992 Cable
Act, among other things, prohibits franchising authorities from unreasonably
refusing to grant franchises to competing cable television systems and permits
franchising authorities to operate their own cable television systems without
franchises.
Ownership
The 1996 Telecom Act repealed the statutory ban against local exchange
carriers ("LECs") providing video programming directly to customers within
their local exchange telephone service areas. Consequently, the 1996 Telecom
Act permits telephone companies to compete directly with operations of cable
television systems. Under the 1996 Telecom Act and FCC rules adopted to
implement the 1996 Telecom Act, LECs may provide video service as
broadcasters, common carriers, or cable operators. In addition, LECs and
others may also provide video service through "open video systems" ("OVS"), a
regulatory regime that may give them more flexibility than traditional cable
television systems. OVS operators (including LECs) may operate open video
systems without obtaining a local cable franchise, although they can be
required to make payments to local governmental bodies in lieu of cable
franchise fees. In general, OVS operators must make their systems available to
programming providers on rates, terms and conditions that are reasonable and
nondiscriminatory. Where carriage demand by programming providers exceeds the
channel capacity of an OVS, two-thirds of the channels must be made available
to programmers unaffiliated with the OVS operator.
The 1996 Telecom Act generally prohibits LECs from purchasing cable
television systems (i.e, any ownership interest exceeding 10%) located within
the LEC's telephone service area, prohibits cable operators from purchasing
LECs whose service areas are located within the cable operator's franchise
area, and prohibits joint ventures between operators of cable television
systems and LECs operating in overlapping markets. There are some statutory
exceptions, including a rural exemption that permits buyouts in which the
purchased cable television system or LEC serves a non-urban area with fewer
than 35,000 inhabitants, and exemptions for the purchase of small cable
television systems located in non-urban areas. Also, the FCC may grant waivers
of the buyout provisions in cases where: (i) the operator of a cable
television system or the LEC would be subject to
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undue economic duress if such provisions were enforced; (ii) the system or
facilities would not be economically viable in the absence of a buyout or a
joint venture; or (iii) the anticompetitive effects of the proposed
transaction are clearly outweighed by the transaction's effect in light of
community needs. The respective local franchising authority must approve any
such waiver.
Pursuant to the 1992 Cable Act, the FCC has imposed limits on the number of
cable television systems which a single cable television operator can own. In
general, no cable television operator can have an attributable interest in
cable television systems which pass more than 30% of all homes nationwide.
Attributable interests for these purposes include voting interests of 5% or
more (unless there is another single holder of more than 50% of the voting
stock), officerships, directorships and general partnership interests. The FCC
has recently initiated a Notice of Proposed Rulemaking reviewing these cable
attribution rules, including whether various corporate, financial, partnership
or business relationships that confer influence or control over an entity
engaged in provision of cable services should be subject to regulation. The
FCC has stayed the effectiveness of these rules pending the outcome of the
appeal from the U.S. District Court decision holding the multiple ownership
limit provision of the 1992 Cable Act unconstitutional. The FCC has also
recently issued a Notice of Proposed Rulemaking seeking comment on possible
further revisions to this rule.
The FCC has also adopted rules which limit the number of channels on a cable
television system which can be occupied by national video programming services
in which the entity which owns the cable television system has an attributable
interest. The limit is 40% of the first 75 activated channels.
The 1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utilities Holding Company Act of 1935,
as amended. Electric utilities must establish separate subsidiaries known as
"exempt telecommunications companies" and must apply to the FCC for operating
authority. Due to their resources, electric utilities could be formidable
competitors to traditional cable television systems.
Equal Employment Opportunities
The 1984 Cable Act includes provisions to ensure that minorities and women
are provided equal employment opportunities within the cable television
industry. The statute requires the FCC to adopt reporting and certification
rules that apply to all cable television system operators with more than five
full-time employees. Pursuant to the requirements of the 1992 Cable Act, the
FCC has imposed more detailed annual Equal Employment Opportunities reporting
requirements on cable operators and has expanded those requirements to all
multichannel video service distributors. Failure to comply with the Equal
Employment Opportunities requirements can result in the imposition of fines
and/or other administrative sanctions, or may, in certain circumstances, be
cited by a franchising authority as a reason for denying a franchisee's
renewal request.
Privacy
The 1984 Cable Act imposes a number of restrictions on the manner in which
cable television operators can collect and disclose data about individual
system customers. The statute also requires that the system operator
periodically provide all customers with written information about its policies
regarding the collection and handling of data about customers, their privacy
rights under federal law and their enforcement rights. In the event that a
cable television operator were found to have violated the customer privacy
provisions of the 1984 Cable Act, it could be required to pay damages,
attorneys' fees and other costs. Under the 1992 Cable Act, the privacy
requirements were strengthened to require that cable television operators take
such actions as are necessary to prevent unauthorized access to personally
identifiable information.
Franchise Transfers
The 1992 Cable Act requires franchising authorities to act on any franchise
transfer request submitted after December 4, 1992 within 120 days after
receipt of all information required by FCC regulations and by the franchising
authority. Approval is deemed to be granted if the franchising authority fails
to act within such period.
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Technical Requirements
The FCC has imposed technical standards applicable to all classes of
channels which carry downstream National Television System Committee ("NTSC")
video programming. The FCC also has adopted additional standards applicable to
cable television systems using frequencies in the 108 to 137 MHz and 225 to
400 MHz bands in order to prevent harmful interference with aeronautical
navigation and safety radio services and has also established limits on cable
television system signal leakage. Periodic testing by cable television
operators for compliance with the technical standards and signal leakage
limits is required and an annual filing of the results of these measurements
is required. The 1992 Cable Act requires the FCC to periodically update its
technical standards to take into account changes in technology. Under the 1996
Telecom Act, local franchising authorities may not prohibit, condition or
restrict a cable television system's use of any type of subscriber equipment
or transmission technology.
The FCC has adopted regulations to implement the requirements of the 1992
Cable Act designed to improve the compatibility of cable television systems
and consumer electronics equipment. These regulations, inter alia, generally
prohibit cable television operators from scrambling their basic service tier.
The 1996 Telecom Act directs the FCC to set only minimal standards to assure
compatibility between television sets, VCRs and cable television systems, and
to rely on the marketplace. Pursuant to the 1992 Cable Act, the FCC has
adopted rules to assure the competitive availability to consumers of customer
premises equipment, such as converters, used to access the services offered by
cable television systems and other multichannel video programming distributors
("MVPD"). Pursuant to those rules, consumers are given the right to attach
compatible equipment to the facilities of their MVPD so long as the equipment
does not harm the network, does not interfere with the services purchased by
other customers, and is not used to receive unauthorized services. As of July
1, 2000, MVPDs (other than DBS operators) are required to separate security
from non-security functions in the customer premises equipment which they sell
or lease to their customers and offer their customers the option of using
component security modules obtained from the MVPD with set-top units purchased
or leased from retail outlets. As of January 1, 2005, MVPDs will be prohibited
from distributing new set-top equipment integrating both security and non-
security functions to their customers.
Pursuant to the 1992 Cable Act, the FCC has adopted rules implementing an
Emergency Alert System ("EAS"). The rules require all cable television systems
to provide an audio and video EAS message on at least one programmed channel
and a video interruption and an audio alert message on all programmed
channels. The audio alert message is required to state which channel is
carrying the full audio and video EAS message. The FCC rules permit cable
television systems either to provide a separate means of alerting persons with
hearing disabilities of EAS messages, such as a terminal that displays EAS
messages and activates other alerting mechanisms or lights, or to provide
audio and video EAS messages on all channels. Cable television systems with
10,000 or more basic subscribers per headend will be required to install EAS
equipment capable of providing audio and video EAS messages on all programmed
channels by December 31, 1998. Cable television systems with 5,000 or more but
fewer than 10,000 basic subscribers per headend will have until October 1,
2002 to comply with that requirement. Cable television systems with fewer than
5,000 basic subscribers per headend will have a choice of providing either a
national level EAS message on all programmed channels or installing EAS
equipment capable of providing audio alert messages on all programmed
channels, a video interrupt on all channels, and an audio and video EAS
message on one programmed channel. This must be accomplished by October 1,
2002.
Pole Attachments
The FCC currently regulates the rates and conditions imposed by certain
public utilities for use of their poles unless state public service
commissions are able to demonstrate that they adequately regulate the rates,
terms and conditions of cable television pole attachments. A number of states
and the District of Columbia have certified to the FCC that they adequately
regulate the rates, terms and conditions for pole attachments. Ohio, the state
in which the System operates, has made such a certification. In the absence of
state regulation, the FCC administers such pole attachment and conduit use
rates through use of a formula which it has devised. Pursuant
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to the 1996 Telecom Act, the FCC has adopted a new rate formula for any
attaching party, including cable television systems, which offer
telecommunications services. This new formula will result in higher attachment
rates than at present, but they will apply only to cable television systems
which elect to offer telecommunications services. Any increases pursuant to
this new formula will not begin until 2001, and will be phased in by equal
increments over the five ensuing years. The FCC has also initiated a
proceeding to determine whether it should adjust certain elements of the
current rate formula. If adopted, these adjustments could increase rates for
pole attachments and conduit space.
Other FCC Matters
FCC regulation pursuant to the Communications Act also includes matters
regarding a cable television system's carriage of local sports programming;
restrictions on origination and cablecasting by cable television operators;
rules governing political broadcasts; nonduplication of network programming;
deletion of syndicated programming; registration procedure and reporting
requirements; customer service; closed captioning; obscenity and indecency;
program access and exclusivity arrangements; and limitations on advertising
contained in nonbroadcast children's programming.
The FCC recently adopted new procedural guidelines governing the disposition
of home run wiring (a line running to an individual subscriber's unit from a
common feeder or riser cable) in MDUs. MDU owners can use these new rules to
attempt to force cable television operators without contracts to either sell,
abandon or remove home run wiring and terminate service to MDU subscribers
unless operators retain rights under common or state law to maintain ownership
rights in the home run wiring.
The 1996 Telecom Act requires video programming distributors to employ
technology to restrict the reception of programming by persons not subscribing
to those channels. In the case of channels primarily dedicated to sexually-
oriented programming, the distributor must fully block reception of the audio
and video portion of the channels; a distributor that is unable to comply with
this requirement may only provide such programming during a "safe harbor"
period when children are not likely to be in the audience, as determined by
the FCC. With respect to other kinds of channels, the 1996 Telecom Act
requires that the audio and video portions of the channel be fully blocked, at
no charge, upon request of the person not subscribing to the channel.
Copyright
Cable television systems are subject to federal copyright licensing covering
carriage of broadcast signals. In exchange for making semi-annual payments to
a federal copyright royalty pool and meeting certain other obligations, cable
television operators obtain a statutory license to retransmit broadcast
signals. The amount of this royalty payment varies, depending on the amount of
system revenues from certain sources, the number of distant signals carried,
and the location of the cable television system with respect to over-the-air
television stations. Any future adjustment to the copyright royalty rates will
be done through an arbitration process to be supervised by the U.S. Copyright
Office. Cable television operators are liable for interest on underpaid and
unpaid royalty fees, but are not entitled to collect interest on refunds
received for overpayment of copyright fees.
Various bills have been introduced into Congress over the past several years
that would eliminate or modify the cable television compulsory license.
Without the compulsory license, cable television operators would have to
negotiate rights from the copyright owners for all of the programming on the
broadcast stations carried by cable television systems. Such negotiated
agreements would likely increase the cost to cable television operators of
carrying broadcast signals. The 1992 Cable Act's retransmission consent
provisions expressly provide that retransmission consent agreements between
television broadcast stations and cable television operators do not obviate
the need for cable operators to obtain a copyright license for the programming
carried on each broadcaster's signal.
Copyrighted music performed in programming supplied to cable television
systems by pay cable networks (such as HBO) and basic cable networks (such as
USA Network) is licensed by the networks through private
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agreements with the American Society of Composers and Publishers ("ASCAP") and
BMI, Inc. ("BMI"), the two major performing rights organizations in the United
States. As a result of extensive litigation, both ASCAP and BMI now offer
"through to the viewer" licenses to the cable networks which cover the
retransmission of the cable networks' programming by cable television systems
to their customers.
Licenses to perform copyrighted music by cable television systems
themselves, including on local origination channels, in advertisements
inserted locally on cable television networks, and in cross-promotional
announcements, must be obtained by the cable television operator. Cable
television industry negotiations with ASCAP, BMI and SESAC, Inc. (a smaller
performing rights organization) are in progress.
STATE AND LOCAL REGULATION
Cable television systems generally are operated pursuant to nonexclusive
franchises, permits or licenses granted by a municipality or other state or
local government entity. The terms and conditions of franchises vary
materially from jurisdiction to jurisdiction, and even from city to city
within the same state, historically ranging from reasonable to highly
restrictive or burdensome. Franchises generally contain provisions governing
fees to be paid to the franchising authority, length of the franchise term,
renewal, sale or transfer of the franchise, territory of the franchise, design
and technical performance of the system, use and occupancy of public streets
and number and types of cable television services provided. The terms and
conditions of each franchise and the laws and regulations under which it was
granted directly affect the profitability of the cable television system. The
1984 Cable Act places certain limitations on a franchising authority's ability
to control the operation of a cable television system. The 1992 Cable Act
prohibits exclusive franchises, and allows franchising authorities to exercise
greater control over the operation of franchised cable television systems,
especially in the area of customer service and rate regulation. The 1992 Cable
Act also allows franchising authorities to operate their own multichannel
video distribution system without having to obtain a franchise and permits
states or local franchising authorities to adopt certain restrictions on the
ownership of cable television systems. Moreover, franchising authorities are
immunized from monetary damage awards arising from regulation of cable
television systems or decisions made on franchise grants, renewals, transfers
and amendments. The 1996 Telecom Act prohibits a franchising authority from
either requiring or limiting a cable television operator's provision of
telecommunications services.
Various proposals have been introduced at the state and local levels with
regard to the regulation of cable television systems, and a number of states
have adopted legislation subjecting cable television systems to the
jurisdiction of centralized state governmental agencies, some of which impose
regulation of a character similar to that of a public utility. To date, Ohio,
the state in which the System currently operates, has not enacted state level
regulation.
The foregoing does not purport to describe all present and proposed federal,
state and local regulations and legislation relating to the cable television
industry. Other existing federal regulations, copyright licensing and, in many
jurisdictions, state and local franchise requirements, currently are the
subject of a variety of judicial proceedings, legislative hearings and
administrative and legislative proposals which could change, in varying
degrees, the manner in which cable television systems operate. Neither the
outcome of these proceedings nor their impact upon the cable television
industry or the System can be predicted at this time.
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MANAGEMENT
The following table sets forth certain information with respect to the
executive officers of the Individual LLCs, Coaxial, Insight Ohio, IHO and
Insight. Insight is the parent of IHO which serves as manager of the
Individual LLCs and Insight Ohio and thereby effectively controls the
management and affairs of the Individual LLCs, Coaxial and Insight Ohio. See
"Prospectus Summary--Ownership Structure." The executive officers of Insight
are compensated by way of management fees paid by Insight Ohio to IHO. Sidney
R. Knafel serves as the sole director of Insight Communications, Inc. ("ICI"),
which serves as the general partner of ICC Associates, L.P., the general
partner of Insight. Sidney Knafel, Michael Willner and Kim Kelly serve as the
directors of Coaxial. The table also includes the members of the Management
Committee of Insight Ohio, which manage the business of Insight Ohio and in
doing so have delegated broad authority to IHO as manager of the System. See
"--Management and Management Committee" below. None of the executive officers
of the Issuers are compensated for their services as such. Coaxial Financing
Corp. only has nominal assets and will not conduct any business.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Sidney R. Knafel 68 Chairman of the Individual LLCs, Coaxial, Insight
Ohio, IHO and Insight; Member of the Management
Committee of Insight Ohio
Michael S. Willner 46 President and Chief Executive Officer of the
Individual LLCs, Coaxial, Insight Ohio, IHO and
Insight; Member of the Management Committee of
Insight Ohio
Kim D. Kelly 42 Executive Vice President and Chief Operating and
Financial Officer of the Individual LLCs, Coaxial,
Insight Ohio, IHO and Insight; Member of the
Management Committee of Insight Ohio
Dennis J. McGillicuddy 56 Member of the Management Committee of Insight Ohio
Daniel Mannino 39 Vice President and Controller of the Individual
LLCs, Coaxial, Insight Ohio, IHO and Insight
Gregory B. Graff 37 Senior Vice President and General Manager of
Insight Ohio
</TABLE>
Sidney R. Knafel has been Chairman of ICI since 1985. He is a director of
NTL, Inc., one of the three largest cable and telecommunications operators in
the United Kingdom. He was the founder, Chairman and an equity holder of
Vision Cable Communications, Inc. ("Vision Cable") from 1971 until its sale in
1982. Mr. Knafel is presently the managing partner of SRK Management Company,
a private investment company, and also serves as Chairman of BioReliance
Corporation, a biological testing company. He is a director of Cellular
Communications International, Inc., CoreComm Incorporated, General American
Investors Company, Inc. and IGENE Biotechnology, Inc., as well as several
private companies. Mr. Knafel is a graduate of Harvard College and the Harvard
Graduate School of Business Administration and serves on a number of the
school's committees.
Michael S. Willner co-founded and has served as President of ICI and Insight
since 1985. Previously, Mr. Willner served as Executive Vice President and
Chief Operating Officer of Vision Cable from 1979 through 1985, Vice President
of Marketing for Vision Cable from 1977 to 1979 and General Manager of Vision
Cable's Bergen County, New Jersey cable television system from 1975 to 1977.
Currently, Mr. Willner is a director of NTL, Inc. He also is a director of
Source Media, Inc., a technology and programming provider of Internet services
on digital cable platforms. He serves on the board of C-SPAN and the National
Cable Television Association where he chairs the association's State and Local
Government Committee. Mr. Willner graduated from Boston University's School of
Communications and serves on the school's Executive Committee.
Kim D. Kelly has been Executive Vice President, Finance of ICI and Executive
Vice President and Chief Financial Officer of Insight since 1990. Ms. Kelly
has also been Chief Operating Officer of Insight since January 1998. Prior
thereto, she served from 1982 to 1990 with Marine Midland Bank, becoming its
Senior Vice President in 1988, with primary responsibility for media lending
activities. Ms. Kelly serves as a member of the National Cable Television
Association ("NCTA") Subcommittee for Telecommunications Policy, as well as
the NCTA Subcommittee for Accounting. Ms. Kelly is a graduate of George
Washington University.
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Dennis J. McGillicuddy co-founded Coaxial in 1968 and served as Chairman of
the Board of Directors of Coaxial until the consummation of the System
Acquisition. Mr. McGillicuddy also serves as Chairman of CCX, Inc., a
manufacturer of building products, and is a director of Benz Research and
Development Corp. Mr. McGillicuddy served as a member of the Board of CCX,
Inc. at the time a petition under Federal bankruptcy laws was filed by CCX in
1994.
Daniel Mannino joined ICI as Controller in 1989 and became Vice President
and Controller in 1991. Previously, Mr. Mannino was employed by Vision Cable
from 1983 to 1989, becoming its Controller in 1986.
Gregory B. Graff has served as Senior Vice President, Marketing, Programming
and Advertising of Coaxial since 1997. He joined Coaxial as Vice President,
Marketing and Sales in 1995. Prior to joining Coaxial, Mr. Graff was Director
of Marketing for KBLCOM's Paragon Cable operation in San Antonio, Texas. He
began his cable television career in 1984 with Continental Cablevision.
MANAGEMENT AND MANAGEMENT COMMITTEE
The Operating Agreement of Insight Ohio provides for the establishment of a
four-member Management Committee. The Management Committee is responsible for
the management of the business of Insight Ohio. IHO, through its effective
control of Coaxial, is entitled to designate three of the members of the
Management Committee. The remaining member is designated by the principals of
the Individual LLCs. The Management Committee has delegated broad authority to
IHO in its capacity as manager of Insight Ohio. See "The System Acquisition--
Operating Agreement of Insight Ohio."
EXECUTIVE AND OTHER COMPENSATION
The Issuers do not make any payments in respect of compensation to any of
their executive management personnel. Rather, executive management personnel
of the Issuers receive compensation from Insight. Accordingly, IHO utilizes
its management fees from Insight Ohio to pay for all of its operating expenses
for managing the day-to-day affairs of the System, as well as executive
management salaries, benefits and overhead. See "Certain Relationships and
Related Transactions."
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
IHO MANAGEMENT FEES AND PROGRAMMING DISCOUNTS
In accordance with the Operating Agreement of Insight Ohio, IHO is entitled
to be paid management fees for managing the day-to-day operations of Insight
Ohio. Pursuant to the Operating Agreement, subject to certain covenants in the
Indenture and the Senior Notes Indenture, IHO is entitled to receive
management fees of 3.0% of gross revenues of Insight Ohio. On a pro forma
basis, IHO would have been paid management fees of approximately $1.4 million
for the year ended December 31, 1997. See "Management--Executive and Other
Compensation."
IHO is entitled to reimbursement from Insight Ohio for all direct, out-of-
pocket expenses incurred by or on behalf of IHO that directly relate to its
management of the business and operations of Insight Ohio, including any such
expenses incurred in connection with the management of the Issuers. However,
IHO is not entitled to reimbursement from Insight Ohio for corporate overhead
(including employee bonuses and health, welfare, retirement, and other
employee benefits and overhead expenses of its corporate office management,
development, internal accounting, and finance management personnel).
Due to its relationship with MediaOne (formerly Continental Cablevision),
Insight expects to continue to provide programming discounts to the System
through November 1999. After such date, Insight believes that through its
strategic alliances with other major MSOs, utilizing programming cooperatives
or through its own purchasing power, it will be able to continue to obtain
programming for the System at a cost lower than that presently available to
Coaxial.
COAXIAL AND PHOENIX
All of the outstanding shares of Coaxial's capital stock and all of the
outstanding partnership interests in Phoenix are held indirectly by the same
three individuals, Barry Silverstein, Dennis J. McGillicuddy and D. Stevens
McVoy. Coaxial and Phoenix were co-obligors (along with certain other
affiliates) with respect to the Chase Credit Facility. Coaxial and Phoenix
continue to be co-obligors with respect to the Senior Notes.
COAXIAL
Tierra Associates
Coaxial leased office space in a building located at 3770/3776 East
Livingston Avenue, Columbus, Ohio. The building was owned by Tierra
Associates, an Ohio general partnership that was owned by the principals of
the Individual LLCs. Coaxial paid Tierra Associates $108,000 annually pursuant
to the lease for such space. Pursuant to the terms of the Contribution
Agreement, Coaxial acquired title to this building and contributed it to
Insight Ohio upon consummation of the System Acquisition.
MetroComm AxS L.P. ("MetroComm")
MetroComm provides competitive telephone service in the Columbus market.
MetroComm is 50% owned by Time Warner AxS of Columbus L.P. and 50% owned by
MetroComm Inc. (which is owned by Barry Silverstein, Dennis McGillicuddy and
D. Stevens McVoy, who are the sole members of each of their respective
Individual LLCs, and Dan Coy, the chief executive officer of MetroComm).
MetroComm contracted with Coaxial to build the necessary fiber plant needed by
MetroComm to service its customers that were in Coaxial's service area.
Coaxial then leased the fiber plant to MetroComm at a contracted price. In
1997, Coaxial received $187,180 in fiber lease revenues from MetroComm.
MetroComm bought-out its lease with Coaxial as of June 29, 1998 for
approximately $347,000, which was the remaining balance under the five year
lease. The fiber plant continues to be used by MetroComm under a new 30-year
Indefeasible Right of Use Agreement whereby Coaxial licenses to MetroComm
exclusive use of all capacity on specified fiber optic facilities in exchange
for payment to Coaxial of certain maintenance and other costs. The terms of
the agreement are typical of arrangements of competitive telephone service
providers that are owned by cable operators. Such terms may not be comparable
to what they would be if the agreement were between Coaxial and an unrelated
third party. Coaxial also provided accounting services for MetroComm. In 1997,
Coaxial received $35,276 for such services. As of September 30, 1998,
MetroComm owed Coaxial $26,100.
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Paxton Cable Television Inc.
Paxton Cable Television Inc. had a note payable to Coaxial for $2,448,141
(as of June 30, 1998) which accrued interest at the average interest rate
charged by The Chase Manhattan Bank to Coaxial for its long-term financing.
Principal and interest is not due until June 30, 2000. This note was
distributed by Coaxial to its shareholders (the principals of the Individual
LLCs) upon the consummation of the System Acquisition and was not assumed by
Insight Ohio.The distribution of the note to Coaxial's shareholders resulted
in a zero receivable balance from Paxton as of September 30, 1998.
Coaxial Communications of Southern Ohio, Inc.
Coaxial allocated certain management costs to Coaxial Communications of
Southern Ohio, Inc., which is wholly-owned by the principals of the Individual
LLCs. The total amount allocated for 1997 was $284,400. Insight Ohio has
contracted with Southern Ohio to provide Southern Ohio certain management
services throughout the remainder of 1998. The contracted amount for these
services will be $94,800 for 1998. Under a related party account, $18.5
million was owed by Coaxial to Southern Ohio as of June 30, 1998. This amount
was accumulated over the years as Coaxial borrowed funds from Southern Ohio
for Coaxial's cable system. Upon the contribution of the System to Insight
Ohio, this account was repaid in part and the balance was settled by a
distribution of the account by Southern Ohio to its shareholders who then
contributed the account to Coaxial, which resulted in a zero payable balance
to Southern Ohio as of September 30, 1998.
Coaxial Associates of Columbus I, Coaxial Associates of Columbus II and
Phoenix
Coaxial Associates of Columbus I ("Columbus I"), Coaxial Associates of
Columbus II ("Columbus II") and Phoenix are non-operating partnerships which
share common ownership and which were co-borrowers and co-obligors under the
Chase Credit Facility. The three entities exist due to several debt and tax
obligations which existed among these entities and former limited partners of
Columbus I and Columbus II. Coaxial funded the debt obligations of these
entities, which do not conduct operations. The result was a series of related
party notes and receivables/payables to and between Coaxial, Columbus I,
Columbus II and Phoenix. These notes and related party receivables/payables
with Coaxial were settled prior to the consummation of the System Acquisition.
Phoenix was a co-issuer of the Original Notes as described under "Prospectus
Summary--Ownership Structure" and Phoenix owns none of the Senior Notes
collateral (as defined in the Senior Notes Indenture). All notes and related
party receivables/payables with Phoenix were settled upon the consummation of
the System Acquisition excluding certain amounts and notes due from Columbus
I, Columbus II and the partners of Phoenix, which were retained for tax
purposes (the "Excluded Assets").
COAXIAL LLC, COAXIAL DJM LLC AND COAXIAL DSM LLC
Upon the closing of the Original Notes Offering, Coaxial LLC (which owns
67.5% of the common equity of Coaxial) loaned 22.5% of the gross proceeds of
the Original Notes Offering (approximately $6.75 million) to Coaxial DJM LLC
(which owns 22.5% of the common equity of Coaxial) and 10% of such proceeds
(approximately $3.0 million) to Coaxial DSM LLC (which owns 10% of the common
equity of Coaxial) in order to allow for distributions to their respective
holders for purposes of repaying the amounts outstanding under the Chase
Credit Facility. Such loans are evidenced by the LLC Mirror Notes. Each of the
LLC Mirror Notes incorporates the terms of the Notes with respect to payments
and otherwise. Accordingly, Coaxial LLC will rely on the provisions of the LLC
Mirror Notes in requiring payments from Coaxial DJM LLC and Coaxial DSM LLC in
order to make corresponding payments on the Notes. The LLC Mirror Note issued
by Coaxial DJM LLC is in the amount of $12,570,525 (i.e., 22.5% of the
principal amount at maturity of the Notes) and is secured by 22.5% of the
outstanding common equity of Coaxial. The LLC Mirror Note issued by Coaxial
DSM LLC is in the amount of $5,586,900 (i.e., 10% of the principal amount at
maturity of the Notes) and is secured by 10% of the outstanding common equity
of Coaxial. See "Use of Proceeds."
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PRINCIPAL SECURITY HOLDERS
The outstanding shares of common stock of Coaxial are owned by the
Individual LLCs as described in the table below. All of the outstanding shares
of common stock of Coaxial Financing Corp. and all of the outstanding
partnership interests of Phoenix are wholly-owned directly or indirectly by
the individuals indicated in the footnotes to the table in the same ownership
percentages as the respective Individual LLCs' ownership in Coaxial. IHO is
the manager of each of the Individual LLCs and thereby effectively controls
the business of each of such Individual LLCs and Coaxial. Accordingly, IHO and
members of its executive management may be deemed to beneficially own (as
defined by Rule 13d-3 under the Exchange Act) all of the outstanding shares of
common stock of Coaxial. See "Prospectus Summary--Ownership Structure" and
"Management."
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER PERCENTAGE OWNERSHIP
- ------------------------------------ --------------------
<S> <C>
Coaxial LLC(1)
c/o Coaxial Communications
5111 Ocean Boulevard, Suite C
Sarasota, FL 34242....................................... 67.5%
Coaxial DJM LLC(2)
c/o Coaxial Communications
5111 Ocean Boulevard, Suite C
Sarasota, FL 34242....................................... 22.5%
Coaxial DSM LLC(3)
c/o Coaxial Communications
5111 Ocean Boulevard, Suite C
Sarasota, FL 34242....................................... 10.0%
</TABLE>
- --------
(1) Wholly-owned by Barry Silverstein.
(2) Wholly-owned by Dennis J. McGillicuddy.
(3) Wholly-owned by D. Stevens McVoy.
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THE SYSTEM ACQUISITION
THE CONTRIBUTION AGREEMENT
The following is a summary of the material provisions of the Contribution
Agreement, which has been filed as an exhibit to the Registration Statement
described under "Additional Available Information."
On June 30, 1998, Coaxial and Insight entered into a Contribution Agreement,
as amended on July 15, 1998 and August 21, 1998 (the "Contribution
Agreement"), pursuant to which on August 21, 1998, as part of the Financing
Plan, Coaxial contributed to Insight Ohio, a newly organized Delaware limited
liability company, substantially all of the assets comprising the System, and
Insight, through IHO, contributed to Insight Ohio $10.0 million in cash.
Coaxial may be required to make future cash contributions to Insight Ohio to
offset any diminution of value of the contributed assets under certain
circumstances. There will be no other assessments for additional capital
contributions by the members. In accordance with the terms and conditions of
the Contribution Agreement, Insight Ohio assumed and undertook to perform
certain obligations and liabilities related to the contributed assets. As a
result of the Financing Plan, IHO and Coaxial own 75% and 25%, respectively,
of the common membership interests of Insight Ohio. IHO's common membership
interests are classified as "Class A" and Coaxial's common membership
interests are classified as "Class B." Coaxial also owns the Preferred
Interests of Insight Ohio. IHO serves as the manager of Insight Ohio and each
of the Individual LLCs and thereby has effective control of the management and
affairs of Insight Ohio.
The Contribution Agreement contains customary provisions for such
agreements, including representations and warranties with respect to the
condition and operations of the business.
OPERATING AGREEMENT OF INSIGHT OHIO
The following is a summary of the material provisions of the Operating
Agreement of Insight Ohio, which has been filed as an exhibit to the
Registration Statement described under "Additional Available Information."
Capitalized terms used in the following summary and not otherwise defined in
this Prospectus have the meanings ascribed to them in the Operating Agreement.
General
The Operating Agreement of Insight Ohio provides for the formation,
organization and operation of Insight Ohio and for the respective rights,
obligations and interests of the members of Insight Ohio to each other and to
Insight Ohio. In addition, the Operating Agreement sets forth certain
additional agreements and understandings among its members and the sole
members of each of the Individual LLCs, which own Coaxial (Barry Silverstein,
Dennis McGillicuddy and D. Stevens McVoy, who, together with their respective
permitted successors and assigns, are referred to as the "Principals"),
concerning the ownership and operation of Insight Ohio and Coaxial.
Insight Ohio will be dissolved upon the happening of certain events,
including, among others:
. December 31, 2058;
. consent of the Principals to the resignation of IHO as manager;
. the affirmative vote of the holders of a majority of the outstanding
Voting Interests (as defined under "--Management" below), subject to
certain conditions;
. the sale of all or substantially all of the assets of Insight Ohio; and
. any other event causing the dissolution of a limited liability company.
IHO and Coaxial are the members of Insight Ohio. The Principals, although
parties to the Operating Agreement, are not members of Insight Ohio. The
members of Insight Ohio generally do not have any authority to act for, or
assume any obligation or responsibility on behalf of, Insight Ohio. The
members are not personally liable for the expenses, liabilities or obligations
of Insight Ohio, and in no event shall either member be required to make up a
deficiency in its capital account upon the dissolution and termination of
Insight Ohio.
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Distributions
Distributions on the Preferred Interests will be in such amounts as to allow
for the payment of interest on the Notes and the Senior Notes, with the Series
A Preferred Interests to receive payments in priority to the Series B
Preferred Interests. Insight Ohio will then make certain distributions to its
members holding common membership interests in an amount equal to an estimate
of certain tax liabilities recognized by the members or their owners. Insight
Ohio will then distribute to the Manager a management return equal to 3% of
gross revenues. Thereafter, distributions are to be made, as determined by the
Management Committee, to the members in proportion to their common membership
interests. Distributions in respect of the membership interests of Insight
Ohio are restricted under the Indenture, the Senior Notes Indenture and the
Senior Credit Facility. See "Description of the Notes--Covenants--Limitation
on Restricted Payments."
If (i) any default (other than a notification or delivery default) shall
have occurred and be continuing under either the Indenture or the Senior Notes
Indenture, or if IHO in good faith determines that such a default under either
the Indenture or the Senior Notes Indenture is reasonably likely to occur, and
(ii) IHO determines in good faith that, as a result of such existing or
anticipated default, it would be in the best interests of Insight Ohio for
Insight Ohio not to make any distribution required to be made with respect to
the Preferred Interests, and (iii) IHO notifies the Principals in writing that
it has made such determination, then IHO may cause Insight Ohio not to make
such distribution until such time as IHO determines that it is no longer in
the best interests of Insight Ohio for Insight Ohio not to make such
distribution.
Redemption of Preferred Interests
Insight Ohio may not redeem the Series A Preferred Interests, in whole or in
part, without the consent of the Principals, except upon certain events.
Insight Ohio will be required to redeem the Series A Preferred Interests in
full upon acceleration or maturity of the Senior Notes, commencement of the
enforcement of remedies under the Senior Notes pledge agreement in respect of
the Senior Notes collateral, the passage of ten days and upon request for
redemption by the holders of the Notes. If Insight Ohio redeems all or part of
the Series A Preferred Interests, the redemption price will equal the sum of
(A) the amount that would be distributed to the holder of the redeemed Series
A Preferred Interests upon dissolution and liquidation of Insight Ohio,
assuming that Insight Ohio had sufficient assets to make the full liquidating
distributions provided for in the Operating Agreement, plus (B) the amount of
any premium required to be paid by the Issuers to the holders of the Senior
Notes in connection with the Issuers' use of the proceeds of the redemption of
the Series A Preferred Interests to repay or purchase the Senior Notes.
Insight Ohio is also required to redeem the Series B Preferred Interests in
full on the tenth anniversary of the closing of the Original Notes Offering.
Insight Ohio may not otherwise redeem the Series B Preferred Interests, in
whole or in part, without the consent of the Principals, except upon certain
events. Insight Ohio will be required to redeem the Series B Preferred
Interests in full upon acceleration of the Notes, commencement of the
enforcement of remedies under the Pledge Agreement in respect of the Discount
Notes Collateral, the passage of ten days and upon request for redemption by
the holders of the Notes. Notwithstanding the foregoing, Insight Ohio will not
redeem the Series B Preferred Interests if it is also required to redeem the
Series A Preferred Interests and it has not yet done so. If Insight Ohio
redeems all or part of the Series B Preferred Interests, the redemption price
will equal the sum of (A) the amount that would be distributed to the holder
of the redeemed Series B Preferred Interests upon dissolution and liquidation
of Insight Ohio, assuming that Insight Ohio had sufficient assets to make the
full liquidating distributions provided for in the Operating Agreement, plus
(B) the amount of any premium required to be paid by the Issuers to the
holders of the Notes in connection with the Issuers' use of the proceeds of
the redemption of the Series B Preferred Interests to repay or purchase the
Notes.
The Series A Preferred Interests have priority over the Series B Preferred
Interests with respect to redemption, if both Preferred Interests are required
to be redeemed.
Management
The Operating Agreement provides that certain decisions will be made by
holders of a majority of Insight Ohio's outstanding "Voting Interests." The
term "Voting Interests" means the Series A Preferred Interests and
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the Series B Preferred Interests, collectively, except that, following certain
events, "Voting Interests" will mean the common membership interests. A
majority of the Preferred Interests is determined based on the original
capital account balances attributable to the interests, and a majority of the
common membership interests is determined based on the number of units
assigned to the interests. The Preferred Interests will become non-voting upon
the enforcement of remedies under the Pledge Agreement.
Insight Ohio is managed by a Management Committee consisting of four
Representatives, three of which shall be appointed from time to time by
holders of a majority of the outstanding Voting Interests and one of which
shall be appointed from time to time by the Principals. The members of the
Management Committee are not compensated or reimbursed by Insight Ohio for
serving on the Management Committee.
The Operating Agreement permits the Management Committee to delegate to the
manager of Insight Ohio and the officers of Insight Ohio any of its authority
under the Operating Agreement. In accordance with this authorization, the
Management Committee delegated broad authority to the manager of Insight Ohio
to manage the business and operations of Insight Ohio. The Principals will
have the right to appoint a co-Manager in the event of a breach by IHO of
certain provisions of the Operating Agreement. The Operating Agreement
prohibits Insight Ohio and any of its subsidiaries from taking certain
actions, including most significant dispositions of assets, without the
consent of the Principals, which may be withheld by the Principals in their
sole discretion.
The Operating Agreement names IHO as the Manager of Insight Ohio. IHO may
not resign as the Manager without the consent of holders of a majority of the
outstanding Voting Interests and the consent of the Principals (except in the
case of a permitted transfer of all of IHO's membership interest to a
successor, who will then become the Manager). If holders of a majority of the
outstanding Voting Interests and the Principals consent to IHO's resignation
as Manager, Insight Ohio will dissolve unless the members and the Principals
elect to continue the business of Insight Ohio and agree to a successor
Manager.
The Manager is entitled to reimbursement from Insight Ohio for certain
expenses incurred by or on behalf of the Manager that directly relate to its
management of the business and operations of Insight Ohio, including any such
expenses incurred in connection with the management of the Individual LLCs.
However, the Manager is not entitled to reimbursement from Insight Ohio for
corporate overhead.
Refinancing and Modification of Indebtedness
IHO agrees to use commercially reasonable efforts to obtain and submit to
Coaxial and the Principals a proposal from a financial institution of
nationally recognized standing for the refinancing of the Notes at or prior to
its maturity. In addition, IHO agrees to use commercially reasonable efforts
to obtain and submit to Coaxial and the Principals either a proposal from a
financial institution of nationally recognized standing for the refinancing of
the Notes and the Senior Notes or a proposal from the holders of the Notes and
the Senior Notes to modify the terms thereof if any portion of the Notes or
the Senior Notes has become due and payable before its stated maturity or if
Insight Ohio failed to make, or is expected to be unable to make, any required
distributions with respect to the Preferred Interests. IHO also has the right
to obtain and submit to Coaxial and the Principals at any time and from time
to time a proposal from a financial institution of nationally recognized
standing for the refinancing of the Notes and the Senior Notes.
Upon the satisfaction of certain conditions, the Principals are required to
consent to the refinancing or modification of the Notes and the Senior Notes
as proposed by IHO. In addition, under the circumstances described in the
preceding paragraph where IHO is required to use commercially reasonable
efforts to obtain a proposal for the refinancing or modification of the Notes
and the Senior Notes, if the Principals are not required to consent, and do
not consent, to any proposed refinancing or modification, then the members of
the Individual LLCs will sell all the outstanding membership interests of the
Individual LLCs to IHO or to a person designated by IHO for nominal
consideration. The members of the Individual LLCs may also sell all of the
outstanding membership interests of the Individual LLCs under certain other
circumstances to IHO or a person designated by IHO for nominal consideration.
Certain conditions to the Principals' obligation to consent to any refinancing
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or modification of the Notes and the Senior Notes depend on the Principals
receipt of an opinion of the Principals' counsel.
Subject to the Indenture and the Senior Notes Indenture, Insight Ohio is
permitted to make loans to IHO or any affiliate of IHO for the purpose of
funding the acquisition by IHO or its affiliate of any of the outstanding
Notes and the Senior Notes. The terms of any such loan will (i) provide that
all obligations and liabilities of IHO or its affiliate with respect to the
loan would be secured by its interest in the Notes or Senior Notes so
purchased, and any replacements or proceeds thereof (but such loan shall
otherwise be non-recourse to IHO or its affiliate); (ii) require the payment
to Insight Ohio, either as principal, interest, or additional interest, of all
amounts received by IHO or its affiliate with respect to the Notes or the
Senior Notes so purchased; and (iii) if made to an affiliate of IHO, require
that it remain an affiliate thereof.
IHO agrees that, except as specifically permitted by the Operating
Agreement, neither IHO nor any of its affiliates (including Insight Ohio) will
take any willful or intentional action in any capacity that is intended to
have, and has, the effect of modifying the structure of the Notes or the
Senior Notes (such as by imposing any covenants on any person other than an
Issuer or a Senior Notes Issuer that are not imposed on such person under the
Notes or the Senior Notes as it will exist at the Closing or agreeing that any
person or its assets would be liable or otherwise responsible for the payment
or collection of the Notes or the Senior Notes, or for the performance of the
obligations of any Issuer or any Senior Notes Issuer, to a greater extent than
such person or its assets is liable or otherwise responsible under the Notes
and the Senior Notes as then in effect).
Reimbursement of Certain Expenses
Insight Ohio will reimburse the Issuers, the Senior Notes Issuers and the
Individual LLCs for all direct, out-of-pocket expenses incurred by or on
behalf of the Issuers, the Senior Notes Issuers and the Individual LLCs in
complying with the terms of the Indenture and the Senior Notes Indenture
(excluding any payment of principal or interest under the Notes or the Senior
Notes). Insight Ohio will also pay, or shall reimburse the Issuers, the Senior
Notes Issuers and the Individual LLCs for, any amounts required to be paid by
any Issuer, Senior Notes Issuer or Individual LLC as a result of any
indemnification or reimbursement obligation arising under the Indenture or the
Senior Notes Indenture or otherwise arising in connection with the offer or
sale of any of the Notes, the Senior Notes or any replacement thereof.
Capital Defaults
If IHO breaches certain specified covenants under the Operating Agreement,
then, subject to the receipt of any required consents, approvals, waivers, or
authorizations of governmental authorities, (A) the size of the Management
Committee will be increased to six members, three of which shall be appointed
by holders of a majority of the outstanding Voting Interests and three of
which shall be appointed by the Principals, and (B) a person designated by the
Principals shall become an additional Manager of Insight Ohio and shall have
the authority to exercise, to the same extent as IHO, all powers designated in
this Agreement as powers of the Manager or delegated to the Manager by the
Management Committee, including the power to cause distributions to be made
with respect to the Series A Preferred Interests and the Series B Preferred
Interests. In the event of such a breach, IHO will indemnify the Issuers and
the Principals for certain damages, including certain tax liabilities, arising
from or relating to the breach.
Transfers of Interests
Neither member may sell, assign, transfer, or otherwise dispose of, or
pledge, hypothecate, or otherwise encumber all or any part of its membership
interest (whether voluntary, involuntary or by operation of law), unless
approved by the other member and the Principals, subject to a number of
significant exceptions, including the following: (i) a member may transfer its
membership interest to one of its affiliates; (ii) a permitted redemption of
the Preferred Interests; (iii) Coaxial may pledge its membership interest to
secure the Notes, the Senior Notes or any replacement thereof and IHO may
pledge its membership interest to secure Insight's senior debt; (iv) IHO may
sell any of its common interest if it affords Coaxial "tag-along" rights with
respect to Coaxial's common membership interest; (v) Coaxial shall sell all or
part of its common membership interest if
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IHO exercises its "drag-along" rights upon a sale by IHO of all or part of its
common membership interest; and (vi) Coaxial may put its common membership
interest to IHO and IHO may call Coaxial's common membership interest upon a
change in control of IHO.
In addition, IHO may elect at any time, by delivering written notice of its
election to Coaxial and the Principals, to require that a person designated by
the Principals purchase all of IHO's membership interest, for a nominal
purchase price. The closing of the purchase and sale of IHO's membership
interest pursuant to this provision would occur on a date to be specified by
the Principals that is within 180 days after the Principals' receipt of IHO's
election. IHO would cease to manage Insight Ohio and the Individual LLCs upon
consummation of the sale.
IHO has agreed with Coaxial and the Principals that, if any transfer by IHO
of all or any part of its membership interest or any other transaction
involving ownership of IHO would trigger the right of any holder of any of the
Notes and Senior Notes to require that such Notes and Senior Notes be repaid,
purchased, or redeemed, then, as an additional condition to the consummation
of such transfer or other transaction, IHO or its assignee will (a) agree to
purchase such Notes and Senior Notes from the holder thereof in the event the
holder elects to require that such Notes and Senior Notes be repaid,
purchased, or redeemed, and, upon such purchase, IHO or its assignee shall
waive any right to require that such Notes and Senior Notes be repaid,
purchased, or redeemed, or (b) obtain an irrevocable, binding agreement of the
holder of such Notes and Senior Notes not to require that such Notes and
Senior Notes be repaid, purchased, or redeemed upon the consummation of such
transfer or other transaction. Like the other terms of the Operating
Agreement, this covenant of IHO will not be enforceable by any holder of the
Notes and Senior Notes.
Indemnification and Exculpation
Insight Ohio is required to indemnify, defend, and hold harmless its members
and related parties for costs and damages incurred by reason of acts performed
or omitted to be performed by such persons in connection with the business of
Insight Ohio, except in the case of fraud, gross negligence, breach of
fiduciary duty, willful misconduct or a breach of the Operating Agreement by
the indemnified party. The members and their related parties will not liable,
in damages or otherwise, to Insight Ohio or to either member for losses that
arise from acts performed or omitted to be performed in connection with the
business of Insight Ohio, except in the case of fraud, gross negligence,
breach of fiduciary duty, willful misconduct, or a breach of the Operating
Agreement by the member or its related party.
Rights of Principals
None of the rights of the Principals under the Operating Agreement may be
assigned or otherwise transferred except, following the death of a Principal,
pursuant to the laws of descent and distribution. All rights of the Principals
under the Operating Agreement will terminate at such time as the Principals
cease to own, directly or indirectly, any interest in Insight Ohio.
Amendments
The Operating Agreement may only be modified or amended with the consent of
all the members and the Principals.
DESCRIPTION OF GOVERNING DOCUMENTS
INDIVIDUAL LLCS' OPERATING AGREEMENTS AND MANAGEMENT AGREEMENTS
All of the issued and outstanding capital stock of Coaxial is held by the
Individual LLCs. Each Individual LLC is governed by the Delaware Limited
Liability Company Act and its operating agreement. The operating agreements of
the Individual LLCs are substantially identical. Each operating agreement
limits the purposes of the Individual LLC to acquiring, owning, holding and
disposing of shares of capital stock of Coaxial, or any assets or property
acquired in exchange for such shares of capital stock. The sole member of each
Individual LLC has contributed to his Individual LLC all his shares of Coaxial
capital stock. As a pass-through entity, all profits and losses of each
Individual LLC are allocated to its sole member.
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The responsibility and control of the management of each Individual LLC is
granted to the member. The member may delegate to a manager any of the power
and authority of the member pursuant to a written management agreement.
However, notwithstanding any contrary provision in any such management
agreement, no Individual LLC shall take, and the manager shall not cause such
Individual LLC to take, any of the following actions without the consent of
the member:
. sell or issue any membership interests in the Individual LLC;
. engage in any transaction with Insight Ohio, IHO, any successor manager
or any of their respective affiliates;
. engage in any business activity other than (i) the acquisition, ownership
and disposition of shares of Coaxial and (ii) the performance of its
obligations under any agreement or other instrument evidencing the Notes
or any replacement thereof or pursuant to which the Notes or any
replacement thereof exists;
. consent to any amendment to any provision of the Articles of
Incorporation of Coaxial;
. amend, alter, or repeal any provision of the Code of Regulations of
Coaxial;
. purchase, redeem, or otherwise acquire any membership interest in the
Individual LLC;
. merge or consolidate with or into any other person;
. liquidate or dissolve;
. acquire, by purchase or lease, any assets;
. sell, dispose of, pledge or otherwise encumber any part of its assets,
except, with respect to shares of Coaxial, as permitted by any agreement
or other instrument pursuant to which the Notes or any replacement
thereof exists;
. incur or prepay any indebtedness (including any Notes or any replacement
thereof other than in accordance with their terms);
. agree to any reorganization, arrangement, or similar adjustment of its
debts under any law relating to bankruptcy, insolvency, or reorganization
or relief of debtors;
. enter into or amend any contract or other agreement, including any
agreement with respect to the incurring or repayment of any indebtedness
(including any Notes or any replacement thereof);
. take any action that would cause Coaxial's election to be treated as an
"S corporation" under the Internal Revenue Code to be terminated or
revoked; or
. hire any employee or independent contractor or pay any compensation to
any of its officers or directors.
Each Individual LLC has entered into a management agreement (the "Management
Agreement") with IHO (the "Manager"). Except as provided below, each
Individual LLC has delegated to the Manager all rights and powers of the
member of such Individual LLC with respect to the management and conduct of
the Individual LLC's activities and operation insofar as they relate to the
ownership of shares of Coaxial and any Notes, and its performance of its
obligations under any agreement or other instrument evidencing the Notes or
pursuant to which the Notes exists. The Manager does not have any authority,
among other things, to:
. take any action which pursuant to the operating agreement of such
Individual LLC may not be delegated to the Manager;
. cause the Individual LLC to exercise any of its rights as a shareholder
of Coaxial under the Close Corporation Agreement of Coaxial (as described
under "--Close Corporation Agreement" below); or
. take any action with respect to any "Reserved Matter" as that term is
defined in the Close Corporation Agreement.
The Manager is not entitled to any compensation from any Individual LLCs
under any Management Agreement and is not deemed a partner, co-venturer or
other participant in the business or operations of any Individual LLC. The
Manager is not deemed a member of any Individual LLC.
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Each member agrees in its Management Agreement that it will not cause its
Individual LLC to take or agree to take, any of the following actions:
. sell or issue any membership interest in the Individual LLC;
. admit any person as an additional member of the Individual LLC;
. engage in any business activity other than (i) the ownership and
disposition of shares of Coaxial and (ii) the performance of its
obligations under any agreement or other instrument evidencing the Notes
or any replacement thereof or pursuant to which the Notes or any
replacement thereof exists;
. merge or consolidate with or into any other person;
. liquidate or dissolve;
. acquire, by purchase or lease, any assets;
. sell, dispose of, pledge or otherwise encumber its shares in Coaxial,
except in accordance with any agreement or other instrument evidencing
the Notes or any replacement thereof or pursuant to which the Notes or
any replacement thereof exists;
. prepay any Notes or any replacement thereof;
. initiate any reorganization or any similar proceeding relating to
bankruptcy matters;
. enter into or amend any agreement with respect to the incurrence or
repayment of any Notes or any replacement thereof other than in
accordance with their terms; or
. any action prohibited by any covenant contained in any agreement or other
instrument evidencing the Notes or any replacement thereof or pursuant to
which the Notes or any replacement thereof exists, with respect to the
management of the Individual LLC. In addition, each member agrees in its
Management Agreement that it will not take or agree to take any action to
sell, assign, pledge, or otherwise encumber or transfer all or any part
of his interest in the Individual LLC to any person, except, following
the death of the member, pursuant to the laws of descent and
distribution, or amend the operating agreement of the Individual LLC.
COAXIAL CHARTER DOCUMENTS
The following is a summary of the material provisions of Coaxial's Amended
Articles of Incorporation and Close Corporation Agreement, which have been
filed as exhibits to the Registration Statement described under "Additional
Available Information."
Amended Articles of Incorporation
Coaxial's Amended Articles of Incorporation authorize 2,000 common shares,
par value of $1.00 per share (the "Common Stock"), of which 1,080 shares are
issued and outstanding. No shares have been reserved for issuance. No
preferred shares are authorized. Each share of Common Stock is entitled to one
vote per share. The Amended Articles of Incorporation restrict the freedom of
officers and directors in governing the corporation and provide that the
internal affairs of Coaxial are to be governed by the Close Corporation
Agreement. In addition, the purposes of Coaxial are limited to (a) acquiring,
owning and disposing of membership interests in Insight Ohio or any successor-
in-interest thereto or any assets or property acquired in exchange for any
such membership interests and (b) engaging in the business of developing,
owning, designing, constructing, maintaining, operating, managing and selling
those cable television systems owned or held by Coaxial prior to the filing of
Coaxial's Amended Articles of Incorporation.
Close Corporation Agreement
The Close Corporation Agreement regulates the internal affairs of Coaxial
and the relations of its shareholders among themselves with respect to
Coaxial. In the event of any conflict between either the Amended Articles of
Incorporation or the Code of Regulations of Coaxial and the Close Corporation
Agreement, the Close Corporation Agreement governs.
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The Close Corporation Agreement requires Coaxial to obtain shareholder
approval for various categories of actions, including (subject to certain
exceptions):
. to sell or issue any Coaxial capital stock;
. to engage in certain transactions with Insight, Insight Ohio, the manager
of the Individual LLCs or any of their respective affiliates;
. to engage in any business other than owning and disposing of membership
interests in Insight Ohio;
. to amend the Articles of Incorporation or the Code of Regulations;
. to acquire any shares of Coaxial capital stock;
. to merge or consolidate with any other entity;
. to liquidate or dissolve;
. to acquire any assets;
. to amend the Operating Agreement of Insight Ohio;
. to sell or dispose of assets;
. to incur or prepay indebtedness;
. to agree to any reorganization or similar adjustment of its debts under
any bankruptcy or similar law;
. to enter into or amending any contract;
. to take any action that would cause Coaxial to no longer be treated as an
S corporation; or
. to hire any employee or independent contractor, or pay any compensation
to any officer or director.
Coaxial is also required to comply with any shareholder resolution regarding
certain "Reserved Matters," which include:
. preparing and filing tax returns;
. exercising, prosecuting or enforcing any rights or claims of Coaxial that
are not contributed to Insight Ohio;
. owning, operating, managing, selling or otherwise disposing of any
Excluded Asset (as defined in the Contribution Agreement);
. exercising, prosecuting or enforcing any rights or claims of Coaxial
arising under the Contribution Agreement; and
. any other matter that does not involve Coaxial's ownership of membership
interests in Insight Ohio and its incurrence of the indebtedness
evidenced by the Notes or any replacement thereof.
The shareholders have the right to declare and cause Coaxial to pay
dividends to the same extent as Coaxial's board of directors.
None of the rights of the shareholders of Coaxial may be exercised on behalf
of any of the shareholders of Coaxial by IHO in its capacity as manager of
such shareholder, or otherwise, except to the extent that IHO is expressly
granted the authority to exercise such right on behalf of such shareholder
pursuant to a Management Agreement executed by the member of such shareholder
and filed with Coaxial.
Coaxial undertakes to indemnify each shareholder and its members, officers
and directors from any liability, loss, or damage arising from the exercise of
any rights arising under the Close Corporation Agreement.
The Close Corporation Agreement can only be modified or terminated upon the
written consent of all holders of the outstanding capital stock of Coaxial.
Each share of Coaxial must bear a legend indicating that such shares are
subject to the Close Corporation Agreement.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITY
Insight Ohio entered into the Senior Credit Facility on October 7, 1998 with
a group of banks and other financial institutions led by Canadian Imperial
Bank. None of the elements of the Financing Plan were contingent on the
entering into of the Senior Credit Facility. The following is a summary of
certain provisions of the Senior Credit Facility and, therefore, does not
purport to be complete.
The Senior Credit Facility provides for revolving credit loans of $25
million to finance capital expenditures and for working capital and general
purposes, including the upgrade of the System's cable plant and for the
introduction of new video services. The Senior Credit Facility has a six-year
maturity, with reductions to the amount of the commitment commencing after
three years. The amount available for borrowing is reduced by any outstanding
letter of credit obligations.
Insight Ohio's obligations under the Senior Credit Facility are secured by
substantially all the tangible and intangible assets of Insight Ohio. Loans
under the Senior Credit Facility bear interest, at Insight Ohio's option, at
Canadian Imperial Bank's prime rate or at a Eurodollar rate. In addition to
the index rates, Insight Ohio pays an additional margin percentage tied to its
ratio of total debt to adjusted annualized operating cash flow, in the case of
prime rate loans, 0.75% or, if under a 5:1 ratio, 0.25%; and in the case of
Eurodollar loans, 2.0% or, if under a 5:1 ratio, 1.5%.
The Senior Credit Facility contains a number of covenants that, among other
things, restricts the ability of Insight Ohio and its subsidiaries to make
capital expenditures, dispose of assets, incur additional indebtedness, incur
guaranty obligations, pay dividends or make capital distributions, including
distributions on the Preferred Interests that are required to pay the Notes
and the Senior Notes in the event of a payment default under the Senior Credit
Facility, create liens on assets, make investments, make acquisitions, engage
in mergers or consolidations, engage in certain transactions with subsidiaries
and affiliates and otherwise restrict certain activities. In addition, the
Senior Credit Facility requires compliance with certain financial ratios,
including with respect to total leverage, interest coverage and pro forma debt
service coverage. Management does not believe that such covenants will
materially impact the ability of Insight Ohio to operate its business.
The Senior Credit Facility contains customary events of default, including
the failure to pay principal when due or any interest or other amount that
becomes due within a period of time after the due date thereof, any
representation or warranty being made by Insight Ohio that is incorrect in any
material respect on or as of the date made, a default in the performance of
any negative covenants or a default in the performance of certain other
covenants or agreements for a specified period, default in certain other
indebtedness, certain insolvency events, certain change of control events and
a default under the Indenture or the Senior Notes Indenture.
SENIOR NOTES
Concurrent with the Original Notes Offering, the Senior Notes Issuers
offered $140.0 million aggregate principal amount of the Senior Notes.
Interest on the Senior Notes accrues from August 21, 1998 and will be
payable semiannually on each February 15 and August 15, commencing February
15, 1999.
The Senior Notes are joint and several non-recourse obligations of the
Senior Notes Issuers and are secured by a first priority pledge of all of the
issued and outstanding Series A Preferred Interests.
The Series A Preferred Interests have a liquidation preference of $140.0
million and will pay distributions in an amount equal to the interest payments
on the Senior Notes. All Series A Preferred Interests were issued to Coaxial
and pledged to the Senior Notes trustee (as defined in the Senior Notes
Indenture) for the benefit of the holders of the Senior Notes. Coaxial will
utilize cash distributions on the Series A Preferred Interests to make
payments on the Senior Notes. Neither of the Senior Notes Issuers conduct any
business. The Series A Preferred Interests will become non-voting upon the
enforcement of remedies under the Senior Notes pledge agreement (as defined in
the Senior Notes Indenture).
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The Series A Preferred Interests are mandatorily redeemable upon
acceleration of indebtedness under the Senior Notes, enforcement of remedies
under the pledge agreement in respect of the Senior Notes collateral, the
passage of ten days and the request by the holders of the Senior Notes. The
Series A Preferred Interests are redeemable at the option of Insight Ohio, so
long as the proceeds thereof are used to make a redemption of the Senior Notes
or an offer to purchase Senior Notes, in each case, in accordance with the
terms of the Senior Notes Indenture. Except for the pledge to the trustee for
the benefit of the holders of the Senior Notes, the exercise of remedies in
respect of such pledge or any transfer after enforcement of such remedies
under such pledge, the Series A Preferred Interests are non-transferable.
The Senior Notes are conditionally guaranteed on a senior unsecured basis,
by Insight Ohio and any future restricted subsidiaries (as defined in the
Senior Notes Indenture) of the Senior Notes Issuers (the "Senior Notes
Guarantors"). The Senior Notes guarantees are only effective to the extent and
at the time the holders of the Senior Notes are unable to realize proceeds
from the enforcement of the mandatory redemption provisions of the Series A
Preferred Interests. Insight Ohio is the only Senior Notes Guarantor currently
in existence.
The Senior Notes are non-recourse senior obligations of the Senior Notes
Issuers who are not permitted under the Senior Notes Indenture to incur any
other indebtedness. The Senior Notes guarantees rank pari passu in right of
payment with all existing and future unsubordinated indebtedness of Insight
Ohio and any restricted subsidiaries and senior in right of payment to all
existing and future subordinated indebtedness of Insight Ohio and any
restricted subsidiaries. The Senior Notes and any Senior Notes guarantees are
effectively subordinated in right of payment to all secured indebtedness of
the Senior Notes Guarantors to the extent of the value of the assets securing
such indebtedness, including indebtedness under the Senior Credit Facility. In
addition, the Senior Notes are effectively subordinated to all indebtedness of
the Senior Notes Issuers' subsidiaries that are not Senior Notes Guarantors.
As of December 22, 1998, no funds had been borrowed under the Senior Credit
Facility and as a result the Senior Notes and the Senior Notes guarantees were
not subordinated in right of payment to any secured indebtedness of the Senior
Notes Guarantors (presently Insight Ohio). There are currently no subsidiaries
of Coaxial and Phoenix that are not Senior Notes Guarantors.
The Senior Notes are redeemable at the option of the Senior Notes Issuers,
in whole or in part, at any time on or after August 15, 2002, at the
redemption prices set forth in the Senior Notes Indenture, plus accrued and
unpaid interest thereon to the redemption date. In addition, the Senior Notes
Issuers, at their option, may redeem in the aggregate up to 35% of the
principal amount of the Senior Notes originally issued at any time and from
time to time prior to August 15, 2001 at a redemption price equal to 110% of
the aggregate principal amount so redeemed, plus accrued and unpaid interest
thereon to the redemption date, with the net proceeds of one or more equity
offerings (as defined in the Senior Notes Indenture); provided that at least
$91.0 million of the principal amount of the Senior Notes remains outstanding
immediately after the occurrence of any such redemption and that any such
redemption occurs within 90 days following the closing of any such equity
offering.
Upon a change of control (as defined in the Senior Notes Indenture), the
Senior Notes Issuers are required to offer to repurchase all of the
outstanding Senior Notes at a purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest thereon to the repurchase
date.
The Senior Notes Indenture contains covenants that, among other things,
restrict the ability of the Senior Notes Issuers, Insight Ohio and any of
their restricted subsidiaries to:
. incur additional indebtedness;
. pay dividends and make distributions;
. issue stock of subsidiaries to third parties;
. make certain investments;
. repurchase stock;
. create liens;
. enter into transactions with affiliates;
. enter into sale and leaseback transactions;
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. create dividend or other payment restrictions affecting restricted
subsidiaries;
. merge or consolidate in a transaction involving all or substantially all
of the assets of the Senior Notes Issuers and their restricted
subsidiaries, taken as a whole;
. transfer or sell assets; and
. use distributions on the Series A Preferred Interests or Series B
Preferred Interests for any purpose other than required payments of
interest and principal on the Notes or Senior Notes.
These covenants are subject to a number of important exceptions.
The Senior Notes Issuers are obligated in certain instances to make an offer
to repurchase the Senior Notes at a purchase price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest thereon to the
repurchase date, with the net cash proceeds of certain asset sales.
The Senior Notes Issuers are obligated in certain instances to make an offer
to repurchase the Senior Notes at the redemption prices set forth in the
Senior Notes Indenture, plus accrued and unpaid interest, if any, to the
redemption date in connection with certain asset swaps.
Pursuant to the Senior Notes registration rights agreement (as defined in
the Senior Notes Indenture), the Senior Notes Issuers and any Senior Notes
Guarantors must file by October 20, 1998, and use their best efforts to cause
to become effective by January 18, 1999 an exchange offer registration
statement with respect to an offer to exchange the outstanding Senior Notes
for notes of the Senior Notes Issuers with terms substantially identical to
the outstanding Senior Notes (the "Exchange Senior Notes"). In addition, under
certain circumstances the Senior Notes Issuers and any Senior Notes Guarantors
may be required to file a shelf registration statement. The Exchange Senior
Notes have terms substantially identical to the outstanding Senior Notes. In
the event that certain covenants contained in the Senior Notes registration
rights agreement are not complied with, the Senior Notes Issuers will be
required to pay liquidated damages.
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DESCRIPTION OF THE NOTES
The Original Notes were, and the Exchange Notes will be, issued under an
Indenture, dated as of August 21, 1998 (the "Indenture") by and among the
Issuers, Insight Ohio and Bank of Montreal Trust Company, as trustee (the
"Trustee"). The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "TIA") as in effect on the date of the Indenture. The
Notes are subject to all such terms, and holders of the Notes are referred to
the Indenture and the TIA for a statement of them. The following is a summary
of the material terms and provisions of the Notes. This summary does not
purport to be a complete description of the Notes and is subject to the
detailed provisions of, and qualified in its entirety by reference to, the
Notes and the Indenture (including the definitions contained in the
Indenture). A copy of the Indenture will be provided without charge upon
request of the Issuers to each person to whom a copy of this Prospectus is
delivered. Definitions relating to certain capitalized terms are set forth
under "--Certain Definitions." Capitalized terms that are used but not
otherwise defined in this Prospectus have the meanings ascribed to them in the
Indenture and such definitions are incorporated in this Prospectus by
reference.
GENERAL
The Original Notes initially issued under the Indenture were limited in
aggregate principal amount at maturity to $55,869,000. The Notes are senior
obligations of the Issuers, who are not permitted under the Indenture to incur
any other Indebtedness. The Notes are non-recourse obligations of the Issuers
and the only recourse a holder of the Notes has with respect to the payment of
principal or interest on the Notes is the enforcement of the rights granted
pursuant to the Pledge Agreement with respect to the Discount Notes Collateral
and, failing that, enforcement of the Guarantee. The Original Notes were
issued at a substantial discount to their aggregate principal amount at
maturity such that the gross proceeds from the issuance of the Original Notes
were approximately $30.0 million. Based on the issue price of the Original
Notes, the yield to maturity of the Original Notes is 12 7/8% per annum
(computed on a semi-annual bond equivalent). See "Risk Factors--Non-Recourse
Debt; Ability to Realize on Collateral."
GUARANTEES
The Notes are conditionally guaranteed, on a senior unsecured basis, by
Insight Ohio and by any future Restricted Subsidiaries of the Issuers (other
than Coaxial). The conditional Guarantees will become effective upon
(i) enforcement by the Trustee of the rights granted pursuant to the Pledge
Agreement with respect to the Discount Notes Collateral, (ii) Insight Ohio's
failure to redeem the Series B Preferred Interests after ten days as provided
in the Operating Agreement and (iii) an adjudication (other than a default
judgment based upon a failure to prosecute or defend any claim) is obtained
relating to such failure. Insight Ohio is currently the only Guarantor in
existence. The Guarantee of any Guarantor will be subordinate to any secured
Indebtedness of such Guarantor to the extent of the assets securing such
Indebtedness and will be subordinate to the Senior Notes guarantees.
The obligations of each Guarantor are limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by
or on behalf of any other Guarantor in respect of the obligations of such
other Guarantor under its Guarantee or pursuant to its contribution
obligations under the Indenture, result in the obligations of such Guarantor
under the Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. Each Guarantor that makes a payment or
distribution under a Guarantee shall be entitled to a contribution from each
other Guarantor in a pro rata amount based on the Adjusted Net Assets of each
Guarantor.
A Guarantor shall be released from all of its obligations under its
Guarantee if (i) the Guarantor has sold all or substantially all of its assets
or the Issuers and their Restricted Subsidiaries have sold all of the Capital
Stock of the Guarantor owned by them, in each case in a transaction in
compliance with "--Certain Covenants--Limitation on Certain Asset Sales" and
"--Merger, Consolidation or Sale of Assets" below, or (ii) the Guarantor
merges with or into or consolidates with, or transfers all or substantially
all of its assets to, the Issuers or another Guarantor in a transaction in
compliance with "--Merger, Consolidation or Sale of Assets" below, and, in
each such case, such Guarantor has delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent in the Indenture provided for relating to such transactions have
been complied with.
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SUBORDINATION OF GUARANTEES
Payments on the Guarantees by the Guarantors will be subordinated, as set
forth in the Indenture, in right of payment to the prior payment in full of
all obligations under the Senior Notes guarantees.
Upon any distribution to holders of the Notes in a liquidation or
dissolution of the Issuers or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Issuers or their property,
an assignment for the benefit of creditors or any marshaling of the Issuers'
assets and liabilities, the holders of the Senior Notes will be entitled to
receive payment in full of all obligations guaranteed by Insight Ohio and any
future guarantor due in respect of the Senior Notes (including interest after
the commencement of any such proceeding at the rate specified in the Senior
Notes Indenture) pursuant to the Senior Notes guarantees before the holders of
Notes will be entitled to receive any payment with respect to the Notes
pursuant to the Guarantees, and until all obligations guaranteed by Insight
Ohio and any future guarantor with respect to the Senior Notes guarantees are
paid in full, any distribution by Insight Ohio and any future guarantor to
which the holders of Notes would be entitled pursuant to the Guarantees shall
be made to the holders of Senior Notes (except that holders of Notes may
receive payments made from the trust described under "--Defeasance and
Covenant Defeasance") if a default in the payment of the principal of or
premium, if any, or interest on the Senior Notes occurs and is continuing
beyond any applicable period of grace.
SECURITY
Pursuant to the Pledge Agreement among Coaxial LLC and the Trustee, Coaxial
LLC pledged to the Trustee, for the benefit of the holders of the Notes, (i)
all the Common Stock of Coaxial owned by Coaxial LLC on the Issue Date or so
acquired by Coaxial LLC thereafter and (ii) an assignment of the pledge of all
the shares of Common Stock in Coaxial held by Coaxial DJM LLC and Coaxial DSM
LLC which shares have been pledged to Coaxial LLC and (iii) the LLC Mirror
Notes, all of which constitutes the Discount Notes Collateral. Such pledge
secures the payment and performance when due of all the obligations of the
Issuers under the Indenture and the Notes.
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the Indenture, Coaxial LLC will be
entitled to receive all cash distributions made upon or with respect to the
Discount Notes Collateral.
Upon the occurrence and during the continuance of an Event of Default, the
Trustee shall enforce its remedies with respect to the Discount Notes
Collateral in accordance with instructions received from holders of a majority
of the aggregate principal amount at maturity of outstanding Notes, or in the
absence of such instructions, in such manner as the Trustee deems appropriate,
in each case as provided in the Indenture. The Series B Preferred Interests in
Insight Ohio owned by Coaxial are mandatorily redeemable ten days after
acceleration or such enforcement. The Series A Preferred Interests will have a
priority with respect to redemption. All funds received by the Trustee upon
any such enforcement shall be distributed by the Trustee in accordance with
the provisions of the Indenture. Upon the full and final payment and
performance of all obligations of the Issuers under the Indenture and the
Notes, the Discount Notes Collateral shall be released.
Though the Series B Preferred Interests will make distributions in amounts
equal to the interest payments on the Notes, the Series B Preferred Interests
will not serve as collateral for the Notes and the holders of the Notes will
not have any direct claim with respect to the Series B Preferred Interests.
The rights of the Trustee to foreclose upon and dispose of the Discount
Notes Collateral is likely to be significantly impaired by applicable
bankruptcy law if a bankruptcy proceeding were to be commenced by or against
the Issuers prior to the Trustee's having disposed of the Discount Notes
Collateral. Under Title XI of the United States Code (the "Bankruptcy Code"),
a secured creditor such as the Trustee is prohibited from disposing of
security upon foreclosure in a bankruptcy case, even though the debtor is in
default under the applicable debt instruments, without bankruptcy court
approval. Moreover, in general, the Bankruptcy Code prohibits the bankruptcy
court from giving such approval if the secured creditor is given "adequate
protection." The meaning
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of the term "adequate protection" may vary according to circumstances, but it
is intended in general to protect the value of the secured creditor's interest
in the collateral and may include cash payments or the granting of additional
security, if and at such times as the court in its discretion determines, for
any diminution in the value of the collateral as a result of the stay of
disposition during the pendency of the bankruptcy case. In view of the lack of
a precise definition of the term "adequate protection" and the broad
discretionary powers of a bankruptcy court, it is impossible to predict how
long payments under the Notes could be delayed following commencement of a
bankruptcy case, whether or when the Trustee could dispose of the Discount
Notes Collateral or whether or to what extent holders of the Notes would be
compensated for any delay in payment or loss of value of the pledged
collateral through the requirement of "adequate protection." See "Risk
Factors--Certain Bankruptcy Considerations."
MATURITY, INTEREST AND PRINCIPAL
The Notes mature on August 15, 2008. Interest will not accrue or be payable
on the Notes prior to August 15, 2003. Thereafter, interest on the Notes will
accrue at the rate of 12 7/8% per annum and will be payable semi-annually on
each February 15 and August 15, commencing February 15, 2004, to holders of
record of the Notes at the close of business on the February 1 and August 1
immediately preceding such interest payment date. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from August 15, 2003. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. Pursuant to the
Registration Rights Agreement, the Issuers have agreed to pay as liquidated
damages to each holder of the Notes additional interest (the "Additional
Interest"), payable on the payment dates set forth above, in certain
circumstances, if the Notes (or other securities substantially similar to the
Notes) are not registered with the SEC within the prescribed time periods. See
"The Exchange Offer--Purpose and Effect of the Exchange Offer."
OPTIONAL REDEMPTION
The Notes are redeemable at the option of the Issuers, in whole at any time
or in part from time to time on or after August 15, 2003 at the following
redemption prices (expressed as percentages of the principal amount at
maturity), together, in each case, with accrued and unpaid interest, if any,
to the redemption date, if redeemed during the twelve-month period beginning
on August 15 of each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003................................... 106.4375%
2004................................... 104.2917%
2005................................... 102.1458%
2006 and thereafter.................... 100.0000%
</TABLE>
In the event of a redemption of fewer than all of the Notes, the Trustee
shall select the Notes to be redeemed in compliance with the requirements of
the principal national securities exchange, if any, on which such Notes are
listed, or if such Notes are not then listed on a national securities
exchange, on a pro rata basis, by lot or in such other manner as the Trustee
shall deem fair and equitable. The Notes will be redeemable in whole or in
part upon not less than 30 nor more than 60 days' prior written notice, mailed
by first class mail to a holder's last address as it shall appear on the
register maintained by the Registrar of the Notes. On and after any redemption
date, Accreted Value will cease to accrete and interest will cease to accrue,
as the case may be, on the Notes or portions thereof called for redemption as
long as funds are deposited with the Paying Agent.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Additional Indebtedness
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, incur (as defined) any Indebtedness
(including Acquired Indebtedness); provided that if no default or Event of
Default
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shall have occurred and be continuing at the time or as a consequence of the
incurrence of such Indebtedness, Insight Ohio or any of the Issuers'
Restricted Subsidiaries (other than Coaxial) may incur Indebtedness (including
Acquired Indebtedness) if after giving effect to the incurrence of such
Indebtedness and the receipt and application of the proceeds thereof, the
Consolidated Leverage Ratio of the Issuers is less than 8 to 1 if the
Indebtedness is incurred on or prior to August 15, 2000 and less than 7 to 1
if the Indebtedness is incurred thereafter. The accretion of original issue
discount on the Notes shall not be deemed an incurrence of Indebtedness for
purposes of this covenant.
Notwithstanding the foregoing, Insight Ohio and the Issuers' Restricted
Subsidiaries may incur Permitted Indebtedness and Coaxial and Phoenix may
incur Indebtedness evidenced by the Senior Notes; provided that the Issuers
will not incur any Permitted Indebtedness that ranks junior in right of
payment to the Notes that has a maturity or mandatory sinking fund payment
prior to the maturity of the Notes.
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, incur any Indebtedness which by its terms (or by the terms of
any agreement governing such Indebtedness) is subordinated in right of payment
to any other Indebtedness of the Issuers or such Restricted Subsidiary unless
such Indebtedness is also by its terms (or by the terms of any agreement
governing such Indebtedness) made expressly subordinate in right of payment to
the Notes or the Guarantee of such Guarantor, as the case may be, pursuant to
subordination provisions that are substantively identical to the subordination
provisions of such Indebtedness (or such agreement) that are most favorable to
the holders of any other Indebtedness of the Issuers or such Restricted
Subsidiary, as the case may be.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Indebtedness or is entitled to be incurred pursuant to the first
paragraph of this covenant, the Issuers shall, in their sole discretion,
classify such item of Indebtedness in any manner that complies with this
covenant and such item of Indebtedness shall be treated as having been
incurred pursuant to only one of such clauses or pursuant to the first
paragraph under "--Limitation on Additional Indebtedness."
Limitation on Restricted Payments
The Issuers will not make, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless:
(a) no default or Event of Default shall have occurred and be continuing
at the time of or immediately after giving effect to such Restricted
Payment;
(b) immediately after giving pro forma effect to such Restricted Payment,
Insight Ohio and the Issuers' Restricted Subsidiaries could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under "--
Limitation on Additional Indebtedness" above; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of:
(1) 100% of the Issuers' Cumulative EBITDA minus 1.4 times the
Cumulative Consolidated Interest Expense of the Issuers;
(2) 100% of the aggregate Net Proceeds received by an Issuer from the
issue or sale after the Issue Date of Capital Stock (other than
Disqualified Capital Stock or Capital Stock of an Issuer issued to any
Subsidiary of an Issuer) of an Issuer or any Indebtedness or other
securities of an Issuer convertible into or exercisable or exchangeable
for Capital Stock (other than Disqualified Capital Stock) of an Issuer
which has been so converted, exercised or exchanged, as the case may
be;
(3) without duplication of any amounts included in clause (c)(2)
above, 100% of the aggregate Net Proceeds received by an Issuer from
any equity contribution from a holder of an Issuer's Capital Stock;
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(4) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after the Issue Date, an amount
(to the extent not included in the computation of Consolidated Net
Income) equal to the lesser of: (x) the return of capital with respect
to such Investment and (y) the amount of such Investment which was
treated as a Restricted Payment, in either case, less the cost of the
disposition of such Investment; and
(5) so long as the Designation Amount thereof was treated as a
Restricted Payment made after the Issue Date, with respect to any
Unrestricted Subsidiary that has been redesignated as a Restricted
Subsidiary after the Issue Date in accordance with the provisions of
the Indenture, an Issuer's proportionate interest in an amount equal to
the excess of (x) the total assets of such Subsidiary, valued on an
aggregate basis at fair market value, over (y) the total liabilities of
such Subsidiary, determined in accordance with GAAP (and provided that
such amount shall not in any case exceed the Designation Amount with
respect to such Restricted Subsidiary upon its Designation).
For purposes of determining under this clause (c) the amount expended for
Restricted Payments, cash distributed shall be valued at the face amount
thereof and property other than cash shall be valued at its fair market value.
The provisions of this covenant shall not prohibit:
(i) the payment of any distribution within 60 days after the date of
declaration thereof, if at such date of declaration such payment would
comply with the provisions of the Indenture;
(ii) the repurchase, redemption or other acquisition or retirement of any
shares of Capital Stock of an Issuer or Indebtedness subordinated to the
Notes by conversion into, or by or in exchange for, shares of Capital Stock
of an Issuer (other than Disqualified Capital Stock), or out of the Net
Proceeds of the substantially concurrent sale (other than to a Subsidiary
of an Issuer) of other shares of Capital Stock of an Issuer (other than
Disqualified Capital Stock); provided, however, that any such Net Proceeds
or the value of any Capital Stock issued in exchange for such shares or
Indebtedness are excluded from clause (c)(2) above (and were not included
therein at any time);
(iii) the redemption or retirement of Indebtedness of an Issuer
subordinated to the Notes in exchange for, by conversion into, or out of
the Net Proceeds of, a substantially concurrent sale or incurrence of
Indebtedness of an Issuer (other than any Indebtedness owed to a
Subsidiary) that is contractually subordinated in right of payment to the
Notes to at least the same extent as the Indebtedness being redeemed or
retired;
(iv) the retirement of any shares of Disqualified Capital Stock of an
Issuer by conversion into, or by exchange for, shares of Disqualified
Capital Stock of an Issuer, or out of the Net Proceeds of the substantially
concurrent sale (other than to a Subsidiary of an Issuer) of other shares
of Disqualified Capital Stock of an Issuer; provided, however, that any
such Net Proceeds or the value of any Capital Stock issued in exchange for
such shares are excluded from clause (c)(2) above (and were not included
therein at any time);
(v) whether or not a default or Event of Default shall have occurred and
be continuing or occur immediately after giving effect thereto, in amounts
necessary to make payments on the Notes and the Senior Notes (x) Preferred
Payments from Insight Ohio and (y) Pass Through Dividends by Coaxial;
(vi) except if a default or Event of Default shall have occurred and be
continuing, Tax Distributions;
(vii) management fees and reimbursement of expenses payable to IHO
pursuant to the Operating Agreement provided that (a) the Issuers and their
Restricted Subsidiaries could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under "--Certain
Covenants--Limitation on Additional Indebtedness" and (b) no default or
Event of Default shall have occurred and be continuing in the case of both
clauses (a) and (b) of this clause (vii) at (x) the time of payment of such
management fee and (y) at the Reported Period;
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(viii) the purchase of Notes pursuant to "Limitation on Certain Asset
Sales," "Change of Control" and "Limitation on Asset Swaps" provisions of
the Indenture; and
(ix) the distribution by Phoenix of any of the Excluded Assets; provided
that in calculating the aggregate amount of Restricted Payments made
subsequent to the Issue Date for purposes of clause (c) above, amounts
expended pursuant to clauses (i), (vi) and (viii) shall be included in such
calculation.
Limitation on Liens
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind (other than Permitted Liens) upon any property
or asset of an Issuer or any of their Restricted Subsidiaries or any shares of
Capital Stock or Indebtedness of any Restricted Subsidiary of an Issuer which
owns property or assets, now owned or hereafter acquired, unless:
. if such Lien secures Indebtedness which is pari passu with the Notes
(without giving effect to the principles of structural subordination),
then the Notes are secured on an equal and ratable basis with the
obligations so secured until such time as such obligation is no longer
secured by a Lien or
. if such Lien secures Indebtedness which is subordinated to any debt of a
Restricted Subsidiary, any such Lien shall be subordinated to the Lien
granted to the holders of the Notes to the same extent as such
Indebtedness is subordinated to the Notes.
Limitation on Transactions with Affiliates
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with
any Affiliate (each an "Affiliate Transaction") or extend, renew, waive or
otherwise modify in any material respect the terms of any Affiliate
Transaction entered into prior to the Issue Date unless:
(i) such Affiliate Transaction is between or among the Issuers, or an
Issuer and a Restricted Subsidiary of an Issuer; or
(ii) the terms of such Affiliate Transaction are fair and reasonable to
an Issuer or such Restricted Subsidiary, as the case may be, and the terms
of such Affiliate Transaction are substantially similar to the terms which
could reasonably be expected to be obtained by an Issuer or such Restricted
Subsidiary, as the case may be, in a comparable transaction made on an
arm's-length basis between unaffiliated parties.
In any Affiliate Transaction (or any series of related Affiliate
Transactions which are similar or part of a common plan) involving an amount
or having a fair market value in excess of $3.0 million which is not permitted
under clause (i) above, an Issuer must obtain a resolution of the Board of
Directors of such Issuer certifying that such Affiliate Transaction complies
with clause (ii) above. In any Affiliate Transaction (or any series of related
Affiliate Transactions which are similar or part of a common plan) involving
an amount or having a fair market value in excess of $5.0 million which is not
permitted under clause (i) above, the Issuers must obtain a favorable written
opinion as to the fairness, from a financial point of view, of such
transaction or transactions, as the case may be, from an Independent Financial
Advisor.
The foregoing provisions will not apply to:
. any Restricted Payment that is not prohibited by the provisions described
under "--Limitation on Restricted Payments" above;
. reasonable fees and compensation paid to, and indemnity provided on
behalf of, officers, directors or employees of the Issuers or any
Restricted Subsidiary of an Issuer as determined in good faith by the
Issuer's Board of Directors or senior management;
. arrangements now or hereafter in effect between Insight and IHO and third
parties which arrangements can be used for the benefit of a Restricted
Subsidiary; and
. any forgiveness or distribution by Phoenix of the Excluded Assets.
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Notwithstanding anything contained in the Indenture to the contrary, the
terms of the Operating Agreement and the indemnification provisions of the
Close Corporation Agreement and the performance by any party thereto of its
obligations thereunder shall not be considered an Affiliate Transaction.
Limitation on Creation of Subsidiaries
The Issuers will not create or acquire, and will not permit any of their
Restricted Subsidiaries to create or acquire, any Subsidiary other than:
(i) a Restricted Subsidiary existing as of the Issue Date; or
(ii) a Restricted Subsidiary that is acquired or created in connection
with the acquisition by an Issuer of a related business or asset; or
(iii) an Unrestricted Subsidiary;
provided, however, that each Restricted Subsidiary acquired or created
pursuant to clause (ii) shall have executed a guarantee, satisfactory in form
and substance to the Trustee (and with such documentation relating thereto as
the Trustee shall require, including, without limitation a supplement or
amendment to the Indenture and opinions of counsel as to the enforceability of
such guarantee), pursuant to which such Restricted Subsidiary will become a
Guarantor. As of the Issue Date, the Issuers had no Restricted Subsidiaries,
other than Coaxial, Phoenix and Insight Ohio. See "--General."
Limitation on Certain Asset Sales
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, consummate an Asset Sale unless:
(i) the Issuer or such applicable Restricted Subsidiary, as the case may
be, receives consideration at the time of such sale or other disposition at
least equal to the fair market value of the assets sold or otherwise
disposed of;
(ii) not less than 80% of the consideration received by an Issuer or such
applicable Restricted Subsidiary, as the case may be, is in the form of
cash or Cash Equivalents; provided, however, that the amount of any (x)
Indebtedness of an Issuer or any Restricted Subsidiary that is actually
assumed by the transferee in such Asset Sale and from which an Issuer and
the Restricted Subsidiaries are fully released shall be deemed to be cash
for purposes of determining the percentage of cash consideration received
by an Issuer or the Restricted Subsidiaries and (y) notes or other similar
obligations received by an Issuer or the Restricted Subsidiaries from such
transferee that are immediately converted, sold or exchanged (or are
converted, sold or exchanged within 30 days of the related Asset Sale) by
an Issuer or the Restricted Subsidiaries into cash shall be deemed to be
cash, in an amount equal to the net cash proceeds realized upon such
conversion, sale or exchange for purposes of determining the percentage of
cash consideration received by an Issuer or the Restricted Subsidiaries;
and
(iii) the Asset Sale Proceeds received by an Issuer or such Restricted
Subsidiary are applied:
(a) to the extent an Issuer or any such Restricted Subsidiary, as the
case may be, elects, or is required, to prepay, repay or purchase
indebtedness under the Senior Credit Facility or Senior Notes within
180 days following the receipt of the Asset Sale Proceeds from any
Asset Sale; provided that any such repayment shall result in a
permanent reduction of the commitments thereunder (other than
commitments under a revolving credit facility) in an amount equal to
the principal amount so repaid; or
(b) to the extent of the balance of Asset Sale Proceeds, after
application, if any, as described above, to the extent the Issuers
elect, on a pro rata basis to the repayment of an amount of Other Pari
Passu Debt not exceeding the Other Pari Passu Debt Pro Rata Share
(provided that any such repayment shall result in a permanent reduction
of any commitment in respect thereof in an amount equal to the
principal amount so repaid) within 180 days following the receipt of
the Asset Sale Proceeds from any Asset Sale; or
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(c) to the extent of the balance of Asset Sale Proceeds after
application as described above, to the extent the Issuers or a
Restricted Subsidiary elect, to an investment in assets (including
Capital Stock or other securities purchased in connection with the
acquisition of Capital Stock or property of another Person) used or
useful in businesses similar, ancillary, complementary or otherwise
related to the business of an Issuer or any such Restricted Subsidiary
as then conducted; provided that (1) such investment occurs or an
Issuer or any such Restricted Subsidiary enters into contractual
commitments to make such investment, subject only to customary
conditions (other than the obtaining of financing), within 180 days
following receipt of such Asset Sale Proceeds and (2) Asset Sale
Proceeds so contractually committed are so applied within 270 days
following the receipt of such Asset Sale Proceeds; and
(d) if on such 180th day in the case of clauses (iii)(a), (iii)(b)
and (iii)(c)(1) or on such 270th day in the case of clause (iii)(c)(2)
with respect to any Asset Sale, the Available Asset Sale Proceeds
exceed $10.0 million, the Issuers shall apply an amount equal to the
Available Asset Sale Proceeds to an offer to repurchase the Notes, at a
purchase price in cash equal to (x) 100% of the Accreted Value thereof,
if the applicable purchase date is on or prior to August 15, 2003, or
(y) 100% of the principal amount at maturity thereof together with
accrued and unpaid interest, if any, thereon to the date of purchase,
if the purchase date is after August 15, 2003 (an "Excess Proceeds
Offer").
If an Excess Proceeds Offer is not fully subscribed, the Issuers and any
such Restricted Subsidiary may retain the portion of the Available Asset Sale
Proceeds not required to repurchase Notes.
If the Issuers are required to make an Excess Proceeds Offer, the Issuers
shall mail, within 75 days following the date specified in clause (iii)(d)
above, a notice to the holders stating, among other things:
. that such holders have the right to require the Issuers to apply the
Available Asset Sale Proceeds to repurchase such Notes at a purchase
price in cash equal to (x) 100% of the Accreted Value thereof, if the
applicable purchase date is on or prior to August 15, 2003, or (y) 100%
of the principal amount at maturity thereof together with accrued and
unpaid interest, if any, thereon to the date of purchase, if the purchase
date is after August 15, 2003;
. the purchase date, which shall be no earlier than 30 days and not later
than 45 days from the date such notice is mailed;
. the instructions that each holder must follow in order to have such Notes
purchased; and
. the calculations used in determining the amount of Available Asset Sale
Proceeds to be applied to the purchase of such Notes.
In the event of the transfer of substantially all of the property and assets
of the Issuers and their Restricted Subsidiaries as an entirety to a Person in
a transaction permitted under "--Merger, Consolidation or Sale of Assets"
below, the successor Person shall be deemed to have sold the properties and
assets of the Issuers and their Restricted Subsidiaries not so transferred for
purposes of this covenant, and shall comply with the provisions of this
covenant with respect to such deemed sale as if it were an Asset Sale.
The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to an Excess Proceeds Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Asset
Sale" provisions of the Indenture, the Issuers shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached their obligations under the "Asset Sale" provisions of the Indenture
by virtue thereof.
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Limitation on Asset Swaps
The Issuers will not, and will not permit any Restricted Subsidiary to,
engage in any Asset Swaps which constitutes substantially all of the assets of
the Issuers, unless:
(i) at the time of entering into the agreement to swap assets and
immediately after giving effect to the proposed Asset Swap, no default or
Event of Default shall have occurred and be continuing or would occur as a
consequence thereof; and
(ii) the Issuers have been informed in writing by either S&P or Moody's
that any Indebtedness of the Issuers (including the Notes) will not be
downgraded as a result of such Asset Swap.
Notwithstanding clause (ii) of the immediately preceding sentence, the
Issuers will be allowed to consummate an Asset Swap even if such Asset Swap
will result in such a downgrade, if within five days of the occurrence of such
Asset Swap, the Issuers make an offer to purchase Notes in accordance with the
procedures described in "--Change of Control Offer" (the "Asset Swap Offer")
at the following redemption prices (expressed, in the case of periods prior to
August 15, 2003, as a percentage of the Accreted Value and, in the case of
periods on or after August 15, 2003, as a percentage of the principal amount
at maturity) together, if after August 15, 2003, with accrued and unpaid
interest, if any, to the redemption date, if redeemed during the twelve-month
period beginning on each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1998................................... 112.8750%
1999................................... 111.5875%
2000................................... 110.3000%
2001................................... 109.0125%
2002................................... 107.7250%
2003................................... 106.4375%
2004................................... 105.1500%
2005................................... 103.8625%
2006 and thereafter.................... 103.0000%
</TABLE>
Limitation on Disqualified Capital Stock of Restricted Subsidiaries
The Issuers will not permit any of their Restricted Subsidiaries to issue
any Disqualified Capital Stock (except Disqualified Capital Stock issued to an
Issuer or a Wholly Owned Subsidiary of an Issuer) or permit any Person (other
than an Issuer or a Wholly Owned Subsidiary of an Issuer) to hold any such
Disqualified Capital Stock unless an Issuer or such Restricted Subsidiary
would be entitled to incur or assume Indebtedness under "--Limitation on
Additional Indebtedness" above (other than Permitted Indebtedness) in the
aggregate principal amount equal to the aggregate liquidation value of the
Disqualified Capital Stock to be issued.
Limitation on Capital Stock of Restricted Subsidiaries
The Issuers will not (i) sell, pledge, hypothecate or otherwise convey or
dispose of any Capital Stock of a Restricted Subsidiary of an Issuer (other
than under the Senior Credit Facility, pursuant to the pledge agreement
relating to the Senior Notes or pursuant to the Pledge Agreement) or (ii)
permit any of their Restricted Subsidiaries to issue any Capital Stock, other
than to an Issuer or a Wholly Owned Subsidiary of an Issuer provided that
Insight Ohio may issue additional common membership interests to Insight in
consideration of capital contributions made by Insight. The foregoing
restrictions shall not apply to an Asset Sale made in compliance with "--
Limitation on Certain Asset Sales" above or the issuance of Preferred Stock in
compliance with "--Limitation on Disqualified Capital Stock of Restricted
Subsidiaries" above.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary of an Issuer to;
(a)(i) pay dividends or make any other distributions to an Issuer or any
Restricted Subsidiary of an Issuer (A) on its Capital Stock or (B) with
respect to any other interest or participation in, or measured by,
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its profits or (ii) repay any Indebtedness or any other obligation owed to
an Issuer or any Restricted Subsidiary of an Issuer;
(b) make loans or advances or capital contributions to an Issuer or any
of its Restricted Subsidiaries; or
(c) transfer any of its properties or assets to an Issuer or any of their
Restricted Subsidiaries, except for such encumbrances or restrictions
existing under or by reason of:
(i) encumbrances or restrictions existing on the Issue Date to the
extent and in the manner such encumbrances and restrictions are in
effect on the Issue Date;
(ii) (x) the Indenture, the Notes and the Guarantees and (y) the
Senior Notes Indenture, the Senior Notes and the Senior Notes
guarantees;
(iii) applicable law;
(iv) the Senior Credit Facility;
(v) any instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets
of the Person (including any Subsidiary of the Person), so acquired;
(vi) customary non-assignment provisions in leases or other
agreements entered in the ordinary course of business and consistent
with past practices;
(vii) Refinancing Indebtedness; provided that such restrictions are
no more restrictive than those contained in the agreements governing
the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
(viii) customary restrictions in security agreements or mortgages
securing Indebtedness of an Issuer or a Restricted Subsidiary to the
extent such restrictions restrict the transfer of the property subject
to such security agreements and mortgages; or
(ix) customary restrictions with respect to a Restricted Subsidiary
of an Issuer pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital
Stock or assets of such Restricted Subsidiary.
Limitation on Conduct of Business
The Issuers will not engage in any business other than holding the Common
Stock of Coaxial and the LLC Mirror Notes, serving as a secured holder of the
remaining Common Stock of Coaxial and issuing the Notes. The Issuers will not
permit Coaxial to engage in any business other than holding common membership
interests and the Preferred Interests of Insight Ohio and issuing the Senior
Notes. The Issuers will not permit their Restricted Subsidiaries (other than
Coaxial) to engage in any businesses which are not the same, similar, related,
ancillary or complementary to the businesses in which Insight Ohio and their
Restricted Subsidiaries are then engaged.
Limitation on Sale and Lease-Back Transactions
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, enter into any Sale and Lease-Back Transaction unless (i) the
consideration received in such Sale and Lease-Back Transaction is at least
equal to the fair market value of the property sold, as determined in good
faith by the Board of Directors of an Issuer and evidenced by a board
resolution and (ii) the Issuers could incur the Attributable Indebtedness in
respect of such Sale and Lease-Back Transaction in compliance with "--
Limitation on Additional Indebtedness" above.
Payments for Consent
The Issuers will not, and will not permit any of their Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes
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unless such consideration is offered to be paid or agreed to be paid to all
holders of the Notes which so consent, waive or agree to amend in the time
frame set forth in solicitation documents relating to such consent, waiver or
agreement.
Payment of Pass Through Dividends
The Issuers will cause Coaxial to immediately use all proceeds received from
Insight Ohio as Preferred Payments in respect of the Series B Preferred
Interests to pay a dividend in like amount to Coaxial LLC, Coaxial DJM LLC and
Coaxial DSM LLC.
Enforcement of Rights
In the event that the Series B Preferred Interests become mandatorily
redeemable, the Issuers will cause Coaxial to exercise all rights and remedies
available to enforce Coaxial's rights with respect to the Series B Preferred
Interests.
CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control, the Issuers shall be obligated
to make an offer to purchase (the "Change of Control Offer") each holder's
outstanding Notes at a purchase price equal to (x) 101% of the Accreted Value
thereof, if the Change of Control Payment Date (as defined below) is on or
prior to August 15, 2003 or (y) 101% of the principal amount at maturity
thereof together with accrued and unpaid interest, if any, thereon to the
Change of Control Payment Date, if the Change of Control Payment Date is after
August 15, 2003 (such applicable purchase price being referred in this
Prospectus as the "Change of Control Purchase Price"), in accordance with the
procedures set forth below.
Within 20 days of the occurrence of a Change of Control, the Issuers shall
(i) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United
States and (ii) send by first-class mail, postage prepaid, to the Trustee and
to each holder of the Notes, at the address appearing in the register
maintained by the Registrar of the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 30 days nor later than 45 days from
the date such notice is mailed (the "Change of Control Payment Date"));
(3) that any Note not tendered will continue to accrete in value or
accrue interest;
(4) that, unless the Issuers default in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrete in value or accrue interest
after the Change of Control Payment Date;
(5) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day preceding the Change of Control
Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such Notes
purchased;
(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered;
(8) any other procedures that a holder must follow to accept a Change of
Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
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On the Change of Control Payment Date, the Issuers shall, to the extent
lawful, (i) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
tendered and (iii) deliver or cause to be delivered to the Trustee Notes so
accepted together with an Officers' Certificate stating the Notes or portions
thereof tendered to the Issuers. The Paying Agent shall promptly mail to each
holder of Notes so accepted payment in an amount equal to the purchase price
for such Notes, and the Issuers shall execute and issue, and the Trustee shall
promptly authenticate and mail to such holder, a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered; provided that each
such new Note shall be issued in denominations of $1,000 principal amount at
maturity and integral multiples thereof.
The Indenture requires that if the Senior Credit Facility is in effect, or
the Senior Notes are outstanding or any amounts are owing thereunder or in
respect thereof, at the time of the occurrence of a Change of Control, prior
to the mailing of the notice to holders described in the second preceding
paragraph, but in any event within 20 days following any Change of Control,
the Issuers covenant to (i) cause the borrowers thereunder to repay in full
all obligations and terminate all commitments under or in respect of the
Senior Credit Facility or offer to repay in full all obligations and terminate
all commitments under or in respect of the Senior Credit Facility and repay
the Indebtedness owed to each such lender who has accepted such offer and
cause the issuers thereof to repay in full all obligations in respect of the
Senior Notes or offer to repay in full all obligations in respect of the
Senior Notes and repay the obligations in respect of the Senior Notes of each
holder who has accepted such offer or (ii) cause such borrowers and issuers to
obtain the requisite consents under the Senior Credit Facility and from the
holders of Senior Notes, respectively, to permit the repurchase of the Notes
as described above. The Issuers must first comply with the covenant described
in the preceding sentence before it shall be required to purchase Notes in the
event of a Change of Control; provided that the Issuers' failure to comply
with the covenant described in the preceding sentence constitutes an Event of
Default described in clause (iii) under "--Events of Default" below if not
cured within 30 days after the notice required by such clause. As a result of
the foregoing, a holder of the Notes may not be able to compel the Issuers to
purchase the Notes unless the Issuers are able at the time to refinance all of
the obligations under or in respect of the Senior Credit Facility or obtain
requisite consents under the Senior Credit Facility and refinance all of the
obligations in respect of the Senior Notes or obtain requisite consents from
the holders of the Senior Notes.
The Indenture provides that, (A) if an Issuer or any Restricted Subsidiary
thereof has issued any outstanding (i) indebtedness that is subordinated in
right of payment to the Notes or senior in right of payment with respect to
Indebtedness of Restricted Subsidiaries (other than under the Senior Credit
Facility) or (ii) Preferred Stock, and an Issuer or such Restricted Subsidiary
is required to make a Change of Control Offer or to make a distribution with
respect to such indebtedness or Preferred Stock in the event of a change of
control, the Issuers shall not consummate any such offer or distribution with
respect to such indebtedness or Preferred Stock until such time as the Issuers
shall have paid the Change of Control Purchase Price in full to the holders of
Notes that have accepted the Issuers' Change of Control Offer and shall
otherwise have consummated the change of control offer made to holders of the
Notes and (B) the Issuers will not issue Indebtedness that is subordinated in
right of payment to the Notes or Preferred Stock with change of control
provisions requiring the payment of such Indebtedness or Preferred Stock prior
to the payment of the Notes in the event of a Change in Control under the
Indenture.
The Issuers will not be required to make a Change of Control Offer if a
third party makes the Change of Control Offer in the manner, at the time and
otherwise in compliance with the requirements set forth in the Indenture
applicable to a Change of Control Offer made by the Issuers and purchases all
Notes or portions thereof validly tendered and not withdrawn under such Change
of Control Offer.
If a Change of Control were to occur, the Issuers may not have sufficient
available funds to make the Change of Control Offer for all Notes that might
be delivered by holders of the Notes seeking to accept the Change of Control
Offer. The failure of the Issuers to make or consummate the Change of Control
Offer or to pay the Change of Control Payment when due will give the Trustee
and the holders of the Notes the right described under "Events of Default"
below. See "Risk Factors--Ability to Purchase Notes Upon a Change of Control."
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The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Issuers shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached their obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Issuers will not and will not permit any of their Restricted
Subsidiaries to consolidate with, merge with or into, or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
the assets of the Issuers (as an entirety or substantially as an entirety in
one transaction or a series of related transactions), to any Person unless:
(i) an Issuer or such Restricted Subsidiary, as the case may be, shall be the
continuing Person, or the Person (if other than an Issuer or such Restricted
Subsidiary) formed by such consolidation or into which an Issuer or such
Restricted Subsidiary, as the case may be, is merged or to which the
properties and assets of an Issuer or such Restricted Subsidiary, as the case
may be, are sold, assigned, transferred, leased, conveyed or otherwise
disposed of shall be a corporation organized and existing under the laws of
the United States or any State thereof or the District of Columbia and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all of the obligations of an
Issuer or such Restricted Subsidiary, as the case may be, under the Indenture,
the Notes and the Guarantees, and the obligations thereunder shall remain in
full force and effect; (ii) immediately before and immediately after giving
effect to such transaction, no default or Event of Default shall have occurred
and be continuing; and (iii) immediately after giving effect to such
transaction on a pro forma basis the Issuers or such Person could incur at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
under "--Certain Covenants--Limitation on Additional Indebtedness" above;
provided that Insight Ohio may merge with Coaxial without complying with this
clause (iii).
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Issuers shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an Officers' Certificate and an opinion of counsel, each stating
that such consolidation, merger or transfer and the supplemental indenture in
respect thereto comply with this provision and that all conditions precedent
in the Indenture provided for relating to such transaction or transactions
have been complied with.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of an Issuer the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Issuers, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Issuers.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) default in payment of any Accreted Value, principal of, or premium,
if any, on the Notes whether at maturity, upon redemption or otherwise;
(ii) default for 30 days in payment of any interest on the Notes;
(iii) default by an Issuer or any Restricted Subsidiary in the observance
or performance of any other covenant in the Notes, the Indenture or the
Pledge Agreement for 30 days after written notice from the Trustee as
directed by the holders of not less than 25% in aggregate principal amount
of the Notes then outstanding (except in the case of a default with respect
to the "Change of Control" or "Merger, Consolidation or Sale of Assets"
covenant which shall constitute an Event of Default with such notice
requirement but without such passage of time requirement);
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(iv) failure to pay when due principal, interest or premium in an
aggregate amount of $7.5 million or more with respect to any Indebtedness
of an Issuer or any Restricted Subsidiary thereof, or the acceleration of
any such Indebtedness aggregating $7.5 million or more which default shall
not be cured, waived or postponed pursuant to an agreement with the holders
of such Indebtedness within 60 days after written notice as provided in the
Indenture, or such acceleration shall not be rescinded or annulled within
20 days after written notice as provided in the Indenture;
(v) any final judgment or judgments which can no longer be appealed for
the payment of money in excess of $7.5 million, net of any amounts covered
by insurance, shall be rendered against an Issuer or any Restricted
Subsidiary thereof, and shall not be discharged for any period of 60
consecutive days during which a stay of enforcement shall not be in effect;
(vi) certain events involving bankruptcy, insolvency or reorganization of
an Issuer or any Restricted Subsidiary thereof;
(vii) any modification of the mandatory redemption provisions relating to
the Preferred Interests contained in the Operating Agreement;
(viii) any of the Guarantees ceases to be in full force and effect or any
of the Guarantees is declared to be null and void and unenforceable or any
of the Guarantees is found to be invalid or any of the Guarantors denies
its liability under its Guarantee (other than by reason of release of a
Guarantor in accordance with the terms of the Indenture); and
(ix) failure to have a first priority perfected security interest with
respect to the Discount Notes Collateral.
The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any default (except in payment of principal or premium, if
any, or interest on the Notes) if the Trustee considers it to be in the best
interest of the holders of the Notes to do so.
The Indenture provides that if an Event of Default (other than an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, then the Trustee or the
holders as directed by not less than 25% in aggregate principal amount at
maturity of the Notes then outstanding may declare the Notes to be immediately
due and payable in an amount equal to (x) the Accreted Value of the Notes
outstanding on the date of acceleration, if such declaration is made prior to
August 15, 2003, or (y) the entire principal amount at maturity of the Notes
outstanding on the date of acceleration plus accrued interest, if any, to the
date of acceleration if such declaration is made after August 15, 2003 (i) and
the same shall become immediately due and payable or (ii) if there are any
amounts outstanding under the Senior Credit Facility or Senior Notes, shall
become immediately due and payable upon the first to occur of an acceleration
under the Senior Credit Facility or Senior Notes or 5 business days after
receipt by an Issuer, the representative under the Senior Credit Facility and
the trustee under the Senior Notes Indenture of a notice of acceleration;
provided, however, that after such acceleration but before a judgment or
decree based on acceleration is obtained by the Trustee, the holders of a
majority in aggregate principal amount at maturity of outstanding Notes may,
under certain circumstances, rescind and annul such acceleration if (i) all
Events of Default, other than nonpayment of Accreted Value, principal,
premium, if any, or interest that has become due solely because of the
acceleration, have been cured or waived as provided in the Indenture, (ii) to
the extent the payment of such interest is lawful, interest on overdue
installments of interest on overdue Accreted Value, overdue interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iii) if the Issuers have paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (iv) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the above Events of
Default, the Trustee shall have received an Officers' Certificate and an
opinion of counsel that such Event of Default has been cured or waived. No
such rescission shall affect any subsequent default or impair any right
consequent thereto. In case an Event of Default resulting from certain events
of bankruptcy, insolvency or reorganization shall occur, the Accreted Value,
principal, premium and interest amount with respect to all of the Notes shall
be due and payable immediately without any declaration or other act on the
part of the Trustee or the holders of the Notes.
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The holders of a majority in principal amount at maturity of the Notes then
outstanding shall have the right to waive any existing default or compliance
with any provision of the Indenture or the Notes and to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, subject to certain limitations provided for in the Indenture and
under the TIA.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder
shall have previously given to the Trustee written notice of a continuing
Event of Default and unless the holders of at least 25% in aggregate principal
amount at maturity of the outstanding Notes shall have made written request
and offered reasonable indemnity to the Trustee to institute such proceeding
as Trustee, and unless the Trustee shall not have received from the holders of
a majority in aggregate principal amount at maturity of the outstanding Notes
a direction inconsistent with such request and shall have failed to institute
such proceeding within 60 days. Notwithstanding the foregoing, such
limitations do not apply to a suit instituted on such Note on or after the
respective due dates expressed in such Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Issuers may elect either (a) to defease and
be discharged from any and all of their and any Guarantor's obligations with
respect to the Notes (except for the obligations to register the transfer or
exchange of such Notes, to replace temporary or mutilated, destroyed, lost or
stolen Notes, to maintain an office or agency in respect of the Notes, to hold
monies for payment in trust and certain other obligations set forth in the
Indenture) ("defeasance") or (b) to be released from their obligations with
respect to the Notes under certain covenants contained in the Indenture
("covenant defeasance") upon the deposit with the Trustee (or other qualifying
trustee), in trust for such purpose, of money and/or non-callable U.S.
government obligations which through the payment of principal and interest in
accordance with their terms will provide money, in an amount sufficient to pay
the principal at maturity of, premium, if any, and interest on the Notes, on
the scheduled due dates therefor or on a selected date of redemption in
accordance with the terms of the Indenture. Such a trust may only be
established if, among other things:
. the Issuers have delivered to the Trustee an opinion of counsel (as
specified in the Indenture) (A) to the effect that neither the trust nor
the Trustee will be required to register as an investment company under
the Investment Company Act of 1940, as amended, and (B) to the effect that
holders of the Notes or persons in their positions will not recognize
income, gain or loss for federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to federal income
tax on the same amount and in the same manner and at the same times, as
would have been the case if such deposit, defeasance and discharge had not
occurred;
. no default or Event of Default shall have occurred and be continuing on
the date of such deposit or insofar as Events of Default from bankruptcy,
insolvency or reorganization events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
. such defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a default under the Indenture or any other
material agreement or instrument to which an Issuer or any of their
Subsidiaries is a party or by which an Issuer or any or their Subsidiaries
is bound;
. the Issuers shall have delivered to the Trustee an Officers' Certificate
stating that the deposit was not made by the Issuers with the intent of
preferring the holders of the Notes over any other creditors of the
Issuers or with the intent of defeating, hindering, delaying or defrauding
any other creditors of the Issuers or others;
. the Issuers shall have delivered to the Trustee an Officers' Certificate
and an opinion of counsel, each stating that all conditions precedent
provided for or relating to the defeasance or the covenant defeasance have
been complied with;
. the Issuers shall have delivered to the Trustee an opinion of counsel to
the effect after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; and
. certain other customary conditions precedent are satisfied.
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MODIFICATION OF INDENTURE
From time to time, the Issuers, the Guarantors and the Trustee may, without
the consent of holders of the Notes, amend or supplement the Indenture for
certain specified purposes, including providing for uncertificated Notes in
addition to certificated Notes, and curing any ambiguity, defect or
inconsistency, or making any other change that does not, in the opinion of the
Trustee, materially and adversely affect the rights of any holder. The
Indenture contains provisions permitting the Issuers, the Guarantors and the
Trustee, with the written consent of holders of at least a majority in
principal amount of the outstanding Notes, to modify or supplement the
Indenture, the Notes, the Pledge Agreement and the LLC Mirror Notes except
that no such modification shall, without the consent of each holder affected
thereby:
. reduce the amount of Notes whose holders must consent to an amendment,
supplement, or waiver to the Indenture;
. reduce the rate of or change the time for payment of interest, including
defaulted interest, on any Note;
. reduce the principal of or premium on or change the stated maturity of
any Note or change the date on which any Notes may be subject to
redemption or repurchase or reduce the redemption or repurchase price
therefor;
. make any Note payable in money other than that stated in the Note or
change the place of payment from New York, New York;
. waive a default on the payment of the principal of, interest on, or
redemption payment with respect to any Note;
. make any change in provisions of the Indenture protecting the right of
each holder of Notes to receive payment of principal of and interest on
such Note on or after the due date thereof or to bring suit to enforce
such payment, or permitting holders of a majority in principal amount at
maturity of Notes to waive defaults or Events of Default;
. amend, change or modify in any material respect the obligation of the
Issuers to make and consummate a Change of Control Offer in the event of a
Change of Control or make and consummate an Asset Sale Offer with respect
to any Asset Sale that has been consummated or modify any of the
provisions or definitions with respect thereto;
. modify or change any provision of the Indenture or the related
definitions affecting the ranking of the Notes or any Guarantee in a
manner which adversely affects the holders of Notes;
. release any Guarantor from any of its obligations under its Guarantee or
the Indenture otherwise than in accordance with the terms of the Indenture
or;
. modify or waive a default with respect to clause (vii) under "Events of
Default".
REPORTS TO HOLDERS
So long as the Issuers are subject to the periodic reporting requirements of
the Exchange Act, they will continue to furnish the information required
thereby to the SEC and to the holders of the Notes. The Indenture provides
that even if the Issuers are entitled under the Exchange Act not to furnish
such information to the SEC or to the holders of the Notes, it will
nonetheless continue to furnish such information to the SEC (unless the SEC
does not permit such filing) and holders of the Notes.
COMPLIANCE CERTIFICATE
The Issuers will deliver to the Trustee on or before 90 days after the end
of the Issuers' fiscal year an Officers' Certificate stating whether or not
the signers know of any default or Event of Default that has occurred and is
continuing. If they do, the certificate will describe the default or Event of
Default, its status and the intended method of cure, if any.
THE TRUSTEE
The Trustee under the Indenture is the Registrar and Paying Agent with
regard to the Notes. The Indenture provides that, except during the
continuance of an Event of Default, the Trustee will perform only such duties
as are specifically set forth in the Indenture. During the existence of an
Event of Default, the Trustee will exercise such rights and powers vested in
it under the Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
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TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under the Indenture may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any transfer taxes and fees required by law or permitted by the Indenture. The
Registrar is not required to transfer or exchange any Note selected for
redemption and, further, is not required to transfer or exchange any Note for
a period of 15 days immediately preceding selection of the Notes to be
redeemed or any Note selected for redemption.
The Original Notes have been issued in a transaction exempt from
registration under the Securities Act and will be subject to the restrictions
on transfer described in "Notice to Investors."
The registered holder of a Note may be treated as the owner of it for all
purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used in this Prospectus for
which no definition is provided.
"Accreted Value" means, as of any date prior to August 15, 2003, an amount
per $1,000 principal amount at maturity of Notes that is equal to the sum of
(a) $536.98 and (b) the portion of the excess of the principal amount at
maturity of each Note over $536.98 which shall have been amortized on a daily
basis and compounded semiannually on each February 15 and August 15 at the
rate of 12 7/8% per annum from the Issue Date through the date of
determination computed on the basis of a 360-day year of twelve 30-day months;
and, as of any date on or after August 15, 2003, the Accreted Value of each
Note shall mean the aggregate principal amount at maturity of such Note.
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or is merged into or consolidated with any other Person or which is
assumed in connection with the acquisition of assets from such Person and, in
each case, not incurred by such Person in connection with, or in anticipation
or contemplation of, such Person becoming a Restricted Subsidiary or such
merger, consolidation or acquisition.
"Adjusted Net Assets" of any Person at any date shall mean the lesser of the
amount by which (x) the fair value of the property of such Person exceeds the
total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent
liabilities), but excluding liabilities under the Guarantee of such Person at
such date and (y) the present fair salable value of the assets of such Person
at such date exceeds the amount that will be required to pay the probable
liability of such Person on its debts (after giving effect to all other fixed
and contingent liabilities and after giving effect to any collection from any
Subsidiary of such Person in respect of the obligations of such Person under
the Guarantee of such Person), excluding Indebtedness in respect of the
Guarantee of such Person, as they become absolute and matured.
"Affiliate" means, with respect to any specific Person, any other Person
that directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. For the
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling," "controlled by," and "under common control with"), as
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement
or otherwise; provided that, for purposes of the covenant described under "--
Certain Covenants--Limitation on Transactions with Affiliates" beneficial
ownership of at least 10% of the voting securities of a Person, either
directly or indirectly, shall be deemed to be control.
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"Annualized EBITDA" means EBITDA of the Issuers and their Restricted
Subsidiaries for the latest fiscal quarter for which financial statements are
available multiplied by four (such fiscal quarter the "One Quarter Period").
For purposes of this definition, "EBITDA" shall be calculated for any period
after giving effect on a pro forma basis to (i) the incurrence or repayment of
any Indebtedness of such Person or any of its Restricted Subsidiaries (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof), other than the incurrence or repayment
of Indebtedness in the ordinary course of business for working capital
purposes pursuant to working capital facilities, occurring during the One
Quarter Period or at any time subsequent to the last day of the One Quarter
Period and on or prior to the Transaction Date, as if such incurrence or
repayment, as the case may be (and the application of the proceeds thereof),
occurred on the first day of the One Quarter Period and (ii) any Asset Sales
or Asset Acquisitions (including, without limitation, any Asset Acquisition
giving rise to the need to make such calculation as a result of such Person or
one of its Restricted Subsidiaries (including any Person who becomes a
Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness and also
including any EBITDA (provided that such EBITDA shall be included only to the
extent includable pursuant to the definition of "Consolidated Net Income")
attributable to the assets which are the subject of the Asset Acquisition or
Asset Sale during the One Quarter Period) occurring during the One Quarter
Period or at any time subsequent to the last day of the One Quarter Period and
on or prior to the Transaction Date, as if such Asset Sale or Asset
Acquisition (including the incurrence, assumption or liability for any such
Acquired Indebtedness) occurred on the first day of the One Quarter Period. If
such Person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding sentence shall give
effect to the incurrence of such guaranteed Indebtedness as if such Person or
any Restricted Subsidiary or such Person had directly incurred or otherwise
assumed such guaranteed Indebtedness. For purposes of this definition,
whenever pro forma effect is to be given to an Asset Sale or Asset Acquisition
(including pursuant to the System Acquisition), the amount of income or
earnings and any net cost savings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness incurred in
connection therewith, the pro forma calculations shall be determined in
accordance with Regulation S-X under the Securities Act.
"Asset Acquisition" means (a) an Investment by an Issuer or any Restricted
Subsidiary of an Issuer in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of an Issuer or any Restricted Subsidiary
of an Issuer, or shall be merged with or into an Issuer or any Restricted
Subsidiary of an Issuer or (b) the acquisition by an Issuer or any Restricted
Subsidiary of an Issuer of the assets of any Person (other than a Restricted
Subsidiary of an Issuer) which constitute all or substantially all of the
assets of such Person or comprise any division or line of business of such
Person or any other properties or assets of such Person other than in the
ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
assignment, transfer, lease or other disposition (excluding Asset Swaps),
other than to an Issuer or any of its Wholly Owned Subsidiaries, in any single
transaction or series of related transactions of (a) any Capital Stock of or
other equity interest in any Restricted Subsidiary of an Issuer or (b) any
other property or assets of an Issuer or of any Restricted Subsidiary thereof;
provided that Asset Sales shall not include (i) a transaction or series of
related transactions for which an Issuer or its Restricted Subsidiaries
receive aggregate consideration of less than $1.5 million, (ii) the sale,
lease, conveyance, disposition or other transfer of all or substantially all
of the assets of an Issuer as permitted under "--Merger, Consolidation or Sale
of Assets," (iii) any transaction consummated in compliance with the covenant
described above under "--Limitation on Restricted Payments" and (iv) any sale,
lease, conveyance, disposition or other transfer of all or any portion of the
Excluded Assets.
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by an Issuer or any Restricted Subsidiary of an Issuer from such
Asset Sale (including cash received as consideration for the assumption of
liabilities incurred in connection with or in anticipation of such Asset
Sale), after (a) provision for all income or other taxes measured by or
resulting from such Asset Sale, (b) payment of all brokerage commissions,
underwriting and other fees and expenses related to such Asset Sale, (c)
provision for minority
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interest holders in any Restricted Subsidiary of an Issuer as a result of such
Asset Sale, (d) repayment of Indebtedness that is required to be repaid in
connection with such Asset Sale and (e) deduction of appropriate amounts to be
provided by an Issuer or a Restricted Subsidiary of an Issuer as a reserve, in
accordance with GAAP, against any liabilities associated with the assets sold
or disposed of in such Asset Sale and retained by an Issuer or a Restricted
Subsidiary after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated
with the assets sold or disposed of in such Asset Sale, and (ii) promissory
notes and other noncash consideration received by an Issuer or any Restricted
Subsidiary of an Issuer from such Asset Sale or other disposition upon the
liquidation or conversion of such notes or noncash consideration into cash.
"Asset Swap" means the execution of a definitive agreement, subject only to
customary closing conditions that the Issuers in good faith believe will be
satisfied, for a concurrent purchase and sale or exchange of Related Business
Assets, between an Issuer or any of its Restricted Subsidiaries and another
Person, provided that any amendment to or waiver of any closing condition
which individually or in the aggregate is material to any Asset Swap shall be
deemed to be a new Asset Swap that must comply with the "Limitation on Asset
Swaps" covenant; it being understood that an Asset Swap may include a cash
equalization payment made in connection therewith, provided that any such cash
payment shall be applied in accordance with the covenant described above under
"--Certain Covenants--Limitation on Asset Swaps."
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the greater of (i) the fair value of
the property subject to such arrangement and (ii) the present value of the
notes (discounted at the rate borne by the Notes, compounded semi-annually) of
the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale and Lease-Back Transaction (including
any period for which such lease has been extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied
in accordance with clauses (iii)(a), (iii)(b), or (iii)(c), and that have not
yet been the basis for an Excess Proceeds Offer in accordance with clause
(iii)(d) of the first paragraph of "--Certain Covenants--Limitation on Certain
Asset Sales".
"Board of Directors" of any Person means the board of directors, management
committee or other body governing the management and affairs of such Person.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated and whether
or not voting) of corporate stock, partnership interests or any other
participation, right or other interest in the nature of an equity interest in
such Person including, without limitation, Common Stock and Preferred Stock of
such Person, or any option, warrant or other security convertible into any of
the foregoing.
"Capitalized Lease Obligations" means with respect to any Person,
Indebtedness represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such Indebtedness shall be the capitalized amount of such
obligations determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency or instrumentality thereof and backed by the full faith and credit of
the United States, in each case maturing within one year from the date of
acquisition thereof; (ii) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Corporation ("S&P")
or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper
maturing no more than one year from the date of creation thereof and, at the
time of acquisition, having a rating of at least A-1 from S&P or at least P-1
from Moody's; (iv) certificates of deposit or bankers' acceptances maturing
within
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one year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the date
of acquisition thereof combined capital and surplus of not less than
$250,000,000; and (v) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause (i)
above entered into with any bank meeting the qualifications specified in
clause (iv) above; and (vi) investments in money market funds which invest
substantially all their assets in securities of the types described in clauses
(i) through (v) above.
A "Change of Control" will be deemed to have occurred at such time as (i)
any Person (including a Person's Affiliates and associates), other than a
Permitted Holder, becomes the beneficial owner (as defined under Rule 13d-3 or
any successor rule or regulation promulgated under the Exchange Act) of 50% or
more of the total voting and economic power of Insight Ohio's Capital Stock,
(ii) any Person (including a Person's Affiliates and associates), other than a
Permitted Holder, becomes the beneficial owner of more than 33 1/3% of the
total voting power of Insight Ohio's Capital Stock and the Permitted Holders
beneficially own, in the aggregate, a lesser percentage of the total voting
power of the Capital Stock of Insight Ohio than such other Person and do not
have the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of Insight Ohio,
(iii) there shall be consummated any consolidation or merger of Insight Ohio
in which Insight Ohio is not the continuing or surviving corporation or
pursuant to which the Capital Stock of Insight Ohio would be converted into
cash, securities or other property, other than a merger or consolidation of
Insight Ohio which the holders of the Capital Stock of Insight Ohio,
outstanding immediately prior to the consolidation or merger hold, directly or
indirectly, at least a majority of the Capital Stock of the surviving
corporation immediately after such consolidation or merger, (iv) during any
period of two consecutive years, individuals who at the beginning of such
period constituted the Board of Directors of Insight Ohio (together with any
new directors whose election by such Board of Directors or whose nomination
for election by the shareholders or members of the Insight Ohio has been
approved by 66 2/3% of the directors then still in office who either were
directors at the beginning of such period or whose election or recommendation
for election was previously so approved) cease to constitute a majority of the
Board of Directors of Insight Ohio or (v) Insight is the beneficial owner of
less than 50% of the total voting and economic power of Insight Ohio's Capital
Stock and ceases to have management control of the day-to-day operations of
Insight Ohio; provided, however, that a Change of Control will be deemed not
to have occurred as provided above if Insight continues to be the manager of
Insight Ohio pursuant to the Operating Agreement or designees of Insight
constitute a majority of the members of the Board of Directors of Insight
Ohio.
"Close Corporation Agreement" means the Close Corporation Agreement of
Coaxial Communications of Central Ohio, Inc. by and among Coaxial, Coaxial
LLC, Coaxial DJM LLC and Coaxial DSM LLC as in effect on the Issue Date.
"Coaxial" means Coaxial Communications of Central Ohio, Inc., an Ohio
corporation.
"Coaxial Financing Corp." means Coaxial Financing Corp., a Delaware
corporation.
"Coaxial LLC" means Coaxial LLC, a Delaware limited liability company.
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will
control the management and policies of such Person.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for such Person and its Restricted Subsidiaries on a
consolidated basis (including, but not limited to, (i) imputed interest
included in Capitalized Lease Obligations, (ii) all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (iii) the net costs associated with Interest Rate
Agreements and other hedging obligations, (iv) amortization of other financing
fees and expenses, (v) the interest portion of any deferred payment
obligation, (vi) amortization of discount or premium, if any, and (vii) all
other non-cash interest expense (other than interest amortized to
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cost of sales)) plus, without duplication, all net capitalized interest for
such period and all interest incurred or paid under any guarantee of
Indebtedness (including a guarantee of principal, interest or any combination
thereof) of any Person, plus the amount of all dividends or distributions paid
on Disqualified Capital Stock (other than dividends paid or payable in shares
of Capital Stock of an Issuer).
"Consolidated Leverage Ratio" means, with respect to any Person, the ratio
of (i) the sum of the aggregate outstanding amount of Indebtedness of such
Person and its Restricted Subsidiaries as of the date of calculation (the
"Transaction Date") on a consolidated basis determined in accordance with GAAP
to (ii) Annualized EBITDA.
"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (a) the Net Income of any Person (the "other Person")
in which the Person in question or any of its Restricted Subsidiaries has less
than a 100% interest (which interest does not cause the Net Income of such
other Person to be consolidated into the Net Income of the Person in question
in accordance with GAAP) shall be included only to the extent of the amount of
dividends or distributions paid to the Person in question or the Restricted
Subsidiary, (b) the Net Income of any Restricted Subsidiary of the Person in
question that is subject to any restriction or limitation on the payment of
dividends or the making of other distributions shall be excluded to the extent
of such restriction or limitation, (c)(i) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the
date of such acquisition and (ii) any net gain resulting from an Asset Sale by
the Person in question or any of its Restricted Subsidiaries other than in the
ordinary course of business shall be excluded, (d) extraordinary gains and
losses shall be excluded, (e) income or loss attributable to discontinued
operations (including, without limitation, operations disposed of during such
period whether or not such operations were classified as discontinued) shall
be excluded, (f) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets,
any earnings of the successor corporation prior to such consolidation, merger
or transfer of assets shall be excluded and (g) Net Income of Phoenix with
respect to the Excluded Assets shall be excluded.
"Cumulative Consolidated Interest Expense" means, with respect to any
Person, as of any date of determination, Consolidated Interest Expense from
July 1, 1998 to the end of such Person's most recently ended full fiscal
quarter prior to such date, taken as a single accounting period.
"Cumulative EBITDA" means, with respect to any Person, as of any date of
determination, EBITDA from July 1, 1998 to the end of such Person's most
recently ended full fiscal quarter prior to such date, taken as a single
accounting period.
"Designation Amount" means an amount equal to the fair market value of the
Issuer's aggregate Investment in a Restricted Subsidiary.
"Discount Notes Collateral" means, collectively, the Stock Collateral and
the LLC Mirror Notes which in the aggregate secure the payment of principal,
interest and premium, if any, on the Notes.
"Disqualified Capital Stock" means any Capital Stock of a Person or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Notes, for cash or securities constituting
Indebtedness. Without limitation of the foregoing, Disqualified Capital Stock
shall be deemed to include any Preferred Stock of a Person or a Restricted
Subsidiary of such Person, with respect to either of which, under the terms of
such Preferred Stock, by agreement or otherwise, such Person or Restricted
Subsidiary is obligated to pay current dividends or distributions in cash
during the period prior to the maturity date of the Notes; provided, however,
that Preferred Stock of a Person or any Restricted Subsidiary thereof that is
issued with the benefit of provisions requiring a change of control offer to
be made for such Preferred Stock in the event of a change of control of such
Person or
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Restricted Subsidiary which provisions have substantially the same effect as
the provisions of the Indenture described under "Change of Control," shall not
be deemed to be Disqualified Capital Stock solely by virtue of such
provisions.
"EBITDA" means, with respect to any Person and its Restricted Subsidiaries,
for any period, an amount equal to (a) the sum of (i) Consolidated Net Income
for such period, plus (ii) the provision for taxes for such period based on
income or profits to the extent such income or profits were included in
computing Consolidated Net Income and any provision for taxes utilized in
computing net loss under clause (i) hereof, plus (iii) Consolidated Interest
Expense; provided, however for purposes of this definition only, that
dividends or distributions paid on Disqualified Capital Stock shall not be
included in the definition of Consolidated Interest Expense to the extent such
dividends or distributions have not been included in the computation of
Consolidated Net Income for such period, plus (iv) depreciation for such
period on a consolidated basis, plus (v) amortization of intangibles for such
period on a consolidated basis, plus (vi) any other non-cash items reducing
Consolidated Net Income for such period, minus (b) all non-cash items
increasing Consolidated Net Income for such period, all for such Person and
its Restricted Subsidiaries determined on a consolidated basis in accordance
with GAAP; and provided, however, that, for purposes of calculating EBITDA
during any fiscal quarter, cash income from a particular Investment of such
Person shall be included only (x) if cash income has been received by such
Person with respect to such Investment during each of the previous four fiscal
quarters, or (y) if the cash income derived from such Investment is
attributable to Cash Equivalents.
"Exchange Act" means the Securities Exchange Act of 1934, as amended and the
rules and regulations of the SEC promulgated thereunder.
"Excluded Assets" means (i) any notes and accounts receivable held by
Phoenix and owed by Coaxial Associates of Columbus I ("Columbus I") and
Coaxial Associates of Columbus II ("Columbus II"), and (ii) any debt owed to
Phoenix by its partners as a result of advances made to such partners, in each
case as in effect on the Issue Date.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom
is under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of an Issuer acting
reasonably and in good faith, and whose determination shall be conclusive and
shall be evidenced by a resolution of the Board of Directors of an Issuer
delivered to the Trustee.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States on the Issue Date.
"Guarantors" means (i) Insight Ohio and (ii) any Restricted Subsidiary of an
Issuer formed, created or acquired after the Issue Date.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness
or other obligation or the recording, as required pursuant to GAAP or
otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "incurrence," "incurred," "incurable," and "incurring"
shall have meanings correlative to the foregoing); provided that a change in
GAAP that results in an obligation of such Person that exists at such time
becoming Indebtedness shall not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade
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payables, and other accrued liabilities arising in the ordinary course of
business) if and to the extent any of the foregoing indebtedness would appear
as a liability upon a balance sheet of such Person prepared in accordance with
GAAP, and shall also include, to the extent not otherwise included (i) any
Capitalized Lease Obligations of such Person, (ii) obligations secured by a
lien to which the property or assets owned or held by such Person is subject,
whether or not the obligation or obligations secured thereby shall have been
assumed, (iii) guarantees of items of other Persons which would be included
within this definition for such other Persons (whether or not such items would
appear upon the balance sheet of the guarantor), (iv) all obligations for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction, (v) Disqualified Capital Stock of such Person or
any Restricted Subsidiary thereof, and (vi) obligations of any such Person
under any currency agreement or any interest rate agreement applicable to any
of the foregoing (if and to the extent such currency agreement or interest
rate agreement obligations would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP). The amount of Indebtedness of
any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and, with respect to contingent
obligations, the maximum liability upon the occurrence of the contingency
giving rise to the obligation; provided that (i) the amount outstanding at any
time of any Indebtedness issued with original issue discount is the principal
amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined in
conformity with GAAP and (ii) Indebtedness shall not include any liability for
federal, state, local or other taxes. Notwithstanding any other provision of
the foregoing definition, any trade payable arising from the purchase of goods
or materials or for services obtained in the ordinary course of business shall
not be deemed to be "Indebtedness" of an Issuer or any of its Restricted
Subsidiaries for purposes of this definition. Furthermore, guarantees of (or
obligations with respect to letters of credit supporting) Indebtedness
otherwise included in the determination of such amount shall not also be
included.
"Independent Financial Advisor" means an investment banking firm of national
reputation in the United States (i) which does not, and whose directors,
officers and employees or Affiliates do not, have a direct or indirect
financial interest in an Issuer and (ii) which, in the judgment of the Board
of Directors of an Issuer, is otherwise independent and qualified to perform
the task for which it is to be engaged.
"Insight" means, collectively, Insight Communications Company, L.P. and
Insight Holdings of Ohio, LLC.
"Insight Ohio" means Insight Communications of Central Ohio, LLC, a Delaware
limited liability company.
"Interest Rate Agreement" means, with respect to any Person, any interest
rate swap agreement, interest rate cap agreement, interest rate collar
agreement or other similar agreement designed to protect the party indicated
in such agreement against fluctuations in interest rates.
"Investments" means, with respect of any Person, directly or indirectly, any
advance, account receivable (other than an account receivable arising in the
ordinary course of business of such Person), loan or capital contribution to
(by means of transfers of property to others, payments for property or
services for the account or use of others or otherwise), the purchase of any
Capital Stock, bonds, notes, debentures, partnership or joint venture
interests or other securities (other than the purchase of the Notes pursuant
to "Limitation on Certain Asset Sales" or "Change of Control Offer") of, the
acquisition, by purchase or otherwise, of all or substantially all of the
business or assets or stock or other evidence of beneficial ownership of, any
Person or the making of any investment in any Person. Investments shall
exclude (i) extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices of such Person and (ii) the repurchase
of securities of any Person by such Person. For the purposes of the
"Limitation on Restricted Payments" covenant, (i) "Investment" shall include
and be valued at the fair market value of the net assets of any Restricted
Subsidiary at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary and shall exclude the fair market value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any
Investment shall be the original cost of such Investment plus the cost of all
additional Investments by an Issuer or any of its Restricted Subsidiaries,
without
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any adjustments for increases or decreases in value, or write-ups, write-downs
or write-offs with respect to such Investment, reduced by the payment of cash
distributions which constitute a return of capital in connection with such
Investment; provided that the aggregate of all such reductions shall not
exceed the amount of such initial Investment plus the cost of all additional
Investments; provided, further, that no such payment of distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of distributions or receipt of any such amounts would be included
in Consolidated Net Income. If an Issuer or any Restricted Subsidiary of such
Issuer sells or otherwise disposes of any Common Stock of any direct or
indirect Restricted Subsidiary of such Issuer such that, after giving effect
to any such sale or disposition, the Issuer no longer owns, directly or
indirectly, greater than 50% of the outstanding Common Stock of such
Restricted Subsidiary, the Issuer shall be deemed to have made an Investment
on the date of any such sale or disposition equal to the fair market value of
the Common Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means August 21, 1998, the date the Notes were first issued by
the Issuers and authenticated by the Trustee under the Indenture.
"Lien" means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance,
preference, priority, or other security agreement or preferential arrangement
of any kind or nature whatsoever on or with respect to such property or assets
(including without limitation, any Capitalized Lease Obligation, conditional
sales, or other title retention agreement having substantially the same
economic effect as any of the foregoing).
"LLC Mirror Notes" means each of the promissory notes of Coaxial DJM LLC and
Coaxial DSM LLC issued to Coaxial LLC.
"Net Income" means, with respect to any Person, for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock by or
equity contribution to any Person, the aggregate net proceeds received by such
Person, after payment of expenses, commissions and the like incurred in
connection therewith, whether such proceeds are in cash or in property (valued
at the fair market value thereof, as determined in good faith by the Board of
Directors of such Person, at the time of receipt) and (b) in the case of any
exchange, exercise, conversion or surrender of outstanding securities of any
kind for or into shares of Capital Stock of an Issuer which is not
Disqualified Capital Stock, the net book value of such outstanding securities
on the date of such exchange, exercise, conversion or surrender (plus any
additional amount required to be paid by the holder to such Person upon such
exchange, exercise, conversion or surrender, less any and all payments made to
the holders, e.g., on account of fractional shares and less all expenses
incurred by such Person in connection therewith).
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person that shall comply
with applicable provisions of the Indenture and delivered to the Trustee.
"Operating Agreement" means the Operating Agreement of Insight
Communications of Central Ohio, LLC, as in effect on the Issue Date.
"Other Pari Passu Debt" means Indebtedness of a Restricted Subsidiary of an
Issuer that is pari passu in right of payment to the Notes (without giving
effect to the principles of structural subordination).
"Other Pari Passu Debt Pro Rata Share" means the amount of the applicable
Available Asset Sale Proceeds obtained by multiplying the amount of such
available Asset Sale Proceeds by a fraction, (i) the numerator of which is the
aggregate principal amount and/or accreted value, as the case may be, of all
Other Pari Passu Debt outstanding at the time of the applicable Asset Sale
with respect to which any Restricted Subsidiary of an Issuer is required to
use Available Asset Proceeds to repay or make an offer to purchase or
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repay and (ii) the denominator of which is the sum of (a) the aggregate
principal amount of all Notes outstanding at the time of the applicable Asset
Sale and (b) the aggregate principal amount and/or accreted value, as the case
may be, of all Other Pari Passu Debt outstanding at the time of the applicable
Asset Sale Offer with respect to which any Restricted Subsidiary of an Issuer
is required to use the applicable Available Asset Proceeds to offer to repay
or make an offer to purchase or repay.
"Pass Through Dividend" means the dividend required to be made by Coaxial to
Coaxial LLC, Coaxial DJM LLC and Coaxial DSM LLC pursuant to the Indenture
from the proceeds of a Preferred Payment in respect of the Series B Preferred
Interests.
"Permitted Holders" means (x) Insight and (y) Coaxial LLC.
"Permitted Indebtedness" means:
(i) Indebtedness of an Issuer or any Restricted Subsidiary arising under
or in connection with the Senior Credit Facility in an aggregate principal
amount not to exceed $25.0 million outstanding at any time less any
mandatory prepayment actually made thereunder (to the extent, in the case
of payments of revolving credit borrowings, that the corresponding
commitments have been permanently reduced) or scheduled payments actually
made thereunder;
(ii) Indebtedness under the Original Notes, the Exchange Notes and the
Guarantees;
(iii) Indebtedness not covered by any other clause of this definition
which is outstanding on the Issue Date, including the Senior Notes,
Exchange Senior Notes and the guarantees (and any future guarantees)
thereof;
(iv) Indebtedness of an Issuer to any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to an Issuer or another
Restricted Subsidiary;
(v) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred to acquire property in the ordinary course of business which
Purchase Money Indebtedness and Capitalized Lease Obligations do not in the
aggregate exceed $7.5 million;
(vi) Interest Rate Agreements;
(vii) Refinancing Indebtedness; and
(viii) additional Indebtedness of the Restricted Subsidiaries of the
Issuers not to exceed $7.5 million in aggregate principal amount at any one
time outstanding.
"Permitted Investments" means Investments made on or after the Issue Date
consisting of:
(i) Investments by an Issuer, or by a Restricted Subsidiary thereof, in
the Issuer or a Restricted Subsidiary;
(ii) Investments by the Issuer, or by a Restricted Subsidiary thereof, in
a Person, if as a result of such Investment (a) such Person becomes a
Restricted Subsidiary of the Issuer or (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Issuer or a
Restricted Subsidiary thereof;
(iii) Investments in cash and Cash Equivalents;
(iv) an Investment that is made by an Issuer or a Restricted Subsidiary
thereof in the form of any Capital Stock, bonds, notes, debentures,
partnership or joint venture interests or other securities that are issued
by a third party to an Issuer or such Restricted Subsidiary solely as
partial consideration for the consummation of an Asset Sale that is
otherwise permitted under "--Certain Covenants--Limitation on Certain Asset
Sales" above;
(v) Interest Rate Agreements entered into in the ordinary course of an
Issuer's or its Restricted Subsidiaries' business; and
(vi) additional Investments not to exceed $500,000 at any one time
outstanding.
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"Permitted Liens" means (i) Liens on property or assets of, or any shares of
Capital Stock of or secured indebtedness of, any corporation existing at the
time such corporation becomes a Restricted Subsidiary of an Issuer or at the
time such corporation is merged into an Issuer or any of its Restricted
Subsidiaries; provided that such Liens are not incurred in connection with, or
in contemplation of, such corporation becoming a Restricted Subsidiary of an
Issuer or merging into an Issuer or any of its Restricted Subsidiaries, (ii)
Liens securing Indebtedness under the Senior Credit Facility which
Indebtedness is incurred pursuant to clause (i) of the definition of Permitted
Indebtedness, (iii) Liens securing Refinancing Indebtedness; provided that any
such Lien does not extend to or cover any Property, Capital Stock or
Indebtedness other than the Property, shares or debt securing the Indebtedness
so refunded, refinanced or extended, (iv) Liens in favor of an Issuer or any
of its Restricted Subsidiaries, (v) Liens securing industrial revenue bonds,
(vi) Liens to secure Purchase Money Indebtedness that is otherwise permitted
under the Indenture; provided that (a) any such Lien is created solely for the
purpose of securing Indebtedness representing, or incurred to finance,
refinance or refund, the cost (including sales and excise taxes, installation
and delivery charges and other direct costs of, and other direct expenses paid
or charged in connection with, such purchase or construction) of such
Property, (b) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such costs, and (c) such Lien does not extend to or
cover any Property other than such item of Property and any improvements on
such item, (vii) statutory liens or landlords', carriers', warehouseman's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens arising
in the ordinary course of business which do not secure any Indebtedness and
with respect to amounts not yet delinquent or being contested in good faith by
appropriate proceedings, if a reserve or other appropriate provision, if any,
as shall be required in conformity with GAAP shall have been made therefor,
(viii) Liens for taxes, assessments or governmental charges that are being
contested in good faith by appropriate proceedings or are not yet delinquent,
(ix) Liens securing Capitalized Lease Obligations permitted to be incurred
under clause (v) of the definition of "Permitted Indebtedness"; provided that
such Lien does not extend to any property other than that subject to the
underlying lease, (x) easements, rights-of-way, zoning restrictions and other
similar charges or encumbrances in respect of real property not interfering in
any material respect with the ordinary conduct of the business of the Issuer
or any of its Restricted Subsidiaries, (xi) Liens securing obligations under
Interest Rate Agreements, (xii) attachment or judgment Liens not giving rise
to a default or an Event of Default, (xiii) other Liens securing obligations
incurred in the ordinary course of business; provided, that such Liens do not
serve Indebtedness incurred pursuant to the first paragraph of "Certain
Covenants--Limitation on Additional Indebtedness," (xiv) liens securing the
Discount Notes Collateral and the Senior Notes collateral and (xv) any
extensions, substitutions, replacements or renewals of the foregoing.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust,
unincorporated organization or government (including any agency or political
subdivision thereof).
"Phoenix" means Phoenix Associates, a Florida general partnership.
"Preferred Interests" means collectively the Series A Preferred Interests
and the Series B Preferred Interests.
"Preferred Payments" means any distribution or mandatory redemption required
to be made to the holder of the Preferred Interests pursuant to the Operating
Agreement.
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in
the most recent consolidated balance sheet of such Person and its Subsidiaries
under GAAP.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the
cost of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
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"Refinancing Indebtedness" means Indebtedness that refunds, refinances or
extends any Indebtedness of an Issuer outstanding on the Issue Date or other
Indebtedness permitted to be incurred by an Issuer or its Restricted
Subsidiaries pursuant to the terms of the Indenture (other than pursuant to
clauses (i), (iv), (v), (vi), (vii) and (viii) of the definition of Permitted
Indebtedness), but only to the extent that (i) the Refinancing Indebtedness is
subordinated to the Notes to at least the same extent as the Indebtedness
being refunded, refinanced or extended, if at all, (ii) the Refinancing
Indebtedness is scheduled to mature either (a) no earlier than the
Indebtedness being refunded, refinanced or extended, or (b) after the maturity
date of the Notes, (iii) the portion, if any, of the Refinancing Indebtedness
that is scheduled to mature on or prior to the maturity date of the Notes has
a weighted average life to maturity at the time such Refinancing Indebtedness
is incurred that is equal to or greater than the weighted average life to
maturity of the portion of the Indebtedness being refunded, refinanced or
extended that is scheduled to mature on or prior to the maturity date of the
Notes, (iv) such Refinancing Indebtedness is in an aggregate principal amount
that is equal to or less than the sum of (a) the aggregate principal amount
then outstanding under the Indebtedness being refunded, refinanced or extended
and the amount of any premium reasonably necessary to accomplish such
refinancing, (b) the amount of accrued and unpaid interest, if any, and
premiums owed, if any, not in excess of preexisting prepayment provisions on
such Indebtedness being refunded, refinanced or extended and (c) the amount of
customary fees, expenses and costs related to the incurrence of such
Refinancing Indebtedness, and (v) such Refinancing Indebtedness is incurred by
the same Person that initially incurred the Indebtedness being refunded,
refinanced or extended.
"Related Business" means any business related, ancillary or complementary to
the businesses of the Issuers and their Restricted Subsidiaries.
"Related Business Assets" means assets used or useful in a Related Business.
"Reported Period" means with respect to any Person the most recently ended
full fiscal quarter.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock
of an Issuer or any Restricted Subsidiary of an Issuer or any payment made to
the direct or indirect holders (in their capacities as such) of Capital Stock
of an Issuer or any Restricted Subsidiary of an Issuer (other than (x)
dividends or distributions payable solely in Capital Stock (other than
Disqualified Capital Stock) or in options, warrants or other rights to
purchase such Capital Stock (other than Disqualified Capital Stock), and (y)
in the case of Restricted Subsidiaries of an Issuer, dividends or
distributions payable to an Issuer or to a Wholly Owned Subsidiary of an
Issuer), (ii) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of an Issuer or any of its Restricted Subsidiaries
(other than Capital Stock owned by an Issuer or a Restricted Subsidiary of an
Issuer, excluding Disqualified Capital Stock) or any option, warrants or other
rights to purchase such Capital Stock, (iii) the making of any principal
payment on, or the purchase, defeasance, repurchase, redemption or other
acquisition or retirement for value, prior to any scheduled maturity,
scheduled repayment or scheduled sinking fund payment, of any Indebtedness
which is subordinated in right of payment to the Notes (other than
subordinated Indebtedness acquired in anticipation of satisfying a scheduled
sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition), (iv) the making of any
Investment or guarantee of any Investment in any Person other than a Permitted
Investment, and (v) any designation of a Restricted Subsidiary as an
Unrestricted Subsidiary on the basis of the Investment by an Issuer therein
and (vi) forgiveness of any Indebtedness of an Affiliate of an Issuer to an
Issuer or a Restricted Subsidiary of an Issuer. For purposes of determining
the amount expected for Restricted Payments, cash distributed or invested
shall be valued at the face amount thereof and property other than cash shall
be valued at its Fair Market Value.
"Restricted Subsidiary" means a Subsidiary of an Issuer other than an
Unrestricted Subsidiary and includes (i) all of the Subsidiaries of an Issuer
existing as of the Issue Date, (ii) Insight Ohio and (iii) Phoenix. The Board
of Directors of an Issuer may designate any Unrestricted Subsidiary or any
Person that is to become a Subsidiary as a Restricted Subsidiary if
immediately after giving effect to such action (and treating any Acquired
Indebtedness as having been incurred at the time of such action), (i) the
Issuers could have incurred at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to "--Certain Covenants--Limitation on
Additional Indebtedness" above and (ii) no default or Event of Default shall
have occurred and be continuing.
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"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by an Issuer or any Restricted Subsidiary of an
Issuer of any real or tangible personal property, which property has been or
is to be sold or transferred by an Issuer or such Restricted Subsidiary to
such Person in contemplation of such leasing.
"Senior Credit Facility" means the Credit Agreement to be entered into
between Insight Ohio, the lenders party thereto in their capacities as lenders
thereunder and Canadian Imperial Bank of Commerce, as agent, together with the
related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder (provided that such
increase in borrowings is permitted by the "Limitation on Additional
Indebtedness" covenant) or adding Restricted Subsidiaries of the Issuer as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement
and whether by the same or any other agent, lender or group of lenders.
"Senior Notes" means $140,000,000 aggregate principal amount of 10% Senior
Notes due 2006 of Coaxial and Phoenix, as joint issuers.
"Senior Notes Indenture" means the indenture pursuant to which the Senior
Notes were issued.
"Series A Preferred Interests" means the Series A Preferred Interests of
Insight Ohio with a liquidation preference of $140.0 million.
"Series B Preferred Interests" means the Series B Preferred Interests of
Insight Ohio with an initial liquidation preference of $30.0 million.
"Stock Collateral" means (i) all of the shares of Common Stock of Coaxial
owned by Coaxial LLC and (ii) all of Coaxial LLC's interests in the shares of
Common Stock in Coaxial held by Coaxial DJM LLC and Coaxial DSM LLC which
shares have been pledge to Coaxial LLC.
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which
more than 50% of the total voting power of the Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, officers or trustees thereof is held by such first-named Person or
any of its Subsidiaries; or (ii) in the case of a partnership, joint venture,
association or other business entity, with respect to which such first-named
Person or any of its Subsidiaries has the power to direct or cause the
direction of the management and policies of such entity by contract or
otherwise or if in accordance with GAAP such entity is consolidated with the
first-named Person for financial statement purposes.
"Tax Distributions" means (i) the distributions required to be made by
Insight Ohio to its members, pursuant to the Operating Agreement, equal to the
estimated taxes (assuming taxes are imposed based on the highest marginal
combined, federal, state, and local tax rate imposed on an individual resident
of New York City) of such members arising from the allocation of income of
Insight Ohio to such members, and (ii) distributions made by Coaxial to
Coaxial LLC, Coaxial DJM LLC and Coaxial DSM LLC of Tax Distributions received
from Insight Ohio.
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary and (b) any Subsidiary of an Issuer which is designated (a
"Designation") after the Issue Date as an Unrestricted Subsidiary by a
resolution adopted by the Board of Directors of an Issuer; provided that a
Subsidiary may be so Designated as an Unrestricted Subsidiary only if such
classification is in compliance with the "Limitation on Restricted Payments"
covenant. The Trustee shall be given prompt notice by an Issuer of each
resolution adopted by the Board of Directors of an Issuer under this
provision, together with a copy of each such resolution adopted.
"Wholly Owned Subsidiary" means (i) Coaxial, (ii) Insight Ohio and (iii) any
Restricted Subsidiary, all of the outstanding voting securities (other than
directors' qualifying shares) of which are owned, directly or indirectly
(including through Coaxial or Insight Ohio), by a Issuer.
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BOOK-ENTRY; DELIVERY AND FORM
The Original Notes were offered and sold in connection with the Original
Notes Offering solely to "qualified institutional buyers," as defined in Rule
144A under the Securities Act ("QIBs"), pursuant to Rule 144A and in offshore
transactions to persons other than "U.S. persons", as defined in Regulation S
under the Securities Act ("Non-U.S. Persons"), in reliance on Regulation S.
THE GLOBAL NOTES
Except as described below, the Exchange Notes initially will be represented
by permanent global certificates in definitive, fully registered form (the
"Global Notes"). The Global Notes will be deposited on the Exchange Date with,
or on behalf of, The Depository Trust Company ("DTC") and registered in the
name of Cede & Co., as nominee of DTC, or will remain in the custody of the
Trustee pursuant to the FAST Balance Certificate Agreement between DTC and the
Trustee.
All interests in the Global Notes, including those held through Morgan
Guaranty Trust Company of New York, Brussels Office, as operator of the
Euroclear System ("Euroclear"), or Cedel Bank, societe anonyme ("Cedel"), may
be subject to the procedures and requirements of DTC. Those interests held
through Euroclear or Cedel may also be subject to the procedures and
requirements of such systems.
Any beneficial interest in one of the Global Notes that is transferred to a
person who takes delivery in the form of an interest in another Global Note
will, upon transfer, cease to be an interest in such Global Note and become an
interest in the other Global Note and, accordingly, will thereafter be subject
to all transfer restrictions, if any, and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such
an interest.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time.
Neither the Issuers nor CIBC takes any responsibility for these operations or
procedures, and investors are urged to contact the relevant system or its
participants directly to discuss these matters.
DTC has advised the Issuers that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a "banking
organization" within the meaning of the New York Banking Law, (iii) a member
of the Federal Reserve System, (iv) a "clearing corporation" within the
meaning of the Uniform Commercial Code, as amended, and (v) a "clearing
agency" registered pursuant to Section 17A of the Exchange Act. DTC was
created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical
transfer and delivery of certificates. DTC's Participants include securities
brokers and dealers (including CIBC), banks and trust companies, clearing
corporations and certain other organizations. Indirect access to DTC's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants") that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly. Investors who are not Participants may beneficially own securities
held by or on behalf of DTC only through Participants or Indirect
Participants.
The Issuers expect that pursuant to procedures established by DTC (i) upon
deposit of each Global Note, DTC will credit the accounts of Participants
designated by CIBC with an interest in the Global Note and (ii) ownership of
the Notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the
interests of Participants) and the records of Participants and the Indirect
Participants (with respect to the interests of persons other than
Participants).
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The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the Notes represented by a
Global Note to such persons may be limited. In addition, because DTC can act
only on behalf of its Participants, who in turn act on behalf of persons who
hold interests through Participants, the ability of a person having an
interest in Notes represented by a Global Note to pledge or transfer such
interest to persons or entities that do not participate in DTC's system, or to
otherwise take actions in respect of such interest, may be affected by the
lack of a physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or
holder of the Notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a
Global Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Notes, and will not be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
the giving of any direction, instruction or approval to the Trustee
thereunder. Accordingly, each holder owning a beneficial interest in a Global
Note must rely on the procedures of DTC and, if such holder is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such holder owns its interest, to exercise any rights of a
holder of Notes under the Indenture or such Global Note. The Issuers
understand that under existing industry practice, in the event that the
Issuers request any action of holders of Notes, or a holder that is an owner
of a beneficial interest in a Global Note desires to take any action that DTC,
as the holder of such Global Note, is entitled to take, DTC would authorize
the Participants to take such action and the Participants would authorize
holders owning through such Participants to take such action or would
otherwise act upon the instruction of such holders. Neither the Issuers nor
the Trustee will have any responsibility or liability for any aspect of the
records relating to or payments made on account of Notes by DTC, or for
maintaining, supervising or reviewing any records of DTC relating to such
Notes.
Payments with respect to the principal of, and premium, if any, Liquidated
Damages, if any, and interest on, any Notes represented by a Global Note
registered in the name of DTC or its nominee on the applicable record date
will be payable by the Trustee to or at the direction of DTC or its nominee in
its capacity as the registered holder of the Global Note representing such
Notes under the Indenture. Under the terms of the Indenture, the Issuers and
the Trustee may treat the persons in whose names the Notes, including the
Global Notes, are registered as the owners thereof for the purpose of
receiving payment thereon and for any and all other purposes whatsoever.
Accordingly, neither the Issuers nor the Trustee have or will have any
responsibility or liability for the payment of such amounts to owners of
beneficial interests in a Global Note (including principal, premium, if any,
Liquidated Damages, if any, and interest). Payments by the Participants and
the Indirect Participants to the owners of beneficial interests in a Global
Note will be governed by standing instructions and customary industry practice
and will be the responsibility of the Participants or the Indirect
Participants and DTC.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Notes, cross-market transfers between the Participants in DTC, on the one
hand, and Euroclear or Cedel participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as
the case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or Cedel, as
the case may be, by the counterparts in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Notes in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement
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applicable to DTC. Euroclear participants and Cedel participants may not
deliver instructions directly to the depositaries for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant
in DTC will be credited, and any such crediting will be reported to the
relevant Euroclear or Cedel participant, during the securities settlement
processing day (which must be a business day for Euroclear and Cedel)
immediately following the settlement date of DTC. Cash received in Euroclear
or Cedel as a result of sales of interest in a Global Security by or through a
Euroclear or Cedel participant to a Participant in DTC will be received with
value on the settlement date of DTC but will be available in the relevant
Euroclear or Cedel cash account only as of the business day for Euroclear or
Cedel following DTC's settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued
at any time. Neither the Issuers nor the Trustee will have any responsibility
for the performance by DTC, Euroclear or Cedel or their respective
participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
CERTIFICATED NOTES
If (i) the Issuers notify the Trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation, (ii) the Issuers, at
their option, notify the Trustee in writing that it elects to cause the
issuance of Notes in definitive form under the Indenture or (iii) upon the
occurrence of certain other events as provided in the Indenture, then, upon
surrender by DTC of the Global Notes, Certificated Notes will be issued to
each person that DTC identifies as the beneficial owner of the Notes
represented by the Global Notes. Upon any such issuance, the Trustee is
required to register such Certificated Notes in the name of such person or
persons (or the nominee of any thereof) and cause the same to be delivered
thereto.
Neither the Issuers nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners
of the related Notes and each such person may conclusively rely on, and shall
be protected in relying on, instructions from DTC for all purposes (including
with respect to the registration and delivery, and the respective principal
amounts, of the Notes to be issued).
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THE EXCHANGE OFFER
The following description of the Registration Rights Agreement is a summary
only, does not purport to be complete and is subject to, and qualified in its
entirety by reference to, all provisions of the Registration Rights Agreement,
a copy of which is filed as an exhibit to the Exchange Offer Registration
Statement of which this Prospectus is a part.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Original Notes were originally issued by the Issuers on August 21, 1998
to CIBC pursuant to a Purchase Agreement. CIBC subsequently resold the
Original Notes within the United States to qualified institutional buyers in
reliance on Rule 144A under the Securities Act and outside the United States
in accordance with Regulation S under the Securities Act. As a condition to
the Purchase Agreement, the Issuers and Insight Ohio have entered into the
Registration Rights Agreement pursuant to which they have agreed, for the
benefit of the holders of the Original Notes, that they will, at their cost,
(i) by October 20, 1998, file a registration statement (the "Exchange Offer
Registration Statement") with the SEC with respect to a registered offer to
exchange the Original Notes for the Exchange Notes, which will have terms
substantially identical in all material respects to the Original Notes (except
that the Exchange Notes will not contain terms with respect to transfer
restrictions), and (ii) by January 18, 1999, use their reasonable best efforts
to cause the Exchange Offer Registration Statement to be declared effective
under the Securities Act. Upon the Exchange Offer Registration Statement being
declared effective, the Issuers will offer the Exchange Notes in exchange for
surrender of the Original Notes. The Issuers will keep the Exchange Offer open
for not less than 20 business days (or longer if required by applicable law)
after the date notice of the Exchange Offer is mailed to the holders of the
Original Notes. For each Original Note surrendered to the Issuers pursuant to
the Exchange Offer, the holder of such Original Note will receive an Exchange
Note having a principal amount equal to that of the surrendered Original Note.
Under existing SEC interpretations, the Exchange Notes would in general be
freely transferable after the Exchange Offer without further registration
under the Securities Act; provided that in the case of broker-dealers, a
prospectus meeting the requirements of the Securities Act must be delivered as
required. The Issuers have agreed for a period of 180 days after consummation
of the Exchange Offer to make available a prospectus meeting the requirements
of the Securities Act to any broker-dealer for use in connection with any
resale of any such Exchange Notes acquired as described below. A broker-dealer
which delivers such a prospectus to purchasers in connection with such resales
will be subject to certain of the civil liability provisions under the
Securities Act and will be bound by the provisions of the Registration Rights
Agreement (including certain indemnification rights and obligations).
Each holder of the Original Notes that wishes to exchange such Original
Notes for Exchange Notes in the Exchange Offer will be required to make
certain representations including representations that:
. any Exchange Notes to be received by it will be acquired in the ordinary
course of its business;
. it has no arrangement or understanding with any person to participate in
the distribution of the Exchange Notes;
. it is not an "affiliate," as defined in Rule 405 of the Securities Act,
of the Issuers, or if it is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act
to the extent applicable; and
. it is not acting on behalf of any person who could not truthfully make
the foregoing representations.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of
the Exchange Notes. If the holder is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Original Notes that were
acquired as a result of marketmaking activities or other trading activities,
it will be required to acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
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In the event that applicable interpretations of the staff of the SEC do not
permit the Issuers to effect the Exchange Offer, or if for any other reason
the Exchange Offer is not consummated within 180 days of the Issue Date, the
Issuers will, at their own expense, (a) as promptly as practicable, file a
shelf registration statement covering resales of the Original Notes (the
"Shelf Registration Statement"), (b) use their reasonable best efforts to
cause the Shelf Registration Statement to be declared effective under the
Securities Act, and (c) use their reasonable best efforts to keep effective
the Shelf Registration Statement until two years after its effective date. The
Issuers will, in the event of the Shelf Registration Statement, provide to
each holder of the Original Notes copies of the prospectus which is a part of
the Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement for the Original Notes has become effective and take
certain other actions as are required to permit unrestricted resales of the
Original Notes. A holder of the Original Notes that sells such Original Notes
pursuant to the Shelf Registration Statement generally will be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification rights and
obligations).
If (i) the Exchange Offer Registration Statement is not filed by October 20,
1998, (ii) an Exchange Offer Registration Statement is not declared effective
by January 18, 1999 (iii) the Shelf Registration is not filed or is not
declared effective within the periods specified in the Registration Rights
Agreement, or (iv) either (A) the Issuers have not exchanged the Exchange
Notes for all Original Notes validly tendered in accordance with the terms of
the Exchange Offer on or prior to February 17, 1999 or (B) the Exchange Offer
Registration Statement ceases to be effective at any time prior to the time
that the Exchange Offer is consummated as to all Original Notes validly
tendered or (C) if applicable, the Shelf Registration Statement has been
declared effective and such Shelf Registration Statement ceases to be
effective at any time prior to the second anniversary of its effective date
(each of such events referred to in clauses (i) through (iii) above is a
"Registration Default"), the sole remedy available to holders of the Original
Notes will be the immediate assessment of additional interest (the "Additional
Interest") as follows: the per annum interest rate on the Original Notes will
increase by 50 basis points for the first 90 days during which any such
default exists, and the per annum interest rate will increase by an additional
25 basis points for each subsequent 90-day period during which the
Registration Default remains uncured, up to a maximum additional interest rate
of 200 basis points per annum in excess of the interest rate on the cover of
this Prospectus. All Additional Interest will be payable to holders of the
Original Notes in cash on each interest payment date, commencing with the
first such date occurring after any such Additional Interest commences to
accrue, until such Registration Default is cured. After the date on which such
Registration Default is cured, the interest rate on the Original Notes will
revert to the interest rate originally borne by the Original Notes (as shown
on the cover of this Prospectus).
If the Exchange Offer is made and CIBC continues to hold Original Notes,
CIBC may exchange Original Notes for other notes identical to the Exchange
Notes except for transfer restrictions ("Private Exchange Notes"). If they
receive Private Exchange Notes, CIBC thereafter will have the right for a
period after consummation of the Exchange Offer to request the Issuers to file
a shelf registration statement covering the Private Exchange Notes. If such
requested shelf registration is not filed or does not become effective by the
times provided in the Registration Rights Agreement, the Issuers shall pay as
liquidated damages to holders of the Private Exchange Notes the Additional
Interest as provided above until such time as it does become effective.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept any and all Original
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Issuers will issue $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of outstanding
Original Notes accepted in the Exchange Offer. Holders may tender some or all
of their Original Notes pursuant to the Exchange Offer. However, Original
Notes may be tendered only in integral multiples of $1,000.
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The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes except that (i) the Exchange Notes bear a different
CUSIP Number from the Original Notes, (ii) the Exchange Notes have been
registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (iii) the holders of the Exchange Notes
will not be entitled to certain rights under the Registration Rights
Agreement, which rights will terminate when the Exchange Offer is terminated.
The Exchange Notes will evidence the same debt as the Original Notes and will
be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $55,869,000 aggregate principal amount at
maturity of Original Notes were outstanding. The Issuers have fixed the close
of business on , as the record date for the Exchange Offer for
purposes of determining the persons to whom this Prospectus and the Letter of
Transmittal will be mailed initially.
Holders of Original Notes do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law, the Delaware Limited Liability
Company Law or the Indenture in connection with the Exchange Offer. The
Issuers intend to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the SEC
thereunder.
The Issuers shall be deemed to have accepted validly tendered Original Notes
when, as and if the Issuers have given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Issuers.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth in this
Prospectus or otherwise, the certificates for any such unaccepted Original
Notes will be returned, without expense, to the tendering holder thereof as
promptly as practicable after the Expiration Date.
Holders who tender Original Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Original
Notes pursuant to the Exchange Offer. The Issuers will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "--Fees and Expenses" below.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, , unless the Issuers, in their sole discretion, extend the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. Notwithstanding the
foregoing, the Issuers will not extend the Expiration Date beyond ,
.
In order to extend the Exchange Offer, the Issuers will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
The Issuers reserve the right, in their sole discretion, (i) to delay
accepting any Original Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the registered holders.
PROCEDURES FOR TENDERING
Only a holder of Original Notes may tender such Original Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the
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signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal, or such facsimile,
together with the Original Notes and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
To be tendered effectively, the Original Notes, Letter of Transmittal and
other required documents must be completed and received by the Exchange Agent
at the address set forth below under "Exchange Agent" prior to 5:00 p.m., New
York City time, on the Expiration Date. Delivery of the Original Notes may be
made by book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the Exchange
Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the Issuers
the representations set forth above under the heading "--Purpose and Effect of
the Exchange Offer."
The tender by a holder and the acceptance thereof by the Issuers will
constitute the agreement between such holder and the Issuers in accordance
with the terms and subject to the conditions set forth in this Prospectus and
in the Letter of Transmittal.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE SENT TO
THE ISSUERS. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of the Medallion System (an
"Eligible Institution") unless the Original Notes tendered pursuant thereto
are tendered (i) by a registered holder who has not completed the box entitled
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter
of Transmittal or a notice of withdrawal, as the case may be, are required to
be guaranteed, such guarantee must be by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Original Notes listed therein, such Original Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Original
Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Original Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and evidence satisfactory to the
Issuers of their authority to so act must be submitted with the Letter of
Transmittal.
The Issuers understand that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Original Notes at the book-entry transfer facility, The Depository Trust
Company (the "Book-Entry Transfer Facility"), for the purpose of facilitating
the Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Original Notes by causing such Book-Entry
Transfer
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Facility to transfer such Original Notes into the Exchange Agent's account
with respect to the Original Notes in accordance with the Book-Entry Transfer
Facility's procedures for such transfer. Although delivery of the Original
Notes may be effected through book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility, an appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures. Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Original Notes and withdrawal of tendered
Original Notes will be determined by the Issuers in their sole discretion,
which determination will be final and binding. The Issuers reserve the
absolute right to reject any and all Original Notes not properly tendered or
any Original Notes the Issuers' acceptance of which would, in the opinion of
counsel for the Issuers, be unlawful. The Issuers also reserve the right in
their sole discretion to waive any defects, irregularities or conditions of
tender as to particular Original Notes. The Issuers' interpretation of the
terms and conditions of the Exchange Offer (including the instructions in the
Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Original
Notes must be cured within such time as the Issuers shall determine. Although
the Issuers intend to notify holders of defects or irregularities with respect
to tenders of Original Notes, neither the Issuers, the Exchange Agent nor any
other person shall incur any liability for failure to give such notification.
Tenders of Original Notes will not be deemed to have been made until such
defects or irregularities have been cured or waived. Any Original Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
by the Exchange Agent to the tendering holders, unless otherwise provided in
the Letter of Transmittal, as soon as practicable following the Expiration
Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (i) whose Original Notes
are not immediately available, (ii) who cannot deliver their Original Notes,
the Letter of Transmittal or any other required documents to the Exchange
Agent or (iii) who cannot complete the procedures for book-entry transfer,
prior to the Expiration Date, may effect a tender if;
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Original Notes and the principal amount of Original Notes tendered,
stating that the tender is being made thereby and guaranteeing that, within
five New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof) together with the
certificate(s) representing the Original Notes (or a confirmation of book-
entry transfer of such Original Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility), and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Original Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Original Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility), and all other documents required by the
Letter of Transmittal are received by the Exchange Agent upon five New York
Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Original Notes according to the
guaranteed delivery procedures set forth above.
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WITHDRAWAL OF TENDERS
Except as otherwise provided in this Prospectus, tenders of Original Notes
may be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
To withdraw a tender of Original Notes in the Exchange Offer, a telegram,
telex, letter or facsimile transmission notice of withdrawal must be received
by the Exchange Agent at its address set forth in this Prospectus prior to
5:00 p.m., New York City time, on the Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having deposited the
Original Notes to be withdrawn (the "Depositor"), (ii) identify the Original
Notes to be withdrawn (including the certificate number(s) and principal
amount of such Original Notes, or, in the case of Original Notes transferred
by book-entry transfer, the name and number of the account at the Book-Entry
Transfer Facility to be credited), (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Original Notes were tendered (including any required signature guarantees) or
be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Original Notes register the transfer of such Original Notes
into the name of the person withdrawing the tender and (iv) specify the name
in which any such Original Notes are to be registered, if different from that
of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Issuers,
whose determination shall be final and binding on all parties. Any Original
Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no Exchange Notes will be issued with
respect thereto unless the Original Notes so withdrawn are validly retendered.
Any Original Notes which have been tendered but which are not accepted for
exchange will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal, rejection of tender or termination of
the Exchange Offer. Properly withdrawn Original Notes may be retendered by
following one of the procedures described above under "--Procedures for
Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Issuers shall not
be required to accept for exchange, or exchange Exchange Notes for, any
Original Notes, and may terminate or amend the Exchange Offer as provided in
this Prospectus prior to 5:00 on the Expiration Date, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Issuers, might materially impair
the ability of the Issuers to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Issuers or any of their Subsidiaries; or
(b) any law, rule, regulation or interpretation by the staff of the SEC
is proposed, adopted or enacted, which, in the reasonable judgment of the
Issuers, might materially impair the ability of the Issuers to proceed with
the Exchange Offer or materially impair the contemplated benefits of the
Exchange Offer to the Issuers; or
(c) any governmental approval has not been obtained, which approval the
Issuers shall, in their reasonable discretion, deem necessary for the
consummation of the Exchange Offer and contemplated hereby.
If the Issuers determine in their reasonable judgment that any of the
conditions are not satisfied, the Issuers may (i) refuse to accept any
Original Notes and return all tendered Original Notes to the tendering
holders, (ii) extend the Exchange Offer and retain all Original Notes tendered
prior to the expiration of the Exchange Offer, subject, however, to the rights
of holders to withdraw such Original Notes (see "--Withdrawal of Tenders") or
(iii) waive such unsatisfied conditions with respect to the Exchange Offer and
accept all properly tendered Original Notes which have not been withdrawn.
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EXCHANGE AGENT
Bank of Montreal Trust Company has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
Bank of Montreal Trust Company
88 Pine Street, 19th Floor
New York, New York 10005
Attn: Corporate Trust Department
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Issuers and their affiliates.
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Issuers, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuers. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Original Notes, which is face value, as reflected in the Issuers' accounting
records on the date of exchange. Accordingly, no gain or loss for accounting
purposes will be recognized by the Issuers. The expenses related to the
issuance of the Notes and of the Exchange Offer will be amortized over the
term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Original Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Original
Notes may be resold only (i) to the Issuers (upon redemption thereof or
otherwise), (ii) so long as the Original Notes are eligible for resale
pursuant to Rule 144A under the Securities Act, to a person inside the United
States whom the seller reasonably believes is a qualified institutional buyer
within the meaning of Rule 144A in a transaction meeting the requirements of
Rule 144A, in accordance with Rule 144 under the Securities Act, or pursuant
to another exemption from the registration requirements of the Securities Act
(and based upon an opinion of counsel reasonably acceptable to the Issuers),
(iii) outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act, (iv) to certain
institutional "accredited investors" within the meaning of Rule 501(a) under
the Securities Act, in a minimum principal amount of $250,000, or (v) pursuant
to an effective registration statement under the Securities Act, in each case
in accordance with any applicable securities laws of any state of the United
States.
RESALE OF EXCHANGE NOTES
With respect to resales of Exchange Notes, based on no-action letters issued
by the staff of the SEC to third parties, the Issuers believe that a holder or
other person who receives Exchange Notes, whether or not such person is the
holder (other than a person that is an "affiliate" of the Issuers within the
meaning of Rule 405 under the Securities Act), who receives Exchange Notes in
exchange for Original Notes in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement or
understanding
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with any person to participate, in the distribution of the Exchange Notes,
will be allowed to resell the Exchange Notes to the public without further
registration under the Securities Act and without delivering to the purchasers
of the Exchange Notes a prospectus that satisfies the requirements of Section
10 of the Securities Act. However, if any holder acquires Exchange Notes in
the Exchange Offer for the purpose of distributing or participating in a
distribution of the Exchange Notes, such holder cannot rely on the position of
the staff of the SEC enunciated in such no-action letters, and must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction, unless an exemption from
registration is otherwise available. Further, each Participating Broker-Dealer
that receives Exchange Notes for its own account in exchange for Original
Notes, where such Original Notes were acquired by such Participating Broker-
Dealer as a result of market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes. See "Plan of Distribution."
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Issuers in the Letter of Transmittal that (i) the Exchange Notes are to
be acquired by the holder or the person receiving such Exchange Notes, whether
or not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Issuers within the meaning of Rule 405 under
the Securities Act, and (v) the holder or any such other person acknowledges
that if such holder or other person participates in the Exchange Offer for the
purpose of distributing the Exchange Notes it must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on those no-
action letters. As indicated above, each Participating Broker-Dealer that
receives an Exchange Note for its own account in exchange for Original Notes
that were acquired as a result of market-making or other trading activities
must acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes. For a description of the procedures for such
resales by Participating Broker-Dealers, see "Plan of Distribution."
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U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of federal tax consequences under the Internal
Revenue Code of 1986, as amended (the "Code"). This summary is based upon the
laws, regulations, rulings and judicial decisions in effect on the date of
this offering circular, all of which are subject to change at any time
(possibly on a retroactive basis). There can be no assurance that the Internal
Revenue Service (the "IRS") will not take a contrary view, and no ruling from
the IRS has been or will be sought. Unless otherwise specifically noted, this
summary applies only to those persons who acquire Notes for cash and who hold
Notes as capital assets ("Holders"), and it does not discuss all aspects of
federal income taxation that may be relevant to Holders in light of their
particular investment circumstances. This summary does not address the
consequences to certain types of Holders subject to special treatment under
the federal income tax laws (for example, tax-exempt organizations, dealers in
securities, financial institutions, life insurance companies and persons
holding Notes as part of a hedging or "conversion" transaction or a straddle).
This summary also does not discuss the federal alternative minimum tax
consequences to a Holder under state, local or foreign tax laws, which may
differ from the corresponding federal income tax laws. Holders of Original
Notes and prospective investors in Exchange Notes are advised to consult their
own tax advisors regarding the particular tax considerations pertaining to
them with respect to the exchanging of Original Notes for Exchange Notes, and
the ownership and disposition of Exchange Notes, in each case including the
effects of applicable federal, state, local, foreign or other tax laws to
which they may be subject, as well as possible changes in the tax laws.
For purposes of this discussion, a U.S. Holder is a Holder that is: a
citizen or resident (as determined for United States federal income tax
purposes) of the United States; a corporation or partnership (or other entity
treated for U.S. income tax purposes as a corporation or partnership) created
or organized in the United States or under the laws of the United States or of
any political subdivision thereof; an estate the income of which is includible
in gross income for U.S. federal income tax purposes, regardless of its
source; or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
United States fiduciaries have the authority to control all substantial
decisions of the trust. A Foreign Holder is any Holder that is not a U.S.
Holder.
EXCHANGE OF ORIGINAL NOTES FOR EXCHANGE NOTES
Cooperman Levitt Winikoff Lester & Newman, P.C., counsel to the Issuers, has
advised the Issuers that in its opinion, the exchange of the Original Notes
for Exchange Notes pursuant to the Exchange Offer will not be treated as an
"exchange" for federal income tax purposes because the Exchange Notes will not
be considered to differ materially in kind or extent from the Original Notes.
Rather, in the opinion of counsel to the Issuers, the Exchange Notes received
by a Holder will be treated as a continuation of the Original Notes in the
hands of such Holder and consequently, in the opinion of counsel to the
Issuers, there will be no federal income tax consequences to Holders
exchanging Original Notes for Exchange Notes pursuant to the Exchange Offer.
The Issuers recommend that each Holder of Original Notes consult such
Holder's own tax adviser as to the particular tax consequences of exchanging
such Holder's Original Notes for Exchange Notes, including the applicability
and effect of any state, local or foreign tax laws.
INVESTMENTS IN EXCHANGE NOTES BY U.S. HOLDERS
Original Issue Discount
The Exchange Notes will have original issue discount ("OID") for federal
income tax purposes because the Original Notes were issued at a discount from
their "stated redemption price at maturity." For federal income tax purposes,
OID on an Exchange Note will be the excess of the stated redemption price at
maturity of the Exchange Note (which will equal the stated redemption price at
maturity of the Original Note exchanged therefor) over the "issue price" of
the Original Note exchanged for that Exchange Note. The issue price of the
Exchange Notes will be the first price at which a substantial amount of
Original Notes was sold to the public
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(excluding sales to bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents or wholesalers). The
stated redemption price at maturity of an Exchange Note will be the sum of all
payments to be made on such Exchange Note, including all stated interest
payments, other than payments of "qualified stated interest." Qualified stated
interest is stated interest that is unconditionally payable at least annually
at a single fixed rate that appropriately takes into account the length of the
interval between payments. Because there will be no required payment of
interest on the Exchange Notes until February 15, 2004, none of the interest
payments on the Exchange Notes, under the stated payment schedule, will
constitute qualified stated interest. Therefore, each Exchange Note will bear
OID in an amount equal to the excess of (i) the sum of its principal amount
and all stated interest payments over (ii) its issue price.
A U.S. Holder will be required to include OID in income periodically over
the term of an Exchange Note before receipt of the cash of other payment
attributable to such income, regardless of the U.S. Holder's method of tax
accounting. The amount of OID required to be included in a U.S. Holder's gross
income for any taxable year is the sum of the "daily portions" of OID with
respect to the Exchange Note for each day during the taxable year or portion
of a taxable year during which such U.S. Holder holds the Exchange Note. The
daily portion is determined by allocating to each day of any "accrual period"
within a taxable year a pro rata portion of an amount equal to the "adjusted
issue price" of the Exchange Note at the beginning of the accrual period
multiplied by the "yield to maturity" of the Exchange Note. For purposes of
computing OID, the Issuers will use six-month accrual periods that end on the
day in the calendar year corresponding to the maturity date of the Exchange
Notes and the date six months prior to such maturity date. In general, the
adjusted issue price of an Exchange Note at the beginning of any accrual
period is the issue price of the Original Note exchanged for that Exchange
Note, increased by the amount of OID previously includible in the gross income
of the U.S. Holder with respect to the Exchange Note, and decreased by any
payments previously made on the Exchange Note. The yield to maturity is the
discount rate that, when used in computing the present value of all payments
of principal and interest to be made on the Exchange Note, produces an amount
equal to the issue price of the Exchange Note.
Acquisition or Bond Premium and Market Discount
A U.S. Holder who purchases an Exchange Note for an amount that is greater
than its adjusted issue price as of the purchase date will be considered to
have purchased such Exchange Note at an "acquisition premium." The amount of
OID that such U.S. Holder must include in its gross income with respect to
such Exchange Note for any taxable year is generally reduced by the portion of
such acquisition premium properly allocable to such year.
A U.S. Holder who purchases an Exchange Note at a cost in excess of its
stated redemption price at maturity will be considered to have purchased the
Exchange Note at a premium, and may make an election, applicable to all notes
held by such U.S. Holder, to amortize such premium, using a constant yield
method, over the remaining term of the Exchange Note (or, if a smaller
amortization allowance would result, by computing such allowance with
reference to the amount payable on an earlier call date, and by amortizing
such allowance over the shorter period to such call date).
If a U.S. Holder purchases an Exchange Note for an amount that is less than
its "revised issue price" as of the purchase date, the amount of the
difference generally will be treated as "market discount" for federal income
tax purposes, unless such difference is less than a specified de minimis
amount. In gerneral, the revised issue price of an Exchange Note equals the
issue price of the Original Note exchanged for that Exchange Note, plus the
amount of OID attributable to the Exchange Note for all periods prior to the
purchase date (disregarding any deduction for acquisition premium), reduced by
the amount of all prior cash payments on the Exchange Note.
Under the market discount rules, a U.S. Holder is required to treat any
principal payment on, or any gain on the sale, exchange, retirement or other
disposition of, an Exchange Note as ordinary income to the extent of the
accrued market discount which has not previously been included in income at
the time of such payment or disposition. In addition, such a U.S. Holder may
be required to defer until maturity of the Exchange Note or its
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earlier disposition in a taxable transaction the deduction of all or a portion
of the interest expense of any indebtedness incurred or continued to purchase
or carry such Exchange Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Exchange Note, unless
the U.S. Holder elects to accrue the market discount on a constant interest
method. A U.S. Holder of an Exchange Note may elect to include market discount
in income currently as it accrues (on either a ratable or constant interest
method), in which case the rule described above regarding deferral of interest
deductions will not apply. This election to include market discount in income
currently, once made, applies to all market discount obligations acquired
during or after the first taxable year to which the election applies and may
not be revoked without the consent of the IRS.
Sale, Exchange or Retirement of Exchange Notes
Generally, a sale, exchange or redemption of Exchange Notes by a U.S. Holder
will result in taxable gain or loss equal to the difference between the amount
realized on such sale, exchange or redemption and the U.S. Holder's adjusted
tax basis in the Exchange Note. A U.S. Holder's adjusted tax basis for
determining gain or loss on the sale or other disposition of an Exchange Note
will initially equal the cost of the Exchange Note (or the Original Note
exchanged therefor) to such U.S. Holder and will be increased by any amounts
included in income as OID, and decreased by the amount of cash payments
received by such U.S. Holder regardless of whether such payments are
denominated as principal or interest. Gain or loss upon a sale, exchange, or
redemption of an Exchange Note will be capital gain or loss, except to the
extent of any accrued market discount, which will be taxable as ordinary
income.
Under current law, net capital gains of individuals generally are subject to
the following maximum federal tax rates: (i) twenty percent, for property held
more than one year; and (ii) beginning in the year 2006, eighteen percent, for
property acquired after the year 2000 and held for more than five years. The
deductibility of capital losses is subject to limitations.
INVESTMENTS IN EXCHANGE NOTES BY FOREIGN HOLDERS
If the income or gain on the Exchange Notes is "effectively connected with
the conduct of a trade or business within the United States" ("ECI") of a
Foreign Holder, such income or gain will be subject to tax essentially in the
same manner as if the Exchange Notes were held by a U.S. Holder, as discussed
above, and in the case of a Foreign Holder that is a foreign corporation, may
also be subject to the federal branch profits tax.
If the income on the Exchange Notes is not ECI, then under the "portfolio
interest" exception to the general rules for the withholding of tax on
interest paid to a Foreign Holder, a Foreign Holder will not be subject to
United States tax (or to withholding) on interest on an Exchange Note,
provided that (i) the Foreign Holder does not actually or constructively own
10% or more of the outstanding voting stock of Coaxial Financing Corp. or a
10% or greater capital or profits interest in any of the Individual LLCs, in
each case within the meaning of Section 871(h)(3) of the Code, (ii) the
Foreign Holder is not a controlled foreign corporation that is considered
related to the Issuers and (iii) the Issuers, their paying agent or the person
who would otherwise be required to withhold tax received either (a) a
statement (an "Owner's Statement") on IRS Form W-8 (which must be renewed
periodically), signed under penalties of perjury by the beneficial owner of
the Exchange Note, on which the owner certifies that the owner is not a United
States person and which provides the owner's name and address, or (B) a
statement signed under penalties of perjury by a financial institution holding
the Exchange Note on behalf of the beneficial owners, together with a copy of
each beneficial owner's Owner's Statement. A Foreign Holder who does not
qualify for the "portfolio interest" exception would be subject to United
States withholding tax at a flat rate of 30% (or a lower applicable treaty
rate upon delivery of requisite certification of eligibility) on interest
payments on the Exchange Notes.
If the gain on the Exchange Notes is not ECI, then gain recognized by a
Foreign Holder upon the redemption, sale or exchange of an Exchange Note
(including any gain representing accrued market discount) will not be subject
to United States tax unless the Foreign Holder is an individual present in the
United States for 183 days or more during the taxable year in which the
Exchange Note is redeemed, sold or exchanged, and certain other requirements
are met, in which case the Foreign Holder will be subject to United States tax
at a flat
131
<PAGE>
rate of 30% (unless exempt by applicable treaty upon delivery of requisite
certification of eligibility). Foreign Holders who are individuals may also be
subject to tax pursuant to provisions of United States federal income tax law
applicable to certain United States expatriates.
An Exchange Note that is held by an individual who at the time of death is
not a citizen or resident of the United States will not be subject to U.S.
federal estate tax as a result of such individual's death, provided that, at
the time of the individual's death, payments of interest with respect to such
Exchange Note would have qualified for the portfolio interest exception.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain (generally, non-corporate) U.S. Holders may be subject to backup
withholding at a rate of 31% on payments of principal, premium and interest
on, and the proceeds of the disposition of, the Exchange Notes. In general,
backup withholding will be imposed only if the U.S. Holder (i) fails to
furnish its taxpayer identification number ("TIN"), which, for an individual,
would be his or her Social Security number, (ii) furnishes an incorrect TIN,
(iii) is notified by the IRS that it has failed to report payments of interest
or dividends or (iv) under certain circumstances, fails to certify, under
penalty of perjury, that it has furnished a correct TIN and that it is not
subject to backup withholding. In addition, such payments of principal and
interest to U.S. Holders will generally be subject to information reporting.
Backup withholding and information reporting generally will not apply to
interest payments made to a Foreign Holder of an Exchange Note who provides
the requisite certification or otherwise establishes an exemption from backup
withholding. Payments of the proceeds of a disposition of the Exchange Notes
by or through a United States office of a broker generally will be subject to
backup withholding at a rate of 31% and information reporting unless the
Foreign Holder certifies that it is a Foreign Holder under penalty of perjury
or otherwise establishes an exemption. Payments of the proceeds of a
disposition of the Exchange Notes by or through a foreign office of a United
States broker or foreign broker with certain relationships to the United
States generally will be subject to information reporting, but not backup
withholding.
The amount of any backup withholding imposed on a payment to a Holder of an
Exchange Note will be allowed as a credit against such Holder's United States
federal income tax liability, and such Holder may be entitled to a refund,
provided that the required information is furnished to the IRS.
Holders should consult their tax advisors as to their qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption.
RECENTLY ISSUED TREASURY REGULATIONS
The U.S. Treasury Department recently issued final Treasury regulations
governing information reporting and the certification procedures regarding
withholding and backup withholding on certain amounts paid to Foreign Holders
after December 31, 1999. The new Treasury regulations generally would not
alter the treatment of Foreign Holders described above. The new Treasury
regulations would alter the procedures for claiming the benefits of an income
tax treaty and may change the certification procedures relating to the receipt
by intermediaries of payments on behalf of a beneficial owner of an Exchange
Note. Prospective investors should consult their tax advisors concerning the
effect, if any, of such new Treasury regulations on an investment in the
Exchange Notes.
THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. HOLDERS OF
ORIGINAL NOTES AND PROSPECTIVE PURCHASERS OF EXCHANGE NOTES SHOULD CONSULT
THEIR OWN TAX ADVISORS AS TO SPECIFIC CONSEQUENCES OF THE EXCHANGING OF
ORIGINAL NOTES FOR EXCHANGE NOTES, AND OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF EXCHANGE NOTES, IN EACH CASE INCLUDING THE APPLICATION AND
EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
132
<PAGE>
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used in connection with resales of Exchange Notes received in exchange for
Original Notes only by Participating Broker-Dealers ("Eligible Participating
Broker-Dealers") who acquired such Original Notes as a result of market-making
activities or other trading activities and not by Participating Broker-Dealers
who acquired such Original Notes directly from the Issuers. The Issuers have
agreed that for a period of 180 days after the Expiration Date, they will make
this Prospectus, as amended or supplemented, available to any Eligible
Participating Broker-Dealer for use in connection with any such resale. In
addition, until , all dealers effecting transactions in the Exchange
Notes may be required to deliver a prospectus.
The Issuers will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such Exchange Notes. Any Participating
Broker-Dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commission or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of 180 days after the Expiration Date, the Issuers will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Eligible Participating Broker-Dealer that
requests such documents in the Letter of Transmittal. The Issuers have agreed
to pay all expenses incident to the Exchange Offer (including the expenses of
one counsel for the Holders of the Notes) other than commissions or
concessions of any Participating Broker-Dealer and will indemnify the Holders
of the Notes (including any Participating Broker-Dealers) against certain
liabilities including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes offered hereby will
be passed upon for the Issuers by Cooperman Levitt Winikoff Lester & Newman,
P.C., New York, New York.
EXPERTS
The balance sheets of Central Ohio Cable System Operating Unit, Coaxial
Communications of Central Ohio, Inc. and Phoenix Associates as of December 31,
1996 and 1997 and the statements of operations and accumulated deficit and
cash flows for the three years ended December 31, 1997 and the balance sheets
of Coaxial LLC, Coaxial Financing Corp. and Insight Communications of Central
Ohio, LLC as of July 31, 1998 included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as stated in their reports appearing in this Prospectus,
and are included in this Prospectus in reliance upon the authority of said
firm as experts in accounting and auditing.
133
<PAGE>
ADDITIONAL AVAILABLE INFORMATION
The Issuers have filed with the SEC a Registration Statement on Form S-4
(together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act with respect to the
Exchange Notes offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the SEC, and to
which reference is hereby made. Statements contained in this Prospectus as to
the contents of any contract, agreement or any other document referred to are
not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to such exhibit to the Registration Statement for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
The Registration Statement can be inspected and copied at the Public
Reference Section of the SEC at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20459, and at the SEC's regional offices at Seven World Trade Center, New
York, New York 10048, and Citicorp Center, 600 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of the Registration Statement can
be obtained from the Public Reference Section of the SEC at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20459, at prescribed rates. The Issuers
are filing the Registration Statement with the SEC electronically. The SEC
maintains a web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
SEC. The address of that web site is http://www.sec.gov.
As a result of the Exchange Offer, the Issuers will be subject to the
information reporting requirements of the Exchange Act. So long as the Issuers
are subject to such periodic reporting requirements under the Exchange Act,
they will continue to furnish the information required thereby to the SEC. The
Issuers will be required to file periodic reports with the SEC pursuant to the
Exchange Act during the Issuers' current fiscal year and thereafter so long as
the Notes are held by at least 300 registered holders. The Issuers do not
anticipate that, for periods following December 31, 1998, the Notes will be
held of record by more than 300 holders. Accordingly, after such date, the
Issuers do not expect to be required to comply with the periodic reporting
obligations imposed under the Exchange Act. However, the Indenture provides
that the Issuers will furnish copies of the periodic reports required to be
filed with the SEC under the Exchange Act to the holders of the Notes. If the
Issuers are not subject to the periodic reporting and informational
requirements of the Exchange Act, they will, to the extent such filings are
accepted by the SEC, and whether or not the Issuers have a class of securities
registered under the Exchange Act, file with the SEC, and provide the Trustee
and the holders of the Notes within 15 days after such filings with, annual
reports containing the information required to be contained in Form 10-K
promulgated under the Exchange Act, quarterly reports containing the
information required to be contained in Form 10-Q promulgated under the
Exchange Act, and from time to time such other information as is required to
be contained in Form 8-K promulgated under the Exchange Act. If filing such
reports with the SEC is not accepted by the SEC or prohibited by the Exchange
Act, the Issuers will also provide copies of such reports, at their cost, to
prospective purchasers of the Notes promptly upon written request.
134
<PAGE>
GLOSSARY
The following is a description of certain terms used in this Prospectus:
Addressability............... Addressable technology enables the cable
television operator to electronically control
from its central facilities the cable
television services delivered to the
subscriber. This technology facilitates pay-
per-view services, reduces service theft, and
provides a cost-effective method to upgrade and
downgrade programming services to subscribers.
@Home........................ The @Home Network is an integrated system for
providing broadband data services to personal
computers using the cable television
infrastructure. It brings the Internet to
residential and business consumers at higher
speeds and with greater levels of service than
previously possible. @Home is a joint venture
of Tele-Communications Inc. and Kleiner Perkins
Caufield & Byers, founded in 1995 and located
in Mountain View, California.
Bandwidth.................... Bandwidth measures the information-carrying
capacity of a communication channel. Bandwidth
corresponds to the difference between the
lowest and highest frequency signal which can
be carried by the channel and indicates the
range of usable frequencies that can be carried
by a cable television system.
Basic Penetration............ Basic subscribers as a percentage of total
number of homes passed.
Basic Service Tier........... A package of over-the-air broadcast stations,
local access channels and certain satellite-
delivered cable television services (other than
premium services).
Basic Subscriber............. A subscriber to a cable television system who
receives the Basic Service Tier and who is
usually charged a flat monthly rate for a
number of channels.
CPST......................... Cable programming services other than
programming services provided on the Basic
Service Tier or on a per-channel or per-program
basis. Also referred to as expanded basic
service.
Cable Modem.................. A device similar to a telephone modem that
sends and receives signals over a cable
television network at speeds up to 50 times the
capacity of a telephone modem.
Converter.................... An electronic device that permits tuning of a
cable television signal to permit reception by
subscriber television sets and VCRs and
provides a means of access control for cable
television programming.
Cost-of-Service.............. A rate-setting methodology prescribed by the
FCC which may give a cable television operator
the ability to establish maximum rates for
regulated services in excess of the benchmark
rate that would otherwise be applicable.
135
<PAGE>
Digital Compression.......... The conversion of the standard analog video
signal into a digital signal and the
compression of that signal to facilitate
multiple channel transmissions through a single
channel's bandwidth.
Digital Video................ A distribution technology where video content
is delivered in digital format.
Direct Broadcast Satellite A service by which packages of television
(DBS)........................ programming are transmitted via high-powered
satellites to individual homes, each served by
a small satellite dish.
Fiber Optic Cable............ A cable made of glass fibers through which
signals are transmitted as pulses of light to
the distribution portion of the cable
television which in turn goes to the customer's
home. Capacity for a very large number of
channels can be more easily provided.
Headend...................... A collection of hardware, typically including
satellite receivers, modulators, amplifiers and
video cassette playback machines within which
signals are processed and then combined for
distribution within the cable television
network.
High-Speed Data Network...... Any network dedicated to the transmission of
data to residences and commercial
establishments. Includes Local Area Networks
(LAN).
Homes Passed................. A home is deemed to be passed if it can be
connected to the distribution system without
further extension of the distribution network.
Internet..................... The large, worldwide network of thousands of
smaller, interconnected computer networks.
Originally developed for use by the military
and for academic research purposes, the
Internet is now accessible by millions of
users.
LAN.......................... Local Area Network. A communications network
that serves users within a confined
geographical area, consisting of servers,
workstations, a network operating system and a
communications link.
Local Multipoint A proposed method of distribution for
Distribution Service......... television and information using microwave
transmissions at a higher frequency than MMDS.
MDU.......................... Multiple dwelling units such as condominiums,
apartment complexes, hospitals, hotels and
other commercial complexes.
Multichannel Multipoint
Distribution Service A one-way radio transmission of television
(MMDS)....................... channels over microwave frequencies from a
fixed station transmitting to multiple
receiving facilities located at fixed points.
Multiple System Operator A cable television operator that owns or
(MSO)........................ operates more than one cable television system.
Must Carry................... The provisions of the 1992 Cable Act that
require cable television operators to carry
local commercial and noncommercial television
broadcast stations on their systems.
136
<PAGE>
Overbuild.................... The construction of a second cable television
system in a franchise area in which such a
system had previously been constructed.
Pay-Per-View................. Programming offered by a cable television
operator on a per-program basis which a
subscriber selects and for which a subscriber
pays a separate fee.
Plant........................ The distribution network element of a cable
television system consisting of coaxial and
fiber optic cable leaving the headend on power
or telephone company poles or buried
underground.
Premium Penetration..........
Premium service units as a percentage of the
total number of basic service subscribers. A
customer may purchase more than one premium
service, each of which is counted as a separate
premium service unit. This ratio may be greater
than 100% if the average customer subscribes to
more than one premium service unit.
Premium Service.............. Individual cable programming service available
only for monthly subscriptions on a per-channel
basis.
Telephone Modem..............
A device either inserted in a computer or
attached externally that encodes (modulates) or
decodes (demodulates) an analog telephone
signal to a digital signal to receive data.
The upgrade of an existing cable television
Upgrade...................... system, usually undertaken to improve either
its technological performance or to expand the
system's channel or bandwidth capacity in order
to provide more programming and other services.
137
<PAGE>
INDEX TO FINANCIAL STATEMENTS
COAXIAL LLC
FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants................................... F-3
Balance Sheet as of July 31, 1998.......................................... F-4
Notes to Balance Sheet..................................................... F-5
Condensed Consolidated Balance Sheet as of September 30, 1998 (unaudited).. F-6
Condensed Consolidated Statements of Operations and Changes in Member's
Deficit for the Three Months Ended September 30, 1998 and for the Nine
Months Ended September 30, 1998 (unaudited)............................... F-7
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998 (unaudited)............................................ F-8
Notes to Interim Condensed Consolidated Financial Statements (unaudited)... F-9
</TABLE>
COAXIAL FINANCING CORP.
FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-14
Balance Sheet as of July 31, 1998......................................... F-15
Notes to Balance Sheet.................................................... F-16
Balance Sheet as of September 30, 1998 (unaudited) and July 31, 1998...... F-17
Notes to Interim Balance Sheet (unaudited)................................ F-18
</TABLE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-19
Statements of Net Assets to be Contributed as of December 31, 1997 and
1996 .................................................................... F-20
Statements of Operations Related to Net Assets to be Contributed for the
Years Ended December 31, 1997, 1996 and 1995............................. F-21
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and
1995..................................................................... F-22
Notes to Financial Statements............................................. F-23
Condensed Statements of Net Assets to be Contributed as of August 21, 1998
(unaudited) and December 31, 1997 ....................................... F-27
Condensed Statements of Operations Related to Net Assets to be Contributed
for the Period July 1, 1998 to August 21, 1998, for the Three Months
Ended September 30, 1997, for the Period January 1, 1998 to August 21,
1998 and for the Nine Months Ended September 30, 1997 (unaudited)........ F-28
Condensed Statements of Cash Flows for the Period January 1, 1998 to
August 21, 1998 and for the Nine Months Ended September 30, 1997
(unaudited).............................................................. F-29
Notes to Interim Condensed Financial Statements (unaudited)............... F-30
</TABLE>
F-1
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-32
Balance Sheets as of December 31, 1997 and 1996........................... F-33
Statements of Operations and Changes in Shareholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995 .................................. F-34
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and
1995 .................................................................... F-35
Notes to Financial Statements............................................. F-37
Condensed Consolidated Balance Sheets as of September 30, 1998 (unaudited)
and December 31, 1997.................................................... F-46
Condensed Consolidated Statements of Operations and Changes in
Shareholders' Equity for the Three Months Ended September 30, 1998 and
1997 and for the Nine Months Ended September 30, 1998 and 1997
(unaudited).............................................................. F-47
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997 (unaudited).................................. F-48
Notes to Interim Condensed Consolidated Financial Statements (unaudited).. F-49
</TABLE>
PHOENIX ASSOCIATES
FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-53
Balance Sheets as of December 31, 1997 and 1996........................... F-54
Statements of Operations and Change in Partners' Deficit for the Years
Ended December 31, 1997, 1996 and 1995 .................................. F-55
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and
1995 .................................................................... F-56
Notes to Financial Statements............................................. F-57
Condensed Balance Sheets as of September 30, 1998 (unaudited) and December
31, 1997................................................................. F-63
Condensed Statements of Operations and Partners' Deficit for the Three
Months Ended September 30, 1998 and 1997 and for the Nine Months Ended
September 30, 1998 and 1997 (unaudited).................................. F-64
Condensed Statements of Cash Flows for the Nine Months Ended September 30,
1998 and September 30, 1997 (unaudited).................................. F-65
Notes to Interim Condensed Financial Statements (unaudited)............... F-66
</TABLE>
----------------
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants................................. F-69
Balance Sheet as of July 31, 1998........................................ F-70
Notes to Balance Sheet................................................... F-71
Condensed Balance Sheet as of September 30, 1998 (unaudited) and July 31,
1998.................................................................... F-72
Condensed Statement of Operations and Members' Deficit for the Period
August 21, 1998 to September 30, 1998 (unaudited)....................... F-73
Condensed Statement of Cash Flows for the Period from August 21, 1998 to
September 30, 1998 (unaudited).......................................... F-74
Notes to Interim Condensed Financial Statements (unaudited).............. F-75
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Member of Coaxial LLC:
We have audited the accompanying balance sheet of Coaxial LLC (a Delaware
limited liability company) as of July 31, 1998. This financial statement is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Coaxial LLC as of July 31, 1998,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Columbus, Ohio,
September 11, 1998.
F-3
<PAGE>
COAXIAL LLC
BALANCE SHEET
AS OF JULY 31, 1998
<TABLE>
<S> <C>
ASSETS:
Assets................................................................. $ --
-----
LIABILITIES AND MEMBER'S EQUITY:
Liabilities............................................................ $ --
Member's equity........................................................ --
-----
Total liabilities and member's equity................................ $ --
=====
</TABLE>
The accompanying notes to balance sheet are an integral part of this statement.
F-4
<PAGE>
COAXIAL LLC
NOTES TO BALANCE SHEET
JULY 31, 1998
(1) NATURE OF BUSINESS
Coaxial LLC (the Company), a Delaware limited liability company, was formed
on July 24, 1998 in order to acquire, own and hold 67.5% of the common stock
in Coaxial Communications of Central Ohio, Inc. (Coaxial). The Company has an
individual as its sole member. As of July 31, 1998, the Company had no
operations.
(2) SUBSEQUENT EVENTS
On August 21, 1998, a shareholder of Coaxial contributed his 67.5% ownership
of Coaxial to the Company.
On August 21, 1998, the Company entered into a management agreement with
Insight Holdings of Ohio, LLC (Insight) whereby Insight will manage the
affairs of the Company.
On August 21, 1998, Coaxial LLC and Coaxial Financing Corp., a related
entity, issued 12 7/8% Senior Discount Notes due 2008 (Discount Notes). The
Discount Notes have a face amount of $55,869,000 and approximately $30 million
of gross proceeds were received upon issuance. The Discount Notes are non-
recourse, secured by 100% of the common stock of Coaxial, and conditionally
guaranteed by Insight Communications of Central Ohio, LLC (Insight Ohio), a
subsidiary of Coaxial. Approximately $19,500,000 of the gross proceeds were
distributed by the sole member of the Company to certain related entities to
repay indebtedness. Approximately $9,750,000 was loaned to two related
entities, which then distributed that amount to certain related entities to
repay indebtedness.
F-5
<PAGE>
COAXIAL LLC
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SEPTEMBER
30,
1998
------------
(UNAUDITED)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................... $ 4,848,045
Subscriber receivables, less allowance for doubtful accounts of
$158,000...................................................... 2,796,265
Other accounts receivable, less allowance for doubtful accounts
of $157,000................................................... 1,031,818
Due from related parties....................................... 57,451
Other current assets........................................... 950,831
------------
Total current assets......................................... 9,684,410
------------
PROPERTY AND EQUIPMENT, at cost:
CATV systems................................................... 66,447,798
Other.......................................................... 8,298,503
------------
74,746,301
Less--Accumulated depreciation and amortization................ (45,423,723)
------------
Total property and equipment, net............................ 29,322,578
------------
INTANGIBLE ASSETS, net........................................... 2,204,161
NOTES RECEIVABLE................................................. 9,892,966
------------
Total assets................................................. $ 51,104,115
============
LIABILITIES AND MEMBER'S DEFICIT
CURRENT LIABILITIES:
Current portion of capital lease obligations................... $ 127,721
Due to related parties......................................... 141,574
Accounts payable, accrued liabilities and other current
liabilities................................................... 9,423,355
------------
Total current liabilities.................................... 9,692,650
------------
NOTES PAYABLE:
Senior notes................................................... 34,435,092
Discount notes................................................. 30,440,432
------------
Total notes payable.......................................... 64,875,524
------------
CAPITAL LEASE OBLIGATIONS........................................ 131,181
DEFERRED INCOME.................................................. 1,190,350
------------
Total liabilities............................................ 75,889,705
------------
COMMITMENTS AND CONTINGENCIES
MEMBER'S DEFICIT................................................. (24,785,590)
------------
Total liabilities and member's deficit....................... $ 51,104,115
============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
COAXIAL LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND CHANGES IN MEMBER'S DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
OPERATING REVENUES....................... $ 12,042,156 $ 35,808,519
OPERATING EXPENSES:
Service and administrative............. 7,571,207 22,935,973
Severance and transaction structure
costs (Note 2)........................ 4,822,079 4,822,079
Depreciation and amortization.......... 1,137,362 3,825,430
------------- -------------
Total operating expenses............. 13,530,648 31,583,482
------------- -------------
OPERATING INCOME......................... (1,488,492) 4,225,037
OTHER EXPENSES, net...................... (317,460) (432,733)
INTEREST INCOME (EXPENSE), net
Interest income--related parties....... 783,269 2,966,639
Interest income........................ -- 22,632
Interest expense--related parties...... (227,570) (1,019,300)
Interest expense....................... (1,356,237) (3,036,407)
------------- -------------
Total interest expense, net.......... (800,538) (1,066,436)
------------- -------------
Net Income (Loss) Before Extraordinary
Item.................................... (2,606,490) 2,725,868
Extraordinary Item--debt retirement...... (846,641) (846,641)
------------- -------------
NET INCOME (LOSS) (Note 4)............... (3,453,131) 1,879,227
MEMBER'S EQUITY (DEFICIT), beginning of
period.................................. 58,515,932 54,326,906
CAPITAL DISTRIBUTIONS.................... (100,411,282) (101,554,614)
MEMBER'S CONTRIBUTIONS................... 20,562,891 20,562,891
------------- -------------
MEMBER'S DEFICIT, end of period.......... $ (24,785,590) $ (24,785,590)
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
COAXIAL LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER
30,
1998
------------
<S> <C>
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES................... $ 7,703,851
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment................. (4,213,973)
(Increase) decrease in amounts due from related parties......... --
------------
Net cash used in investing activities......................... (4,213,973)
------------
CASH PROVIDED FROM FINANCING ACTIVITY
Principal payments in notes payable............................. (26,807,817)
Proceeds from issuances of notes payable........................ 64,875,524
Principal payments on capital lease obligations................. (148,395)
Distributions to shareholders................................... (23,695,726)
Increase (decrease) in amounts due to related parties........... (11,259,191)
Increase in deferred financing fees............................. (2,180,292)
------------
Net cash provided by financing activities..................... 784,103
NET INCREASE (DECREASE) IN CASH................................... 4,273,981
CASH, beginning of period......................................... 574,064
------------
CASH, end of period............................................... $ 4,848,045
============
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
COAXIAL LLC
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
(1) GENERAL
The results of operations for the interim periods shown are not necessarily
indicative of the results to be expected for the fiscal year. In the opinion
of Management, the information contained herein reflects all adjustments
necessary to make a fair statement of the results for the three and six months
ended September 30, 1998. All such adjustments are of a normal recurring
nature.
(2) BUSINESS ORGANIZATION AND PURPOSE
Coaxial LLC (the Company), a Delaware limited liability company, was formed
on July 24, 1998 in order to acquire, own and hold 67.5% of the common stock
in Coaxial Communications of Central Ohio, Inc. (Coaxial). The Company has an
individual as its sole member.
Coaxial operates a cable television system, which provides basic and
expanded cable services to homes in Columbus, Ohio and surrounding areas.
Coaxial has 2,000 shares of common stock authorized and 1,080 shares issued
and outstanding. The 1,080 outstanding shares are owned by three limited
liability companies, one of which is Coaxial LLC. The financial statements
herein reflect Coaxial LLC and its consolidated subsidiary, Coaxial.
On August 21, 1998, Coaxial contributed all of the assets and liabilities
comprising its cable system to a newly formed entity, Insight Communications
of Central Ohio, LLC (Insight Ohio or the System). Coaxial has a 25% non-
voting common membership interest in Insight Ohio, as well as 100% of the
voting preferred membership interests in Insight Ohio (Series A and Series B
Preferred Interests). Insight Holdings of Ohio, LLC (IHO) contributed $10
million in cash to Insight Ohio for which it received a 75% non-voting common
membership interest in Insight Ohio. Insight Ohio is a subsidiary of Coaxial.
As a result of the transaction described above, the Company incurred
severance costs and transaction structuring costs totaling $4,822,079, which
have been reflected in the accompanying results of operations.
Other related entities owned or controlled by the sole member of Coaxial LLC
include Coaxial Financing Corp., Phoenix Associates (Phoenix), Coaxial
Communications of Southern Ohio, Inc. (Southern Ohio), Coaxial Associates of
Columbus I (Columbus I), Coaxial Associates of Columbus II (Columbus II) and
Paxton Cable Television, Inc. (Paxton Cable) and Paxton Communications, Inc.
(Paxton Communications).
Coaxial LLC and Coaxial Financing Corp are co-issuers of notes payable
described in Note 6(e). Coaxial and Phoenix are co-issuers of the notes
payable described in Note 6(d). The ability of Coaxial Financing Corp.,
Coaxial LLC, Coaxial and Phoenix Associates to make scheduled payments with
respect to the Discount and Senior Notes is dependent on the financial and
operating performance of Insight Ohio. The required distributions on the
Series A and Series B Preferred Interests to Coaxial are designed to provide
the cash flow necessary to service the debt service requirements on the Senior
and Discount Notes.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
F-9
<PAGE>
COAXIAL LLC
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUES
In December 1991, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments," which requires disclosure of fair value information
about both on- and off-balance sheet financial instruments for which it is
practicable to estimate that value. The carrying amounts of current assets and
liabilities approximate their fair market value because of the immediate or
short-term maturity of these financial instruments.
OPERATING REVENUE RECOGNITION
Service fees are recorded in the month cable television and pay television
services are provided to subscribers. Connection fees are charges for the
hook-up of new customers and are recognized as current revenues to the extent
of direct selling costs incurred. Any fees in excess of such costs are
deferred and amortized to income over the estimated average period that
subscribers are expected to remain connected to the system. Unearned revenues
are recorded as advance subscriber deposits in the accompanying financial
statements.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. The Company's
customer base consists of a number of homes concentrated in the central Ohio
area. The Company continually monitors the exposure for credit losses and
maintain allowances for anticipated losses. As of September 30, 1998, the
Company had no significant concentrations of credit risk.
MATERIAL, SUPPLIES AND CONSTRUCTION INVENTORIES
Material, supplies and construction inventories are stated at the lower of
cost (first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, while maintenance and repairs are
expensed as incurred. Upon retirement or disposal of assets, the cost and
related accumulated depreciation and amortization are removed from the balance
sheet, and any gain or loss is reflected in earnings. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of the related assets as follows:
<TABLE>
<CAPTION>
YEARS
-------------
<S> <C>
CATV systems............................................... 10 to 15
Equipment.................................................. 5
Furniture.................................................. 5
Leasehold improvements..................................... Life of lease
</TABLE>
The Company internally constructs certain CATV systems. Construction costs
capitalized include payroll, fringe benefits and other overhead costs
associated with construction activity.
F-10
<PAGE>
COAXIAL LLC
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company reviews its property, plant and equipment and other long-term
assets when events or changes in circumstances indicate the carrying amounts
may not be recoverable. When such conditions exist, management estimates the
future cash flows from operations or disposition. If the estimated
undiscounted future cash flows are less than the carrying amount of the asset,
an adjustment to reduce the carrying amount would be recorded, and an
impairment loss would be recognized. The Company does not believe that there
is an impairment of such assets.
(4) INCOME TAXES
Coaxial LLC is a limited liability company. Therefore, the sole member
reports the income or loss on his income tax return. As a result, the Company
does not provide for Federal or state income taxes in its accounts. In the
event that the limited liability company election is terminated, deferred
taxes related to book and tax temporary differences would be required to be
reflected in the financial statements.
(5) RELATED PARTY TRANSACTIONS
Coaxial incurred home office expenses of approximately $400,000 and
$1,131,000 for the three and nine months ended September 30, 1998 and $459,000
and $1,312,000 for the three and nine months ended September 30, 1997
(included in selling and administrative expenses). Home office expenses
include billings for legal fees, management fees, salaries, travel and other
management expenses for services provided by an affiliated services company.
Effective August 21, 1998, the System entered into a management agreement
with IHO, which will allow IHO to manage the operations of the System. The
management fee is 3% of gross operating revenues. Fees under this management
agreement were $142,000 for the period August 21, 1998 to September 30, 1998.
Coaxial also pays rent to a partnership owned by Coaxial's shareholders for
two facilities. Total charges for rent were approximately $9,000 and $63,000
for the three and nine months ended September 30, 1998 and $27,000 and $72,500
for the three and nine and months ended September 30, 1997.
At December 31, 1998, Coaxial had advanced funds to related entities,
totaling $76,261,666, and received advances from related entities, totaling
$17,088,121, for working capital and debt service requirements. During August
1998, in connection with the contribution of the System to Insight Ohio and
the issuance of the Senior Notes described in Note 6, these amounts were
settled. A portion of these amounts were settled by a net distribution of
$67,499,500 to the Company's shareholder. Coaxial recognized interest income
of approximately $640,300 and $2,823,700 for the three and nine months ended
September 30, 1998 and $1,100,800 and $3,156,300 for the three and nine and
months ended September 30, 1997. Coaxial recognized interest expense of
approximately $227,600 and $1,019,300 for the three and nine months ended
September 30, 1998 and $633,000 and $1,879,900 for the three and nine and
months ended September 30, 1997.
In connection with the issuance of the Discount Notes described in Note
6(e), Coaxial LLC loaned $9,750,000 of the proceeds from the Discount Notes to
two related entities. The terms of the notes receivable mirror the terms on
the Discount Notes.
Other related party transactions are described in Note 6.
F-11
<PAGE>
COAXIAL LLC
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) NOTES PAYABLE
Notes payable at September 30, 1998 and December 31, 1997 consisted of:
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
LENDER 30, 1998 31, 1997
------ ----------- -----------
<S> <C> <C>
Columbus I(a).................................... $ -- $ 2,467,137
Columbus II(a)................................... -- 466,099
----------- -----------
Total related parties........................ -- 2,933,236
Banks(b)......................................... -- 24,760,937
Retired officer(c)............................... -- 2,046,880
Senior Notes(d).................................. 34,435,092 --
Discount Notes(e)................................ 30,440,432 --
----------- -----------
Total all notes payable...................... $64,875,524 $29,741,053
=========== ===========
</TABLE>
- --------
(a) In November, 1982, Columbus I and Columbus II exchanged all of their
assets and certain liabilities with Coaxial for common stock and notes. A
portion of these notes ($5,066,764) had been assigned and was payable to
the former Limited Partners of Columbus I and Columbus II as part of their
consideration received in retirement of their partnership interest. The
notes payable to former Limited Partners were paid in 1997. In connection
with the contribution of the System to Insight Ohio and the issuance of
the Senior Notes described in Note 6, the remaining payable was settled in
August 1998.
(b) On November 15, 1994, Coaxial, Phoenix, Southern Ohio, Columbus I and
Columbus II (collectively referred to as the borrowers), executed a loan
agreement with a lead bank and several other financial institutions to
replace an existing loan agreement. On August 21, 1998, the loan was
replaced with the Senior Notes.
(c) In January 1996, Coaxial issued an unsecured note payable to a key officer
for deferred compensation. The officer retired in 1997. In connection with
the contribution of the System to Insight Ohio and the issuance of the
Senior Notes described in Note 6, the note was paid in full during August
1998.
(d) On August 21, 1998, Coaxial and Phoenix issued $140 million of Senior
Notes (Senior Notes) due August 15, 2008. The Senior Notes replaced
Coaxial's and Phoenix's existing notes payable. Interest accrues at 10%
and is payable semi-annually.
The Senior Notes are allocated as of September 30, 1998 as follows:
<TABLE>
<CAPTION>
SEPTEMBER
ENTITY 30, 1998
------ ------------
<S> <C>
Coaxial...................................................... $ 34,435,000
Phoenix...................................................... 105,565,000
------------
Total.................................................... $140,000,000
============
</TABLE>
The Senior Notes are non-recourse and are secured by all issued and
outstanding Series A Preferred Interest in Insight Ohio. The distributions
required on the Series A Preferred Interests are designed to provide the
cash flow for payment of interest on the Senior Notes.
Among other covenants, the borrowers must comply with restrictive covenants
relating to incurrence of additional debt, payment of dividends and
distributions, and the transfer or sale of assets. Coaxial and Phoenix were
in compliance with these covenants as of September 30, 1998.
The ability of Coaxial and Phoenix to make scheduled payments with respect
to the Senior Notes will depend on the financial and operating performance
of Insight Ohio.
F-12
<PAGE>
COAXIAL LLC
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(e) On August 21, 1998, Coaxial Financing Corp. and Coaxial LLC, a related
entity, issued Senior Discount Notes (Discount Notes) due 2008. The
Discount Notes have a face amount of $55,869,000 and approximately $30
million of gross proceeds were received upon issuance. Approximately $19.5
million of the gross proceeds were contributed by the sole member of
Coaxial LLC to certain related entities to repay indebtedness.
Approximately $9,750,000 was loaned to two related entities by Coaxial
LLC, which then contributed that amount to certain other related entities
to repay indebtedness. The debt discount of $25,868,000 is being amortized
over five years (until August 15, 2003). Thereafter, interest on the
Discount Notes accrues at 12 7/8% and is payable semi-annually. All of the
Discount Notes were allocated to Coaxial LLC.
The Discount Notes are non-recourse, secured by all of the common stock of
Coaxial Communications of Central Ohio, Inc. (Coaxial) and the notes issued
by Coaxial DJM LLC and Coaxial DSM LLC to Coaxial LLC and conditionally
guaranteed by Insight Communications of Central Ohio, LLC (Insight Ohio), a
subsidiary of Coaxial.
Among other covenants, the borrowers must comply with restrictive covenants
relating to incurrence of additional debt, payment of dividends and
distributions, and the transfer or sale of assets. Coaxial Financing Corp.
and Coaxial LLC were in compliance with these covenants as of September 30,
1998.
The ability of Coaxial Financing Corp. and Coaxial LLC to make scheduled
payments with respect to the Discount Notes will depend on the financial
and operating performance of Insight Ohio. The required payments on the
Series B Preferred Interests equal the distributions to be made by Coaxial
to Coaxial LLC to service the Discount Notes.
(7) COMMITMENTS AND CONTINGENCIES
The Company is party in or may be affected by various matters under
litigation. Management believes that the ultimate outcome of these matters
will not have a significant adverse effect on either the Company's future
results of operation or financial position.
F-13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Coaxial Financing Corp.:
We have audited the accompanying balance sheet of Coaxial Financing Corp. (a
Delaware corporation) as of July 31, 1998. This financial statement is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Coaxial Finance Corp. as of July
31, 1998, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Columbus, Ohio,
September 11, 1998.
F-14
<PAGE>
COAXIAL FINANCING CORP.
BALANCE SHEET
AS OF JULY 31, 1998
<TABLE>
<S> <C>
ASSETS:
Cash.................................................................. $1,000
------
Assets.............................................................. $1,000
======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities........................................................... $ --
Common stock, $.01 par value; 1,000 shares authorized, 1,000 shares
issued and outstanding............................................... 10
Additional paid-in capital............................................ 990
------
Total liabilities and shareholders' equity.......................... $1,000
======
</TABLE>
The accompanying notes to balance sheet are an integral part of this statement.
F-15
<PAGE>
COAXIAL FINANCING CORP.
NOTES TO BALANCE SHEET
JULY 31, 1998
(1) NATURE OF BUSINESS
Coaxial Financing Corp., a Delaware corporation, was formed on July 24, 1998
for the sole purpose of being an issuer of the debt described in Note 2. Three
individuals own the outstanding shares of the Company.
(2) SUBSEQUENT EVENTS
On August 21, 1998, Coaxial Financing Corp. and Coaxial LLC, a related
entity, issued 12 7/8% Senior Discount Notes due 2008 (Discount Notes). The
Discount Notes have a face amount of $55,869,000 and approximately $30 million
of gross proceeds were received upon issuance. The Discount Notes are non-
recourse, secured by 100% of the common stock of Coaxial Communications of
Central Ohio, Inc. (Coaxial) and conditionally guaranteed by Insight
Communications of Central Ohio, LLC (Insight Ohio), a subsidiary of Coaxial.
Approximately $19,542,000 of the gross proceeds were distributed by the sole
member of Coaxial LLC to certain related entities to repay indebtedness.
Approximately $9,409,000 was loaned to two related entities by Coaxial LLC,
which then distributed that amount to certain related entities to repay
indebtedness.
F-16
<PAGE>
COAXIAL FINANCING CORP.
BALANCE SHEET
AS OF SEPTEMBER 30, 1998 AND JULY 31, 1998
<TABLE>
<CAPTION>
JULY
SEPTEMBER 30, 31,
1998 1998
------------- ------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Cash.................................................... $1,000 $1,000
------ ------
Assets................................................ $1,000 $1,000
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities............................................. $ -- $ --
Common stock, $.01 par value; 1,000 shares authorized,
1,000 shares issued and outstanding.................... 10 10
Additional paid-in capital.............................. 990 990
------ ------
Total liabilities and shareholders' equity............ $1,000 $1,000
====== ======
</TABLE>
The accompanying notes to balance sheet are an integral part of this statement.
F-17
<PAGE>
COAXIAL FINANCING CORP.
NOTES TO INTERIM BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
(1) NATURE OF BUSINESS
Coaxial Financing Corp., a Delaware corporation, was formed on July 24, 1998
for the sole purpose of being a co-issuer of the debt described in Note 2,
which allows certain investors the ability to be holders of the debt. The
Company has no operations. Three individuals own the outstanding shares of the
Company.
(2) NOTES PAYABLE
On August 21, 1998, Coaxial Financing Corp. and Coaxial LLC, a related
entity, issued Senior Discount Notes (Discount Notes) due 2008. The Discount
Notes have a face amount of $55,869,000 and approximately $30 million of gross
proceeds were received upon issuance. Approximately $19.5 million of the gross
proceeds were contributed by the sole member of Coaxial LLC to certain related
entities to repay indebtedness. Approximately $9,750,000 was loaned to two
related entities (Coaxial DJM LLC and Coaxial DSM LLC) by Coaxial LLC, which
then contributed that amount to certain other related entities to repay
indebtedness. The debt discount of $25,868,000 is being amortized over five
years (until August 15, 2003). Thereafter, interest on the Discount Notes
accrues at 12 7/8% and is payable semi-annually. All of the Discount Notes
were allocated to Coaxial LLC.
The Discount Notes are non-recourse, secured by all of the common stock of
Coaxial Communications of Central Ohio, Inc. (Coaxial) and the notes issued by
Coaxial DJM LLC and Coaxial DSM LLC to Coaxial LLC and conditionally
guaranteed by Insight Communications of Central Ohio, LLC (Insight Ohio), a
subsidiary of Coaxial.
Among other covenants, the borrowers must comply with restrictive covenants
relating to incurrence of additional debt, payment of dividends and
distributions, and the transfer or sale of assets. Coaxial Financing Corp. and
Coaxial LLC were in compliance with these covenants as of September 30, 1998.
The ability of Coaxial Financing Corp. and Coaxial LLC to make scheduled
payments with respect to the Discount Notes will depend on the financial and
operating performance of Insight Ohio.
F-18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Coaxial Communications of Central Ohio, Inc.:
We have audited the accompanying statements of net assets to be contributed
of Central Ohio Cable System Operating Unit as of December 31, 1997 and 1996,
and the related statements of operations and cash flows relating to the net
assets to be contributed for each of the three years in the period ended
December 31, 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.
The accompanying financial statements of net assets to be contributed were
prepared to present the net assets of Central Ohio Cable System Operating Unit
to be contributed to a newly formed company pursuant to the Contribution
Agreement described in Note 10, and is not intended to be a complete
presentation of Central Ohio Cable System Operating Unit.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets to be contributed of Central Ohio
Cable System Operating Unit as described in Note 10, as of December 31, 1997
and 1996, and the results of its operations and cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Columbus, Ohio,
July 17, 1998.
F-19
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
STATEMENTS OF NET ASSETS TO BE CONTRIBUTED
AS OF DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................. $ 573,989 $ 905,721
Subscriber receivables, less allowance for doubtful
accounts of $202,000 in 1997 and $203,000 in 1996... 1,834,558 1,982,003
Other accounts receivable, less allowance for
doubtful accounts of $172,000 in 1997 and $215,000
in 1996............................................. 1,037,145 1,096,059
Material, supplies and construction inventories...... 855,373 951,632
Prepaid expenses and other current assets............ 201,429 371,471
----------- -----------
Total current assets............................... 4,502,494 5,306,886
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
CATV systems......................................... 64,093,984 59,444,114
Equipment............................................ 6,941,263 6,723,739
Furniture............................................ 211,232 208,367
Leasehold improvements............................... 70,409 67,575
----------- -----------
71,316,888 66,443,795
Less-Accumulated depreciation and amortization....... (42,433,809) (38,273,023)
----------- -----------
Total property and equipment, net.................. 28,883,079 28,170,772
----------- -----------
INTANGIBLE ASSETS, at cost:
Franchise rights and other........................... 7,392,000 7,392,000
Less-Accumulated amortization........................ (7,323,026) (6,855,198)
----------- -----------
Total intangible assets, net....................... 68,974 536,802
----------- -----------
OTHER ASSETS:
Due from related parties............................. 98,584 47,603
----------- -----------
Total other assets................................. 98,584 47,603
----------- -----------
Total assets....................................... $33,553,131 $34,062,063
=========== ===========
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES:
Current portion of capital lease obligations......... $ 213,103 $ 256,484
Accounts payable..................................... 2,804,766 2,383,108
Accrued liabilities.................................. 3,596,922 4,288,435
Advance subscriber deposits.......................... 1,173,375 1,138,425
----------- -----------
Total current liabilities.......................... 7,788,166 8,066,452
----------- -----------
CAPITAL LEASE OBLIGATIONS.............................. 194,194 358,755
----------- -----------
Total liabilities.................................. 7,982,360 8,425,207
COMMITMENTS AND CONTINGENCIES
Net assets to be contributed....................... 25,570,771 25,636,856
----------- -----------
Total liabilities and net assets................... $33,553,131 $34,062,063
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-20
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
STATEMENTS OF OPERATIONS RELATED TO NET ASSETS TO BE CONTRIBUTED
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUES:
Service fees......................... $42,544,417 $44,763,413 $41,666,562
Advertising.......................... 3,373,064 3,072,567 2,822,872
Connection fees...................... 282,374 395,673 439,862
Other................................ 2,029,632 2,186,172 1,901,419
----------- ----------- -----------
Total operating revenues........... 48,229,487 50,417,825 46,830,715
----------- ----------- -----------
OPERATING EXPENSES:
Service and administrative........... 28,889,394 26,932,679 23,614,567
Depreciation......................... 4,755,017 4,812,346 4,300,540
Amortization......................... 482,675 522,216 522,858
----------- ----------- -----------
Total operating expenses........... 34,127,086 32,267,241 28,437,965
----------- ----------- -----------
OPERATING INCOME....................... 14,102,401 18,150,584 18,392,750
OTHER EXPENSES......................... (321,732) (320,456) (298,986)
OTHER INCOME........................... 50,276 72,072 47,557
INTEREST INCOME........................ 69,990 29,449 38,930
----------- ----------- -----------
NET INCOME FROM NET ASSETS TO BE
CONTRIBUTED (Note 3).................. $13,900,935 $17,931,649 $18,180,251
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-21
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income........................ $ 13,900,935 $ 17,931,649 $ 18,180,251
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Depreciation...................... 4,755,017 4,812,346 4,300,540
Amortization...................... 482,675 522,216 522,858
Loss on disposals of property and
equipment........................ 77,452 69,187 23,066
Changes in certain assets and
liabilities:
(Increase) decrease in assets--
Subscriber receivables........ 147,445 (674,368) (283,064)
Materials, supplies and
construction inventories..... 96,259 334,595 (543,119)
Other accounts receivable,
prepaid expenses and other
current assets............... 228,956 246,105 (355,621)
Increase (decrease) in
liabilities--
Accounts payable.............. 421,658 (361,633) (190,834)
Accrued liabilities........... (691,513) (1,317,378) 450,395
Deferred income............... -- (9,613) 9,613
Advance subscriber deposits... 34,950 421,954 77,473
------------ ------------ ------------
Net cash provided by
operating activities....... 19,453,834 21,975,060 22,191,558
------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures for property
and equipment.................... (5,528,669) (5,992,164) (5,701,705)
Proceeds from disposal of property
and equipment.................... 25,753 17,667 24,405
(Increase) decrease in amounts due
from related parties............. (50,981) 263,559 (277,668)
------------ ------------ ------------
Net cash used in investing
activities................. (5,553,897) (5,710,938) (5,954,968)
------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments on capital lease
obligations........................ $ (264,649) $ (234,630) $ (183,114)
Cash used for activities not
included in net assets to be
contributed........................ (13,967,020) (15,793,342) (15,696,088)
------------ ------------ ------------
Net cash used in financing
activities................. (14,231,669) (16,027,972) (15,879,202)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH..... (331,732) 236,150 357,388
CASH, beginning of year........... 905,721 669,571 312,183
------------ ------------ ------------
CASH, end of year................. $ 573,989 $ 905,721 $ 669,571
============ ============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF INVESTING AND FINANCING NONCASH TRANSACTIONS
During 1997, 1996 and 1995, the Operating Unit entered into capital leases
to acquire vehicles and equipment totaling $56,707, $198,985 and $180,175,
respectively.
The accompanying notes to financial statements are an integral part of these
statements.
F-22
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) BUSINESS ORGANIZATION AND PURPOSE
Central Ohio Cable System Operating Unit (the Operating Unit or the System),
an operating unit within Coaxial Communications of Central Ohio, Inc.
(Coaxial), operates a cable television system which provides basic and
expanded cable services to homes in Columbus, Ohio and surrounding areas. The
Operating Unit's financial statements include only those assets, liabilities,
revenues and expenses directly related to the cable television system to be
contributed (see Note 10).
All costs pertaining to the Operating Unit are specifically identifiable and
are included in the Operating Unit's financial statements. No allocation of
costs is necessary.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH
The Operating Unit considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUES
In December 1991, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments," which requires disclosure of fair value information
about both on- and off-balance sheet financial instruments for which it is
practicable to estimate that value. The carrying amounts of current assets and
liabilities approximate their fair market value because of the immediate or
short-term maturity of these financial instruments.
OPERATING REVENUE RECOGNITION
Service fees are recorded in the month cable television and pay television
services are provided to subscribers. Connection fees are charges for the
hook-up of new customers and are recognized as current revenues to the extent
of direct selling costs incurred. Any fees in excess of such costs are
deferred and amortized to income over the estimated average period that
subscribers are expected to remain connected to the system. Unearned revenues
are recorded as advance subscriber deposits in the accompanying financial
statements.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Operating Unit to
concentrations of credit risk consist principally of trade accounts
receivable. The Operating Unit's customer base consists of a number of homes
concentrated in the central Ohio area. The Operating Unit continually monitors
the exposure for credit losses and maintains allowances for anticipated
losses. As of December 31, 1997, the Operating Unit had no significant
concentrations of credit risk.
MATERIAL, SUPPLIES AND CONSTRUCTION INVENTORIES
Material, supplies and construction inventories are stated at the lower of
cost (first-in, first-out basis) or market.
F-23
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, while maintenance and repairs are
expensed as incurred. Upon retirement or disposal of assets, the cost and
related accumulated depreciation and amortization are removed from the balance
sheet, and any gain or loss is reflected in earnings. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of the related assets as follows:
<TABLE>
<CAPTION>
YEARS
-------------
<S> <C>
CATV systems................................................ 10 to 15
Equipment................................................... 5
Furniture................................................... 5
Leasehold improvements...................................... Life of lease
</TABLE>
The Operating Unit internally constructs certain CATV systems. Construction
costs capitalized include payroll, fringe benefits and other overhead costs
associated with construction activity.
The Operating Unit reviews its property, plant and equipment and other long
term assets when events or changes in circumstances indicate the carrying
amounts may not be recoverable. When such conditions exist, management
estimates the future cash flows from operations or disposition. If the
estimated undiscounted future cash flows are less than the carrying amount of
the asset, an adjustment to reduce the carrying amount would be recorded, and
an impairment loss would be recognized. The Operating Unit does not believe
that there is an impairment of such assets.
INTANGIBLE ASSETS
Intangible assets are amortized using the straight-line method over the
estimated useful lives of the related assets as follows:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Franchise rights................................................... 7 to 15
</TABLE>
HOME OFFICE EXPENSES
Home office expenses of approximately $1,498,000, $1,697,000 and $1,695,000
in 1997, 1996 and 1995 (included in selling and administrative expenses)
include billings for legal fees, management fees, salaries, travel and other
management expenses for services provided by an affiliated services company.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense primarily
for campaign and telemarketing-related efforts was approximately $1,025,000,
$1,060,000 and $817,000 in 1997, 1996 and 1995, respectively.
CHANGE IN NET ASSETS
The components of the change in net assets are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Beginning Balance................ $ 25,636,856 $ 23,498,549 $ 21,014,386
Net income..................... 13,900,935 17,931,649 18,180,251
Advances, loans and repayments
by Coaxial.................... (13,967,020) (15,793,342) (15,696,088)
------------ ------------ ------------
Ending Balance................... $ 25,570,771 $ 25,636,856 $ 23,498,549
============ ============ ============
</TABLE>
F-24
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Advances, loans and repayments by Coaxial represent cash generated by the
Operating Unit that was used by Coaxial primarily for lending to related
parties and paying of notes payable. The advances, loans and repayments
consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Advances........................ $(10,519,748) $(11,446,090) $(14,256,245)
Loans........................... 2,938,723 9,914,315 9,772,716
Repayments...................... (6,385,995) (14,261,567) (11,212,559)
------------ ------------ ------------
$(13,967,020) $(15,793,342) $(15,696,088)
============ ============ ============
</TABLE>
(3) INCOME TAXES
The Operating Unit is an operating unit within Coaxial, which is a
Subchapter S corporation. Therefore, each shareholder reports his distributive
share of income or loss on his respective income tax returns. As a result, the
Operating Unit does not provide for Federal or state income taxes in its
accounts.
(4) THRIFT PLAN
The Operating Unit participates in an employer sponsored Thrift Plan (the
Plan) for employees having at least one full year of service. Employees can
contribute up to 6% of their salary to the Plan which is matched 50% by the
Operating Unit. Employees can also contribute an additional 1% to 10% which is
not matched by the Operating Unit. Employees become fully vested in matching
contributions after 5 years. There is no partial vesting. The Operating Unit's
contributed approximately $133,000, $111,000 and $120,000 to the Plan in 1997,
1996 and 1995, respectively.
(5) WORKERS' COMPENSATION RESERVES
The Operating Unit is partially self-insured for workers' compensation
benefits. The amounts charged to expense for workers' compensation were
approximately $89,200, $110,200 and $143,500 for 1997, 1996 and 1995,
respectively, and were based on actual and estimated claims incurred. The
liability for workers' compensation obligations, as of December 31, 1997 and
1996, is approximately $78,000 and $131,000, respectively.
(6) RELATED PARTY TRANSACTIONS
The Operating Unit has a receivable from a related party as of December 31,
1997 and 1996 of $98,584 and $47,603, respectively, relating to the leasing of
fiber optic facilities.
The Operating Unit pays rent to a partnership owned by Coaxial's
shareholders for two facilities. Total charges for rent were approximately
$99,500 in 1997, $72,000 in 1996 and $72,000 in 1995.
(7) OPERATING LEASE AGREEMENTS
The Operating Unit leases land for tower locations, office equipment, office
space, vehicles and the use of utility poles under various operating lease
agreements. Rental expense for all operating leases was approximately $218,500
in 1997, $160,500 in 1996 and $161,400 in 1995. These amounts exclude year-to-
year utility pole leases of $186,400, $182,700 and $190,200, respectively,
which provide for payments based on the number of poles used.
Minimum rental commitments required under noncancellable operating leases
are as follows:
<TABLE>
<S> <C>
1998.............................................................. $157,214
1999.............................................................. 146,389
2000.............................................................. 89,421
2001.............................................................. 200
--------
$393,224
========
</TABLE>
F-25
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(8) CAPITAL LEASE AGREEMENTS
The Operating Unit leases vehicles, computer equipment and Xerox equipment
under capital leases. These leases have various terms of 4-5 years. Future
minimum payments under the leases are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDING DECEMBER 31,
---------------------------------
<S> <C>
1998............................................................ $ 244,516
1999............................................................ 124,019
2000............................................................ 66,283
2001............................................................ 24,370
2002............................................................ 3,005
---------
462,193
Less: Amount representing interest.............................. 54,896
Less: Current portion of capital lease obligations.............. 213,103
---------
Long-term capital lease obligations............................. $ 194,194
=========
</TABLE>
As of December 31, 1997, the Operating Unit has assets held under capital
leases as follows:
<TABLE>
<S> <C>
Total costs................................................... $ 1,151,354
Related accumulated amortization.............................. (628,973)
-----------
Net book value as of December 31, 1997........................ $ 522,381
===========
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
The Operating Unit is party in or may be affected by various matters under
litigation. Management believes that the ultimate outcome of these matters
will not have a significant adverse effect on either the Operating Unit's
future results of operations or financial position.
Capital expenditures for the Operating Unit for 1998 are expected to be
approximately $5,515,000.
(10) SUBSEQUENT EVENT
On June 30, 1998, Coaxial and Insight Communications Company, L.P. (Insight)
entered into a Contribution Agreement (the Contribution Agreement) pursuant to
which Coaxial will contribute to a newly formed subsidiary (a limited
liability company) of Coaxial (the Operating Company) substantially all of the
assets and liabilities comprising the Operating Unit, and Insight will
contribute $10 million in cash to the Operating Company. As a result of this
Contribution Agreement, Coaxial will own 25% of the non-voting common equity
and Insight will own 75% of the non-voting common equity of the Operating
Company, subject to possible adjustments pursuant to the Contribution
Agreement. Coaxial will also own two separate series of voting preferred
equity (a $140 preferred equity interest and a $30 million preferred equity
interest) of the Operating Company; the voting preferred equity interest will
provide for distributions to Coaxial equal in amount to the payments on the
senior and senior discount notes described below. Insight or an affiliate will
serve as the manager of the Operating Company.
The closing of the Contribution Agreement is conditioned upon, among other
things, the private placement of $140 million senior notes by Coaxial and
Phoenix Associates (a related entity) and the private placement of $30 million
of senior discount notes by the majority shareholder of Coaxial.
F-26
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
CONDENSED STATEMENTS OF NET ASSETS TO BE CONTRIBUTED
AS OF AUGUST 21, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
AUGUST 21, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................... $-- $ 573,989
Subscriber receivables, less allowance for doubtful
accounts of $202,000 in 1997...................... -- 1,834,558
Other accounts receivable, less allowance for
doubtful accounts of $172,000 in 1997............. 1,037,145
Other current assets............................... -- 1,056,802
---- ------------
Total current assets............................. -- 4,502,494
---- ------------
PROPERTY AND EQUIPMENT, at cost:
CATV systems....................................... -- 64,093,984
Equipment.......................................... -- 6,941,263
Other.............................................. -- 281,641
---- ------------
-- 71,316,888
Less--Accumulated depreciation and amortization.... -- (42,433,809)
---- ------------
Total property and equipment, net................ -- 28,883,079
---- ------------
INTANGIBLE ASSETS, at cost:
Franchise rights and other......................... -- 7,392,000
Less--Accumulated amortization..................... -- (7,323,026)
---- ------------
Total intangible assets, net..................... -- 68,974
---- ------------
OTHER ASSETS:
Due from related parties........................... -- 98,584
---- ------------
Total other assets............................... -- 98,584
---- ------------
Total assets..................................... $-- $ 33,553,131
==== ============
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES:
Current portion of capital lease obligations....... $-- $ 213,103
Accounts payable................................... -- 2,804,766
Accrued liabilities................................ -- 3,596,922
Advance subscriber deposits........................ -- 1,173,375
---- ------------
Total current liabilities........................ -- 7,788,166
---- ------------
CAPITAL LEASE OBLIGATIONS............................ -- 194,194
DEFERRED INCOME...................................... -- --
---- ------------
Total liabilities................................ -- 7,982,360
---- ------------
COMMITMENTS AND CONTINGENCIES
Net assets to be contributed..................... -- 25,570,771
---- ------------
Total liabilities and net assets................. $-- $ 33,553,131
==== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
CONDENSED STATEMENTS OF OPERATIONS RELATED TO NET ASSETS TO BE CONTRIBUTED
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE PERIOD FOR THE NINE
FOR THE PERIOD MONTHS ENDED JANUARY 1, 1998 MONTHS ENDED
JULY 1, 1998 TO SEPTEMBER 30, TO AUGUST 21, SEPTEMBER
AUGUST 21, 1998 1997 1998 30, 1997
--------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES...... $ 6,817,368 $11,828,181 $30,583,731 $36,321,463
OPERATING EXPENSES:
Service and
administrative....... 4,816,568 7,428,189 20,181,334 21,378,260
Severance and
transaction structure
costs (Note 2)....... 4,822,079 -- 4,822,079 --
Depreciation and
amortization......... 724,178 1,387,743 3,412,247 4,144,922
----------- ----------- ----------- -----------
Total operating
expenses........... 10,362,825 8,815,932 28,415,660 25,523,182
----------- ----------- ----------- -----------
OPERATING INCOME
(LOSS)................. (3,545,457) 3,012,249 2,168,071 10,798,281
OTHER EXPENSES, net..... (317,462) (104,606) (432,735) (188,054)
INTEREST INCOME......... -- 20,122 22,632 51,999
----------- ----------- ----------- -----------
NET INCOME (LOSS) FROM
NET ASSETS TO BE
CONTRIBUTED (Note 4)... $(3,862,919) $ 2,927,765 $ 1,757,968 $10,662,226
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-28
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 1, FOR THE NINE
1998 MONTHS ENDED
TO AUGUST 21, SEPTEMBER
1998 30, 1997
-------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES.............. $ 6,440,955 $ 14,208,952
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and
equipment...................................... (3,802,652) (3,478,609)
Other........................................... 72,476 (47,797)
----------- ------------
Net cash used in investing activities......... (3,730,176) (3,526,406)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease
obligations.................................... (167,246) (196,196)
Cash used for activities not included in net
assets to be contributed....................... (2,791,267) (10,251,706)
Cast contributed................................ (326,255) --
----------- ------------
Net cash used in financing activities......... (3,284,768) (10,447,902)
----------- ------------
NET INCREASE (DECREASE) IN CASH................... (573,989) 234,644
CASH, beginning of period......................... 573,989 905,721
----------- ------------
CASH, end of period............................... $ -- $ 1,140,365
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-29
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
(1) GENERAL
The results of operations for the interim periods shown are not necessarily
indicative of the results to be expected for the fiscal year. In the opinion
of Management, the information contained herein reflects all adjustments
necessary to make a fair statement of the results for the period July 1, 1998
to August 21, 1998 and the period January 1, 1998 through August 21, 1998 and
for the three and nine months ended September 30, 1997. All such adjustments
are of a normal recurring nature.
(2) BUSINESS ORGANIZATION AND PURPOSE
Central Ohio Cable System Operating Unit (the Operating Unit or the System),
an operating unit within Coaxial Communications of Central Ohio, Inc.
(Coaxial), operates a cable television system which provides basic and
expanded cable services to homes in Columbus, Ohio and surrounding areas. The
Operating Unit's financial statements include only those assets, liabilities,
revenues and expenses directly related to the cable television system to be
contributed.
On August 21, 1998, Coaxial contributed all of the assets and liabilities
comprising the Operating Unit (a contribution of net assets totaling
approximately $24,458,000) to a newly formed subsidiary, Insight
Communications of Central Ohio, LLC (Insight Ohio). Coaxial has a 25% non-
voting common membership interest in Insight Ohio, as well as 100% of the
voting preferred membership interests in Insight Ohio (Series A and Series B
Preferred Interests). Insight Holdings of Ohio, LLC contributed $10 million in
cash to Insight Ohio for which it received a 75% non-voting common membership
interest in Insight Ohio.
As a result of the above transaction, the Company incurred severance costs
and transaction costs totaling $4,822,079, which have been reflected in the
accompanying results of operations.
(3) ACCOUNTING POLICIES
Note 2 to the Notes to Financial Statements in the Operating Unit's December
31, 1997 Financial Statements summarizes the Operating Unit's significant
accounting policies.
DEFERRED INCOME
Deferred income represents launch fees received from programmers for
launching the programmers' services. Launch fees are deferred and amortized
over the applicable contract period.
(4) INCOME TAXES
The Operating Unit is an operating unit within Coaxial, which is a
Subchapter S corporation. Therefore, each shareholder reports his distributive
share of income or loss on his respective income tax returns. As a result, the
Operating Unit does not provide for Federal or state income taxes in its
accounts.
(5) RELATED PARTY TRANSACTIONS
The Operating Unit had a receivable from a related party as of December 31,
1997 of $98,584 relating to the leasing of fiber optic facilities.
The Operating Unit was charged home office expenses of approximately
$400,000 and $1,131,000 for the period July 1, 1998 to August 21, 1998 and for
the period January 1, 1998 to August 21, 1998 and approximately $459,000 and
$1,312,000 for the three and nine months ended September 30, 1997 (included in
selling and administrative expenses). Home office expenses include billings
for legal fees, management fees, salaries, travel and other management
expenses for services provided by an affiliated services company.
F-30
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
The Operating Unit paid rent to a partnership owned by Coaxial's
shareholders for two facilities. Total charges for rent were approximately
$9,000 and $63,000 for the period July 1, 1998 through August 21, 1998 and the
period January 1, 1998 through August 21, 1998, respectively, and
approximately $27,000 and $72,500 for the three and nine months ended
September 30, 1997.
F-31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Coaxial Communications of Central Ohio, Inc.
We have audited the accompanying balance sheets of Coaxial Communications of
Central Ohio, Inc. (an Ohio corporation) as of December 31, 1997 and 1996, and
the related statements of operations and changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 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 Coaxial Communications of
Central Ohio, Inc. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Columbus, Ohio,
July 17, 1998.
F-32
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................ $ 574,064 $ 905,796
Subscriber receivables, less allowance for doubtful
accounts of $202,000 in 1997 and $203,000 in 1996.. 1,834,558 1,982,003
Other accounts receivable, less allowance for doubt-
ful accounts of $172,000 in 1997 and $215,000 in
1996............................................... 1,040,582 1,098,796
Material, supplies and construction inventories..... 855,373 951,632
Prepaid expenses and other current assets........... 223,262 393,304
------------ ------------
Total current assets............................... 4,527,839 5,331,531
------------ ------------
PROPERTY AND EQUIPMENT, at cost:
CATV systems........................................ 64,093,984 59,444,114
Equipment........................................... 7,082,619 6,824,199
Furniture........................................... 246,232 243,367
Leasehold improvements.............................. 220,231 216,577
------------ ------------
71,643,066 66,728,257
Less-Accumulated depreciation and amortization...... (42,699,293) (38,520,057)
------------ ------------
Total property and equipment, net.................. 28,943,773 28,208,200
------------ ------------
INTANGIBLE ASSETS, at cost:
Franchise rights.................................... 7,385,000 7,385,000
Deferred loan acquisition costs and other........... 2,661,399 2,544,335
------------ ------------
10,046,399 9,929,335
Less-Accumulated amortization....................... (8,951,090) (7,934,293)
------------ ------------
Total intangible assets, net....................... 1,095,309 1,995,042
------------ ------------
OTHER ASSETS:
Due from related parties............................ 76,261,666 66,564,378
------------ ------------
Total other assets................................. 76,261,666 66,564,378
------------ ------------
Total assets....................................... $110,828,587 $102,099,151
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable.................... $ 369,860 $ 5,436,624
Current portion of capital lease obligations........ 213,103 256,484
Accounts payable.................................... 2,804,766 2,383,108
Accrued interest.................................... 1,690,147 1,514,626
Accrued liabilities................................. 3,596,922 4,288,435
Advance subscriber deposits......................... 1,173,375 1,138,425
------------ ------------
Total current liabilities.......................... 9,848,173 15,017,702
------------ ------------
NOTES PAYABLE:
Affiliated entities................................. 2,933,236 2,933,236
Other............................................... 26,437,957 26,557,765
------------ ------------
Total notes payable................................ 29,371,193 29,491,001
------------ ------------
CAPITAL LEASE OBLIGATIONS............................. 194,194 358,755
DUE TO RELATED PARTIES................................ 17,088,121 14,899,398
------------ ------------
Total liabilities.................................. 56,501,681 59,766,856
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock--authorized 2,000 shares, 1,080 shares
issued and outstanding in 1997 and 1996, stated
value of $1 per share ............................. 1,080 1,080
Paid-in capital..................................... 9,501,170 9,501,170
Retained earnings................................... 44,824,656 32,830,045
------------ ------------
Total shareholders' equity......................... 54,326,906 42,332,295
------------ ------------
Total liabilities and shareholders' equity......... $110,828,587 $102,099,151
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-33
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
STATEMENTS OF OPERATIONS AND CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ -----------
<S> <C> <C> <C>
OPERATING REVENUES:
Service fees......................... $42,544,417 $ 44,763,413 $41,666,562
Advertising.......................... 3,373,064 3,072,567 2,822,872
Connection fees...................... 282,374 395,673 439,862
Other................................ 2,029,632 2,186,172 1,901,419
----------- ------------ -----------
Total operating revenues........... 48,229,487 50,417,825 46,830,715
----------- ------------ -----------
OPERATING EXPENSES:
Service and administrative........... 28,889,394 26,932,679 23,614,567
Depreciation......................... 4,773,467 4,827,594 4,313,875
Amortization......................... 482,675 522,216 522,858
----------- ------------ -----------
Total operating expenses........... 34,145,536 32,282,489 28,451,300
----------- ------------ -----------
OPERATING INCOME....................... 14,083,951 18,135,336 18,379,415
OTHER EXPENSES......................... (321,732) (320,456) (298,986)
OTHER INCOME........................... 50,276 72,072 47,557
INTEREST INCOME (EXPENSE), net
Interest income--related parties..... 4,296,510 5,210,678 4,239,158
Interest income...................... 69,990 29,449 38,930
Interest expense--related parties.... (2,412,417) (2,639,915) (2,476,485)
Interest expense..................... (3,183,800) (3,026,260) (2,834,607)
----------- ------------ -----------
Total interest expense, net........ (1,229,717) (426,048) (1,033,004)
----------- ------------ -----------
NET INCOME (Note 3).................... 12,582,778 17,460,904 17,094,982
SHAREHOLDERS' EQUITY, beginning of
year.................................. 42,332,295 37,018,958 27,614,790
CAPITAL DISTRIBUTIONS.................. (588,167) (12,147,567) (8,347,064)
SHAREHOLDER CONTRIBUTIONS.............. -- -- 656,250
----------- ------------ -----------
SHAREHOLDERS' EQUITY, end of year...... $54,326,906 $ 42,332,295 $37,018,958
=========== ============ ===========
EARNINGS PER COMMON SHARE:
Basic and diluted.................... $ 11,651 $ 16,168 $ 15,829
Weighted average number of common
shares.............................. 1,080 1,080 1,080
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-34
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................... $12,582,778 $17,460,904 $17,094,982
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Depreciation......................... 4,773,467 4,827,594 4,313,875
Amortization......................... 1,031,644 1,029,683 1,031,203
Loss on disposals of property and
equipment........................... 77,452 69,187 23,066
Changes in certain assets and
liabilities:
(Increase) decrease in assets--
Subscriber receivables........... 147,445 (674,368) (283,064)
Materials, supplies and
construction inventories........ 96,259 334,595 (543,119)
Other accounts receivable,
prepaid expenses and other
current assets.................. 228,256 245,905 (355,270)
Increase (decrease) in
liabilities--
Accounts payable................. 421,658 (361,633) (190,834)
Accrued interest................. 175,521 39,320 266,430
Accrued liabilities.............. (691,513) 1,026,569 450,395
Deferred compensation............ (255,808) (41,260) --
Deferred income.................. -- (9,613) 9,613
Advance subscriber deposits...... 34,950 421,954 77,473
----------- ----------- -----------
Net cash provided by operating
activities.................... 18,622,109 24,368,837 21,894,750
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and
equipment........................... (5,570,385) (5,998,166) (5,723,650)
Proceeds from disposal of property
and equipment....................... 25,753 17,667 24,405
Increase in amounts due from related
parties............................. (9,697,288) (13,570,306) (14,215,160)
----------- ----------- -----------
Net cash used in investing
activities........................ (15,241,920) (19,550,805) (19,914,405)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes
payable............................. 750,000 5,500,000 6,050,000
Principal payments on notes payable.. (5,680,764) (2,114,000) (2,861,500)
Costs incurred in debt financing..... (117,064) -- (3,995)
Principal payments on capital lease
obligations......................... (264,649) (234,630) (183,114)
Shareholder contributions............ -- -- 656,250
Capital distributions................ (588,167) (12,147,567) (8,347,064)
Increase in amounts due to related
parties............................. 2,188,723 4,414,315 3,066,466
----------- ----------- -----------
Net cash used in financing
activities.................... (3,711,921) (4,581,882) (1,622,957)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH........ (331,732) 236,150 357,388
CASH, beginning of year................ 905,796 669,646 312,258
----------- ----------- -----------
CASH, end of year...................... $ 574,064 $ 905,796 $ 669,646
=========== =========== ===========
</TABLE>
F-35
<PAGE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
During 1997, 1996 and 1995, the Company paid interest of $2,390,851,
$2,315,231 and $2,360,059, respectively.
SUPPLEMENTAL DISCLOSURE OF INVESTING AND FINANCING NONCASH TRANSACTIONS
During 1997, 1996 and 1995, the Company entered into capital leases to
acquire vehicles and equipment totaling $56,707, $198,985 and $180,175,
respectively.
During 1996, Coaxial converted an accrued liability for deferred
compensation of $2,343,947 to a note payable. See Note 13.
During 1995, the shareholders contributed $656,250 of initial contract costs
on interest rate cap agreements.
The accompanying notes to financial statements are an integral part of these
statements.
F-36
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) BUSINESS ORGANIZATION AND PURPOSE
Coaxial Communications of Central Ohio, Inc. (Coaxial or the Company), an
Ohio corporation, operates a cable television system which provides basic and
expanded cable services to homes in Columbus, Ohio and surrounding areas.
Coaxial has 2,000 shares of common stock authorized and 1,080 shares issued
and outstanding. The 1,080 outstanding shares are owned by three individuals.
The shares have a stated value of $1 per share.
Other related entities owned or controlled by the majority shareholder of
Coaxial include Phoenix Associates (Phoenix), Coaxial Communications of
Southern Ohio, Inc. (Southern Ohio), Coaxial Associates of Columbus I
(Columbus I), Coaxial Associates of Columbus II (Columbus II), Paxton Cable
Television, Inc. (Paxton Cable) and Paxton Communications, Inc. (Paxton
Communications).
Coaxial, as joint and several issuer, with Phoenix, Southern Ohio, Columbus
I and Columbus II, of the note payable described in Note 7(b) provides the
funding that will allow Phoenix to repay its share of the notes payable, as
Phoenix has no operations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUES
In December 1991, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments," which requires disclosure of fair value information
about both on- and off- balance sheet financial instruments for which it is
practicable to estimate that value.
The carrying amounts of current assets and liabilities approximate their
fair market value because of the immediate or short-term maturity of these
financial instruments. The fair value of notes receivable from related parties
and notes payable to related parties cannot be reasonably and practicably
estimated due to the unique nature of the related underlying transactions and
terms. Refer to Notes 6 and 7 for a discussion of the relative terms. However,
given the terms and conditions of these instruments, if these financial
instruments were with unrelated parties, interest rates and payment terms
could be substantially different than the currently stated rates and terms.
The majority of the related party receivables and payables will be settled in
connection with the transaction described in Note 14. The carrying amounts of
the loan agreement debt, including term loans and revolving credit loans,
approximate fair value as the underlying instruments are at variable rates
that reprice frequently.
The carrying amounts and related estimated fair values for the Company's
remaining financial instruments are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest rate swaps..................... $(9,594) $(11,468) $70,732 $243,187
</TABLE>
F-37
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The fair value of the interest rate swaps is based upon the estimated amount
that the Company would receive or pay to terminate the swap agreement at the
reporting date, taking into consideration current interest rates and the
creditworthiness of the counterparties.
DERIVATIVE FINANCIAL INSTRUMENTS
During 1995, the Company adopted Statement of Financial Accounting Standards
No. 119 (SFAS No. 119), "Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments." SFAS No. 119 requires that a distinction
be made between derivative financial instruments held or issued for trading
purposes and derivative instruments held for purposes other than trading,
including hedging. The Company utilizes derivative financial instruments for
hedging purposes to reduce exposure to adverse changes in interest rates. The
amounts to be paid or received related to these transactions are recognized,
on an accrual basis, over the life of the hedged instrument as an adjustment
to interest expense. The related amounts payable to, or receivable from, the
counterparties are included in prepaid expenses and other current assets. The
fair value of the swap agreements is not recognized in the combined financial
statements, since they are accounted for as hedges. Disclosures required by
SFAS No. 119 are shown in Note 10.
In June 1998, The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those
instruments at fair value. SFAS No. 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The Company does not anticipate
the adoption of this statement to have a material impact on its financial
statements.
OPERATING REVENUE RECOGNITION
Service fees are recorded in the month cable television and pay television
services are provided to subscribers. Connection fees are charges for the
hook-up of new customers and are recognized as current revenues to the extent
of direct selling costs incurred. Any fees in excess of such costs are
deferred and amortized to income over the estimated average period that
subscribers are expected to remain connected to the system. Unearned revenues
are recorded as advance subscriber deposits in the accompanying financial
statements.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. The Company's
customer base consists of a number of homes concentrated in the central Ohio
area. The Company continually monitors the exposure for credit losses and
maintain allowances for anticipated losses. As of December 31, 1997, the
Company had no significant concentrations of credit risk.
MATERIAL, SUPPLIES AND CONSTRUCTION INVENTORIES
Material, supplies and construction inventories are stated at the lower of
cost (first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, while maintenance and repairs are
expensed as incurred. Upon retirement or disposal of assets, the cost and
related accumulated depreciation and amortization are removed from
F-38
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
the balance sheet, and any gain or loss is reflected in earnings. Depreciation
and amortization are provided using the straight-line method over the
estimated useful lives of the related assets as follows:
<TABLE>
<CAPTION>
YEARS
-------------
<S> <C>
CATV systems.................................................. 10 to 15
Equipment..................................................... 5
Furniture..................................................... 5
Leasehold improvements........................................ Life of lease
</TABLE>
The Company internally constructs certain CATV systems. Construction costs
capitalized include payroll, fringe benefits and other overhead costs
associated with construction activity.
The Company reviews its property, plant and equipment and other long term
assets when events or changes in circumstances indicate the carrying amounts
may not be recoverable. When such conditions exist, management estimates the
future cash flows from operations or disposition. If the estimated
undiscounted future cash flows are less than the carrying amount of the asset,
an adjustment to reduce the carrying amount would be recorded, and an
impairment loss would be recognized. The Company does not believe that there
is an impairment of such assets.
INTANGIBLE ASSETS
Intangible assets are amortized using the straight-line method over the
estimated useful lives of the related assets as follows:
<TABLE>
<CAPTION>
YEARS
------------
<S> <C>
Franchise rights................................................ 7 to 15
Deferred loan acquisition costs................................. Term of debt
</TABLE>
Deferred loan acquisition costs relate to costs, primarily legal fees and
bank facility fees incurred to negotiate and secure bank loans (see Note 7).
These costs are being amortized on a straight-line basis over the life of the
applicable loans. The amount amortized, approximately $549,000, $508,000 and
$508,000 in 1997, 1996 and 1995, respectively, is included in interest
expense.
HOME OFFICE EXPENSES
Home office expenses of approximately $1,498,000, $1,697,000 and $1,695,000
in 1997, 1996 and 1995 (included in selling and administrative expenses)
include billings for legal fees, management fees, salaries, travel and other
management expenses for services provided by an affiliated services company.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense primarily
for campaign and telemarketing-related efforts was approximately $1,025,000,
$1,060,000 and $817,000 in 1997, 1996 and 1995, respectively.
EARNINGS PER SHARE
Basic and Diluted earnings per share were calculated as net income divided
by the weighted average number of common shares outstanding.
(3) INCOME TAXES
Coaxial is a Subchapter S corporation. Therefore, each shareholder reports
his distributive share of income or loss on his respective income tax returns.
As a result, the Company does not provide for Federal or state income taxes in
its accounts. In the event that the Subchapter S corporation election is
terminated, deferred taxes related to book and tax temporary differences would
be required to be reflected in the financial statements.
F-39
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) THRIFT PLAN
The Company has an employer sponsored Thrift Plan (the Plan) for employees
having at least one full year of service. Employees can contribute up to 6% of
their salary to the Plan which is matched 50% by the Company. Employees can
also contribute an additional 1% to 10% which is not matched by the Company.
Employees become fully vested in matching contributions after 5 years. There
is no partial vesting. The Company's contributed approximately $133,000,
$111,000 and $120,000 to the Plan in 1997, 1996 and 1995, respectively. The
Thrift Plan will not be contributed as part of the Contribution Agreement
described in note 10.
(5) WORKERS' COMPENSATION RESERVES
Coaxial is partially self-insured for workers' compensation benefits. The
amounts charged to expense for workers' compensation were approximately
$89,200, $110,200 and $143,500 for 1997, 1996 and 1995, respectively, and were
based on actual and estimated claims incurred. The liability for workers'
compensation obligations, as of December 31, 1997 and 1996, is approximately
$78,000 and $131,000, respectively.
(6) RELATED PARTY TRANSACTIONS
Coaxial also pays rent to a partnership owned by Coaxial's shareholders for
two facilities. Total charges for rent were approximately $99,500 in 1997,
$72,000 in 1996 and $72,000 in 1995.
Coaxial has advanced funds to and received advances from related entities
for working capital and debt service requirements. These amounts bear interest
at 5.66% at December 31, 1997, except the Paxton advance which bears interest
at 9.47%. Coaxial recognized interest income of approximately $4,296,500 in
1997, $5,210,700 in 1996 and $4,239,200 in 1995 and interest expense of
approximately $914,300 in 1997, $1,039,900 in 1996 and $874,400 in 1995
related to such advances.
Advances to and from related entities as of December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
ENTITY 1997 1996
------ ----------- -----------
<S> <C> <C>
Advances to:
Phoenix........................................... $72,439,984 $64,091,634
Paxton............................................ 2,361,387 2,124,629
Columbus I........................................ 1,357,768 295,547
Other............................................. 102,527 52,568
----------- -----------
Due from related entities........................... $76,261,666 $66,564,378
=========== ===========
Advances from:
Columbus II....................................... $ 662,178 $ 766,328
Southern Ohio..................................... 16,425,943 14,133,070
----------- -----------
Due to related entities............................. $17,088,121 $14,899,398
=========== ===========
</TABLE>
These related entities are under the control of the shareholders of Coaxial.
The shareholders have represented that these amounts will be settled among the
parties (see Note 14).
Other related party transactions are described in Note 7.
F-40
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(7) NOTES PAYABLE
Notes payable at December 31, 1997 and 1996 consisted of:
<TABLE>
<CAPTION>
LENDER 1997 1996
------ ----------- -----------
<S> <C> <C>
Columbus I(a)....................................... $ 2,467,137 $ 2,467,137
Columbus II(a)...................................... 466,099 466,099
----------- -----------
Total related parties............................. 2,933,236 2,933,236
Banks(b)............................................ 24,760,937 24,624,937
Former limited partners(a).......................... -- 5,066,764
Retired officer(c).................................. 2,046,880 2,302,688
----------- -----------
Total all notes payable........................... $29,741,053 $34,927,625
=========== ===========
</TABLE>
Notes payable at December 31, 1997, will mature as follows:
<TABLE>
<S> <C>
1998............................................................ $ 369,860
1999............................................................ 24,902,797
2000............................................................ 255,860
2001............................................................ 255,860
2002............................................................ 3,189,096
Thereafter...................................................... 767,580
-----------
Total all notes payable....................................... $29,741,053
===========
</TABLE>
- --------
(a) In November, 1982, Columbus I and Columbus II exchanged all of their
assets and certain liabilities with Coaxial for common stock and notes.
These notes bear interest at a rate of 20% and had been scheduled to
mature on October 31, 1997. A portion of these notes ($5,066,764) had been
assigned and was payable to the former Limited Partners of Columbus I and
Columbus II as part of their consideration when they sold their
partnership interest to the General Partners. The notes payable to former
Limited Partners were paid in 1997. The maturity date of the remaining
notes (payable to Columbus I and Columbus II) was extended to October 31,
2002. Interest expense was approximately $1,498,100, $1,600,000 and
$1,600,000 in 1997, 1996 and 1995, respectively, related to the notes
payable.
(b) On November 15, 1994, Coaxial, Phoenix, Southern Ohio, Columbus I and
Columbus II (collectively referred to as the borrowers), executed a loan
agreement with a lead bank and several other financial institutions to
replace an existing loan agreement. On May 12, 1998, the loan agreement
was amended. The loan agreement provides for principal term loans up to
$150,000,000 and revolving credit loans up to $23,000,000 ($22,000,000
after the May 12, 1998 amendment). Principal payments on the term loans
are due in 19 quarterly installments of $250,000 beginning March 15, 1995,
and a final quarterly installment for the remaining balance outstanding.
Revolving credit loans are payable at December 31, 1999. Interest on the
outstanding balances under the loan agreement is payable at either a) a
rate comparable to prime rate as defined in the agreement plus 2%, or b)
at a rate comparable to the Eurodollar rate as defined in the agreement
plus 3.25% depending on the borrowers' option at the time the loan is
drawn. These margins have been amended to 2.25% and 3.50%, respectively,
effective March 3, 1997. Interest rates on borrowings outstanding at
December 31, 1997 range from 9.25% to 9.47%. The termination date of the
loan agreement is December 31, 1999. Interest expense was approximately
$2,284,500, $1,920,500 and $1,785,300 in 1997, 1996 and 1995,
respectively. The letters of credit discussed in Note 8 aggregating
$1,100,000 decrease availability of borrowings under the loan agreement.
Unused and unreserved borrowing availability under the loan agreement at
December 31, 1997 was $5,900,000.
F-41
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A revolving credit commitment fee of .5% is paid on the average daily
balance available for draw under the revolving credit loan.
The funds borrowed under the loan agreement were allocated to the following
entities as of December 31, 1997:
<TABLE>
<CAPTION>
REVOLVING
ENTITY TERM LOAN LOAN
------ ------------ -----------
<S> <C> <C>
Coaxial.......................................... $ 16,760,937 $ 8,000,000
Phoenix.......................................... 105,925,208 --
Southern Ohio.................................... 20,568,238 8,000,000
Columbus I....................................... 2,385,682 --
Columbus II...................................... 1,359,935 --
------------ -----------
Total.......................................... $147,000,000 $16,000,000
============ ===========
</TABLE>
The loans are secured by substantially all of the borrowers' assets and are
joint and several obligations of the borrowers. Significant notes
receivable are pledged as collateral. In addition, the shareholders and
partners of the borrowers have pledged all of their shares and partnership
interests in the borrowers. The proceeds of the loans were used to
refinance existing bank and other notes payable, make capital distributions
to the shareholders and partners, and to finance capital expenditures of
Coaxial and Southern Ohio. Repayment of the Phoenix debt is dependent upon
funding from Coaxial or Southern Ohio as Phoenix has no operations.
Among other covenants, the borrowers must comply with restrictive covenants
relating to leverage coverage, interest coverage and cash ratios. In
addition, repayments of principal on the loan are required if certain
conditions relating to asset dispositions, new debt, distributions or
excess cash flow are met. The borrowers are in compliance with these
covenants, as amended, as of December 31, 1997.
The borrowers are entitled to issue letters of credit for general corporate
purposes or to replace existing letters of credit up to an amount not
exceeding $2,000,000. The borrowers pay a fee equal to 2% per annum of the
amount available for draw under any letters of credit issued. Any draws on
letters of credit issued will be made a part of the outstanding balance on
the revolving credit loan.
Due to loan agreement requirements, the borrowers have entered into
interest rate swap agreements to reduce the impact of changes in interest
rates on the outstanding principal balances (see Notes 9 and 10).
(c) In January 1996, Coaxial issued an unsecured note payable to a key officer
for deferred compensation. The officer retired in 1997. See Note 13 for
related discussion.
(8) LETTERS OF CREDIT
The Company, with the other borrowers defined in Note 7, have letters of
credit for the benefit of certain program suppliers and former Limited
Partners. At December 31, 1997 and 1996, the aggregate value of these letters
of credit for the benefit of certain program suppliers was $1,100,000 and
$850,000, respectively. At December 31, 1997 and 1996, the aggregate value of
these letters of credit for the benefit of the former Limited Partners was $0
(due to final settlement with Limited Partners) and $1,140,775, respectively.
(9) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company, with the other borrowers defined in Note 7, become a party to
financial instruments with off-balance-sheet risk in the normal course of
business in managing its interest rate risk. These financial instruments
include interest rate swap agreements, and previously, forward interest rate
agreements and interest rate caps. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized on the Company's balance sheets. The contract or notional amounts
of these instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
F-42
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company has utilized interest rate caps, interest rate swap agreements
and forward interest rate agreements as hedge instruments to reduce exposure
to adverse changes in interest rates. The notional amounts of these
instruments do not represent exposure to credit loss. Risks associated with
these types of financial instruments arise from the movement of interest rates
and failure of the other party to the transaction to meet its obligation. Note
10 provides additional disclosures on the Company's derivative financial
instruments.
The following table shows the contract or notional amount of the Company's
off-balance-sheet financial instruments at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
CONTRACT OR NOTIONAL AMOUNT
----------------------------
1997 1996
------------- --------------
<S> <C> <C>
Interest rate swap agreements.................. $ 40,000,000 $ 115,000,000
</TABLE>
(10) DERIVATIVE FINANCIAL INSTRUMENTS
The Company, with the other borrowers defined in Note 7, holds derivative
financial instruments only for purposes other than trading. The Company's
primary objective is the "hedging" or management of interest rate risk
associated with its long-term debt. The two parties to an interest rate swap
agreement agree to exchange, at particular intervals, payment streams
calculated on a specified notional amount, with one stream based on a floating
interest rate and the other stream based on a fixed interest rate. The swaps
were entered into in order to reduce the overall interest rate sensitivity of
the Company. These interest rate swap agreements are the standard
fixed/floating type of swap agreements, whereby the Company pays a fixed rate
(i.e., swapped rate) and receives a floating rate from the counterparty based
upon the LIBOR index. All of the interest rate swaps are treated as hedges,
and accordingly, are accounted for on the same basis as the underlying asset
or liability being hedged. The amounts to be paid or received related to
derivative financial instruments are recognized on an accrual basis, over the
estimated life of the hedged instrument, as an adjustment to interest expense.
The counterparty to all of the Company's off-balance-sheet financial
instrument agreements is the lead bank on the loan agreement.
The following table summarizes the interest rate swap agreements:
<TABLE>
<CAPTION>
FIXED
NOTIONAL INITIAL RATE FLOATING
PRINCIPAL EFFECTIVE TERMINATION CONTRACT (PAY RATE RATE
AMOUNT TERM DATE DATE COST RATE) (RECEIVE RATE) FIXING DATES
--------- ------ --------- ----------- -------- ----- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$40,000,000............. 1 year 1/15/97 1/15/98 $0 5.87% 5.59% to 5.82% April/July/Oct/Jan
</TABLE>
In accordance with the loan agreement, the Company also had previously
purchased interest rate caps to aid in the management of its interest rate
risk. The seller of these caps was obligated to pay the Company the amount, if
any, by which a specified market interest rate exceeded the fixed cap applied
to the notional amount. There were no interest rate cap agreements in effect
at December 31, 1997, and the initial contract costs related to previous
interest rate cap agreements were fully amortized as of December 31, 1997.
(11) OPERATING LEASE AGREEMENTS
Coaxial leases land for tower locations, office equipment, office space,
vehicles and the use of utility poles under various operating lease
agreements. Rental expense for all operating leases was approximately $218,500
in 1997, $160,500 in 1996 and $161,400 in 1995. These amounts exclude year-to-
year utility pole leases of $186,400, $182,700 and $190,200, respectively,
which provide for payments based on the number of poles used.
Minimum rental commitments required under noncancellable operating leases
are as follows:
<TABLE>
<S> <C>
1998.............................................................. $157,214
1999.............................................................. 146,389
2000.............................................................. 89,421
2001.............................................................. 200
--------
$393,224
========
</TABLE>
F-43
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(12) CAPITAL LEASE AGREEMENTS
Coaxial leases vehicles, computer equipment and Xerox equipment under
capital leases. These leases have various terms of 4-5 years. Future minimum
payments under the leases are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDING DECEMBER 31,
---------------------------------
<S> <C>
1998............................................................. $244,516
1999............................................................. 124,019
2000............................................................. 66,283
2001............................................................. 24,370
2002............................................................. 3,005
--------
462,193
Less: Amount representing interest............................... 54,896
Less: Current portion of capital lease obligations............... 213,103
--------
Long-term capital lease obligations.............................. $194,194
========
</TABLE>
As of December 31, 1997, Coaxial has assets held under capital leases as
follows:
<TABLE>
<S> <C>
Total costs.................................................... $1,151,354
Related accumulated amortization............................... (628,973)
----------
Net book value as of December 31, 1997......................... $ 522,381
==========
</TABLE>
(13) COMMITMENTS AND CONTINGENCIES
Through December 31, 1995, Coaxial had an agreement with a key officer to
defer certain discretionary compensation amounts each year. On January 1,
1996, Coaxial entered into an unsecured note payable to this officer in the
amount of $2,343,947, which represented all vested deferred compensation at
December 31, 1995. During 1996, this officer earned additional discretionary
compensation in the amount of $193,140. This amount was added to the unpaid
December 31, 1996 principal balance of the above note and the payment amount
was adjusted accordingly. As of December 31, 1997 and 1996, the outstanding
balance of the note was $2,046,880 and $2,302,688, respectively. The note is
payable in equal monthly installments of $21,322 plus accrued interest at the
prime rate (8.50% at December 31, 1997), and matures in December 2005.
Interest expense on the note was $184,810 and $185,005 in 1997 and 1996,
respectively.
The Company is party in or may be affected by various matters under
litigation. Management believes that the ultimate outcome of these matters
will not have a significant adverse effect on either the Company's future
results of operation or financial position.
Capital expenditures for Coaxial for 1998 is expected to be approximately
$5,515,000.
The Company has an executive severance program and an incentive bonus plan
that entitles certain employees to receive compensation, as defined, in an
event of a change in control of the Company.
(14) SUBSEQUENT EVENT
On June 30, 1998, Coaxial and Insight Communications Company, L.P. (Insight)
entered into a Contribution Agreement (the Contribution Agreement) pursuant to
which Coaxial will contribute to a newly formed subsidiary (a limited
liability company) of Coaxial (the Operating Company) substantially all of the
assets and liabilities comprising the cable system, and Insight will
contribute $10 million in cash to the Operating Company. As a
F-44
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
result of this Contribution Agreement, Coaxial will own 25% of the non-voting
common equity and Insight will own 75% of the non-voting common equity of the
Operating Company, subject to possible adjustments pursuant to the
Contribution Agreement. Coaxial will also own two separate series (a $140
million preferred equity interest and a $30 million preferred equity interest)
of voting preferred equity of the Operating Company; the voting preferred
equity interest will provide for distributions to Coaxial equal in amount to
the payments on the senior and senior discount notes described below. Insight
or an affiliate will serve as the manager of the Operating Company.
The closing of the Contribution Agreement is conditioned upon, among other
things, the private placement of $140 million senior notes by Coaxial and
Phoenix (which will replace Coaxial's and Phoenix's notes payable to banks)
and the private placement of $30 million of senior discount notes by the
majority shareholder of Coaxial.
In conjunction with this transaction, there will be a settlement or net
distribution of related party receivables and payables. The impact on Coaxial
at December 31, 1997 would be a decrease to shareholder's equity of
approximately $53.2 million.
The pro forma balances of Coaxial's total assets and shareholders equity if
this Contribution Agreement, private placement, and the settlement of related
party balances, that will happen in conjunction with the transactions, would
have occurred as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31,
1997
------------
<S> <C>
Total Assets................................................. $43,204,000
Shareholders' Equity......................................... (1,468,000)
</TABLE>
In addition, this transaction will trigger the executive severance program
and incentive bonus plan described in Note 13 above. Approximately $1.2
million of compensation could be paid under these plans.
F-45
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER
1998 31, 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................. $ 4,848,045 $ 574,064
Subscriber receivables, less allowance for
doubtful accounts of $159,000 in 1998 and
$202,000 in 1997................................ 2,796,265 1,834,558
Other accounts receivable, less allowance for
doubtful accounts of $157,000 in 1998 and
$172,000 in 1997................................ 1,031,818 1,040,582
Due from related parties......................... 57,451 --
Other current assets............................. 950,831 1,078,635
----------- ------------
Total current assets........................... 9,684,410 4,527,839
----------- ------------
PROPERTY AND EQUIPMENT, at cost:
CATV systems..................................... 66,447,798 64,093,984
Other............................................ 8,298,503 7,549,082
----------- ------------
74,746,301 71,643,066
Less--Accumulated depreciation and amortization.. (45,423,723) (42,699,293)
----------- ------------
Total property and equipment, net.............. 29,322,578 28,943,773
----------- ------------
INTANGIBLE ASSETS, net............................. 1,132,245 1,095,309
----------- ------------
OTHER ASSETS:
Due from related parties......................... -- 76,261,666
----------- ------------
Total other assets............................. -- 76,261,666
----------- ------------
Total assets................................... $40,139,233 $110,828,587
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of notes payable................. $ -- $ 369,860
Current portion of capital lease obligations..... 127,721 213,103
Due to related parties........................... 141,574 --
Accounts payable, accrued liabilities and other
current liabilities............................. 9,423,355 9,265,210
----------- ------------
Total current liabilities...................... 9,692,650 9,848,173
----------- ------------
NOTES PAYABLE:
Affiliated entities.............................. -- 2,933,236
Senior notes..................................... 34,435,092 26,437,957
----------- ------------
Total notes payable............................ 34,435,092 29,371,193
----------- ------------
CAPITAL LEASE OBLIGATIONS.......................... 131,181 194,194
DEFERRED INCOME.................................... 1,190,350 --
DUE TO RELATED PARTIES............................. -- 17,088,121
----------- ------------
Total liabilities.............................. 45,449,273 56,501,681
----------- ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock..................................... 1,080 1,080
Paid-in capital.................................. 9,501,170 9,501,170
Retained earnings (deficit)...................... (14,812,290) 44,824,656
----------- ------------
Total shareholders' equity (deficit)........... (5,310,040) 54,326,906
----------- ------------
Total liabilities and shareholders' equity
(deficit)..................................... $40,139,233 $110,828,587
=========== ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-46
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE THREE MONTHS ENDED
ENDED SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1998 1997 1998 1997
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES....... $ 12,042,156 $11,828,181 $ 35,808,519 $36,321,463
OPERATING EXPENSES:
Service and
administrative........ 7,571,207 7,428,189 22,935,973 21,378,260
Severance and
transaction structure
costs (Note 2)........ 4,822,079 -- 4,822,079 --
Depreciation and
amortization.......... 1,137,362 1,391,689 3,825,430 4,156,690
------------ ----------- ------------ -----------
Total operating
expenses............ 13,530,648 8,819,878 31,583,482 25,534,950
------------ ----------- ------------ -----------
OPERATING INCOME (LOSS).. (1,488,492) 3,008,303 4,225,037 10,786,513
OTHER EXPENSES, net...... (317,460) (104,606) (432,733) (188,054)
INTEREST INCOME
(EXPENSE), net
Interest income--
related parties....... 640,303 1,100,756 2,823,673 3,156,348
Interest income........ -- 20,122 22,632 51,999
Interest expense--
related parties....... (227,570) (633,048) (1,019,300) (1,879,891)
Interest expense....... (902,734) (809,017) (2,582,904) (2,367,385)
------------ ----------- ------------ -----------
Total interest
expense, net........ (490,001) (321,187) (755,899) (1,038,929)
------------ ----------- ------------ -----------
Net Income (Loss) Before
Extraordinary Item...... (2,295,953) 2,582,510 3,036,405 9,559,530
Extraordinary Item--debt
retirement.............. (846,641) -- (846,641) --
------------ ----------- ------------ -----------
NET INCOME (LOSS) (Note
4)...................... (3,142,594) 2,582,510 2,189,764 9,559,530
SHAREHOLDERS' EQUITY
(DEFICIT), beginning of
Period.................. 58,515,932 49,158,410 54,326,906 42,332,295
CAPITAL DISTRIBUTIONS.... (81,246,269) (437,262) (82,389,601) (588,167)
SHAREHOLDER
CONTRIBUTIONS........... 20,562,891 -- 20,562,891 --
------------ ----------- ------------ -----------
SHAREHOLDERS' EQUITY
(DEFICIT), end of
period.................. $ (5,310,040) $51,303,658 $ (5,310,040) $51,303,658
============ =========== ============ ===========
EARNINGS PER COMMON
SHARE:
Basic and diluted...... $ (3,020) $ 2,391 $ 1,917 $ 8,851
Weighted average number
of shares............. 1,080 1,080 1,080 1,080
</TABLE>
The accompanying notes are an integral part of these statements.
F-47
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES.... $ 7,934,940 $ 13,677,881
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment.. (4,213,973) (3,520,325)
(Increase) decrease in amounts due from related
parties......................................... -- (10,147,158)
------------ ------------
Net cash used in investing activities.......... (4,213,973) (13,667,483)
------------ ------------
CASH PROVIDED FROM FINANCING ACTIVITY
Principal payments in notes payable.............. (26,807,817) (85,500)
Proceeds from issuances of notes payable......... 34,435,092 --
Principal payments on capital lease obligations.. (148,395) (196,196)
Contributions from shareholders.................. 5,672,790 --
Distributions to shareholders.................... -- (588,167)
Increase (decrease) in amounts due to related
parties......................................... (11,259,191) 1,204,052
Increase in deferred financing fees.............. (1,339,465) (109,943)
------------ ------------
Net cash provided by financing activities...... 553,014 224,246
NET INCREASE (DECREASE) IN CASH.................... 4,273,981 234,644
CASH, beginning of period.......................... 574,064 905,796
------------ ------------
CASH, end of period................................ $ 4,848,045 $ 1,140,440
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-48
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
(1) GENERAL
The results of operations for the interim periods shown are not necessarily
indicative of the results to be expected for the fiscal year. In the opinion
of Management, the information contained herein reflects all adjustments
necessary to make a fair statement of the results for the three and six months
ended September 30, 1998 and 1997. All such adjustments are of a normal
recurring nature.
(2) BUSINESS ORGANIZATION AND PURPOSE
Coaxial Communications of Central Ohio, Inc. (Coaxial or the Company), an
Ohio corporation, operates a cable television system which provides basic and
expanded cable services to homes in Columbus, Ohio and surrounding areas.
Coaxial has 2,000 shares of common stock authorized and 1,080 shares issued
and outstanding. In connection with the contribution of the Company's cable
system described below, the issuance of the Senior Notes described in Note
6(d), and the issuance of Discount Notes by the Company's majority
shareholder, the three individuals who previously owned the outstanding stock
of the Company contributed their stock to three separate limited liability
companies. The Company is a subsidiary of Coaxial LLC, which owns 67 1/2% of
the outstanding stock.
On August 21, 1998, Coaxial contributed all of the assets and liabilities
comprising its cable system to a newly formed entity, Insight Communications
of Central Ohio, LLC (Insight Ohio or the System). Coaxial has a 25% non-
voting common membership interest in Insight Ohio, as well as 100% of the
voting preferred membership interests in Insight Ohio (Series A and Series B
Preferred Interests). Insight Holdings of Ohio, LLC (IHO) contributed $10
million in cash to Insight Ohio for which it received a 75% non-voting common
membership interest in Insight Ohio. The financial statements herein reflect
Coaxial and its consolidated subsidiary, Insight Ohio.
As a result of the transaction described above, the Company incurred
severance costs and transaction structuring costs totaling $4,822,079, which
have been reflected in the accompanying results of operations.
Other related entities owned or controlled by the majority shareholder of
Coaxial include Phoenix Associates (Phoenix), Coaxial Communications of
Southern Ohio, Inc. (Southern Ohio), Coaxial Associates of Columbus I
(Columbus I), Coaxial Associates of Columbus II (Columbus II) and Paxton Cable
Television, Inc. (Paxton Cable), Paxton Communications, Inc. (Paxton
Communications).
Coaxial and Phoenix are co-issuers of the notes payable described in Note
6(d). Required payments to Coaxial on the Series A Preferred Interest of
Insight Ohio provides the cash flow for debt service on the notes payable as
Coaxial and Phoenix have no operations.
(3) ACCOUNTING POLICIES
Note 2 to the Notes to Financial Statements in the Company's December 31,
1997 Financial Statements summarize the Company's significant accounting
policies.
DEFERRED INCOME
Deferred income represents launch fees received from programmers for
launching the programmers' services. Launch fees are deferred and amortized
over the applicable contract period.
F-49
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
EARNINGS PER SHARE
Basic and Diluted earnings per share were calculated as net income divided
by the weighted average number of common shares outstanding.
(4) INCOME TAXES
Coaxial is a Subchapter S corporation. Therefore, each shareholder reports
his distributive share of income or loss on his respective income tax returns.
As a result, the Company does not provide for Federal or state income taxes in
its accounts. In the event that the Subchapter S corporation election is
terminated, deferred taxes related to book and tax temporary differences would
be required to be reflected in the financial statements.
(5) RELATED PARTY TRANSACTIONS
Coaxial incurred home office expenses of approximately $400,000 and
$1,131,000 for the three and nine months ended September 30, 1998 and
approximately $459,000 and $1,312,000 for the three and nine months ended
September 30, 1997 (included in service and administrative expenses). Home
office expenses include billings for legal fees, management fees, salaries,
travel and other management expenses for services provided by an affiliated
services company.
Effective August 21, 1998, the System entered into a management agreement
with IHO, which will allow IHO to manage the operations of the System. The
management fee is 3% of gross operating revenues. Fees under this management
agreement were approximately $142,000 for the period August 21, 1998 to
September 30, 1998 (included in service and administrative expenses).
Coaxial also pays rent to a partnership owned by Coaxial's shareholders for
two facilities. Total charges for rent were approximately $9,000 and $63,000
for the three and nine months ended September 30, 1998 and $27,000 and $72,500
for the three and nine and months ended September 30, 1997.
At December 31, 1997, Coaxial had advanced funds to related entities,
totaling $76,261,666, and received advances from related entities, totaling
$17,088,121, for working capital and debt service requirements. During August
1998, in connection with the contribution of the System to Insight Ohio and
the issuance of the Senior Notes described in Note 6(d) below, these amounts
were settled. A portion of these amounts were settled by a net distribution of
$67,499,500 to the Company's shareholders. Coaxial recognized interest income
of approximately $640,300 and $2,823,700 for the three and nine months ended
September 30, 1998 and $1,100,800 and $3,156,300 for the three and nine and
months ended September 30, 1997. Coaxial recognized interest expense of
approximately $227,600 and $1,019,300 for the three and nine months ended
September 30, 1998 and $633,000 and $1,879,900 for the three and nine and
months ended September 30, 1997.
Other related party transactions are described in Note 6.
(6) NOTES PAYABLE
Notes payable at September 30, 1998 and December 31, 1997 consisted of:
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
30, 31,
LENDER 1998 1997
------ ----------- -----------
<S> <C> <C>
Columbus I(a).................................... $ -- $ 2,467,137
Columbus II(a)................................... -- 466,099
----------- -----------
Total related parties........................ -- 2,933,236
Banks(b)......................................... -- 24,760,937
Retired officer(c)............................... -- 2,046,880
Senior notes(d).................................. 34,435,092 --
----------- -----------
Total all notes payable...................... $34,435,092 $29,741,053
=========== ===========
</TABLE>
F-50
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------
(a) In November, 1982, Columbus I and Columbus II exchanged all of their
assets and certain liabilities with Coaxial for common stock and notes. A
portion of these notes ($5,066,764) had been assigned and was payable to
the former Limited Partners of Columbus I and Columbus II as part of their
consideration received in retirement of their partnership interest. The
notes payable to former Limited Partners were paid in 1997. In connection
with the contribution of the System to Insight Ohio and the issuance of
the Senior Notes described in Note 6(d), the remaining payable was settled
in August 1998.
(b) On November 15, 1994, Coaxial, Phoenix, Southern Ohio, Columbus I and
Columbus II (collectively referred to as the borrowers), executed a loan
agreement with a lead bank and several other financial institutions to
replace an existing loan agreement. On August 21, 1998, the loan was
replaced with the Senior Notes.
(c) In January 1996, Coaxial issued an unsecured note payable to a key officer
for deferred compensation. The officer retired in 1997. In connection with
the contribution of the System to Insight Ohio and the issuance of the
Senior Notes described in Note 6(d), the note was paid in full during
August 1998.
(d) On August 21, 1998, Coaxial and Phoenix issued $140 million of Senior
Notes (Senior Notes) due August 15, 2008. The Senior Notes replaced
Coaxial's and Phoenix's existing notes payable. Interest accrues at 10%
and is payable semi-annually.
The Senior Notes are allocated as of September 30, 1998 as follows:
<TABLE>
<CAPTION>
SEPTEMBER
ENTITY 30, 1998
------ ------------
<S> <C>
Coaxial...................................................... $ 34,435,000
Phoenix...................................................... 105,565,000
------------
Total.................................................... $140,000,000
============
</TABLE>
The Senior Notes are non-recourse and are secured by all issued and
outstanding Series A Preferred Interest in Insight Ohio. The distributions
required on the Series A Preferred Interests are designed to provide the
cash flow for payment of interest on the Senior Notes.
Among other covenants, the borrowers must comply with restrictive covenants
relating to incurrence of additional debt, payment of dividends and
distributions, and the transfer or sale of assets. Coaxial and Phoenix were
in compliance with these covenants as of September 30, 1998.
The ability of Coaxial and Phoenix to make scheduled payments with respect
to the Senior Notes will depend on the financial and operating performance
of Insight Ohio.
(7) COMMITMENTS AND CONTINGENCIES
The Company is party in or may be affected by various matters under
litigation. Management believes that the ultimate outcome of these matters
will not have a significant adverse effect on either the Company's future
results of operation or financial position.
On August 21, 1998, Coaxial Financing Corp. and Coaxial LLC, a related
entity, issued Senior Discount Notes (Discount Notes) due 2008. The Discount
Notes have a face amount of $55,869,000 and approximately $30 million of gross
proceeds were received upon issuance. Approximately $19.5 million of the gross
proceeds were contributed by the sole member of Coaxial LLC to certain related
entities to repay indebtedness. Approximately $9,750,000 was loaned to two
related entities (Coaxial DJM LLC and Coaxial DSM LLC) by Coaxial LLC, which
then contributed that amount to certain related entities to repay
indebtedness. The debt discount of $25,868,000 is being amortized over five
years (until August 15, 2003). Thereafter, interest on the Discount Notes
accrues at 12 7/8% and is payable semi-annually. All of the Discount Notes
were allocated to Coaxial LLC.
F-51
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Discount Notes are non-recourse, secured by all of the common stock of
Coaxial Communications of Central Ohio, Inc. (Coaxial) and the notes issued by
Coaxial DJM LLC and Coaxial DSM LLC to Coaxial LLC and conditionally
guaranteed by Insight Communications of Central Ohio, LLC (Insight Ohio), a
subsidiary of Coaxial.
The ability of Coaxial Financing Corp. and Coaxial LLC to make scheduled
payments with respect to the Discount Notes will depend on the financial and
operating performance of Insight Ohio. The required payments on the Series B
Preferred Interests equal the distributions to be made by Coaxial to Coaxial
LLC to service the Discount Notes.
F-52
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the General Partners of
Phoenix Associates:
We have audited the accompanying balance sheets of Phoenix Associates (a
Florida partnership) as of December 31, 1997 and 1996, and the related
statements of operations and changes in partners' deficit and cash flows for
each of the three years in the period ended December 31, 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 Phoenix Associates as of
December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
As indicated in Note 1, Phoenix Associates has no operations. It's ability
to satisfy debt and other obligations is dependent upon funding from related
entities, which are under the common control of the owners of Phoenix
Associates.
Arthur Andersen LLP
Columbus, Ohio,
July 17, 1998.
F-53
<PAGE>
PHOENIX ASSOCIATES
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................ $ 247 $ 115,090
Other accounts receivable....................... 1,067 --
------------- -------------
Total current assets.......................... 1,314 115,090
------------- -------------
OTHER ASSETS:
Due from related parties........................ 6,409,505 6,050,685
Notes receivable--related parties............... 775,643 2,284,266
Advances to partners............................ 768,000 768,000
------------- -------------
Total other assets............................ 7,953,148 9,102,951
------------- -------------
Total assets.................................. $ 7,954,462 $ 9,218,041
============= =============
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES:
Current portion of notes payable................ $ 720,600 $ 745,035
Accounts payable................................ 973 355
------------- -------------
Total current liabilities..................... 721,573 745,390
------------- -------------
NOTES PAYABLE..................................... 105,204,608 105,925,208
DUE TO RELATED PARTIES............................ 72,439,984 64,091,634
------------- -------------
Total liabilities............................. 178,366,165 170,762,232
------------- -------------
COMMITMENTS AND CONTINGENCIES
PARTNERS' DEFICIT................................. (170,411,703) (161,544,191)
------------- -------------
Total liabilities and partners' deficit....... $ 7,954,462 $ 9,218,041
============= =============
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-54
<PAGE>
PHOENIX ASSOCIATES
STATEMENTS OF OPERATIONS AND CHANGE IN PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
HOME OFFICE EXPENSES.............. $ -- $ -- $ (267)
OTHER EXPENSES.................... (88,879) (106,467) (119,538)
INTEREST INCOME (EXPENSE), net
Interest income--related
parties........................ 1,785,142 2,034,542 2,023,980
Interest income................. 2,826 1,905 558
Interest expense--related
parties........................ (4,025,789) (5,027,565) (4,078,975)
Interest expense................ (9,856,149) (9,498,874) (10,307,072)
------------- ------------- -------------
Total interest expense, net... (12,093,970) (12,489,992) (12,361,509)
------------- ------------- -------------
Net Loss Before Extraordinary
Item............................. (12,182,849) (12,596,459) (12,481,314)
Extraordinary Item--gain on
settlement of former limited
partner notes (Note 4)........... 3,315,337 -- --
------------- ------------- -------------
NET LOSS (Note 3)................. (8,867,512) (12,596,459) (12,481,314)
PARTNERS' DEFICIT, beginning of
year............................. (161,544,191) (148,947,732) (136,466,418)
------------- ------------- -------------
PARTNERS' DEFICIT, end of year.... $(170,411,703) $(161,544,191) $(148,947,732)
============= ============= =============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-55
<PAGE>
PHOENIX ASSOCIATES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss.......................... $ (8,867,512) $(12,596,459) $(12,481,314)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING
ACTIVITIES:
Gain on settlement of former
limited partner notes............ (3,315,337) -- --
Changes in certain assets and
liabilities:
(Increase) decrease in the
accounts receivable............ (1,067) -- 14,019
Increase (decrease) in accounts
payable........................ 618 (91,114) 33,870
------------ ------------ ------------
Net cash used in operating
activities................... (12,183,298) (12,687,573) (12,433,425)
------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Increase in amounts due from
related parties.................. (358,820) (511,217) (500,655)
Proceeds from notes receivable.... 4,823,960 -- --
------------ ------------ ------------
Net cash provided by (used in)
investing activities......... 4,465,140 (511,217) (500,655)
------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments on notes
payable.......................... (745,035) (748,625) (747,335)
Increase in amounts due to related
parties.......................... 8,348,350 14,062,505 13,681,415
------------ ------------ ------------
Net cash provided by financing
activities................... 7,603,315 13,313,880 12,934,080
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH..... (114,843) 115,090 --
CASH, beginning of year............. 115,090 -- --
------------ ------------ ------------
CASH, end of year................... $ 247 $ 115,090 $ --
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-56
<PAGE>
PHOENIX ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) BUSINESS ORGANIZATION AND PURPOSE
Phoenix Associates (Phoenix or the Company) is a Florida general partnership
organized for the primary purpose of purchasing promissory notes, mortgages,
deeds of trust, debt securities and other types of securities, and purchasing
and acquiring rights in any loan agreements or other documents relating to
those securities. Phoenix Associates has no operations. Its ability to satisfy
debt and other obligations is dependent upon funding from related entities,
which are under the common control of the owners of Phoenix Associates. As
discussed in Note 5, the bank borrowings are joint and several obligations of
five related entities.
Phoenix consists of three individual partners who share profits and losses
in the ratio of 67 1/2%, 22 1/2% and 10%, respectively.
Other related entities owned or controlled by the majority partner of
Phoenix include Coaxial Communications of Central Ohio, Inc. (Coaxial),
Coaxial Communications of Southern Ohio, Inc. (Southern Ohio), Coaxial
Associates of Columbus I (Columbus I), Coaxial Associates of Columbus II
(Columbus II), Paxton Cable Television, Inc. (Paxton Cable) and Paxton
Communications, Inc. (Paxton Communications).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUES
In December 1991, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments," which requires disclosure of fair value information
about both on- and off-balance sheet financial instruments for which it is
practicable to estimate that value.
The carrying amounts of current assets and liabilities approximate their
fair market value because of the immediate or short-term maturity of these
financial instruments. The fair value of notes receivable from related parties
and notes payable to related parties cannot be reasonably and practicably
estimated due to the unique nature of the related underlying transactions and
terms. Refer to Notes 4 and 5 for a discussion of the relative terms. However,
given the terms and conditions of these instruments, if these financial
instruments were with unrelated parties, interest rates and payment terms
could be substantially different than the currently stated rates and terms.
The majority of the related party receivables and payables will be settled in
connection with the transaction described in Note 9. The carrying amounts of
the notes payable (loan agreement debt) approximate fair value as the
underlying instruments are at variable rates that reprice frequently.
DERIVATIVE FINANCIAL INSTRUMENTS
During 1995, the Company adopted Statement of Financial Accounting Standards
No. 119 (SFAS No. 119), "Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments." SFAS No. 119 requires that a distinction
be made between derivative financial instruments held or issued for trading
purposes and derivative instruments held for purposes other than trading,
including hedging. The Company utilizes
F-57
<PAGE>
PHOENIX ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
derivative financial instruments for hedging purposes to reduce exposure to
adverse changes in interest rates. The amounts to be paid or received related
to these transactions are recognized, on an accrual basis, over the life of
the hedged instrument as an adjustment to interest expense. The related
amounts payable to, or receivable from, the counterparties are included in
prepaid expenses and other current assets. The fair value of the swap
agreements is not recognized in the financial statements, since they are
accounted for as hedges. Disclosures required by SFAS No. 119 are shown in
Note 8.
In June 1998, The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those
instruments at fair value. SFAS No. 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The Company does not anticipate
the adoption of this statement to have a material impact on its financial
statements.
(3) INCOME TAXES
Phoenix is a general partnership. Therefore, each partner reports his
distributive share of income or loss on his respective income tax returns. As
a result, the Company does not provide for Federal or state income taxes in
its accounts.
(4) RELATED PARTY TRANSACTIONS
As of December 31, 1997 and 1996, Phoenix has advances due from two general
partners of $768,000.
Phoenix has advanced funds to and received advances from related entities
for working capital and for debt service. These amounts bear interest at 5.66%
as of December 31, 1997. Phoenix recognized interest income of approximately
$358,800 in 1997, $511,200 in 1996 and $500,700 in 1995 and recognized
interest expense of approximately $4,025,800 in 1997, $5,027,600 in 1996 and
$4,079,000 in 1995 relating to such advances.
Advances to and from related entities as of December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
ENTITY 1997 1996
------ ----------- -----------
<S> <C> <C>
Advances to:
Columbus I........................................ $ 1,283,596 $ 1,211,736
Columbus II....................................... 721,869 681,458
Southern Ohio..................................... 4,404,040 4,157,491
----------- -----------
Due from related entities........................... $ 6,409,505 $ 6,050,685
=========== ===========
Advances from Coaxial............................... $72,439,984 $64,091,634
=========== ===========
</TABLE>
F-58
<PAGE>
PHOENIX ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Phoenix has the following notes and accrued interest receivable from related
parties at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Columbus I(a)...................................... $ 2,348,892 $ 2,348,892
Former Limited Partners of Columbus I(a)........... -- 3,714,858
----------- -----------
Subtotal......................................... 2,348,892 6,063,750
----------- -----------
Columbus II(b)..................................... 443,773 443,773
Former Limited Partners of Columbus II (b)......... -- 1,109,102
----------- -----------
Subtotal......................................... 443,773 1,552,875
----------- -----------
Total face amount of notes receivable............ 2,792,665 7,616,625
Less: Amounts in excess of purchase price.......... (2,017,022) (5,332,359)
----------- -----------
Net notes and accrued interest receivable.......... $ 775,643 $ 2,284,266
=========== ===========
</TABLE>
- --------
(a) The $2,348,892 due from Columbus I represents a note, including past due
interest that was added to the principal, which were purchased from CNA
Financial Corporation on November 24, 1982. Interest is payable to Phoenix
monthly at an annual rate of 20% of the face amount of the notes
receivable. Phoenix recognized interest income of approximately
$1,138,000, $1,212,800 and $1,212,800 in 1997, 1996 and 1995,
respectively, related to the note receivable. The principal is due and
payable to Phoenix on October 31, 2002.
(b) The $443,773 due from Columbus II represents a note, including past due
interest that was added to the principal, which were purchased from CNA
Financial Corporation on November 24, 1982. Interest is payable to Phoenix
monthly at an annual rate of 20% of the face amount of the notes
receivable. Phoenix recognized interest income of approximately $288,300,
$310,600 and $310,600 in 1997, 1996 and 1995, respectively, related to the
note receivable. The principal is due and payable to Phoenix on October
31, 2002.
Amounts in excess of purchase price represent the difference between the
face amount and the accrued interest receivable on the notes purchased and the
price paid. The amounts in excess of purchase price will be recognized when
the principal due on the notes is received, net of any costs associated with
final settlement.
In 1997, the notes receivable from former Limited Partners of Columbus I and
Columbus II matured. The "amounts in excess of purchase price" relating to
these notes were realized at the time of settlement. The financial statements
reflect gain on the settlement of the notes of $3,315,337 (amounts in excess
of purchase price).
These related entities are under the control of the partners of Phoenix. The
partners have represented that substantially all of these amounts will be
settled among the parties (see Note 9).
(5) NOTES PAYABLE
Notes payable at December 31, 1997 and 1996 consisted of:
<TABLE>
<CAPTION>
LENDER 1997 1996
------ ------------ ------------
<S> <C> <C>
Banks(a).......................................... $105,925,208 $106,645,808
Estate of Morris Telechansky(b)................... -- 11,280
Estate of Zorabel Telechansky(c).................. -- 13,155
------------ ------------
Total........................................... $105,925,208 $106,670,243
============ ============
</TABLE>
F-59
<PAGE>
PHOENIX ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Notes payable at December 31, 1997, will mature as follows:
<TABLE>
<S> <C>
1998........................................................... $ 720,600
1999........................................................... 105,204,608
------------
Total all notes payable...................................... $105,925,208
============
</TABLE>
- --------
(a) On November 15, 1994, Phoenix, Coaxial, Southern Ohio, Columbus I and
Columbus II (collectively referred to as the borrowers), executed a loan
agreement with a lead bank and several other financial institutions to
replace an existing loan agreement. On May 12, 1998, the loan agreement
was amended. The loan agreement provides for principal term loans up to
$150,000,000 and revolving credit loans up to $23,000,000 ($22,000,000
after the May 12, 1998 amendment). Principal payments on the term loans
are due in 19 quarterly installments of $250,000 beginning March 15, 1995,
and a final quarterly installment for the remaining balance outstanding.
Revolving credit loans are payable at December 31, 1999. Interest on the
outstanding balances under the loan agreement is payable at either a) a
rate comparable to prime rate as defined in the agreement plus 2%, or b)
at a rate comparable to the Eurodollar rate as defined in the agreement
plus 3.25% depending on the borrowers' option at the time the loan is
drawn. These margins have been amended to 2.25% and 3.50%, respectively,
effective March 3, 1997. Interest rates on borrowings outstanding at
December 31, 1997 range from 9.25% to 9.47%. The termination date of the
loan agreement is December 31, 1999. Interest expense for 1997, 1996 and
1995 was $9,855,120, $9,495,420 and $10,301,191, respectively. The letters
of credit discussed in Note 6 aggregating $1,100,000 decrease availability
of borrowings under the loan agreement. Unused and unreserved borrowing
availability under the loan agreement at December 31, 1997 was $5,900,000.
A revolving credit commitment fee of .5% is paid on the average daily
balance available for draw under the revolving credit loan.
The funds borrowed under the loan agreement were allocated to the following
entities as of December 31, 1997:
<TABLE>
<CAPTION>
ENTITY TERM LOAN REVOLVING LOAN
------ ------------ --------------
<S> <C> <C>
Phoenix........................................ $105,925,208 $ --
Coaxial........................................ 16,760,937 8,000,000
Southern Ohio.................................. 20,568,238 8,000,000
Columbus I..................................... 2,385,682 --
Columbus II.................................... 1,359,935 --
------------ -----------
Total........................................ $147,000,000 $16,000,000
============ ===========
</TABLE>
The loans are secured by substantially all of the borrowers' assets and
are joint and several obligations of the borrowers. Significant notes
receivable are pledged as collateral. In addition, the shareholders and
partners of the borrowers have pledged all of their shares and partnership
interests in the borrowers. The proceeds of the loans were used to
refinance existing bank and other notes payable, make capital distributions
to the shareholders and partners, and to finance capital expenditures of
Coaxial and Southern Ohio. Repayment of the Phoenix debt is dependent upon
funding from Coaxial or Southern Ohio.
Among other covenants, the borrowers must comply with restrictive
covenants relating to leverage coverage, interest coverage and cash ratios.
In addition, repayments of principal on the loan are required if certain
conditions relating to asset dispositions, new debt, distributions or
excess cash flow are met. The borrowers are in compliance with these
covenants, as amended, as of December 31, 1997.
F-60
<PAGE>
PHOENIX ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The borrowers are entitled to issue letters of credit for general
corporate purposes or to replace existing letters of credit up to an amount
not exceeding $2,000,000. The borrowers pay a fee equal to 2% per annum of
the amount available for draw under any letters of credit issued. Any draws
on letters of credit issued will be made a part of the outstanding balance
on the revolving credit loan.
Due to loan agreement requirements, the borrowers have entered into
interest rate swap agreements to reduce the impact of changes in interest
rates on the outstanding principal balances (see Notes 7 and 8).
(b) In November 1980, Phoenix issued an unsecured promissory note to the
Estate of Morris Telechansky. Monthly principal installments of $1,253
commencing December, 1992 were due through 1997. The note bore interest at
a rate of 1.25% above the prevailing $100,000 Certificate of Deposit rate.
This note was paid in full during fiscal year 1997.
(c) In November 1980, Phoenix issued an unsecured promissory note to the
Estate of Zorabel Telechansky. Monthly combined principal and interest
installments of $1,260 commencing October, 1992 were due through November,
1997 and include interest at 10.5%. This note was paid in full during
fiscal year 1997.
(6) LETTERS OF CREDIT
The Company, with the borrowers defined in Note 5, has letters of credit for
the benefit of certain program suppliers and former Limited Partners (see Note
4). At December 31, 1997 and 1996, the aggregate value of these letters of
credit for the benefit of certain program suppliers was $1,100,000 and
$850,000, respectively. At December 31, 1997 and 1996, the aggregate value of
these letters of credit for the benefit of the former Limited Partners was $0
(due to final settlement with Limited Partners) and $1,140,775, respectively.
(7) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company, with the borrowers defined in Note 5, become a party to
financial instruments with off-balance-sheet risk in the normal course of
business in managing its interest rate risk. These financial instruments
include interest rate swap agreements, and previously, forward interest rate
agreements and interest rate caps. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized on the Company's balance sheets. The contract or notional amounts
of these instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
The Company has utilized interest rate caps, interest rate swap agreements
and forward interest rate agreements as hedge instruments to reduce exposure
to adverse changes in interest rates. The notional amounts of these
instruments do not represent exposure to credit loss. Risks associated with
these types of financial instruments arise from the movement of interest rates
and failure of the other party to the transaction to meet its obligation. Note
8 provides additional disclosures on the Company's derivative financial
instruments.
The following table shows the contract or notional amount of the Company's
off-balance-sheet financial instruments at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
CONTRACT OR NOTIONAL AMOUNT
----------------------------
1997 1996
------------- --------------
<S> <C> <C>
Interest rate swap agreements.................. $ 40,000,000 $ 115,000,000
</TABLE>
(8) DERIVATIVE FINANCIAL INSTRUMENTS
The Company, with the borrowers as defined in Note 5, currently hold
derivative financial instruments only for purposes other than trading. The
Company's primary objective is the "hedging" or management of interest rate
risk associated with its long-term debt. The two parties to an interest rate
swap agreement agree to exchange,
F-61
<PAGE>
PHOENIX ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
at particular intervals, payment streams calculated on a specified notional
amount, with one stream based on a floating interest rate and the other stream
based on a fixed interest rate. The swaps were entered into in order to reduce
the overall interest rate sensitivity of the Company. These interest rate swap
agreements are the standard fixed/floating type of swap agreements, whereby
the Company pays a fixed rate (i.e., swapped rate) and receive a floating rate
from the counterparty based upon the LIBOR index. All of the interest rate
swaps are treated as hedges, and accordingly, are accounted for on the same
basis as the underlying asset or liability being hedged. The amounts to be
paid or received related to derivative financial instruments are recognized on
an accrual basis, over the estimated life of the hedged instrument, as an
adjustment to interest expense. The counterparty to all of the Company's off-
balance-sheet financial instrument agreements is the lead bank on the loan
agreement.
The following table summarizes the interest rate swap agreements:
<TABLE>
<CAPTION>
FIXED FLOATING
INITIAL RATE RATE
NOTIONAL EFFECTIVE TERMINATION CONTRACT (PAY (RECEIVE
PRINCIPAL AMOUNT TERM DATE DATE COST RATE) RATE) RATE FIXING DATES
---------------- ------ --------- ----------- -------- ----- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$40,000,000............. 1 year 1/15/97 1/15/98 $ 0 5.87% 5.59% to 5.82% April/July/Oct/Jan
</TABLE>
In accordance with the loan agreement, the Company also had previously
purchased interest rate caps to aid in the management of its interest rate
risk. The seller of these caps was obligated to pay the Company the amount, if
any, by which a specified market interest rate exceeded the fixed cap applied
to the notional amount. There were no interest rate cap agreements in effect
at year-end, and the initial contract costs related to previous interest rate
cap agreements were fully amortized as of December 31, 1997.
(9) SUBSEQUENT EVENT
Phoenix, with Coaxial, is currently contemplating the offering, initially
through a private placement, of $140 million of senior notes. These senior
notes would replace Phoenix's and Coaxial's notes payable to banks.
In connection with the offering, Coaxial and Insight Communications, L.P.
(Insight) entered into a Contribution Agreement (the Contribution Agreement)
pursuant to which Coaxial will contribute to a newly formed subsidiary (a
limited liability company) of Coaxial (the Operating Company) substantially
all of the assets and liabilities comprising the cable system of Coaxial, and
Insight will contribute $10 million in cash to the Operating Company. As a
result of this Contribution Agreement, Coaxial will own 25% of the non-voting
common equity and Insight will own 75% of the non-voting common equity of the
Operating Company, subject to possible adjustment pursuant to the Contribution
Agreement. Coaxial will also own two separate series of voting preferred
equity (a $140 million preferred equity interest and a $30 million preferred
equity interest) of the Operating Company; the voting preferred equity
interest will provide for distributions to Coaxial equal in amount to the
payments on the senior and senior discount notes (described below).
The closing of the Contribution Agreement is conditioned upon, among other
things, the private placement of the senior notes by Phoenix and Coaxial and
the private placement of $30 million of senior discount notes by the majority
shareholder of Coaxial.
In conjunction with this transaction, there will be a settlement or net
distribution of related party receivables and payables. The impact on Phoenix
at December 31, 1997 would be an increase to partners' equity of approximately
$69.3 million.
The pro forma balance of Phoenix's partners' deficit if the private
placement and the settlement of related party balances, that will happen in
conjunction with the transactions, would have occurred as of December 31, 1997
is as follows:
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31,
1997
-------------
<S> <C>
Partners' Deficit .......................................... $(104,224,000)
</TABLE>
F-62
<PAGE>
PHOENIX ASSOCIATES
CONDENSED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 DECEMBER 31, 1997
------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................ $ -- $ 247
Other accounts receivable................... -- 1,067
------------- -------------
Total current assets...................... -- 1,314
------------- -------------
OTHER ASSETS:
Due from related parties.................... 408,686 6,409,505
Notes receivable--related parties........... 605,124 775,643
Deferred financing fees, net of accumulated
amortization of $51,800.................... 3,363,987 --
Advances to partners........................ -- 768,000
------------- -------------
Total other assets........................ 4,377,797 7,953,148
------------- -------------
Total assets.............................. $ 4,377,797 $ 7,954,462
============= =============
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES:
Current portion of notes payable............ $ -- $ 720,600
Accounts payable and accrued liabilities.... 1,202,211 973
------------- -------------
Total current liabilities................. 1,202,211 721,573
------------- -------------
NOTES PAYABLE................................. 105,564,908 105,204,608
DUE TO RELATED PARTIES........................ -- 72,439,984
------------- -------------
Total liabilities......................... 106,767,119 178,366,165
------------- -------------
COMMITMENTS AND CONTINGENCIES
PARTNERS' DEFICIT............................. (102,389,322) (170,411,703)
------------- -------------
Total liabilities and partners' deficit... $ 4,377,797 $ 7,954,462
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-63
<PAGE>
PHOENIX ASSOCIATES
CONDENSED STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OTHER EXPENSES, net..... $ (10,376) $ (17,467) $ (62,821) $ (70,661)
INTEREST INCOME
(EXPENSE), net
Interest income--
related parties...... 184,959 471,682 640,503 1,411,968
Interest expense--
related parties...... (604,763) (1,044,359) (2,665,536) (2,998,349)
Interest expense...... (2,679,147) (2,524,455) (7,579,581) (7,324,670)
------------- ------------- ------------- -------------
Total interest
expense, net....... (3,098,951) (3,097,132) (9,604,614) (8,911,051)
------------- ------------- ------------- -------------
Net Loss Before
Extraordinary Item..... (3,109,327) (3,114,599) (9,667,435) (8,981,712)
Extraordinary Item--gain
on settlement of
Columbus II note
receivable (Note 5).... 100,182 -- 100,812 --
------------- ------------- ------------- -------------
NET LOSS (Note 4)....... (3,009,145) (3,114,599) (9,567,253) (8,981,712)
PARTNERS' DEFICIT,
beginning of period.... (176,969,811) (167,411,304) (170,411,703) (161,544,191)
PARTNERS' CONTRIBUTIONS
(Note 5)............... 78,357,634 -- 78,357,634 --
CAPITAL DISTRIBUTIONS
(Note 5)............... (768,000) -- (768,000) --
------------- ------------- ------------- -------------
PARTNERS' DEFICIT, end
of period.............. $(102,389,322) $(170,525,903) $(102,389,322) $(170,565,903)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-64
<PAGE>
PHOENIX ASSOCIATES
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
NET CASH FLOWS USED IN OPERATING ACTIVITIES....... $ (8,413,287) $(8,982,067)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in amounts due from related
parties........................................ 7,039,520 (269,435)
------------- -----------
Net cash used in investing activities......... 7,039,520 (269,435)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable............. (105,925,208) (562,398)
Proceeds from issuance of notes payable......... 105,564,908 --
Contributions from partners, net................ 77,589,634 --
Increase (decrease) in amounts due to related
parties........................................ (72,439,984) 9,808,760
Increase in deferred financing fees............. (3,415,830) --
------------- -----------
Net cash provided by financing activities..... 1,373,520 9,246,362
------------- -----------
NET DECREASE IN CASH.............................. (247) (5,140)
CASH, beginning of period......................... 247 115,090
------------- -----------
CASH, end of period............................... $ -- $ 109,950
============= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-65
<PAGE>
PHOENIX ASSOCIATES
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
(1) GENERAL
The results of operations for the interim periods shown are not necessarily
indicative of the results to be expected for the fiscal year. In the opinion
of Management, the information contained herein reflects all adjustments
necessary to make a fair statement of the results for the three and nine
months ended September 30, 1998 and 1997. All such adjustments are of a normal
recurring nature.
(2) BUSINESS ORGANIZATION AND PURPOSE
Phoenix Associates (Phoenix or the Company) is a Florida general
partnership. Phoenix Associates has no operations. Its ability to satisfy debt
and other obligations is dependent upon funding from related entities. Phoenix
Associates is a co-issuer and joint and several obligor of the debt described
in Note 6 along with an affiliated company, Coaxial Communication of Central
Ohio, Inc.
Phoenix consists of three individual partners who share profits and losses
in the ratio of 67 1/2%, 22 1/2% and 10%, respectively.
Other related entities affiliated with Phoenix include Coaxial
Communications of Central Ohio, Inc. (Coaxial), Insight Communications of
Central Ohio, LLC (Insight Ohio), Coaxial Communications of Southern Ohio,
Inc. (Southern Ohio), Coaxial Associates of Columbus I (Columbus I), Coaxial
Associates of Columbus II (Columbus II), Coaxial LLC, Coaxial Financing Corp.,
Coaxial DJM LLC and Coaxial DSM LLC.
(3) ACCOUNTING POLICIES
Note 2 to the Notes to the Financial Statements in the Company's December
31, 1997 Financial Statements summarize the Company's significant accounting
policies.
(4) INCOME TAXES
Phoenix is a general partnership. Therefore, each partner reports his
distributive share of income or loss on his respective income tax returns. As
a result, the Company does not provide for Federal or state income taxes in
its accounts.
(5) RELATED PARTY TRANSACTIONS
As of December 31, 1997, Phoenix had advances due from two general partners
of $768,000.
Phoenix had advanced funds to and received advances from related entities as
of December 31, 1997 for working capital and for debt service. During August
1998, in connection with the issuance of the Senior Notes described in Note 6,
these amounts were settled. A portion of these amounts was settled by a net
contribution of $74,171,097 from the partners. Phoenix recognized interest
income of approximately $51,700 and $228,300 for the three and nine months
ended September 30, 1998 and $332,000 and $993,000 for the three and nine
months ended September 30, 1997. Phoenix recognized interest expense of
approximately $604,800 and $2,665,500 for the three and nine months ended
September 30, 1998 and $1,044,400 and $2,998,300 for the three and nine months
ended September 30, 1997.
F-66
<PAGE>
PHOENIX ASSOCIATES
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
Advances to and from related entities as of September 30, 1998 and December
31, 1997 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ENTITY 1998 1997
------ ------------- ------------
<S> <C> <C>
Advances to:
Columbus I...................................... $406,686 $ 1,283,596
Columbus II..................................... -- 721,869
Southern Ohio................................... -- 4,404,040
-------- -----------
Due from related entities......................... $408,686 $ 6,409,505
======== ===========
Advances from Coaxial............................. $ -- $72,439,984
======== ===========
</TABLE>
Phoenix has the following notes and accrued interest receivable from related
parties at September 30, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER
1998 31, 1997
------------- -----------
<S> <C> <C>
Columbus I (a).................................... $ 2,401,089 $ 2,348,892
Columbus II (b)................................... 120,874 443,773
----------- -----------
Total face amount of notes receivable........... 2,521,963 2,792,665
Less: Amounts in excess of purchase price......... (1,916,839) (2,017,022)
----------- -----------
Net notes and accrued interest receivable......... $ 605,124 $ 775,643
=========== ===========
</TABLE>
- --------
(a) The $2,348,892 due from Columbus I represents a note, including past due
interest that was added to the principal, which was purchased from CNA
Financial Corporation on November 24, 1982. Interest is payable to Phoenix
monthly at an annual rate of 20% of the face amount of the note
receivable. Phoenix recognized interest income of approximately $111,000
and $345,500 for the three and nine months ended September 30, 1998 and
$117,400 and $352,300 for the three and nine months ended September 30,
1997, related to the note receivable. The principal is due and payable to
Phoenix on October 31, 2002.
(b) The $443,773 due from Columbus II at December 31, 1997 represents a note,
including past due interest that was added to the principal, which was
purchased from CNA Financial Corporation on November 24, 1982. Interest is
payable to Phoenix monthly at an annual rate of 20% of the face amount of
the note receivable. Phoenix recognized interest income of approximately
$22,300 and $66,700 for the three and nine months ended September 30, 1998
and $22,200 and $66,600 for the three and nine months ended September 30,
1997, related to the note receivable. The principal is due and payable to
Phoenix on October 31, 2002. In August 1998, in connection with the
issuance of the Senior Notes, a portion of the notes receivable from
Columbus II was settled. The amount in excess of the purchase price
relating to these notes was realized at the time of the settlement. The
financial statements reflect an extraordinary item for the gain on
settlement of the notes of $100,182.
Amounts in excess of purchase price represent the difference between the
face amount and the accrued interest receivable on the notes purchased and the
price paid. The amounts in excess of purchase price will be recognized when
the principal due on the notes is received, net of any costs associated with
final settlement.
These related entities are under the control of the partners of Phoenix. The
shareholders have represented that substantially all of these amounts will be
settled among the parties.
(6) NOTES PAYABLE
On August 21, 1998, Phoenix Associates and Coaxial Communications of Central
Ohio issued $140 million of Senior Notes (Senior Notes) due August 15, 2006.
The Senior Notes replaced Phoenix's and Coaxial's existing notes payable.
Interest accrues at 10% and is payable semi-annually.
F-67
<PAGE>
PHOENIX ASSOCIATES
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
The Senior Notes were allocated as of September 30, 1998 as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
ENTITY 1998
------ -------------
<S> <C>
Phoenix........................................................ $105,565,000
Coaxial........................................................ 34,435,000
------------
Total........................................................ $140,000,000
============
</TABLE>
The Senior Notes are non-recourse and are secured by all issued and
outstanding Series A Preferred Interest owned by Coaxial in Insight Ohio. The
distributions required on the Series A Preferred Interests are designed to
provide the cash flow for payment of interest on the Senior Notes. The ability
of Phoenix and Coaxial to make scheduled payments with respect to the Senior
Notes will depend on the financial and operating performance of Insight Ohio
and its ability to make the distributions required on the Series A Preferred
Interests.
Among other covenants the borrowers must comply with restrictive covenants
relating to incurrence of additional debt, payment of dividends and
distributions, and the transfer or sale of all assets. Phoenix and Coaxial
were in compliance with these covenants as of September 30, 1998.
F-68
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders' of
Insight Communications of Central Ohio, LLC:
We have audited the accompanying balance sheet of Insight Communications of
Central Ohio, LLC (a Delaware limited liability company) as of July 31, 1998.
This financial statement is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Insight Communications of Central
Ohio, LLC as of July 31, 1998, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Columbus, Ohio,
October, 30, 1998.
F-69
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
BALANCE SHEET
AS OF JULY 31, 1998
<TABLE>
<S> <C>
ASSETS:
Assets.................................................................. $--
====
LIABILITIES AND MEMBERS' EQUITY:
Liabilities............................................................. $--
Preferred membership interests.......................................... --
Common membership interests............................................. --
----
Total liabilities and members' equity................................. $--
====
</TABLE>
The accompanying notes to balance sheet are an integral part of this statement.
F-70
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO BALANCE SHEET
JULY 31, 1998
(1) NATURE OF BUSINESS
Insight Communications of Central Ohio, LLC (Insight Ohio) was formed on
July 23, 1998 in order to acquire all of the assets and liabilities comprising
the cable television system (the System) of Coaxial Communications of Central
Ohio, Inc. (Coaxial). As of July 31, 1998, Insight Ohio had not yet been
capitalized and had no operations.
(2) SUBSEQUENT EVENTS
On August 21, 1998, Coaxial contributed to Insight Ohio all of the assets
and liabilities comprising the System for which Coaxial received a 25% non-
voting common membership interest in Insight Ohio as well as 100% of the
voting preferred membership interests in Insight Ohio (Series A and Series B
Preferred Interests). Insight Holdings of Ohio, LLC contributed $10 million in
cash to Insight Ohio for which it received a 75% non-voting common membership
interest in Insight Ohio.
On August 21, 1998, Coaxial and Phoenix Associates, a related entity, issued
$140 million of 10% Senior Notes (Senior Notes) due 2006. The Senior Notes are
non-recourse and are secured by all issued and outstanding Series A Preferred
Interest in Insight Ohio.
On August 21, 1998, Coaxial Financing Corp. and Coaxial LLC, related
entities, issued 12 7/8% Senior Discount Notes due 2008 (Discount Notes). The
Discount Notes have a face amount of $55,869,000 and approximately $30 million
of gross proceeds were received upon issuance. The Discount Notes are non-
recourse, secured by 100% of the common stock of Coaxial, and conditionally
guaranteed by Insight Ohio.
F-71
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1998 AND JULY 31, 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, JULY 31,
1998 1998
------------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................. $ 4,848,045 $--
Subscriber receivables, less allowance for doubtful
accounts of $159,000................................ 2,796,265 --
Other accounts receivable, less allowance for
doubtful accounts of $157,000....................... 1,031,818 --
Due from related parties............................. 57,451 --
Other current assets................................. 950,831 --
------------- ----
Total current assets............................... 9,684,410 --
------------- ----
PROPERTY AND EQUIPMENT, at cost:
CATV systems......................................... 66,447,798 --
Other................................................ 8,298,503 --
------------- ----
74,746,301
Less--Accumulated depreciation and amortization...... (45,423,723) --
------------- ----
Total property and equipment, net.................. 29,322,578 --
------------- ----
INTANGIBLE ASSETS, net................................. 48,643 --
------------- ----
Total assets....................................... $ 39,055,631 $--
============= ====
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES:
Current portion of capital lease obligations......... $ 127,721 $--
Due to related parties............................... 141,574 --
Preferred dividends payable.......................... 2,034,340 --
Accounts payable, accrued liabilities and other
current liabilities................................. 9,034,461 --
------------- ----
Total current liabilities.......................... 11,338,096 --
------------- ----
CAPITAL LEASE OBLIGATION............................... 131,181 --
DEFERRED INCOME........................................ 1,190,350 --
----
SERIES A PREFERRED INTEREST............................ 140,000,000 --
SERIES B PREFERRED INTERESTS........................... 30,000,000 --
------------- ----
Total liabilities and preferred interests.......... 182,659,627 --
COMMITMENTS AND CONTINGENCIES
MEMBERS' DEFICIT....................................... (143,603,996) --
------------- ----
Total liabilities and members' deficit............. $ 39,055,631 $--
============= ====
</TABLE>
The accompanying notes are an integral part of these statements.
F-72
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
CONDENSED STATEMENT OF OPERATIONS AND MEMBERS' DEFICIT
FOR THE PERIOD AUGUST 21, 1998 TO SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
OPERATING REVENUES.............................................. $ 5,224,788
OPERATING EXPENSES:
Service and administrative.................................... 2,754,637
Depreciation and amortization................................. 413,183
-------------
Total operating expenses.................................... 3,167,820
-------------
OPERATING INCOME................................................ 2,056,968
INTEREST INCOME (EXPENSE), net.................................. (5,199)
-------------
NET INCOME (Note 4)............................................. 2,051,769
ACCRUAL OF PREFERRED INTERESTS.................................. 2,034,340
-------------
INCOME ON COMMON................................................ 17,429
MEMBERS' EQUITY, beginning of period............................ --
MEMBERS' CONTRIBUTIONS.......................................... 34,457,858
PREFERRED MEMBERSHIP INTEREST................................... (170,000,000)
CAPITAL DISTRIBUTIONS........................................... (8,079,283)
-------------
MEMBERS' (DEFICIT), end of period............................... $(143,603,996)
=============
</TABLE>
The accompanying notes are an integral part of these statements.
F-73
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
CONDENSED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM AUGUST 21, 1998 TO SEPTEMBER 30, 1998
INCREASE (DECREASE) IN CASH
(UNAUDITED)
<TABLE>
<S> <C>
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES.................... $ 3,095,026
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment.................. (472,210)
-----------
Net cash used in investing activities.......................... (472,210)
-----------
NET CASH FROM FINANCING ACTIVITY...................................
Capital contributions............................................ 10,000,000
Capital distributions............................................ (8,079,283)
Capital lease payments........................................... (21,743)
Contributed cash................................................. 326,255
-----------
Net cash provided by financing activities...................... 2,225,229
NET INCREASE (DECREASE) IN CASH.................................... 4,848,045
CASH, beginning of period.......................................... --
-----------
CASH, end of period................................................ $ 4,848,045
===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-74
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
(1) GENERAL
The results of operations for the interim period shown is not necessarily
indicative of the results to be expected for the fiscal year. In the opinion
of Management, the information contained herein reflects all adjustments
necessary to make a fair statement of the results for the period August 21,
1998 to September 30, 1998. All such adjustments are of a normal recurring
nature.
(2) NATURE OF BUSINESS
Insight Communications of Central Ohio, LLC (Insight Ohio or the Company)
was formed on July 23, 1998 in order to acquire all of the assets and
liabilities comprising the cable television system (the System) of Coaxial
Communications of Central Ohio, Inc. (Coaxial). The System provides basic and
expanded cable services to homes in Columbus, Ohio and surrounding areas.
On August 21, 1998, Coaxial contributed to Insight Ohio all of the assets
and liabilities comprising the System for which Coaxial received a 25% non-
voting common membership interest in Insight Ohio, as well as 100% of the
voting preferred membership interests in Insight Ohio (Series A and Series B
Preferred Interests). Insight Holdings of Ohio, LLC (IHO) contributed $10
million in cash to Insight Ohio for which it received a 75% non-voting common
membership interest in Insight Ohio. IHO serves as the manager of the System.
Insight Ohio is a subsidiary of Coaxial. IHO's investment in Insight Ohio will
be treated as a minority interest in the consolidated financial statements of
Coaxial. The minority interest has not been reflected in the financial
statements of Coaxial because Insight Ohio has negative members' equity.
On August 21, 1998, Coaxial and Phoenix Associates, a related entity, issued
$140 million of 10% Senior Notes (Senior Notes) due 2006. The Senior Notes are
non-recourse and are secured by all issued and outstanding Series A Preferred
Interest in Insight Ohio.
On August 21, 1998, Coaxial Financing Corp. and Coaxial LLC, related
entities, issued 12 7/8% Senior Discount Notes (Discount Notes) due 2008. The
Discount Notes have a face amount of $55,869,000 and approximately $30 million
of gross proceeds were received upon issuance. The Discount Notes are non-
recourse, secured by 100% of the common stock of Coaxial, and conditionally
guaranteed by Insight Ohio.
The ability of Coaxial Financing Corp., Coaxial LLC, Coaxial and Phoenix
Associates to make scheduled payments with respect to the Discount and Senior
Notes is dependent on the financial and operating performance of Insight Ohio.
The required distributions on the Series A and Series B Preferred Interests
are designed to provide the cash flow to service the Senior and the Discount
Notes.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-75
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUES
In December 1991, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments," which requires disclosure of fair value information
about both on- and off- balance sheet financial instruments for which it is
practicable to estimate that value. The carrying amounts of current assets and
liabilities approximate their fair market value because of the immediate or
short-term maturity of these financial instruments. The fair value of
Preferred Interests approximate the carrying amount due to their being recent
issuances.
OPERATING REVENUE RECOGNITION
Service fees are recorded in the month cable television and pay television
services are provided to subscribers. Connection fees are charges for the
hook-up of new customers and are recognized as current revenues to the extent
of direct selling costs incurred. Any fees in excess of such costs are
deferred and amortized to income over the estimated average period that
subscribers are expected to remain connected to the system. Unearned revenues
are recorded as advance subscriber deposits in the accompanying financial
statements.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. The Company's
customer base consists of a number of homes concentrated in the central Ohio
area. The Company continually monitors the exposure for credit losses and
maintain allowances for anticipated losses. As of September 30, 1998, the
Company had no significant concentrations of credit risk.
MATERIAL, SUPPLIES AND CONSTRUCTION INVENTORIES
Material, supplies and construction inventories are stated at the lower of
cost (first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, while maintenance and repairs are
expensed as incurred. Upon retirement or disposal of assets, the cost and
related accumulated depreciation and amortization are removed from the balance
sheet, and any gain or loss is reflected in earnings. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of the related assets as follows:
<TABLE>
<CAPTION>
YEARS
-------------
<S> <C>
CATV systems..................................................... 10 to 15
Equipment........................................................ 5
Furniture........................................................ 5
Leasehold improvements........................................... Life of lease
</TABLE>
The Company internally constructs certain CATV systems. Construction costs
capitalized include payroll, fringe benefits and other overhead costs
associated with construction activity.
The Company reviews its property, plant and equipment and other long-term
assets when events or changes in circumstances indicate the carrying amounts
may not be recoverable. When such conditions exist, management estimates the
future cash flows from operations or disposition. If the estimated
undiscounted future cash flows are less than the carrying amount of the asset,
an adjustment to reduce the carrying amount would be recorded, and an
impairment loss would be recognized. The Company does not believe that there
is an impairment of such assets.
F-76
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES INTERIM CONDENSED TO FINANCIAL STATEMENTS--(CONTINUED)
MANAGEMENT FEE
Effective August 21, 1998, the System entered into a management agreement
with IHO, which will allow IHO to manage the operations of the System. The
management fee is 3% of gross operating revenues. Fees under this management
agreement were 142,000 for the period August 21, 1998 to September 30, 1998
(included in service and administrative expenses).
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense primarily
for campaign and telemarketing-related efforts was approximately $30,200 for
the period August 21, 1998 to September 30, 1998.
(4) INCOME TAXES
Insight Ohio is a limited liability corporation. Therefore, each member
reports his distributive share of income or loss on his respective income tax
returns. As a result, the Company does not provide for Federal or state income
taxes in its accounts. In the event that the limited liability corporation
election is terminated, deferred taxes related to book and tax temporary
differences would be required to be reflected in the financial statements.
(5) PREFERRED INTERESTS
In conjunction with the transaction described in Note 1, the Company issued
Series A and Series B Preferred Interests which has initial liquidation
preference amounts of $140 million and $30 million, respectively. The
preferred interests will pay distributions in amounts equal to the interest on
the Senior and Discount Notes described in Note 1. The interest rate on the
Series A and B Preferred Interests are 10% and 12 7/8%, respectively. Cash
distributions on the Discount Notes and Series B Preferred Interest do not
commence until February 15, 2004. Cash distributions on the Series A Preferred
Interests for the next 5 years are $14 million per year.
(6) COMMITMENTS AND CONTINGENCIES
The Company is party in or may be affected by various matters under
litigation. Management believes that the ultimate outcome of these matters
will not have a significant adverse effect on either the Company's future
results of operation or financial position.
F-77
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
COAXIAL LLC
The unaudited pro forma statements of operations of Coaxial LLC for the year
ended December 31, 1997 and the nine months ended September 30, 1998 (the "Pro
Forma Statements of Operations") give effect to the Financing Plan and certain
other adjustments, including Coaxial's contribution to Insight Ohio of
substantially all of the assets comprising the System, IHO's contribution to
Insight Ohio of $10.0 million in cash, the Original Notes Offering, the Senior
Notes Offering, the repayment and the purchase and restructuring of certain
bank indebtedness of Coaxial and Phoenix and certain of their affiliates,
settlement of related party receivables and payables, programming savings
realized through Insight's contracts and personnel savings. The unaudited pro
forma adjustments are based upon available information and certain assumptions
that management believes are reasonable. The Pro Forma Statements of
Operations do not purport to be indicative of the results that would have
actually been obtained had such transactions been completed as of the assumed
dates and for the periods presented, or which may be obtained in the future.
The Pro Forma Statements of Operations are presented on a consolidated basis,
which includes the results of Insight Ohio (the System). A pro forma balance
sheet is not provided as the transaction had been consummated prior to the
date of the last balance sheet included in this Prospectus.
The Pro Forma Statement of Operations of Coaxial LLC for the year ended
December 31, 1997 has been derived from the audited financial statements of
Coaxial included elsewhere herein, adjusted to give effect to the Financing
Plan and certain other adjustments as if they had occurred on January 1, 1997.
The Pro Forma Statement of Operations of Coaxial LLC for the nine months ended
September 30, 1998 has been derived from the unaudited financial statements of
Coaxial included elsewhere herein, adjusted to give effect to the Financing
Plan and certain other adjustments as if they had occurred on January 1, 1997.
The Pro Forma Statements of Operations and the accompanying notes should be
read in conjunction with the financial statements of Coaxial LLC, of Coaxial
and of Phoenix, together with the related notes thereto, included elsewhere
herein.
P-1
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
COAXIAL LLC
FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
ACTUAL -------------------------
DECEMBER 31, RELATING TO RELATING TO
1997* COAXIAL COAXIAL LLC PRO FORMA
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues..................... 48,229 -- -- 48,229
Operating expenses
Service and
administrative............ 27,391 (981)(1) -- 26,302
(108)(2)
Home office................ 1,498 -- -- 1,498
Depreciation and
amortization.............. 5,256 43 (3) -- 5,299
------ ------ ------ ------
Total operating
expenses................ 34,145 (1,046) -- 33,099
Operating income............. 14,084 1,046 -- 15,130
Interest expense, net...... 1,230 1,050 (4) 3,863 (10) 6,240
1,699 (5) 109 (9)
(549)(6) (1,297)(11)
135 (7)
Other expense, net......... 271 -- -- 271
------ ------ ------ ------
Net income................... 12,583 (1,289) (2,675) 8,619
====== ====== ====== ======
</TABLE>
- --------
*Represents actual for the year ended December 31, 1997 for Coaxial, the
predecessor company
P-2
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
COAXIAL LLC
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------
ACTUAL RELATING TO RELATING TO
SEPTEMBER 30, 1998* COAXIAL COAXIAL LLC PRO FORMA
------------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues................ 35,809 -- -- 35,809
Operating expenses
Service and
administrative....... 21,663 (878)(1) -- 20,716
(69)(2)
Severance and
transaction structure
costs................ 4,822 (4,822)(8) -- --
Management fee........ 142 -- -- 142
Home office........... 1,131 -- -- 1,131
Depreciation and
amortization......... 3,825 27 (3) -- 3,852
------ ------ ------ ------
Total operating
expenses........... 31,583 (5,742) -- 25,841
Operating income........ 4,226 5,742 -- 9,968
Interest expense,
net.................. 1,067 603 (4) 2,469 (10) 4,717
1,697 (5) 70 (9)
(446)(6) (829)(11)
86 (7)
Other expense, net.... 433 -- -- 433
------ ------ ------ ------
Net income.............. 2,726 3,802 (1,710) 4,818
====== ====== ====== ======
</TABLE>
- --------
* Represents actual for the period ended September 30, 1998 for Coaxial, the
predecessor company
P-3
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(1) Insight Ohio is required by the Employee Transition Agreement to reduce
headcount and benefits as a result of position duplication within the
accounting and finance departments, as well as other redundant management
positions. Each individual has been specifically identified in the
Employee Transition Agreement. These accounting and finance functions
will be replaced with services provided by IHO going forward. The
estimated cost savings associated with these actions are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Headcount savings...................... $ 981 $ 878
</TABLE>
(2) Elimination of rent expenses associated with 3770 East Livingston Avenue
property contributed pursuant to the Contribution Agreement.
(3) Depreciation of contributed property at 3770 East Livingston Avenue.
(4) Represents incremental interest expense related to borrowings under the
Senior Notes computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest of Senior Notes............. $3,444 $2,202
Interest on the Chase Credit
Facility............................ (2,394) (1,599)
------ ------
Incremental Interest Expense......... $1,050 $ 603
====== ======
</TABLE>
(5) Elimination of interest income on related party balances.
(6) Elimination of amortization on the net deferred loan acquisition costs
write-off.
(7) Amortization of the deferred loan acquisition costs related to the
offering (the Original Notes Offering) of the 10% Senior Notes due 2006
(the Senior Notes).
(8) The severance payments and transaction structure costs have not been
included in the Pro Forma Financial Statements because they are non-
recurring in nature.
(9) Amortization of deferred loan acquisition costs related to the offering
of Discount Notes.
(10) Represents accretion of the discount related to borrowings under the
Discount Notes and amortization of deferred financing costs. The interest
rate on the Discount Notes is 12 7/8%.
(11)Represents interest income on LLC mirror notes.
P-4
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
COAXIAL COMMUNICATIONS OF CENTRAL OHIO INC.
The unaudited pro forma statements of operations of Coaxial for the year
ended December 31, 1997 and the nine months ended September 30, 1998 (the "Pro
Forma Statements of Operations") give effect to the Financing Plan and certain
other adjustments, including Coaxial's contribution to Insight Ohio of
substantially all of the assets comprising the System, IHO's contribution to
Insight Ohio of $10.0 million in cash, the Original Notes Offering, the
Discount Notes Offering, the repayment and the purchase and restructuring of
certain bank indebtedness of Coaxial and Phoenix and certain of their
affiliates, the settlement of related party receivables and payables,
programming savings realized through Insight's contracts and personnel
savings. The unaudited pro forma adjustments are based upon available
information and certain assumptions that management believes are reasonable.
The Pro Forma Statements of Operations do not purport to be indicative of the
results that would have actually been obtained had such transactions been
completed as of the assumed dates and for the periods presented, or which may
be obtained in the future. The Pro Forma Statements of Operations are
presented on a consolidated basis, which includes the results of Insight Ohio
(the System). A pro forma balance sheet is not provided as the transaction had
been consummated prior to the last balance sheet included in this Prospectus.
The Pro Forma Statement of Operations for the year ended December 31, 1997
has been derived from the audited financial statements of Coaxial included
elsewhere herein, adjusted to give effect to the Financing Plan and certain
other adjustments as if they had occurred on January 1, 1997. The Pro Forma
Statement of Operations for the nine months ended September 30, 1998 has been
derived from the unaudited financial statements of Coaxial included elsewhere
herein, adjusted to give effect to the Financing Plan and certain other
adjustments as if they had occurred on January 1, 1997.
The Pro Forma Statements of Operations and the accompanying notes should be
read in conjunction with the financial statements of Coaxial and of Phoenix,
together with the related notes thereto, included elsewhere herein.
P-5
<PAGE>
PRO FORMA STATEMENTS OF OPERATIONS
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues........................................ $48,229 $ -- $48,229
Operating expenses
Service and administrative.................... 27,391 (981)(1) 26,302
(108)(2)
Home office expense........................... 1,498 -- 1,498
Depreciation and amortization................. 5,256 43 (3) 5,299
------- ------- -------
Total operating expenses.................... 34,145 (1,046) 33,099
Operating income................................ 14,084 1,046 15,130
Interest expense, net......................... 1,230 1,050 (4) 3,565
1,699 (5)
(549)(6)
135 (7)
Other expense, net............................ 271 -- 271
------- ------- -------
Net Income...................................... $12,583 $(1,289) $11,294
======= ======= =======
</TABLE>
See Footnotes to Pro Forma Financial Statements
P-6
<PAGE>
PRO FORMA STATEMENTS OF OPERATIONS
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues........................................ $35,809 $ -- $35,809
Operating expenses
Service and administrative.................... 21,663 (878)(1) 20,716
(69)(2)
Severance and transaction structure costs..... 4,822 (4,822)(8) --
Management fee................................ 142 -- 142
Home office expense........................... 1,131 -- 1,131
Depreciation and amortization................. 3,825 27 (3) 3,852
------- ------- -------
Total operating expenses.................... 31,583 (5,742) 25,841
Operating income................................ 4,226 5,742 9,968
Interest expense, net......................... 756 603 (4) 2,696
1,697 (5)
(446)(6)
86 (7)
Other expense, net............................ 433 -- 433
------- ------- -------
Net Income...................................... $ 3,037 $ 3,802 $ 6,839
======= ======= =======
</TABLE>
See Footnotes to Pro Forma Financial Statements
P-7
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(1) Insight Ohio is required by the Employee Transition Agreement to reduce
headcount and benefits as a result of position duplication within the
accounting and finance departments, as well as other redundant management
positions. Each individual has been specifically identified in the
Employee Transition Agreement. These accounting and finance functions
will be replaced with services provided by IHO going forward. The
estimated cost savings associated with these actions are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Headcount savings...................... $981 $878
</TABLE>
(2) Elimination of rent expenses associated with 3770 East Livingston Avenue
property contributed pursuant to the Contribution Agreement.
(3) Depreciation of contributed property at 3770 East Livingston Avenue.
(4) Represents incremental interest expense related to borrowing under the
Senior Notes computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest of Senior Notes............ $3,444 $2,202
Interest on the Chase Credit
Facility........................... (2,394) (1,599)
------ ------
Incremental Interest Expense........ $1,050 $ 603
====== ======
</TABLE>
(5) Elimination of interest income on related party balances.
(6) Elimination of amortization on the net deferred loan acquisition costs
write-off.
(7) Amortization of the deferred loan acquisition costs related to the
offering of the Senior Notes.
(8) The severance payments and transaction structure costs are not included
in the Pro Forma Statements of Operations because they are non-recurring
in nature.
(9) Service and administrative costs for the year ended December 31, 1997,
and the nine months ended September 30, 1998 would have been lower by
approximately $1,877 and $1,376, respectively, had the System been
covered by IHO's programming fee structure for such periods.
P-8
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
PHOENIX ASSOCIATES
The unaudited pro forma statements of operations of Phoenix for the year
ended December 31, 1997 and the nine months ended September 30, 1998 (the "Pro
Forma Statements of Operations") give effect to the Financing Plan and certain
other adjustments, including Coaxial's contribution to Insight Ohio of
substantially all of the assets comprising the System, IHO's contribution to
Insight Ohio of $10.0 million in cash, the Original Notes Offering, the
Discount Notes Offering, the repayment and the purchase and restructuring of
certain bank indebtedness of Coaxial and Phoenix and certain of their
affiliates, the settlement of related party receivables and payables and
personnel savings. The unaudited pro forma adjustments are based upon
available information and certain assumptions that management believes are
reasonable. The Pro Forma Statements of Operations do not purport to be
indicative of the results that would have actually been obtained had such
transactions been completed as of the assumed dates and for the periods
presented, or which may be obtained in the future. A pro forma balance sheet
is not provided as the transaction had been consummated prior to the date of
the last balance sheet included in this Prospectus.
The Pro Forma Statement of Operations for the year ended December 31, 1997
has been derived from the audited financial statements of Phoenix included
elsewhere herein, adjusted to give effect to the Financing Plan and certain
other adjustments as if they had occurred on January 1, 1997. The Pro Forma
Statement of Operations for the nine months ended September 30, 1998 has been
derived from the unaudited financial statements of Phoenix included elsewhere
herein, adjusted to give effect to the Financing Plan and certain other
adjustments as if they had occurred on January 1, 1997.
The Pro Forma Statements of Operations and the accompanying notes should be
read in conjunction with the financial statements of Phoenix and Coaxial,
together with the related notes thereto, included elsewhere herein.
P-9
<PAGE>
PRO FORMA STATEMENTS OF OPERATIONS
PHOENIX ASSOCIATES
FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues....................................... $ -- $ -- $ --
Operating expenses
Service and administrative................... -- -- --
Home office.................................. -- -- --
Depreciation and amortization................ -- -- --
------- ------- ------
Total operating expenses................... -- -- --
Operating income............................... -- -- --
Interest expense, net........................ 12,094 703 (1) 9,679
408 (2)
(3,526)(3)
Other expense................................ 89 -- 89
------- ------- ------
Net loss before extraordinary item............. (12,183) $ 2,415 (9,768)
======= ======= ======
</TABLE>
See Footnotes to Pro Forma Financial Statements
P-10
<PAGE>
PRO FORMA STATEMENTS OF OPERATIONS
PHOENIX ASSOCIATES
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues...................................... $ -- $ -- $ --
Operating expenses
Service and administrative.................. -- -- --
Home office................................. -- -- --
Depreciation and amortization............... -- -- --
------- ------- -------
Total operating expenses.................. -- -- --
Operating income.............................. -- -- --
Interest expense, net....................... 9,604 422 (1) 8,250
306 (2)
(2,082)(3)
Other expense .............................. 63 -- 63
------- ------- -------
Net Loss...................................... $(9,667) $ 1,354 $(8,313)
======= ======= =======
</TABLE>
See Footnotes to Pro Forma Financial Statements
P-11
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(1) Represents incremental interest expense related to borrowing under the
Senior Notes computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest of Senior Notes ............ $ 10,557 $ 6,747
Interest on the Chase Credit
Facility............................ (9,854) (6,325)
-------- -------
Incremental Interest Expense......... $ 703 $ 422
======== =======
</TABLE>
(2) Amortization of the deferred loan acquisition costs.
(3) Elimination of interest expense (income), net, on certain related party
balances as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
(DOLLARS IN THOUSANDS)
<C> <S> <C> <C>
Interest Income: Columbus I........ $ (253) $ (428)
Southern Ohio..... $ (247) $ (155)
Interest Expense: Central Ohio...... $ 4,026 $ 2,665
------- -------
$ 3,526 $ 2,082
======= =======
</TABLE>
P-12
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
THE SYSTEM
The unaudited pro forma statements of operations of the System for the year
ended December 31, 1997 and the nine months ended September 30, 1998 (the "Pro
Forma Statements of Operations") give effect to the Financing Plan and certain
other adjustments. The unaudited pro forma adjustments are based upon
available information and certain assumptions that management believes are
reasonable. The Pro Forma Statements of Operations do not purport to be
indicative of the results that would have actually been obtained had such
transactions been completed as of the assumed dates and for the periods
presented, or which may be obtained in the future. A pro forma balance sheet
is not provided as the transaction had been consummated prior to the date of
the last balance sheet in this Prospectus.
The Pro Forma Statement of Operations for the year ended December 31, 1997
has been derived from the audited financial statements of "Central Ohio Cable
System Operating Unit" included elsewhere herein, adjusted to give effect to
the Financing Plan and certain other adjustments as if they had occurred on
January 1, 1997. The Pro Forma Statement of Operations for the nine months
ended September 30, 1998 has been derived from the unaudited financial
statements of "Central Ohio Cable System Operating Unit" and the unaudited
financial statements of "Insight Communications of Central Ohio, LLC" included
elsewhere herein, adjusted to give effect to the Financing Plan and certain
other adjustments as if they had occurred on January 1, 1997.
The Pro Forma Statements of Operations and the accompanying notes should be
read in conjunction with the financial statements of "Central Ohio Cable
System Operating Unit" and the unaudited financial statements of "Insight
Communications of Central Ohio, LLC" together with the related notes thereto,
included elsewhere herein.
P-13
<PAGE>
PRO FORMA STATEMENTS OF OPERATIONS
THE SYSTEM
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues..................................... $48,229 $ -- $48,229
Operating expenses
Service and administrative................. 27,391 (981)(1) 26,302
(108)(2)
Home office expense........................ 1,498 -- 1,498
Depreciation and amortization.............. 5,238 43 (3) 5,281
------- -------- -------
Total operating expenses................. 34,127 (1,046) 33,081
Operating income............................. 14,102 1,046 15,148
Interest income.............................. (70) -- (70)
Other expense................................ 271 -- 271
------- -------- -------
Net Income................................... 13,901 1,046 14,947
Preferred distribution....................... -- 17,863 (4) 17,863
------- -------- -------
Loss on common............................... $13,901 $(16,817) $(2,916)
======= ======== =======
</TABLE>
See Footnotes to Pro Forma Financial Statements
P-14
<PAGE>
PRO FORMA STATEMENTS OF OPERATIONS
THE SYSTEM
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ACTUAL ACTUAL
JANUARY 1, 1998 TO AUGUST 21, 1998 TO PRO FORMA
AUGUST 21, 1998 SEPTEMBER 30, 1998 ADJUSTMENTS PRO FORMA
------------------ ------------------ ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues................ $30,584 $5,225 $ -- $35,809
Operating expenses
Service and
administrative....... 19,050 2,613 (878) (1) 20,716
(69) (2)
Severance and
transaction structure
costs................ 4,822 -- (4,822) (5) --
Management fee -- 142 -- 142
Home office expense... 1,131 -- -- 1,131
Depreciation and
amortization......... 3,412 413 27 (3) 3,852
------- ------ ------- -------
Total operating
expenses........... 28,415 3,168 (5,742) 25,841
Operating income........ 2,169 2,057 5,742 9,968
Interest (income)
expense, net (22) 5 -- (17)
Other expense, net.. 433 -- -- 433
------- ------ ------- -------
Net Income.............. 1,758 2,052 5,742 9,552
Accrual of Preferred
Interest............... -- 2,034 11,363 (4) 13,397
------- ------ ------- -------
Loss on Common.......... $ 1,758 $ 18 $(5,621) $(3,845)
======= ====== ======= =======
</TABLE>
P-15
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(1) Insight Ohio is required by the Employee Transition Agreement to reduce
headcount and benefits as a result of position duplication within the
accounting and finance departments, as well as other redundant management
positions. Each individual has been specifically identified in the
Employee Transition Agreement. These accounting and finance functions
will be replaced with services provided by IHO going forward. The
estimated cost savings associated with these actions are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Headcount savings...................... $981 $878
</TABLE>
(2) Elimination of rent expenses associated with 3770 East Livingston Avenue
property contributed pursuant to the Contribution Agreement.
(3) Depreciation of contributed property at 3770 East Livingston Avenue.
(4) Represents the preferred distribution on the Preferred Interests. The
preferred distribution is 10% on the Series A Preferred Interest and 12
7/8% on the Series B Preferred Interest.
(5) The severance payments and transaction structure costs are not included
in the Pro Forma Statements of Operations because they are non-recurring
in nature.
P-16
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
ASSETS AND LIABILITIES TO BE CONTRIBUTED TO INSIGHT OHIO
The unaudited pro forma statement of "Assets and Liabilities to be
Contributed to Insight Ohio" as of August 21, 1998 (the "Pro Forma Balance
Sheet") and the unaudited pro forma statements of operations of "Assets and
Liabilities to be Contributed to Insight Ohio" for the year ended December 31,
1997 and the period ended August 21, 1998 (the "Pro Forma Statements of
Operations" and, together with the Pro Forma Balance Sheet, the "Pro Forma
Financial Statements") have been prepared to depict the effect of eliminating
assets and liabilities not included in Central Ohio Cable System Operating
Unit and contributed to Insight Ohio. The Pro Forma Financial Statements do
not purport to be indicative of the results that would have actually been
obtained had such transaction been completed as of the assumed dates and for
the periods presented, or which may be obtained in the future.
The Pro Forma Statement of Operations for the year ended December 31, 1997
has been derived from the audited financial statements of Coaxial included
elsewhere herein, adjusted to give effect to the contribution of the System to
Insight Ohio as if the contribution had occurred on January 1, 1997. The Pro
Forma Balance Sheet and Pro Forma Statement of Operations as of and for the
period ended August 21, 1998 have been derived from the unaudited financial
statements of Coaxial included elsewhere herein, adjusted to give effect to
the contribution of the System to Insight Ohio as if the contribution had
occurred on January 1, 1997 with respect to the Pro Forma Statement of
Operations, and on August 21, 1998 with respect to the Pro Forma Balance
Sheet.
The Pro Forma Financial Statements and the accompanying notes should be read
in conjunction with the financial statements of Coaxial and "Central Ohio
Cable System Operating Unit" together with the related notes thereto, included
elsewhere herein.
P-17
<PAGE>
PRO FORMA BALANCE SHEET
ASSETS AND LIABILITIES TO BE CONTRIBUTED TO INSIGHT OHIO
AS OF AUGUST 21, 1998
<TABLE>
<CAPTION>
PRO FORMA
COAXIAL ADJUSTMENTS(1) PRO FORMA
--------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................... $ 267 $ 1 $ 266
Accounts receivable....................... 1,266 39 1,227
Other accounts receivable................. 2,110 2,080 30
Other current assets...................... 1,194 250 944
--------- ------- -------
Total current assets.................... 4,837 2,370 2,467
Property, plant and equipment............... 28,829 (503) 29,332
Deferred loan acquisition cost.............. 941 941 --
Franchise rights and other intangibles...... 55 4 51
Due from related parties and other assets... 83,564 83,538 26
--------- ------- -------
Total assets............................ $ 118,226 $86,350 $31,876
========= ======= =======
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities......................... $ 8,878 $ 2,710 $ 6,168
Notes payable:
Related Entity............................ 2,933 2,933 --
Bank...................................... 25,840 25,840 --
Other..................................... 1,663 1,663 --
--------- ------- -------
Total notes payable..................... 30,436 30,436 --
Capital lease obligation.................... 134 -- 134
Deferred income............................. 1,116 -- 1,116
Due to related party........................ 19,146 19,146 --
--------- ------- -------
Total liabilities....................... 59,710 52,292 7,418
--------- ------- -------
Shareholders' equity........................ 58,516 34,058 24,458
--------- ------- -------
Total liabilities and shareholders'
equity................................. $ 118,226 $86,350 $31,876
========= ======= =======
</TABLE>
- --------
(1) Pro forma adjustments reflect the elimination of assets and liabilities
that will not be contributed to Insight Ohio.
P-18
<PAGE>
PRO FORMA STATEMENTS OF OPERATIONS
ASSETS AND LIABILITIES TO BE CONTRIBUTED TO
INSIGHT OHIO
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
COAXIAL ADJUSTMENTS(1) PRO FORMA
------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues....................................... $48,229 $ -- $48,229
Operating expenses.............................
Service and administrative................... 27,391 -- 27,391
Home office.................................. 1,498 -- 1,498
Depreciation and amortization................ 5,256 18 5,238
------- ------ -------
Total operating expense.................... 34,145 18 34,127
Operating income............................... 14,084 (18) 14,102
Interest expense (income), net............... 1,230 (1,300) (70)
Other expense, net .......................... 271 -- 271
------- ------ -------
Net Income..................................... $12,583 $1,318 $13,901
======= ====== =======
</TABLE>
- --------
(1) Pro forma adjustments reflect the elimination of assets and liabilities
that will not be contributed to Insight Ohio.
P-19
<PAGE>
PRO FORMA STATEMENTS OF OPERATIONS
ASSETS AND LIABILITIES TO BE CONTRIBUTED TO INSIGHT OHIO
PERIOD JANUARY 1, 1998 TO AUGUST 21, 1998
<TABLE>
<CAPTION>
PRO FORMA
COAXIAL ADJUSTMENTS(1) PRO FORMA
------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues....................................... $30,584 $-- $30,584
Operating expenses
Service and administrative................... 19,050 -- 19,050
Severance and transaction structure costs.... 4,822 -- 4,822
Home office expense.......................... 1,131 -- 1,131
Depreciation and amortization................ 3,412 -- 3,412
------- ---- -------
Total operating expenses................... 28,415 -- 28,415
Operating income............................... 2,169 -- 2,169
Interest expense (income), net............... 346 (368) (22)
Other expense, net .......................... 433 -- 433
------- ---- -------
Net Income..................................... $ 1,390 $368 $ 1,758
======= ==== =======
</TABLE>
- --------
(1) Pro forma adjustments reflect the elimination of assets and liabilities
that will not be contributed to Insight Ohio.
P-20
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED HEREIN OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT
CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUERS SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 23
Use of Proceeds.......................................................... 35
Capitalization........................................................... 37
Selected Historical and Combined Pro Forma Financial and Operating Data.. 38
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 45
Business................................................................. 53
Legislation and Regulation............................................... 66
Management............................................................... 74
Certain Relationships and Related Transactions........................... 76
Principal Security Holders............................................... 78
The System Acquisition................................................... 79
Description of Governing Documents....................................... 83
Description of Certain Indebtedness...................................... 87
Description of the Notes................................................. 90
Book-Entry; Delivery and Form............................................ 118
The Exchange Offer....................................................... 121
U.S. Federal Income Tax Considerations................................... 129
Plan of Distribution..................................................... 133
Legal Matters............................................................ 133
Experts.................................................................. 133
Additional Available Information......................................... 134
Glossary................................................................. 135
Index to Financial Statements............................................ F-1
Pro Forma Financial Statements........................................... P-1
</TABLE>
------------
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROSPECTUS
COAXIAL LLC
COAXIAL FINANCING CORP.
EXCHANGE OFFER
FOR
$55,869,000 AGGREGATE PRINCIPAL AMOUNT AT MATURITY
OF
12 7/8% SENIOR DISCOUNT NOTES DUE 2008
GUARANTEED ON A CONDITIONAL BASIS
BY INSIGHT COMMUNICATIONS OF
CENTRAL OHIO, LLC
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(A) Coaxial LLC
Section 18-108 of the Delaware Limited Liability Company Act empowers a
limited liability company to indemnify and hold harmless any member or manager
or other person from and against any and all claims and demands whatsoever;
subject to such standards and restriction, if any, set forth in the operating
agreement.
Section 5.7 of Coaxial LLC's Operating Agreement provides in pertinent part
as follows:
(a) In any threatened, pending, or completed claim, action, suit, or
proceeding to which the Member was or is a party or is threatened to be
made a party by reason of his activities on behalf of the Company, the
Company shall indemnify and hold harmless such Member against losses,
damages, expenses (including attorneys' and accountants' fees), judgments,
and amounts paid in settlement actually and reasonably incurred in
connection with such claim, action, suit, or proceeding, except that the
Member shall not be indemnified for actions constituting the improper
receipt of personal benefits, willful misconduct, recklessness, or gross
negligence with respect to the business of the Company; provided, however,
that to the extent the Member has been successful on the merits or
otherwise in defense of any action, suit, or proceeding to which he was or
is a party or is threatened to be made a party by reason of the fact that
he was or is a Member of the Company, or in defense of any claim, issue, or
matter in connection therewith, the Company shall indemnify such Member and
hold him harmless against the expenses (including attorneys' and
accountants' fees) actually incurred by such Member in connection
therewith.
(b) Expenses (including attorneys' and accountants' fees) incurred in
defending a civil or criminal claim, action, suit, or proceeding shall be
paid by the Company in advance of the final disposition of the matter upon
receipt of an undertaking by or on behalf of the Member to repay such
amount if such Member is ultimately determined not to be entitled to
indemnity.
(c) For purposes of this Section 5.7, the termination of any action,
suit, or proceeding by judgment, order, settlement, or otherwise adverse to
the Member shall not, of itself, create a presumption that the conduct of
such Member constitutes willful misconduct, recklessness, or gross
negligence with respect to the business of the Company.
(B) Coaxial Financing Corp.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was
a director, officer, employee or agent of the corporation or its or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Section 145 also empowers a corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of
the capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted under similar standards, except
that no indemnification may be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be
II-1
<PAGE>
liable to the corporation unless, and only to the extent that, the Court of
Chancery or the court in which such action was brought shall determine that
despite the adjudication of liability such person is fairly and reasonably
entitled to indemnify for such expenses which the court shall deem proper.
Section 145 further provides that to the extent that a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to above or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fee)
actually and reasonably incurred by him in connection therewith, that
indemnification provided for by Section 145 shall not be deemed exclusive of
any other rights to which the indemnified party may be entitled; and that the
corporation is empowered to purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liabilities under Section 145.
Article NINTH of the Certificate of Incorporation of Coaxial Financing Corp.
governs the indemnification of the officers and directors as follows:
The corporation shall have the power to indemnify its officers, directors,
employees and agents, and such other persons as may be designated as set
forth in the Bylaws, to the full extent permitted by the laws of the State
of Delaware. A director shall not be personally liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duties as
a director, provided that the liability of a director (i) for any breach of
the director's loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of Title 8 of the
Delaware Code, or (iv) for any transaction from which the director derived
an improper personal benefit shall not be eliminated or limited hereby.
Article VII of the By-laws of Coaxial Financing Corp. provides in pertinent
part as follows:
The Corporation shall indemnify any person to the full extent permitted,
and in the manner provided, by the General Corporation Law of the State of
Delaware, as the same now exists or may hereafter be amended.
(C) Insight Communications of Central Ohio, LLC ("Insight Ohio")
Section 18-108 of the Delaware Limited Liability Company Act empowers a
limited liability company to indemnify and hold harmless any member or manager
or other person from and against any and all claims and demands whatsoever,
subject to such standards and restriction, if any, set forth in the operating
agreement.
Section 11.1 of Insight Ohio's Operating Agreement (the "Operating
Agreement") provides as follows:
Insight Ohio shall indemnify, defend and hold harmless each member of
Insight Ohio and its members, partner, officers, directors shareholders,
employees, and agents, the employees, officers and agents of Insight Ohio,
the Principals (as defined in the Operating Agreement), and the
Representatives (as defined in the Operating Agreement) (collectively,
"Indemnified Persons") from any liability, loss, or damage incurred by the
Indemnified Person by reason of any act performed or omitted to be
performed by the Indemnified Person in connection with the business of
Insight Ohio (including, in the case of Insight Holdings of Ohio, LLC
("Insight"), any such act in connection with the management of the
Shareholders (as defined in the Operating Agreement) pursuant to the
management agreements between Shareholders and Insight, or arising by
reason of Insight's status as manager of the Shareholders), including costs
and attorneys' fees (which attorneys' fees may be paid as incurred) and any
amounts expended in the settlement of any claims of liability, loss or
damage; provided, however, that if the liability, loss, damage or claim
arises out of any action or inaction of an Indemnified Person,
indemnification shall not be available if the action or inaction
constitutes fraud, gross negligence, breach of fiduciary duty (which shall
not be construed to encompass mistakes in judgment or any breach of any
Indemnified Person's duty of care that did not constitute gross negligence)
willful misconduct, or breach of the Operating Agreement by the Indemnified
Person; and provided, further, however, that indemnification shall be
recoverable only from the assets of Insight Ohio and not from any assets of
the members of Insight Ohio. Insight Ohio may pay for insurance covering
liability of the Indemnified Persons for negligence in operation of Insight
Ohio's affairs.
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
-------------- -------------------
<C> <S>
2.1 Contribution Agreement by and between Insight Holdings of Ohio,
LLC, as assignee of Insight Communications Company, L.P., and
Coaxial Communications of Central Ohio, Inc. dated as of June
30, 1998 (the "Contribution Agreement")*
2.2 Amendment to Contribution Agreement dated as of July 15, 1998*
2.3 Second Amendment to Contribution Agreement dated as of August
21, 1998*
3.1 Certificate of Incorporation of Coaxial Financing Corp., filed
July 24, 1998*
3.2 By-Laws of Coaxial Financing Corp.*
3.3 Certificate of Formation of Insight Communications of Central
Ohio, LLC filed July 23, 1998*
3.4 Operating Agreement of Insight Communications of Central Ohio,
LLC dated August 21, 1998*
3.5 Certificate of Formation of Coaxial LLC filed July 24, 1998*
3.6 Operating Agreement of Coaxial LLC dated August 21, 1998*
3.7 Certificate of Formation of Coaxial DSM LLC filed July 24,
1998*
3.8 Operating Agreement of Coaxial DSM LLC dated August 21, 1998*
3.9 Certificate of Formation of Coaxial DJM LLC filed July 24,
1998*
3.10 Operating Agreement of Coaxial DJM LLC dated August 21, 1998*
4.1 Purchase Agreement among Coaxial LLC, Coaxial Financing Corp.,
Insight Communications of Central Ohio, LLC and CIBC
Oppenheimer Corp. dated August 21, 1998*
4.2 Discount Notes Registration Rights Agreement among Coaxial LLC,
Coaxial Financing Corp., Insight Communications of Central
Ohio, LLC and CIBC Oppenheimer Corp. dated August 21, 1998*
4.3 Indenture among Coaxial LLC, Coaxial Financing Corp., Insight
Communications of Central Ohio, LLC and Bank of Montreal Trust
Company dated August 21, 1998*
4.4 Securities Pledge Agreement between Coaxial Communications of
Central Ohio, Inc. and Bank of Montreal Trust Company dated
August 21, 1998*
4.5 Securities Pledge Agreement between Coaxial LLC and Bank of
Montreal Trust Company dated August 21, 1998*
4.6 Securities Pledge Agreement between Coaxial DSM LLC and Coaxial
LLC dated August 21, 1998*
4.7 Securities Pledge Agreement between Coaxial DJM LLC and Coaxial
LLC dated August 21, 1998*
4.8 Mirror Note of Coaxial DJM LLC payable to the order of Coaxial
LLC dated August 21, 1998*
4.9 Mirror Note of Coaxial DSM LLC payable to the order of Coaxial
LLC dated August 21, 1998*
5.1 Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C.
regarding the validity of the Exchange Notes*
8.1 Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C.
regarding federal income tax matters*
10.1 Close Corporation Agreement of Coaxial Communications of
Central Ohio, Inc. dated August 21, 1998 among Coaxial LLC,
Coaxial DSM LLC, Coaxial DJM LLC and Coaxial Communications of
Central Ohio, Inc.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
-------------- -------------------
<C> <S>
10.2 Management Agreement of Coaxial LLC dated August 21, 1998 among
Insight Holdings of Ohio, LLC, Coaxial LLC and Barry
Silverstein*
10.3 Management Agreement of Coaxial DSM LLC dated August 21, 1998
among Insight Holdings of Ohio, LLC, Coaxial DSM LLC and D.
Stevens McVoy*
10.4 Management Agreement of Coaxial DJM LLC dated August 21, 1998
among Insight Holdings of Ohio, LLC, Coaxial DJM LLC and Dennis
J. McGillicuddy*
10.5 Management Agreement between Coaxial Communications of Central
Ohio, Inc. and Insight Communications of Central Ohio, LLC
dated August 21, 1998*
10.6 Assignment Agreement dated as of August 21, 1998 among CIBC
Oppenheimer Corp., the lenders who were a party to the Chase
Credit Facility, The Chase Manhattan Bank, as agent for such
lenders, Coaxial Communications of Central Ohio, Inc., Phoenix
Associates, Coaxial Associates of Columbus I, Coaxial
Associates of Columbus II and Coaxial Associates of Southern
Ohio, Inc.*
10.7 Revolving Credit Agreement dated as of October 7, 1998 among
Insight Communications of Central Ohio, LLC, several banks and
financial institutions or entities, and Canadian Imperial Bank
of Commerce, as administrative agent
12.1 Statement re Computation of Ratios
23.1 Consent of Arthur Andersen LLP
23.2 Consents of Cooperman Levitt Winikoff Lester & Newman, P.C.
(included in Exhibits 5.1 and 8.1)*
24.1 Powers of Attorney (included as part of signature pages)*
25.1 Statement of Eligibility of Trustee*
27.1 Financial Data Schedule for Coaxial LLC
27.2 Financial Data Schedule for Coaxial Financing Corp.
27.3 Financial Data Schedule for Central Ohio Cable System Operating
Unit
27.4 Financial Data Schedule for Insight Communications of Central
Ohio, LLC
99.1 Form of Letter of Transmittal with respect to the Exchange
Offer*
99.2 Form of Instruction Letter to Registered Shareholders*
99.3 Form of Notice of Guaranteed Delivery*
</TABLE>
- --------
* Previously filed with this Registration Statement.
b) Financial Statement Schedules
None.
ITEM 22. UNDERTAKINGS
Coaxial LLC, Coaxial Financing Corp. and Insight Communications of Central
Ohio, LLC (the "Registrants") hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
II-4
<PAGE>
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; (iii) to include any material information
with respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the Registration Statement when it became effective.
The undersigned Registrants hereby undertake as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the Registrants undertake that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The Registrants undertake that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrants of expenses incurred or paid by a director, officer
or controlling person of the Registrants in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrants will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by them is against
public policy as expressed in the Securities Act of 1933 and will be governed
by the final adjudication of such issue.
II-5
<PAGE>
The undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
the Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on December 23, 1998.
COAXIAL LLC
*
By: _________________________________
MICHAEL S. WILLNER
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
* Chairman
- ------------------------------------- December 23,
SIDNEY R. KNAFEL 1998
* President and Chief
- ------------------------------------- Executive Officer December 23,
MICHAEL S. WILLNER (Principal 1998
Executive Officer)
/s/ Kim D. Kelly Executive Vice
- ------------------------------------- President, Chief December 23,
KIM D. KELLY Financial and 1998
Operating Officer
and Treasurer
(Principal
Financial and
Accounting Officer)
* /s/ Kim D. Kelly
- -------------------------------------
ATTORNEY-IN-FACT
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on December 23, 1998.
COAXIAL FINANCING CORP.
*
By: _________________________________
MICHAEL S. WILLNER
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
* Director and
- ------------------------------------- Chairman December 23,
SIDNEY R. KNAFEL 1998
* Director, President
- ------------------------------------- and Chief Executive December 23,
MICHAEL S. WILLNER Officer (Principal 1998
Executive Officer)
/s/ Kim D. Kelly Director, Executive
- ------------------------------------- Vice President, December 23,
KIM D. KELLY Chief Financial and 1998
Operating Officer
and Treasurer
(Principal
Financial and
Accounting Officer)
* /s/ Kim D. Kelly
- -------------------------------------
ATTORNEY-IN-FACT
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on December 23, 1998.
INSIGHT COMMUNICATIONS OF CENTRAL
OHIO, LLC
*
By: _________________________________
MICHAEL S. WILLNER
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
* Chairman
- ------------------------------------- December 23,
SIDNEY R. KNAFEL 1998
* President and Chief
- ------------------------------------- Executive Officer December 23,
MICHAEL S. WILLNER (Principal 1998
Executive Officer)
/s/ Kim D. Kelly Executive Vice
- ------------------------------------- President, Chief December 23,
KIM D. KELLY Financial and 1998
Operating Officer
and Treasurer
(Principal
Financial and
Accounting Officer)
* /s/ Kim D. Kelly
- -------------------------------------
ATTORNEY-IN-FACT
II-9
<PAGE>
EXHIBIT 10.7
EXECUTION COPY
================================================================================
$25,000,000
REVOLVING CREDIT AGREEMENT
among
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC,
as Borrower,
The Several Lenders
from Time to Time Parties Hereto,
and
CANADIAN IMPERIAL BANK OF COMMERCE,
as Administrative Agent
Dated as of October 7, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS.................................................... 1
1.1 Defined Terms.................................................. 1
1.2 Other Definitional Provisions.................................. 19
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS................................ 20
2.1 Revolving Commitments.......................................... 20
2.2 Procedure for Borrowing........................................ 21
2.3 Commitment Fees, etc........................................... 21
2.4 Termination or Reduction of Revolving Commitments.............. 21
2.5 Optional Prepayments........................................... 22
2.6 Mandatory Prepayments and Commitment Reductions................ 22
2.7 Conversion and Continuation Options............................ 23
2.8 Limitations on Eurodollar Tranches............................. 23
2.9 Interest Rates and Payment Dates............................... 23
2.10 Computation of Interest and Fees............................... 24
2.11 Inability to Determine Interest Rate........................... 24
2.12 Pro Rata Treatment and Payments................................ 25
2.13 Requirements of Law............................................ 26
2.14 Taxes.......................................................... 27
2.15 Indemnity...................................................... 29
2.16 Change of Lending Office....................................... 29
SECTION 3. LETTERS OF CREDIT.............................................. 29
3.1 L/C Commitment................................................. 29
3.2 Procedure for Issuance of Letter of Credit..................... 30
3.3 Fees and Other Charges......................................... 30
3.4 L/C Participations............................................. 31
3.5 Reimbursement Obligation of the Borrower....................... 31
3.6 Obligations Absolute........................................... 32
3.7 Letter of Credit Payments...................................... 32
3.8 Applications................................................... 32
SECTION 4. REPRESENTATIONS AND WARRANTIES................................. 32
4.1 Financial Condition............................................ 33
4.2 No Change...................................................... 33
4.3 Legal Existence; Compliance with Law........................... 33
4.4 Legal Power; Authorization; Enforceable Obligations............ 34
4.5 No Legal Bar................................................... 34
4.6 Litigation..................................................... 34
4.7 No Default..................................................... 34
4.8 Ownership of Property; Liens................................... 35
4.9 Intellectual Property.......................................... 35
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.10 Taxes.......................................................... 35
4.11 Federal Regulations............................................ 35
4.12 Labor Matters.................................................. 35
4.13 ERISA.......................................................... 36
4.14 Investment Company Act; Other Regulations...................... 36
4.15 Subsidiaries................................................... 36
4.16 Environmental Matters.......................................... 36
4.17 Accuracy of Information, etc................................... 37
4.18 Security Documents............................................. 38
4.19 Solvency....................................................... 38
4.20 Year 2000 Matters.............................................. 38
4.21 Related Agreements............................................. 38
SECTION 5. CONDITIONS PRECEDENT........................................... 39
5.1 Initial Conditions............................................. 39
5.2 Conditions to Each Extension of Credit......................... 41
SECTION 6. AFFIRMATIVE COVENANTS.......................................... 41
6.1 Financial Statements........................................... 41
6.2 Certificates; Other Information................................ 42
6.3 Payment of Obligations......................................... 43
6.4 Maintenance of Existence; Compliance........................... 43
6.5 Maintenance of Property; Insurance............................. 43
6.6 Inspection of Property; Books and Records; Discussions......... 43
6.7 Notices........................................................ 44
6.8 Environmental Laws............................................. 44
6.9 Additional Collateral, etc..................................... 44
6.10 Use of Proceeds................................................ 46
SECTION 7. NEGATIVE COVENANTS............................................. 46
7.1 Financial Condition Covenants.................................. 46
7.2 Indebtedness................................................... 48
7.3 Liens.......................................................... 48
7.4 Fundamental Changes............................................ 49
7.5 Disposition of Property........................................ 49
7.6 Restricted Payments............................................ 50
7.7 Capital Expenditures........................................... 51
7.8 Investments.................................................... 51
7.9 Modifications of Preferred Membership Interests or Operating
Agreement...................................................... 52
7.10 Transactions with Affiliates................................... 52
7.11 Sales and Leasebacks........................................... 52
7.12 Changes in Fiscal Periods...................................... 53
7.13 Negative Pledge Clauses........................................ 53
7.14 Clauses Restricting Subsidiary Distributions................... 53
7.15 Lines of Business.............................................. 53
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 8. EVENTS OF DEFAULT......................................... 53
SECTION 9. THE ADMINISTRATIVE AGENT.................................. 57
9.1 Appointment............................................... 57
9.2 Delegation of Duties...................................... 57
9.3 Exculpatory Provisions.................................... 57
9.4 Reliance by Administrative Agent.......................... 58
9.5 Notice of Default......................................... 58
9.6 Non-Reliance on Administrative Agent and Other Lenders.... 58
9.7 Indemnification........................................... 59
9.8 Administrative Agent in Its Individual Capacity........... 59
9.9 Successor Administrative Agent............................ 59
9.10 Authorization to Release Guarantees and Liens............. 60
SECTION 10. MISCELLANEOUS............................................. 60
10.1 Amendments and Waivers.................................... 60
10.2 Notices................................................... 61
10.3 No Waiver; Cumulative Remedies............................ 62
10.4 Survival of Representations and Warranties................ 62
10.5 Payment of Expenses and Taxes............................. 62
10.6 Successors and Assigns; Participations and Assignments.... 63
10.7 Adjustments; Set-off...................................... 65
10.8 Counterparts.............................................. 66
10.9 Severability.............................................. 66
10.10 Integration............................................... 66
10.11 GOVERNING LAW............................................. 66
10.12 Submission To Jurisdiction; Waivers....................... 66
10.13 Acknowledgements.......................................... 67
10.14 Confidentiality........................................... 67
10.15 WAIVERS OF JURY TRIAL..................................... 68
</TABLE>
-iii-
<PAGE>
ANNEX:
A Pricing Grid
SCHEDULES:
1.1 Revolving Commitments
4.4 Consents, Authorizations, Filings and Notices
4.15 Subsidiaries
4.18 UCC Filing Jurisdictions
7.2(d) Existing Indebtedness
7.3(f) Existing Liens
EXHIBITS:
A Form of Guarantee and Collateral Agreement
B Form of Compliance Certificate
C Form of Closing Certificate
D Form of Assignment and Acceptance
E Form of Legal Opinion of Cooperman Levitt Winikoff
Lester & Newman, P.C.
F Form of Exemption Certificate
-iv-
<PAGE>
REVOLVING CREDIT AGREEMENT, dated as of October 7, 1998, among Insight
Communications of Central Ohio, LLC, a limited liability company organized under
the laws of Delaware (the "Borrower"), the several banks and other financial
--------
institutions or entities from time to time parties to this Agreement (the
"Lenders") and Canadian Imperial Bank of Commerce, as administrative agent.
-------
W I T N E S S E T H
WHEREAS, the Borrower has requested that the Lenders make revolving
credit loans to the Borrower in an aggregate amount of up to $25,000,000 at any
one time outstanding; and
WHEREAS, the Lenders are willing to make such revolving credit loans
upon and subject to the terms and conditions hereinafter set forth;
NOW THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms listed in
-------------
this Section 1.1 shall have the respective meanings set forth in this Section
1.1.
"ABR": for any day, a rate per annum (rounded upwards, if necessary,
---
to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on
such day, and (b) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per
----------
annum publicly announced from time to time by the Reference Lender as its prime
rate in effect at its principal office in New York City (the Prime Rate not
being intended to be the lowest rate of interest charged by the Reference Lender
in connection with extensions of credit to debtors). Any change in the ABR due
to a change in the Prime Rate or the Federal Funds Effective Rate shall be
effective as of the opening of business on the effective day of such change in
the Prime Rate or the Federal Funds Effective Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to which is based
---
upon the ABR.
"Adjustment Date": as defined in the Pricing Grid.
---------------
"Administrative Agent": Canadian Imperial Bank of Commerce, together
--------------------
with its affiliates, as the arranger of the Revolving Commitments and as the
administrative agent for the Lenders under this Agreement and the other Loan
Documents, together with any of its successors.
"Affiliate": as to any Person, any other Person that, directly or
---------
indirectly, is in control of, is controlled by, or is under common control with,
such Person. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, either to (a) vote
<PAGE>
2
10% or more of the securities having ordinary voting power for the election of
directors (or persons performing similar functions) of such Person or (b) direct
or cause the direction of the management and policies of such Person, whether by
contract or otherwise.
"Aggregate Exposure": with respect to any Lender at any time, an
------------------
amount equal to (a) until the Closing Date, the aggregate amount of such and (b)
thereafter, such Lender's Revolving Commitment then in effect or, if the
Revolving Commitments have been terminated, the amount of such Lender's
Revolving Extensions of Credit then outstanding.
"Aggregate Exposure Percentage": with respect to any Lender at any
-----------------------------
time, the ratio (expressed as a percentage) of such Lender's Aggregate Exposure
at such time to the Aggregate Exposure of all Lenders at such time.
"Agreement": this Credit Agreement, as amended, supplemented or
---------
otherwise modified from time to time.
"Applicable Margin": for each Type of Loan, the rate per annum set
-----------------
forth under the relevant column heading below:
ABR Loans Eurodollar Loans
--------- ----------------
0.75% 2.00%;
provided, that on and after the first Adjustment Date occurring after the
- --------
Closing Date, the Applicable Margin with respect to the Loans will be determined
pursuant to the Pricing Grid.
"Application": an application, in such form as the Issuing Lender may
-----------
specify from time to time, requesting the Issuing Lender to open a Letter of
Credit.
"Asset Sale": any Disposition of property or series of related
----------
Dispositions of property (excluding any such Disposition permitted by clause
(a), (b), (c) or (d) of Section 7.5) that yields gross proceeds to the Borrower
or any of its Subsidiaries (valued at the initial principal amount thereof in
the case of non-cash proceeds consisting of notes or other debt securities and
valued at fair market value in the case of other non-cash proceeds) in excess of
$250,000.
"Asset Swap": any exchange, with any other Person of assets owned by
----------
the Borrower or any Subsidiary comprising one or more cable television systems
for assets comprising one or more other cable television systems owned and
operated by such Person.
"Assignee": as defined in Section 10.6(c).
--------
"Assignment and Acceptance": an Assignment and Acceptance,
-------------------------
substantially in the form of Exhibit D.
"Assignor": as defined in Section 10.6(c).
--------
<PAGE>
3
"Available Revolving Commitment": as to any Lender at any time, an
------------------------------
amount equal to the excess, if any, of (a) such Lender's Revolving Commitment
then in effect over (b) such Lender's Revolving Extensions of Credit then
----
outstanding.
"Benefitted Lender": as defined in Section 10.7(a).
-----------------
"Board": the Board of Governors of the Federal Reserve System of the
-----
United States (or any successor).
"Board of Directors": of any Person means the board of directors,
------------------
management committee or other body governing the management and affairs of such
Person.
"Borrower": as defined in the preamble hereto.
--------
"Borrowing Date": any Business Day specified by the Borrower as a
--------------
date on which the Borrower requests the Lenders to make Loans hereunder.
"Business": as defined in Section 4.16(b).
--------
"Business Day": a day other than a Saturday, Sunday or other day on
------------
which commercial banks in New York City are authorized or required by law to
close, provided, that with respect to notices and determinations in connection
--------
with, and payments of principal and interest on, Eurodollar Loans, such day is
also a day for trading by and between banks in Dollar deposits in the interbank
eurodollar market.
"Capital Expenditures": for any period, with respect to any Person,
--------------------
the aggregate of all expenditures by such Person and its Subsidiaries for the
acquisition or leasing (pursuant to a capital lease) of fixed or capital assets
or additions to equipment (including replacements, capitalized repairs and
improvements during such period) that should be capitalized under GAAP on a
consolidated balance sheet of such Person and its Subsidiaries.
"Capital Lease Obligations": as to any Person, the obligations of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or
-------------
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants, rights or options to purchase any of the foregoing.
"Cash Equivalents": (a) marketable direct obligations issued by, or
----------------
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one
<PAGE>
4
year from the date of acquisition; (b) certificates of deposit, time deposits,
eurodollar time deposits or overnight bank deposits having maturities of six
months or less from the date of acquisition issued by any Lender or by any
commercial bank organized under the laws of the United States or any state
thereof having combined capital and surplus of not less than $500,000,000; (c)
commercial paper of an issuer rated at least A-1 by Standard & Poor's Ratings
Services ("S&P") or P-1 by Moody's Investors Service, Inc. ("Moody's"), or
--- -------
carrying an equivalent rating by a nationally recognized rating agency, if both
of the two named rating agencies cease publishing ratings of commercial paper
issuers generally, and maturing within six months from the date of acquisition;
(d) repurchase obligations of any Lender or of any commercial bank satisfying
the requirements of clause (b) of this definition, having a term of not more
than 30 days, with respect to securities issued or fully guaranteed or insured
by the United States government; (e) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political subdivision or
taxing authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may be) are
rated at least A by S&P or A by Moody's; (f) securities with maturities of six
months or less from the date of acquisition backed by standby letters of credit
issued by any Lender or any commercial bank satisfying the requirements of
clause (b) of this definition; or (g) shares of money market mutual or similar
funds which invest exclusively in assets satisfying the requirements of clauses
(a) through (f) of this definition.
"Change of Control": (i) any Person (including a Person's Affiliates
-----------------
and associates), other than a Permitted Holder, becomes the beneficial owner (as
defined under Rule 13d-3 or any successor rule or regulation promulgated under
the Securities Exchange Act of 1934) of 50% or more of the total voting and
economic power of the Borrower's Capital Stock, (ii) any Person (including a
Person's Affiliates and associates), other than a Permitted Holder, becomes the
beneficial owner of more than 33-1/3% of the total voting power of the
Borrower's Capital Stock and the Permitted Holders beneficially own, in the
aggregate, a lesser percentage of the total voting power of the Capital Stock of
the Borrower than such other Person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of the Borrower, (iii) during any period of
two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Borrower (together with any new
members of the Board of Directors whose election by such Board of Directors or
whose nomination for election by the shareholders or members of the Borrower has
been approved by 66-2/3% of the members of the Board of Directors then still in
office who either were members of the Board of Directors at the beginning of
such period or whose election or recommendation for election was previously so
approved) cease to constitute a majority of the Board of Directors of the
Borrower or (iv) Insight LP is the beneficial owner of less than 50% of the
total voting and economic power of the Borrower's Capital Stock and ceases to
have management control of the day-to-day operations of the Borrower, provided,
--------
however, that a Change of Control will be deemed not to have occurred as
- -------
provided above if Insight continues to be the manager of the Borrower pursuant
to the Operating Agreement or designees of Insight constitute a majority of the
members of the Management Committee of the Borrower.
<PAGE>
5
"Closing Date": the date on which the conditions precedent set forth
------------
in Section 5.1 shall have been satisfied, provided that such date is on or
--------
before October 7, 1998.
"Coaxial Senior Note Indenture": the Indenture, dated as of August
-----------------------------
21, 1998, entered into by Coaxial and Phoenix, as Issuers, and the Borrower, as
Guarantor, in connection with the issuance of the Coaxial Senior Notes, together
with all instruments and other agreements entered into by Coaxial, Phoenix or
the Borrower in connection therewith.
"Coaxial Discount Note Indenture": the Indenture, dated as of August
-------------------------------
21, 1998, entered into by the Discount Note Issuers, as Issuers, and the
Borrower, as Guarantor, in connection with the issuance of the Coaxial Discount
Notes, together with all instruments and other agreements entered into by the
Discount Note Issuers or the Borrower in connection therewith.
"Coaxial Senior Notes": 10% Senior Notes due 2006 of Coaxial and
--------------------
Phoenix issued pursuant to the Coaxial Senior Note Indenture.
"Coaxial Discount Notes": the 12-7/8% Senior Discount Notes due 2008
----------------------
of the Discount Note Issuers issued pursuant to the Coaxial Discount Note
Indenture.
"Coaxial" Coaxial Communications of Central Ohio, Inc., a corporation
-------
organized under the laws of Ohio.
"Code": the Internal Revenue Code of 1986, as amended from time to
----
time.
"Collateral": all property of the Loan Parties, now owned or
----------
hereafter acquired, upon which a Lien is purported to be created by any Security
Document.
"Commitment Fee Rate": 1/2 of 1% per annum.
-------------------
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
that is under common control with the Borrower within the meaning of Section
4001 of ERISA or is part of a group that includes the Borrower and that is
treated as a single employer under Section 414 of the Code.
"Compliance Certificate": a certificate duly executed by a
----------------------
Responsible Officer substantially in the form of Exhibit B.
"Consolidated Annualized Adjusted Operating Cash Flow": for any
----------------------------------------------------
fiscal quarter, the product of (a) Consolidated Operating Cash Flow for such
fiscal quarter, multiplied by (b) four, provided, however, that (i) in the case
-------- -------
of the calculation thereof for the fiscal quarter ending June 30, 1998, the
adjustments to historical and pro forma EBITDA described in the table set forth
in Note (13) to the Summary Historical and Combined Pro Forma Financial and
Operating Data included in the Offering Memorandum for the Coaxial Discount
Notes (the "Adjustments") shall be made to Consolidated Operating Cash Flow for
-----------
such fiscal quarter and (ii) in the case of the calculation thereof for the
fiscal quarter ending
<PAGE>
6
September 30, 1998, Consolidated Operating Cash Flow for such quarter shall be
adjusted to the extent of the product of (x) the Adjustments multiplied by a
fraction (1) the numerator of which is the number of days in the period
commencing on the date of contribution of the Contributed Assets to the Borrower
and ending on the last day of such fiscal quarter and (2) the denominator of
which is the number of days in such fiscal quarter.
"Consolidated Fixed Charge Coverage Ratio": for any period, the ratio
----------------------------------------
of (a) Consolidated Operating Cash Flow for such period to (b) Consolidated
Fixed Charges for such period; provided, however, that for any period during the
-------- -------
fiscal year of the Borrower ending 1999 or 2000, the Consolidated Fixed Charge
Coverage Ratio shall be the ratio of (a) Consolidated Operating Cash Flow for
such period to (b) Consolidated Fixed Charges minus the aggregate amount of
-----
Capital Expenditures (up to (i) $15,000,000 for the fiscal year ending 1999 or
(ii) $2,500,000 for the fiscal year ending 2000) made during such period by the
Borrower and its Subsidiaries in connection with the upgrade of cable television
systems then owned by the Borrower or any of its Subsidiaries.
"Consolidated Fixed Charges": for any period, the sum (without
--------------------------
duplication) of (a) Consolidated Interest Expense for such period, (b) Capital
Expenditures by the Borrower and its Subsidiaries during such period, (c)
scheduled payments made during such period on account of principal of
Indebtedness of the Borrower or any of its Subsidiaries (including payments of
Loans accompanying scheduled reductions of the Revolving Commitments), (d)
income taxes paid in cash by the Borrower and its Subsidiaries during such
period and (e) dividend payments made by the Borrower pursuant to Section 7.6(b)
during such period.
"Consolidated Interest Coverage Ratio": for any period, the ratio of
------------------------------------
(a) Consolidated Operating Cash Flow for such period to (b) Consolidated
Interest Expense for such period.
"Consolidated Interest Expense": for any period, total cash interest
-----------------------------
expense (including that attributable to Capital Lease Obligations) of the
Borrower and its Subsidiaries for such period with respect to all outstanding
Indebtedness of the Borrower and its Subsidiaries (including all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and net costs under Hedge Agreements in respect of
interest rates to the extent such net costs are allocable to such period in
accordance with GAAP).
"Consolidated Leverage Ratio": on any day, the ratio of (a)
---------------------------
Consolidated Total Debt on such day to (b) the sum of (i) Consolidated
Annualized Adjusted Operating Cash Flow for the then most recently ended fiscal
quarter of the Borrower for which financial statements have been delivered
pursuant to Section 6.1 plus (ii) management fees deducted in determining the
----
Consolidated Operating Cash Flow for such period.
"Consolidated Net Income": for any period, the consolidated net
-----------------------
income (or loss) of the Borrower and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP; provided that there shall be
--------
excluded (a) the income (or deficit) of any Person
<PAGE>
7
accrued prior to the date it becomes a Subsidiary of the Borrower or is merged
into or consolidated with the Borrower or any of its Subsidiaries, (b) the
income (or deficit) of any Person (other than a Subsidiary of the Borrower) in
which the Borrower or any of its Subsidiaries has an ownership interest, except
to the extent that any such income is actually received by the Borrower or such
Subsidiary in the form of dividends or similar distributions and (c) the
undistributed earnings of any Subsidiary of the Borrower to the extent that the
declaration or payment of dividends or similar distributions by such Subsidiary
is not at the time permitted by the terms of any Contractual Obligation (other
than under any Loan Document) or Requirement of Law applicable to such
Subsidiary.
"Consolidated Operating Cash Flow": for any period, Consolidated Net
--------------------------------
Income for such period plus, without duplication and to the extent reflected as
----
a charge in the statement of such Consolidated Net Income for such period, the
sum of (a) income tax expense, (b) interest expense, amortization or writeoff of
debt discount and debt issuance costs and commissions, discounts and other fees
and charges associated with Indebtedness (including the Loans), (c) depreciation
and amortization expense, (d) amortization of intangibles (including, but not
limited to, goodwill) and organization costs, (e) any extraordinary, unusual or
non-recurring non-cash expenses or losses (including, whether or not otherwise
includable as a separate item in the statement of such Consolidated Net Income
for such period, non-cash losses on sales of assets outside of the ordinary
course of business), and (f) any other non-cash charges, and minus, to the
-----
extent included in the statement of such Consolidated Net Income for such
period, the sum of (a) any extraordinary, unusual or non-recurring income or
gains (including, whether or not otherwise includable as a separate item in the
statement of such Consolidated Net Income for such period, gains on the sales of
assets outside of the ordinary course of business) and (b) any other non-cash
income, all as determined on a consolidated basis. For the purposes of
calculating Consolidated Operating Cash Flow for any period of four consecutive
fiscal quarters (each, a "Reference Period"), (i) if at any time during such
----------------
Reference Period the Borrower or any Subsidiary shall have made any Material
Disposition, the Consolidated Operating Cash Flow for such Reference Period
shall be reduced by an amount equal to the Consolidated Operating Cash Flow (if
positive) attributable to the property that is the subject of such Material
Disposition for such Reference Period or increased by an amount equal to the
Consolidated Operating Cash Flow (if negative) attributable thereto for such
Reference Period and (ii) if during such Reference Period the Borrower or any
Subsidiary shall have made a Material Acquisition, Consolidated Operating Cash
Flow for such Reference Period shall be calculated after giving pro forma effect
--- -----
thereto as if such Material Acquisition occurred on the first day of such
Reference Period. As used in this definition, "Material Acquisition" means any
--------------------
acquisition of property or series of related acquisitions of property that (a)
constitutes assets comprising all or substantially all of an operating unit of a
business or constitutes all or substantially all of the common stock of a Person
and (b) involves the payment of consideration by the Borrower and its
Subsidiaries in excess of $1,000,000; and "Material Disposition" means any
--------------------
Disposition of property or series of related Dispositions of property that
yields gross proceeds to the Borrower or any of its Subsidiaries in excess of
$1,000,000.
"Consolidated Pro Forma Debt Service": for any period, the sum of (a)
-----------------------------------
the amount (which may in no event be less than zero) determined by subtracting
the amount of
<PAGE>
8
the Revolving Commitments scheduled to be in effect at the end of such period
from the aggregate principal amount of the Revolving Credit Loans outstanding at
the beginning of such period, (b) the aggregate amount of Consolidated Interest
Expense reasonably expected to be incurred during such period (taking into
account all scheduled reductions in principal during such period and, in the
case of interest which is calculated on a floating basis, assuming that the rate
in effect at the beginning of such period will remain in effect throughout such
period) and (c) the maximum aggregate amount of dividend payments that the
Borrower would be permitted pursuant to Section 7.6(b) to pay during such
period.
"Consolidated Total Debt": at any date, the aggregate principal
-----------------------
amount of all Indebtedness of the Borrower and its Subsidiaries at such date,
determined on a consolidated basis in accordance with GAAP.
"Contractual Obligation": as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Contributed Assets": the assets previously comprising an operating
------------------
unit within Coaxial that operated a cable television system which provided basic
and expanded cable services to homes in Columbus, Ohio and surrounding areas and
that were contributed by Coaxial to the Borrower pursuant to the Contribution
Agreement.
"Contribution Agreement": the Contribution Agreement, dated June 30,
----------------------
1998, between Coaxial and Insight LP, as amended by an Amendment to Contribution
Agreement dated as of July 15, 1998 and a Second Amendment dated as of August
21, 1998, and as assigned by Insight LP to Insight LLC by an Assignment and
Assumption Agreement, dated August 21, 1998, but without giving effect to any
other amendments, supplements or other modifications thereto.
"Control Investment Affiliate": as to any Person, any other Person
----------------------------
that (a) directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person and (b) is organized by such Person primarily
for the purpose of making equity or debt investments in one or more companies.
For purposes of this definition, "control" of a Person means the power, directly
or indirectly, to direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
"Default": any of the events specified in Section 8, whether or not
-------
any requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Discount Note Issuers": collectively, Coaxial LLC, a limited
---------------------
liability company organized under the laws of Delaware, and Coaxial Financing
Corp., a corporation organized under the laws of Delaware.
"Disposition": with respect to any property, any sale, lease, sale
-----------
and leaseback, assignment, conveyance, transfer or other disposition thereof;
provided that any Asset Swap permitted under clause (f) of Section 7.5 shall be
- --------
deemed a Disposition only to the extent
<PAGE>
9
provided for in such clause. The terms "Dispose" and "Disposed of" shall have
------- -----------
correlative meanings.
"Dollars" and "$": dollars in lawful currency of the United States.
------- -
"Environmental Laws": any and all foreign, Federal, state, local or
------------------
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements of Law
(including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
---------------------------------
Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
(including basic, supplemental, marginal and emergency reserves under any
regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Base Rate": with respect to each day during each Interest
--------------------
Period pertaining to a Eurodollar Loan, the rate per annum determined on the
basis of the rate for deposits in Dollars for a period equal to such Interest
Period commencing on the first day of such Interest Period appearing on Page
3750 of the Dow Jones Markets screen as of 11:00 A.M., London time, two Business
Days prior to the beginning of such Interest Period. In the event that such
rate does not appear on Page 3750 of the Dow Jones Markets screen (or otherwise
on such screen), the "Eurodollar Base Rate" shall be determined by reference to
--------------------
such other comparable publicly available service for displaying eurodollar rates
as may be selected by the Administrative Agent or, in the absence of such
availability, by reference to the rate at which the Administrative Agent is
offered Dollar deposits at or about 11:00 A.M., New York City time, two Business
Days prior to the beginning of such Interest Period in the interbank eurodollar
market where its eurodollar and foreign currency and exchange operations are
then being conducted for delivery on the first day of such Interest Period for
the number of days comprised therein.
"Eurodollar Loans": Loans the rate of interest applicable to which is
----------------
based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
---------------
Period pertaining to a Eurodollar Loan, a rate per annum determined for such day
in accordance with the following formula (rounded upward to the nearest 1/100th
of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
<PAGE>
10
"Eurodollar Tranche": the collective reference to Eurodollar Loans
------------------
the then current Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such Loans shall originally
have been made on the same day).
"Event of Default": any of the events specified in Section 8,
----------------
provided that any requirement for the giving of notice, the lapse of time, or
- --------
both, has been satisfied.
"Federal Funds Effective Rate": for any day, the weighted average of
----------------------------
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average of the
quotations for the day of such transactions received by the Reference Lender
from three federal funds brokers of recognized standing selected by it.
"Funding Office": the office of the Administrative Agent specified in
--------------
Section 10.2 or such other office as may be specified from time to time by the
Administrative Agent as its funding office by written notice to the Borrower and
the Lenders.
"GAAP": generally accepted accounting principles in the United States
----
as in effect from time to time, except that for purposes of Section 7.1, GAAP
shall be determined on the basis of such principles in effect on the date hereof
and consistent with those used in the preparation of the most recent audited
financial statements delivered pursuant to Section 4.1(b).
"Governmental Authority": any nation or government, any state or
----------------------
other political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization.
"Guarantee and Collateral Agreement": the Guarantee and Collateral
----------------------------------
Agreement to be executed and delivered by the Borrower and each Subsidiary
Guarantor, substantially in the form of Exhibit A, as the same may be amended,
supplemented or otherwise modified from time to time.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
-------------------- -------------------
any obligation of (a) the guaranteeing person or (b) another Person (including
any bank under any letter of credit) to induce the creation of which obligation
the guaranteeing person has issued a reimbursement, counterindemnity or similar
obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary obligations")
-------------------
of any other third Person (the "primary obligor") in any manner, whether
---------------
directly or indirectly, including any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (1) for the purchase or payment of any such primary obligation or
(2) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor,
<PAGE>
11
(iii) to purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation or (iv) otherwise to assure
or hold harmless the owner of any such primary obligation against loss in
respect thereof; provided, however, that the term Guarantee Obligation shall not
-------- -------
include endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such Guarantee
Obligation is made and (b) the maximum amount for which such guaranteeing person
may be liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable, in which case
the amount of such Guarantee Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith.
"Hedge Agreements": all interest rate swaps, caps or collar
----------------
agreements or similar arrangements providing for protection against fluctuations
in interest rates or currency exchange rates or the exchange of nominal interest
obligations, either generally or under specific contingencies.
"Indebtedness": of any Person at any date, without duplication, (a)
------------
all indebtedness of such Person for borrowed money, (b) all obligations of such
Person for the deferred purchase price of property or services (other than
current trade payables incurred in the ordinary course of such Person's
business), (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (e) all Capital Lease Obligations of
such Person, (f) all obligations of such Person, contingent or otherwise, as an
account party under acceptance, letter of credit or similar facilities, (g) the
liquidation value of all redeemable preferred Capital Stock of such Person, (h)
all Guarantee Obligations of such Person in respect of obligations of the kind
referred to in clauses (a) through (g) above, excluding the Guarantee
Obligations of the Borrower and its Subsidiaries with respect to the Coaxial
Discount Notes; (i) all obligations of the kind referred to in clauses (a)
through (h) above secured by (or for which the holder of such obligation has an
existing right, contingent or otherwise, to be secured by) any Lien on property
(including accounts and contract rights) owned by such Person, whether or not
such Person has assumed or become liable for the payment of such obligation; and
(j) for the purposes of Section 8(e) only, all obligations of such Person in
respect of Hedge Agreements.
"Insight": the collective reference to Insight LLC and Insight LP.
-------
"Insight LLC": Insight Holdings of Ohio, LLC, a limited liability
-----------
company organized under the laws of Delaware.
<PAGE>
12
"Insight LP": Insight Communications Company, L.P., a limited
----------
partnership organized under the laws of Delaware.
"Insolvency": with respect to any Multiemployer Plan, the condition
----------
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
---------
"Intellectual Property": the collective reference to all rights,
---------------------
priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including
copyrights, copyright licenses, patents, patent licenses, trademarks, trademark
licenses, technology, know-how and processes, and all rights to sue at law or in
equity for any infringement or other impairment thereof, including the right to
receive all proceeds and damages therefrom.
"Interest Payment Date": (a) as to any ABR Loan, the last day of each
---------------------
March, June, September and December to occur while such Loan is outstanding and
the final maturity date of such Loan, (b) as to any Eurodollar Loan having an
Interest Period of three months or less, the last day of such Interest Period,
(c) as to any Eurodollar Loan having an Interest Period longer than three
months, each day that is three months, or a whole multiple thereof, after the
first day of such Interest Period and the last day of such Interest Period and
(d) as to any Loan (other than any Loan that is an ABR Loan), the date of any
repayment or prepayment made in respect thereof.
"Interest Period": as to any Eurodollar Loan, (a) initially, the
---------------
period commencing on the borrowing or conversion date, as the case may be, with
respect to such Eurodollar Loan and ending one, two, three, six or, if available
to all Lenders, twelve months thereafter, as selected by the Borrower in its
notice of borrowing or notice of conversion, as the case may be, given with
respect thereto; and (b) thereafter, each period commencing on the last day of
the next preceding Interest Period applicable to such Eurodollar Loan and ending
one, two, three, six or, if available to all Lenders, twelve months thereafter,
as selected by the Borrower by irrevocable notice to the Administrative Agent
not less than three Business Days prior to the last day of the then current
Interest Period with respect thereto; provided that, all of the foregoing
--------
provisions relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business Day;
(ii) any Interest Period that would otherwise extend beyond the
Revolving Termination Date shall end on the Revolving Termination Date;
<PAGE>
13
(iii) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last Business Day of a calendar month; and
(iv) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an Interest
Period for such Loan.
"Investments": as defined in Section 7.8.
-----------
"Issuing Lender": Canadian Imperial Bank of Commerce, in its capacity
--------------
as issuer of any Letter of Credit.
"Junior Preferred Membership Interests": the preferred membership
-------------------------------------
interests of the Borrower designated Preferred B Interests, issued by the
Borrower pursuant to its Operating Agreement.
"L/C Commitment": $5,000,000.
--------------
"L/C Fee Payment Date": the last day of each March, June, September
--------------------
and December and the last day of the Revolving Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
---------------
aggregate then undrawn and unexpired amount of the then outstanding Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit that
have not then been reimbursed pursuant to Section 3.5.
"L/C Participants": the collective reference to all the Lenders other
----------------
than the Issuing Lender.
"Lenders": as defined in the preamble hereto.
-------
"Letters of Credit": as defined in Section 3.1(a).
-----------------
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any conditional sale or
other title retention agreement and any capital lease having substantially the
same economic effect as any of the foregoing).
"Loans": as defined in Section 2.1(a).
-----
"Loan Documents": this Agreement, the Security Documents and the
--------------
Notes.
<PAGE>
14
"Loan Parties": the Borrower and each Subsidiary of the Borrower
------------
that is a party to a Loan Document.
"Majority Lenders": at any time, the holders of more than 50% of the
----------------
Total Revolving Commitments then in effect, or, if the Revolving Commitments
have been terminated, the Total Revolving Extensions of Credit then outstanding.
"Material Adverse Effect": a material adverse effect on (a) the
-----------------------
business, property, operations, condition (financial or otherwise) or prospects
of the Borrower and its Subsidiaries taken as a whole or (b) the validity or
enforceability of this Agreement or any of the other Loan Documents or the
rights or remedies of the Administrative Agent or the Lenders hereunder or
thereunder.
"Materials of Environmental Concern": any gasoline or petroleum
----------------------------------
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as such
in or under any Environmental Law, including asbestos, polychlorinated biphenyls
and urea-formaldehyde insulation.
"Multiemployer Plan": a Plan that is a multiemployer plan as defined
------------------
in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": (a) in connection with any Asset Sale or any
-----------------
Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents
(including any such proceeds received by way of deferred payment of principal
pursuant to a note or installment receivable or purchase price adjustment
receivable or otherwise, but only as and when received) of such Asset Sale or
Recovery Event, net of attorneys' fees, accountants' fees, investment banking
fees, amounts required to be applied to the repayment of Indebtedness secured by
a Lien expressly permitted hereunder on any asset that is the subject of such
Asset Sale or Recovery Event (other than any Lien pursuant to a Security
Document) and other customary fees and expenses actually incurred in connection
therewith and net of taxes paid or reasonably estimated to be payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements) and (b) in connection with any
issuance or sale of equity securities or debt securities or instruments or the
incurrence of loans, the cash proceeds received from such issuance or
incurrence, net of attorneys' fees, investment banking fees, accountants' fees,
underwriting discounts and commissions and other customary fees and expenses
actually incurred in connection therewith.
"Non-Excluded Taxes": as defined in Section 2.14(a).
------------------
"Non-U.S. Lender": as defined in Section 2.14(d).
---------------
"Notes": the collective reference to any promissory note evidencing
-----
Loans.
"Obligations": the unpaid principal of and interest on (including
-----------
interest accruing after the maturity of the Loans and Reimbursement Obligations
and interest accruing after the filing of any petition in bankruptcy, or the
commencement of any insolvency,
<PAGE>
15
reorganization or like proceeding, relating to the Borrower, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding)
the Loans and all other obligations and liabilities of the Borrower to the
Administrative Agent or to any Lender (or, in the case of Hedge Agreements, any
affiliate of any Lender), whether direct or indirect, absolute or contingent,
due or to become due, or now existing or hereafter incurred, which may arise
under, out of, or in connection with, this Agreement, any other Loan Document,
the Letters of Credit, any Hedge Agreement entered into with any Lender or any
affiliate of any Lender or any other document made, delivered or given in
connection herewith or therewith, whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses (including all
fees, charges and disbursements of counsel to the Administrative Agent or to any
Lender that are required to be paid by the Borrower pursuant hereto) or
otherwise.
"Operating Agreement": the Operating Agreement of the Borrower entered
-------------------
into effective as of August 21, 1998, as in effect on the date hereof without
giving effect to any amendments, supplements or modifications thereto not
permitted by Section 7.9.
"Other Taxes": any and all present or future stamp or documentary
-----------
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement or any other Loan Document.
"Participant": as defined in Section 10.6(b).
-----------
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
----
to Subtitle A of Title IV of ERISA (or any successor).
"Permitted Holders": the collective reference to Insight LP, Barry
-----------------
Silverstein, Dennis J. McGillicuddy and D. Stevens McVoy.
"Person": an individual, partnership, corporation, limited liability
------
company, business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.
"Phoenix": Phoenix Associates, a general partnership, organized under
-------
the laws of Florida.
"Plan": at a particular time, any employee benefit plan that is
----
covered by ERISA and in respect of which the Borrower or a Commonly Controlled
Entity is (or, if such plan were terminated at such time, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Pricing Grid": the pricing grid attached hereto as Annex A.
------------
"Pro Forma Financial Statements": as defined in Section 4.1(a).
------------------------------
<PAGE>
16
"Projections": as defined in Section 6.2(c).
-----------
"Properties": as defined in Section 4.16(a).
----------
"Recovery Event": the receipt by the Borrower or any of its
--------------
Subsidiaries of an amount in excess of $250,000 from any settlement of or
payment in respect of any property or casualty insurance claim or any
condemnation proceeding relating to any asset of the Borrower or any of its
Subsidiaries.
"Reference Lender": Canadian Imperial Bank of Commerce.
----------------
"Refinancing Indebtedness": Indebtedness that refunds, refinances or
------------------------
extends any Indebtedness of the Borrower or any of its Subsidiaries permitted to
be outstanding pursuant to Section 7.2(d), (e) and (f), but only to the extent
that (i) the Refinancing Indebtedness is subordinated to the Obligations to at
least the same extent as the Indebtedness being refunded, refinanced or
extended, if at all, (ii) the Refinancing Indebtedness is scheduled to mature
either (a) no earlier than the Indebtedness being refunded, refinanced or
extended, or (b) after the maturity date of the Loans, (iii) the portion, if
any, of the Refinancing Indebtedness that is scheduled to mature on or prior to
the maturity date of the Loans has a weighted average life to maturity at the
time such Refinancing Indebtedness is incurred that is equal to or greater than
the weighted average life to maturity of the portion of the Indebtedness being
refunded, refinanced or extended that is scheduled to mature on or prior to the
maturity date of the Loans, (iv) such Refinancing Indebtedness is in an
aggregate principal amount that is equal to or less than the sum of (a) the
aggregate principal amount then outstanding under the Indebtedness being
refunded, refinanced or extended and the amount of any premium reasonably
necessary to accomplish such refinancing, (b) the amount of accrued and unpaid
interest, if any, and premiums owed, if any, not in excess of preexisting
prepayment provisions of such Indebtedness being refunded, refinanced or
extended and (c) the amount of customary fees, expenses and costs related to the
incurrence of such Refinancing Indebtedness, and (v) such Refinancing
Indebtedness is incurred by the same Person that initially incurred the
Indebtedness being refunded, refinanced or extended.
"Register": as defined in Section 10.6(d).
--------
"Regulation U": Regulation U of the Board as in effect from time to
------------
time.
"Reimbursement Obligation": the obligation of the Borrower to
------------------------
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under
Letters of Credit.
"Reinvestment Deferred Amount": with respect to any Reinvestment
----------------------------
Event, the aggregate Net Cash Proceeds received by the Borrower or any of its
Subsidiaries in connection therewith that are not applied to reduce the
Revolving Commitments pursuant to Section 2.6(b) as a result of the delivery of
a Reinvestment Notice.
"Reinvestment Event": any Asset Sale or Recovery Event in respect of
------------------
which the Borrower has delivered a Reinvestment Notice.
<PAGE>
17
"Reinvestment Notice": a written notice executed by a Responsible
-------------------
Officer stating that no Event of Default has occurred and is continuing and that
the Borrower (directly or indirectly through a Subsidiary) intends and expects
to use all or a specified portion of the Net Cash Proceeds of an Asset Sale or
Recovery Event to acquire assets useful in its business.
"Reinvestment Prepayment Amount": with respect to any Reinvestment
------------------------------
Event, the Reinvestment Deferred Amount relating thereto less any amount
expended prior to the relevant Reinvestment Prepayment Date to acquire assets
useful in the Borrower's business.
"Reinvestment Prepayment Date": with respect to any Reinvestment
----------------------------
Event, the earlier of (a) the date occurring twelve months after such
Reinvestment Event and (b) the date on which the Borrower shall have determined
not to, or shall have otherwise ceased to, acquire assets useful in the
Borrower's business with all or any portion of the relevant Reinvestment
Deferred Amount.
"Reorganization": with respect to any Multiemployer Plan, the
--------------
condition that such plan is in reorganization within the meaning of Section 4241
of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b) of
----------------
ERISA, other than those events as to which the thirty day notice period is
waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg.
(S) 4043.
"Requirement of Law": as to any Person, the Certificate of
------------------
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Responsible Officer": the chief executive officer, president,
-------------------
executive vice president, chief financial officer or chief operating officer of
the Borrower, but in any event, with respect to financial matters, the chief
financial officer of the Borrower.
"Restricted Payments": as defined in Section 7.6.
-------------------
"Revolving Commitment": as to any Lender, the obligation of such
--------------------
Lender to make Loans and participate in Letters of Credit in an aggregate
principal and/or face amount not to exceed the amount set forth under the
heading "Revolving Commitment" opposite such Lender's name on Schedule 1.1 or in
the Assignment and Acceptance pursuant to which such Lender became a party
hereto, as the same may be changed from time to time pursuant to the terms
hereof. The original amount of the Total Revolving Commitments is $25,000,000.
"Revolving Commitment Period": the period from and including the
---------------------------
Closing Date to the Revolving Termination Date.
<PAGE>
18
"Revolving Extensions of Credit": as to any Lender at any time, an
------------------------------
amount equal to the sum of (a) the aggregate principal amount of all Loans held
by such Lender then outstanding and (b) such Lender's Revolving Percentage of
the L/C Obligations then outstanding.
"Revolving Percentage": as to any Lender at any time, the percentage
--------------------
which such Lender's Revolving Commitment then constitutes of the Total Revolving
Commitments (or, at any time after the Revolving Commitments shall have expired
or terminated, the percentage which the aggregate principal amount of such
Lender's Loans then outstanding constitutes of the aggregate principal amount of
the Loans then outstanding).
"Revolving Termination Date": September 30, 2004
--------------------------
"SEC": the Securities and Exchange Commission, any successor thereto
---
and any analogous Governmental Authority.
"Security Documents": the collective reference to the Guarantee and
------------------
Collateral Agreement and all other security documents hereafter delivered to the
Administrative Agent granting a Lien on any property of any Person to secure the
obligations and liabilities of any Loan Party under any Loan Document.
"Senior Preferred Membership Interests": the preferred membership
-------------------------------------
interests of the Borrower designated Preferred A Interests, issued by the
Borrower pursuant to its Operating Agreement.
"Single Employer Plan": any Plan that is covered by Title IV of
--------------------
ERISA, but that is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as of
-------
any date of determination, (a) the amount of the "present fair saleable value"
of the assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws
governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater
than the amount that will be required to pay the liability of such Person on its
debts as such debts become absolute and matured, (c) such Person will not have,
as of such date, an unreasonably small amount of capital with which to conduct
its business, and (d) such Person will be able to pay its debts as they mature.
For purposes of this definition, (i) "debt" means liability on a "claim", and
(ii) "claim" means any (x) right to payment, whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y)
right to an equitable remedy for breach of performance if such breach gives rise
to a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured or unmatured, disputed,
undisputed, secured or unsecured.
<PAGE>
19
"Subsidiary": as to any Person, a corporation, partnership, limited
----------
liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified,
all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall
refer to a Subsidiary or Subsidiaries of the Borrower.
"Subsidiary Guarantor": each Subsidiary of the Borrower.
--------------------
"Tax Distributions": the distributions required to be made by the
-----------------
Borrower to its members, pursuant Section 4.1(a)(iv) of its Operating Agreement.
"Total Revolving Commitments": at any time, the aggregate amount of
---------------------------
the Revolving Commitments then in effect.
"Total Revolving Extensions of Credit": at any time, the aggregate
------------------------------------
amount of the Revolving Extensions of Credit of the Lenders outstanding at such
time.
"Transferee": any Assignee or Participant.
----------
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar
----
Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
---------------
Credits (1993 Revision), International Chamber of Commerce Publication No. 500,
as the same may be amended from time to time.
"United States": the United States of America.
-------------
"U.S. Taxes": as defined in Section 10.6(d).
----------
"Wholly Owned Subsidiary": as to any Person, any other Person all of
-----------------------
the Capital Stock of which (other than directors' qualifying shares required by
law) is owned by such Person directly and/or through other Wholly Owned
Subsidiaries.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
-----------------------------
therein, all terms defined in this Agreement shall have the defined meanings
when used in the other Loan Documents or any certificate or other document made
or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto, (i)
accounting terms relating to the Borrower and its Subsidiaries not defined in
Section 1.1 and accounting terms partly defined in Section 1.1, to the extent
not defined, shall have the respective meanings given to
<PAGE>
20
them under GAAP, (ii) the words "include", "includes" and "including" shall be
deemed to be followed by the phrase "without limitation", and (iii) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, Capital Stock, securities, revenues, accounts, leasehold
interests and contract rights.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Revolving Commitments. (a) Subject to the terms and conditions
---------------------
hereof, each Lender severally agrees to make revolving credit loans ("Loans") to
-----
the Borrower from time to time during the Revolving Commitment Period in an
aggregate principal amount at any one time outstanding which, when added to such
Lender's Revolving Percentage of the L/C Obligations then outstanding, does not
exceed the amount of such Lender's Revolving Commitment then in effect. During
the Revolving Commitment Period the Borrower may use the Revolving Commitments
by borrowing, prepaying the Loans in whole or in part, and reborrowing, all in
accordance with the terms and conditions hereof. The Loans may from time to
time be Eurodollar Loans or ABR Loans, as determined by the Borrower and
notified to the Administrative Agent in accordance with Sections 2.2 and 2.7.
(b) The Borrower shall repay all outstanding Loans on the Revolving
Termination Date.
(c) The Revolving Commitments shall be reduced (and each Lender's
Commitment shall be ratably reduced) on consecutive quarterly dates, commencing
on March 31, 2002, by the amount set forth opposite each date below:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
March 31, 2002 $ 625,000
June 30, 2002 $ 625,000
September 30, 2002 $ 625,000
December 31, 2002 $ 625,000
March 31, 2003 $ 937,500
June 30, 2003 $ 937,500
September 30, 2003 $ 937,500
December 31, 2003 $ 937,000
March 31, 2004 $6,250,000
June 30, 2004 $6,250,000
</TABLE>
<PAGE>
21
<TABLE>
<S> <C>
September 30, 2004 $6,250,000
</TABLE>
2.2 Procedure for Borrowing. The Borrower may borrow under the
-----------------------
Revolving Commitments during the Revolving Commitment Period on any Business
Day, provided that the Borrower shall give the Administrative Agent irrevocable
--------
notice (which notice must be received by the Administrative Agent prior to 12:00
Noon, New York City time, (a) three Business Days prior to the requested
Borrowing Date, in the case of Eurodollar Loans, or (b) one Business Day prior
to the requested Borrowing Date, in the case of ABR Loans), specifying (i) the
amount and Type of Loans to be borrowed, (ii) the requested Borrowing Date and
(iii) in the case of Eurodollar Loans, the respective amounts of each such Type
of Loan and the respective lengths of the initial Interest Period therefor. Any
Loans made on the Closing Date shall initially be ABR Loans. Each borrowing
under the Revolving Commitments shall be in an amount equal to (x) in the case
of ABR Loans, $250,000 or a whole multiple of $100,000 in excess thereof (or, if
the then aggregate Available Revolving Commitments are less than $100,000, such
lesser amount) and (y) in the case of Eurodollar Loans, $500,000 or a whole
multiple of $100,000 in excess thereof. Upon receipt of any such notice from
the Borrower, the Administrative Agent shall promptly notify each Lender
thereof. Each Lender will make the amount of its pro rata share of each
--- ----
borrowing available to the Administrative Agent for the account of the Borrower
at the Funding Office prior to 12:00 Noon, New York City time, on the Borrowing
Date requested by the Borrower in funds immediately available to the
Administrative Agent. Such borrowing will then be made available to the
Borrower by the Administrative Agent crediting the account of the Borrower on
the books of such office with the aggregate of the amounts made available to the
Administrative Agent by the Lenders and in like funds as received by the
Administrative Agent.
2.3 Commitment Fees, etc. (a) The Borrower agrees to pay to the
---------------------
Administrative Agent for the account of each Lender a commitment fee for the
period from and including the Closing Date to the last day of the Revolving
Commitment Period, computed at the Commitment Fee Rate on the average daily
amount of the Available Revolving Commitment of such Lender during the period
for which payment is made, payable quarterly in arrears on the last day of each
March, June, September and December and on the Revolving Termination Date,
commencing on the first of such dates to occur after the date hereof.
(b) The Borrower agrees to pay to the Administrative Agent the fees
in the amounts and on the dates previously agreed to in writing by the Borrower
and the Administrative Agent.
2.4 Termination or Reduction of Revolving Commitments. The Borrower
-------------------------------------------------
shall have the right, upon not less than three Business Days' notice to the
Administrative Agent, to terminate the Revolving Commitments or, from time to
time, to reduce the amount of the Revolving Commitments; provided that no such
--------
termination or reduction of Revolving Commitments shall be permitted if, after
giving effect thereto and to any prepayments of the Loans made on the effective
date thereof, the Total Revolving Extensions of Credit would exceed the Total
Revolving Commitments. Any such reduction shall be in an amount equal
<PAGE>
22
to $1,000,000, or a whole multiple thereof, and shall reduce permanently the
Revolving Commitments then in effect.
2.5 Optional Prepayments. The Borrower may at any time and from time
--------------------
to time prepay the Loans, in whole or in part, without premium or penalty, upon
irrevocable notice delivered to the Administrative Agent at least three Business
Days prior thereto in the case of Eurodollar Loans and at least one Business Day
prior thereto in the case of ABR Loans, which notice shall specify the date and
amount of prepayment and whether the prepayment is of Eurodollar Loans or ABR
Loans; provided, that if a Eurodollar Loan is prepaid on any day other than the
--------
last day of the Interest Period applicable thereto, the Borrower shall also pay
any amounts owing pursuant to Section 2.15. Upon receipt of any such notice the
Administrative Agent shall promptly notify each Lender thereof. If any such
notice is given, the amount specified in such notice shall be due and payable on
the date specified therein, together with (except in the case of Loans that are
ABR Loans) accrued interest to such date on the amount prepaid. Partial
prepayments of Loans shall be in an aggregate principal amount of $1,000,000 or
a whole multiple thereof.
2.6 Mandatory Prepayments and Commitment Reductions. (a) Unless the
-----------------------------------------------
Majority Lenders shall otherwise agree, if any Capital Stock or Indebtedness
shall be issued or incurred by the Borrower or any of its Subsidiaries
(excluding any Indebtedness incurred in accordance with Section 7.2 as in effect
on the date of this Agreement and excluding any Capital Stock of the Borrower
issued to any Person that is a member of the Borrower on the date hereof), an
amount equal to 100% of the Net Cash Proceeds thereof shall be applied on the
date of such issuance or incurrence toward the permanent reduction of the
Revolving Commitments.
(b) Unless the Majority Lenders shall otherwise agree, if on any date
the Borrower or any of its Subsidiaries shall receive Net Cash Proceeds from any
Asset Sale or Recovery Event then, unless a Reinvestment Notice shall be
delivered in respect thereof, such Net Cash Proceeds shall be applied on such
date toward the permanent reduction of the Revolving Commitments; provided,
--------
that, notwithstanding the foregoing, on each Reinvestment Prepayment Date, an
amount equal to the Reinvestment Prepayment Amount with respect to the relevant
Reinvestment Event shall be applied toward the permanent reduction of the
Revolving Commitments.
(c) Any reductions of the Revolving Commitments made pursuant to this
Section 2.6 or Section 2.1(c) shall be accompanied by prepayment of the Loans to
the extent, if any, that the Total Revolving Extensions of Credit exceed the
amount of the Total Revolving Commitments as so reduced, provided that if the
--------
aggregate principal amount of Loans then outstanding is less than the amount of
such excess (because L/C Obligations constitute a portion thereof), the Borrower
shall, to the extent of the balance of such excess, replace outstanding Letters
of Credit and/or deposit an amount in cash in a cash collateral account
established with the Administrative Agent for the benefit of the Lenders on
terms and conditions satisfactory to the Administrative Agent. The application
of any prepayment pursuant to this Section shall be made, first, to ABR Loans
-----
and, second, to Eurodollar Loans.
------
<PAGE>
23
Each prepayment of the Loans under this Section shall be accompanied by accrued
interest to the date of such prepayment on the amount prepaid.
2.7 Conversion and Continuation Options. (a) The Borrower may elect
-----------------------------------
from time to time to convert Eurodollar Loans to ABR Loans by giving the
Administrative Agent at least two Business Days' prior irrevocable notice of
such election, provided that any such conversion of Eurodollar Loans may only be
--------
made on the last day of an Interest Period with respect thereto. The Borrower
may elect from time to time to convert ABR Loans to Eurodollar Loans by giving
the Administrative Agent at least three Business Days' prior irrevocable notice
of such election (which notice shall specify the length of the initial Interest
Period therefor), provided that no ABR Loan may be converted into a Eurodollar
--------
Loan when any Event of Default has occurred and is continuing and the
Administrative Agent has or the Majority Lenders have determined in its or their
sole discretion not to permit such conversions. Upon receipt of any such notice
the Administrative Agent shall promptly notify each Lender thereof.
(b) Any Eurodollar Loan may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
irrevocable notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1, of
the length of the next Interest Period to be applicable to such Loans, provided
--------
that no Eurodollar Loan may be continued as such when any Event of Default has
occurred and is continuing and the Administrative Agent has or the Majority
Lenders have determined in its or their sole discretion not to permit such
continuations, and provided, further, that if the Borrower shall fail to give
-------- -------
any required notice as described above in this paragraph or if such continuation
is not permitted pursuant to the preceding proviso such Loans shall be
automatically converted to ABR Loans on the last day of such then expiring
Interest Period. Upon receipt of any such notice the Administrative Agent shall
promptly notify each Lender thereof.
2.8 Limitations on Eurodollar Tranches. Notwithstanding anything to
----------------------------------
the contrary in this Agreement, all borrowings, conversions and continuations of
Eurodollar Loans hereunder and all selections of Interest Periods hereunder
shall be in such amounts and be made pursuant to such elections so that, (a)
after giving effect thereto, the aggregate principal amount of the Eurodollar
Loans comprising each Eurodollar Tranche shall be equal to $500,000 or a whole
multiple of $100,000 in excess thereof and (b) no more than ten Eurodollar
Tranches shall be outstanding at any one time.
2.9 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
--------------------------------
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to the
ABR plus the Applicable Margin.
(c) If any Event of Default shall have occurred and be continuing and
notice to the effect that the default rate specified in this paragraph shall
become applicable
<PAGE>
24
shall be delivered to the Borrower by the Administrative Agent or the Majority
Lenders, all outstanding Loans and Reimbursement Obligations (whether or not
overdue) shall bear interest at a rate per annum equal to the rate applicable to
ABR Loans plus 2%.
----
(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this Section
--------
shall be payable from time to time on demand.
2.10 Computation of Interest and Fees. (a) Interest and fees payable
--------------------------------
pursuant hereto shall be calculated on the basis of a 360-day year for the
actual days elapsed, except that, with respect to ABR Loans the rate of interest
on which is calculated on the basis of the Prime Rate, the interest thereon
shall be calculated on the basis of a 365- (or 366-, as the case may be) day
year for the actual days elapsed. The Administrative Agent shall as soon as
practicable notify the Borrower and the Lenders of each determination of a
Eurodollar Rate. Any change in the interest rate on a Loan resulting from a
change in the ABR or the Eurocurrency Reserve Requirements shall become
effective as of the opening of business on the day on which such change becomes
effective. The Administrative Agent shall as soon as practicable notify the
Borrower and the Lenders of the effective date and the amount of each such
change in interest rate.
(b) Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.9(a).
2.11 Inability to Determine Interest Rate. If prior to the first day
------------------------------------
of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period, or
(b) the Administrative Agent shall have received notice from the
Majority Lenders that the Eurodollar Rate determined or to be determined
for such Interest Period will not adequately and fairly reflect the cost to
such Lenders (as conclusively certified by such Lenders) of making or
maintaining their affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as practicable thereafter. If such notice is
given (x) any Eurodollar Loans requested to be made on the first day of such
Interest Period shall be made as ABR Loans, (y) any Loans that were to have been
converted on the first day of such Interest Period to Eurodollar Loans shall be
continued as ABR Loans and (z) any outstanding Eurodollar Loans shall be
converted, on the last day of the then-current Interest Period, to ABR Loans.
<PAGE>
25
Until such notice has been withdrawn by the Administrative Agent, no further
Eurodollar Loans shall be made or continued as such, nor shall the Borrower have
the right to convert Loans to Eurodollar Loans.
2.12 Pro Rata Treatment and Payments. (a) Each borrowing by the
-------------------------------
Borrower from the Lenders hereunder, each payment by the Borrower on account of
any commitment fee and any reduction of the Revolving Commitments of the Lenders
shall be made pro rata according to the respective Revolving Percentages of the
--- ----
Lenders.
(b) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Loans shall be made pro rata
--- ----
according to the respective outstanding principal amounts of the Loans then held
by the Lenders.
(c) All payments (including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without setoff or counterclaim and shall be made prior to 12:00 Noon,
New York City time, on the due date thereof to the Administrative Agent, for the
account of the Lenders, at the Funding Office, in Dollars and in immediately
available funds. The Administrative Agent shall distribute such payments to the
Lenders promptly upon receipt in like funds as received. If any payment
hereunder (other than payments on the Eurodollar Loans) becomes due and payable
on a day other than a Business Day, such payment shall be extended to the next
succeeding Business Day. If any payment on a Eurodollar Loan becomes due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day unless the result of such extension
would be to extend such payment into another calendar month, in which event such
payment shall be made on the immediately preceding Business Day. In the case of
any extension of any payment of principal pursuant to the preceding two
sentences, interest thereon shall be payable at the then applicable rate during
such extension.
(d) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the
Administrative Agent by the required time on the Borrowing Date therefor, such
Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available to
the Administrative Agent. A certificate of the Administrative Agent submitted
to any Lender with respect to any amounts owing under this paragraph shall be
conclusive in the absence of manifest error. If such Lender's share of such
borrowing is not made available to the Administrative Agent by such Lender
within three Business Days of such Borrowing Date, the Administrative Agent
shall also be entitled to recover such amount with interest thereon at the rate
per annum applicable to ABR Loans, on demand, from the Borrower.
<PAGE>
26
(e) Unless the Administrative Agent shall have been notified in
writing by the Borrower prior to the date of any payment being made hereunder
that the Borrower will not make such payment to the Administrative Agent, the
Administrative Agent may assume that the Borrower is making such payment, and
the Administrative Agent may, but shall not be required to, in reliance upon
such assumption, make available to the Lenders their respective pro rata shares
--- ----
of a corresponding amount. If such payment is not made to the Administrative
Agent by the Borrower within three Business Days of such required date, the
Administrative Agent shall be entitled to recover, on demand, from each Lender
to which any amount which was made available pursuant to the preceding sentence,
such amount with interest thereon at the rate per annum equal to the daily
average Federal Funds Effective Rate. Nothing herein shall be deemed to limit
the rights of the Administrative Agent or any Lender against the Borrower.
2.13 Requirements of Law. (a) If the adoption of or any change in
-------------------
any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Letter of Credit, any Application or
any Eurodollar Loan made by it, or change the basis of taxation of payments
to such Lender in respect thereof (except for Non-Excluded Taxes covered by
Section 2.14 and changes in the rate of tax on the overall net income of
such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held
by, deposits or other liabilities in or for the account of, advances, loans
or other extensions of credit by, or any other acquisition of funds by, any
office of such Lender that is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount that such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit, or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender,
upon its demand, any additional amounts necessary to compensate such Lender for
such increased cost or reduced amount receivable. If any Lender becomes
entitled to claim any additional amounts pursuant to this paragraph, it shall
promptly notify the Borrower (with a copy to the Administrative Agent) of the
event by reason of which it has become so entitled.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from
<PAGE>
27
any Governmental Authority made subsequent to the date hereof shall have the
effect of reducing the rate of return on such Lender's or such corporation's
capital as a consequence of its obligations hereunder or under or in respect of
any Letter of Credit to a level below that which such Lender or such corporation
could have achieved but for such adoption, change or compliance (taking into
consideration such Lender's or such corporation's policies with respect to
capital adequacy) by an amount deemed by such Lender to be material, then from
time to time, after submission by such Lender to the Borrower (with a copy to
the Administrative Agent) of a written request therefor, the Borrower shall pay
to such Lender such additional amount or amounts as will compensate such Lender
for such reduction; provided that the Borrower shall not be required to
--------
compensate a Lender pursuant to this paragraph for any amounts incurred more
than six months prior to the date that such Lender notifies the Borrower of such
Lender's intention to claim compensation therefor; and provided further that, if
-------- -------
the circumstances giving rise to such claim have a retroactive effect, then such
six-month period shall be extended to include the period of such retroactive
effect.
(c) A certificate as to any additional amounts payable pursuant to
this Section submitted by any Lender to the Borrower (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
obligations of the Borrower pursuant to this Section shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.14 Taxes. (a) All payments made by the Borrower under this
-----
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Administrative Agent or any Lender as a result
of a present or former connection between the Administrative Agent or such
Lender and the jurisdiction of the Governmental Authority imposing such tax or
any political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Administrative Agent or such Lender
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or any other Loan Document). If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") or Other Taxes are required to be withheld
------------------
from any amounts payable to the Administrative Agent or any Lender hereunder,
the amounts so payable to the Administrative Agent or such Lender shall be
increased to the extent necessary to yield to the Administrative Agent or such
Lender (after payment of all Non-Excluded Taxes and Other Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
this Agreement, provided, however, that the Borrower shall not be required to
-------- -------
increase any such amounts payable to any Lender with respect to any Non-Excluded
Taxes (i) that are attributable to such Lender's failure to comply with the
requirements of paragraph (d) or (e) of this Section or (ii) that are United
States withholding taxes imposed on amounts payable to such Lender at the time
the Lender becomes a party to this Agreement, except to the extent that such
Lender's assignor (if any) was entitled, at the time of assignment, to receive
additional amounts from the Borrower with respect to such Non-Excluded Taxes
pursuant to this paragraph.
<PAGE>
28
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the
Borrower, as promptly as possible thereafter the Borrower shall send to the
Administrative Agent for its own account or for the account of the relevant
Lender, as the case may be, a certified copy of an original official receipt
received by the Borrower showing payment thereof. If the Borrower fails to pay
any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing
authority or fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, the Borrower shall indemnify the
Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Lender as a
result of any such failure.
(d) Each Lender (or Transferee) that is not a citizen or resident of
the United States of America, a corporation, partnership or other entity created
or organized in or under the laws of the United States of America (or any
jurisdiction thereof), or any estate or trust that is subject to federal income
taxation regardless of the source of its income (a "Non-U.S. Lender") shall
---------------
deliver to the Borrower and the Administrative Agent (or, in the case of a
Participant, to the Lender from which the related participation shall have been
purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form
4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest", a statement substantially in the form of
Exhibit F and a Form W-8, or any subsequent versions thereof or successors
thereto, properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or a reduced rate of, U.S. federal withholding tax on
all payments by the Borrower under this Agreement and the other Loan Documents.
Such forms shall be delivered by each Non-U.S. Lender on or before the date it
becomes a party to this Agreement (or, in the case of any Participant, on or
before the date such Participant purchases the related participation). In
addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it
determines that it is no longer in a position to provide any previously
delivered certificate to the Borrower (or any other form of certification
adopted by the U.S. taxing authorities for such purpose). Notwithstanding any
other provision of this paragraph, a Non-U.S. Lender shall not be required to
deliver any form pursuant to this paragraph that such Non-U.S. Lender is not
legally able to deliver.
(e) A Lender that is entitled to an exemption from or reduction of
non-U.S. withholding tax under the law of the jurisdiction in which the Borrower
is located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Borrower (with a copy to the
Administrative Agent), at the time or times prescribed by applicable law or
reasonably requested by the Borrower, such properly completed and executed
documentation prescribed by applicable law as will permit such payments to be
made without withholding or at a reduced rate, provided that such Lender is
--------
legally entitled to complete, execute and deliver such documentation and in such
Lender's
<PAGE>
29
judgment such completion, execution or submission would not materially prejudice
the legal position of such Lender.
(f) The agreements in this Section shall survive the termination of
this Agreement and the payment of the Loans and all other amounts payable
hereunder.
2.15 Indemnity. The Borrower agrees to indemnify each Lender and to
---------
hold each Lender harmless from any loss or expense that such Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of, conversion into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment of or conversion
from Eurodollar Loans after the Borrower has given a notice thereof in
accordance with the provisions of this Agreement or (c) the making of a
prepayment of Eurodollar Loans on a day that is not the last day of an Interest
Period with respect thereto. Such indemnification may include an amount equal
to the excess, if any, of (i) the amount of interest that would have accrued on
the amount so prepaid, or not so borrowed, converted or continued, for the
period from the date of such prepayment or of such failure to borrow, convert or
continue to the last day of such Interest Period (or, in the case of a failure
to borrow, convert or continue, the Interest Period that would have commenced on
the date of such failure) in each case at the applicable rate of interest for
such Loans provided for herein (excluding, however, the Applicable Margin
included therein, if any) over (ii) the amount of interest (as reasonably
----
determined by such Lender) that would have accrued to such Lender on such amount
by placing such amount on deposit for a comparable period with leading banks in
the interbank eurodollar market. A certificate as to any amounts payable
pursuant to this Section submitted to the Borrower by any Lender shall be
conclusive in the absence of manifest error. This covenant shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.16 Change of Lending Office. Each Lender agrees that, upon the
------------------------
occurrence of any event giving rise to the operation of Section 2.13 or 2.14(a)
with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event with the
object of avoiding the consequences of such event; provided, that such
--------
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage, and provided, further, that nothing in this Section shall affect
-------- -------
or postpone any of the obligations of any Borrower or the rights of any Lender
pursuant to Section 2.13 or 2.14(a).
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions hereof,
--------------
the Issuing Lender, in reliance on the agreements of the other Lenders set forth
in Section 3.4(a), agrees to issue letters of credit ("Letters of Credit") for
-----------------
the account of the Borrower on any Business Day during the Revolving Commitment
Period in such form as may be approved from time to time by the Issuing Lender;
provided that the Issuing Lender shall have no obligation to issue any Letter of
- --------
Credit if, after giving effect to such issuance, (i) the L/C
<PAGE>
30
Obligations would exceed the L/C Commitment or (ii) the aggregate amount of the
Available Revolving Commitments would be less than zero. Each Letter of Credit
shall (i) be denominated in Dollars and (ii) expire no later than the earlier of
(x) the first anniversary of its date of issuance and (y) the date that is five
Business Days prior to the Revolving Termination Date, provided that any Letter
--------
of Credit with a one-year term may provide for the renewal thereof for
additional one-year periods (which shall in no event extend beyond the date
referred to in clause (y) above).
(b) Each Letter of Credit shall be subject to the Uniform Customs and,
to the extent not inconsistent therewith, the laws of the State of New York.
(c) The Issuing Lender shall not at any time be obligated to issue any
Letter of Credit hereunder if such issuance would conflict with, or cause the
Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
3.2 Procedure for Issuance of Letter of Credit. The Borrower may
------------------------------------------
from time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender at its address for notices specified herein an
Application therefor, completed to the satisfaction of the Issuing Lender, and
such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of any Application, the Issuing Lender
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of
such Letter of Credit to the Borrower promptly following the issuance thereof.
The Issuing Lender shall promptly furnish to the Administrative Agent, which
shall in turn promptly furnish to the Lenders, notice of the issuance of each
Letter of Credit (including the amount thereof).
3.3 Fees and Other Charges. (a) The Borrower will pay a fee on all
----------------------
outstanding Letters of Credit at a per annum rate equal to the Applicable Margin
then in effect with respect to Eurodollar Loans shared ratably among the Lenders
and payable quarterly in arrears on each L/C Fee Payment Date after the issuance
date. In addition, the Borrower shall pay to the Issuing Lender for its own
account a fronting fee of 1/4 of 1% per annum on the undrawn and unexpired
amount of each Letter of Credit, payable quarterly in arrears on each L/C Fee
Payment Date after the Issuance Date.
(b) In addition to the foregoing fees, the Borrower shall pay or
reimburse the Issuing Lender for such normal and customary costs and expenses as
are incurred or charged by the Issuing Lender in issuing, negotiating, effecting
payment under, amending or otherwise administering any Letter of Credit.
<PAGE>
31
3.4 L/C Participations. (a) The Issuing Lender irrevocably agrees
------------------
to grant and hereby grants to each L/C Participant, and, to induce the Issuing
Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably
agrees to accept and purchase and hereby accepts and purchases from the Issuing
Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Revolving Percentage in the Issuing Lender's obligations and
rights under each Letter of Credit issued hereunder and the amount of each draft
paid by the Issuing Lender thereunder. Each L/C Participant unconditionally and
irrevocably agrees with the Issuing Lender that, if a draft is paid under any
Letter of Credit for which the Issuing Lender is not reimbursed in full by the
Borrower in accordance with the terms of this Agreement, such L/C Participant
shall pay to the Issuing Lender upon demand at the Issuing Lender's address for
notices specified herein an amount equal to such L/C Participant's Revolving
Percentage of the amount of such draft, or any part thereof, that is not so
reimbursed.
(b) If any amount required to be paid by any L/C Participant to the
Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion
of any payment made by the Issuing Lender under any Letter of Credit is paid to
the Issuing Lender within three Business Days after the date such payment is
due, such L/C Participant shall pay to the Issuing Lender on demand an amount
equal to the product of (i) such amount, times (ii) the daily average Federal
Funds Effective Rate during the period from and including the date such payment
is required to the date on which such payment is immediately available to the
Issuing Lender, times (iii) a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any L/C Participant pursuant to Section
3.4(a) is not made available to the Issuing Lender by such L/C Participant
within three Business Days after the date such payment is due, the Issuing
Lender shall be entitled to recover from such L/C Participant, on demand, such
amount with interest thereon calculated from such due date at the rate per annum
applicable to ABR Loans. A certificate of the Issuing Lender submitted to any
L/C Participant with respect to any amounts owing under this Section shall be
conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit and has received from any L/C Participant its pro
---
rata share of such payment in accordance with Section 3.4(a), the Issuing Lender
- ----
receives any payment related to such Letter of Credit (whether directly from the
Borrower or otherwise, including proceeds of collateral applied thereto by the
Issuing Lender), or any payment of interest on account thereof, the Issuing
Lender will distribute to such L/C Participant its pro rata share thereof;
--- ----
provided, however, that in the event that any such payment received by the
- -------- -------
Issuing Lender shall be required to be returned by the Issuing Lender, such L/C
Participant shall return to the Issuing Lender the portion thereof previously
distributed by the Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrower. The Borrower agrees to
----------------------------------------
reimburse the Issuing Lender on each date on which the Issuing Lender notifies
the Borrower of the date and amount of a draft presented under any Letter of
Credit and paid by the Issuing Lender for the amount of (a) such draft so paid
and (b) any taxes, fees, charges or other costs
<PAGE>
32
or expenses incurred by the Issuing Lender in connection with such payment.
Each such payment shall be made to the Issuing Lender at its address for notices
specified herein in lawful money of the United States and in immediately
available funds. Interest shall be payable on any and all amounts remaining
unpaid by the Borrower under this Section from the date such amounts become
payable (whether at stated maturity, by acceleration or otherwise) until payment
in full at the rate set forth in (i) until the second Business Day following the
date of the applicable drawing, Section 2.9(b) and (ii) thereafter, Section
2.9(c).
3.6 Obligations Absolute. The Borrower's obligations under this
--------------------
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment that the
Borrower may have or have had against the Issuing Lender, any beneficiary of a
Letter of Credit or any other Person. The Borrower also agrees with the Issuing
Lender that the Issuing Lender shall not be responsible for, and the Borrower's
Reimbursement Obligations under Section 3.5 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among the Borrower and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or any claims whatsoever of the Borrower against any
beneficiary of such Letter of Credit or any such transferee. The Issuing Lender
shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
the Issuing Lender. The Borrower agrees that any action taken or omitted by the
Issuing Lender under or in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence or willful
misconduct and in accordance with the standards of care specified in the Uniform
Commercial Code of the State of New York, shall be binding on the Borrower and
shall not result in any liability of the Issuing Lender to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented for
-------------------------
payment under any Letter of Credit, the Issuing Lender shall promptly notify the
Borrower of the date and amount thereof. The responsibility of the Issuing
Lender to the Borrower in connection with any draft presented for payment under
any Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are substantially in conformity with such
Letter of Credit.
3.8 Applications. To the extent that any provision of any
------------
Application related to any Letter of Credit is inconsistent with the provisions
of this Section 3, the provisions of this Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
<PAGE>
33
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans and issue or participate in the Letters of
Credit, the Borrower hereby represents and warrants to the Administrative Agent
and each Lender that:
4.1 Financial Condition. (a) The unaudited pro forma balance sheet
------------------- --- -----
of the Borrower as at June 30, 1998 (including the notes thereto) and the
unaudited pro forma statements of operations for the Borrower for the year ended
--- -----
December 31, 1997 and the six months ended June 30, 1998 (including the notes
thereto) (together, the "Pro Forma Financial Statements"), copies of which have
------------------------------
heretofore been furnished to each Lender, has been prepared giving pro forma
--- -----
effect (as if such events had occurred, with respect to balance sheet data, on
such date, and with respect to statements of operations data, as of the
beginning of the periods covered thereby) to (i) each of the transactions
contemplated by Section 5.1(c), (ii) the Loans to be made on the Closing Date
and the use of proceeds thereof and (iii) the payment of fees and expenses in
connection with the foregoing.
(b The audited statements of net assets to be contributed as at
December 31, 1996 and 1997 and the related statements of operations and of cash
flows for the fiscal years ended on such dates and on December 31, 1995,
reported on by and accompanied by an unqualified report from Arthur Andersen
LLP, present fairly the financial condition of the Contributed Assets as at such
dates, and the consolidated results of their operations and their cash flows for
the fiscal years then ended. The unaudited condensed statements of net assets
to be contributed as at June 30, 1998, and the related unaudited statements of
operations and cash flows for the six-month period ended on such date, present
fairly the condensed financial condition of the Contributed Assets as at such
date, and the condensed results of its operations and its cash flows for the
six-month periods ended June 30, 1998 and June 30, 1997 (subject to normal year-
end audit adjustments). All such financial statements, including the related
schedules and notes thereto, have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as approved by the
aforementioned firm of accountants and disclosed therein). Immediately prior to
the Closing Date, except with respect to the Coaxial Discount Notes and the
Coaxial Senior Notes the Borrower does not have any material Guarantee
Obligations, contingent liabilities and liabilities for taxes, or any long-term
leases or unusual forward or long-term commitments, including any interest rate
or foreign currency swap or exchange transaction or other obligation in respect
of derivatives, that are not reflected in the most recent financial statements
referred to in this paragraph. During the period from December 31, 1997 to and
including the date hereof there has been no Disposition by Coaxial or any of its
Subsidiaries of any material part of its business or property to any Person
other than the Borrower.
4.2 No Change. Since June 30, 1998 there has been no development or
---------
event that has had or could reasonably be expected to have a Material Adverse
Effect.
4.3 Legal Existence; Compliance with Law. Each of the Borrower and
------------------------------------
its Subsidiaries (a) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, (b) has the power and
authority, and the legal right, to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified as a foreign limited liability company
<PAGE>
34
and in good standing under the laws of each jurisdiction where its ownership,
lease or operation of property or the conduct of its business requires such
qualification (except to the extent that the failure to be so qualified could
not, in the aggregate, reasonably be expected to have a Material Adverse Effect)
and (d) is in compliance with all Requirements of Law (except to the extent that
the failure to comply therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect).
4.4 Legal Power; Authorization; Enforceable Obligations. Each Loan
---------------------------------------------------
Party has the legal power and authority, and the legal right, to make, deliver
and perform the Loan Documents to which it is a party and, in the case of the
Borrower, to borrow hereunder. Each Loan Party has taken all necessary legal
action to authorize the execution, delivery and performance of the Loan
Documents to which it is a party and, in the case of the Borrower, to authorize
the borrowings on the terms and conditions of this Agreement. No consent or
authorization of, filing with, notice to or other act by or in respect of, any
Governmental Authority or any other Person is required in connection with the
borrowings hereunder or with the execution, delivery, performance, validity or
enforceability of this Agreement or any of the Loan Documents, except (i)
consents, authorizations, filings and notices described in Schedule 4.4, which
consents, authorizations, filings and notices have been obtained or made and are
in full force and effect and (ii) the filings referred to in Section 4.18. Each
Loan Document has been duly executed and delivered on behalf of each Loan Party
which is a party thereto. This Agreement constitutes, and each other Loan
Document upon execution will constitute, a legal, valid and binding obligation
of each Loan Party thereto, enforceable against each such Loan Party in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
4.5 No Legal Bar. The execution, delivery and performance of this
------------
Agreement and the other Loan Documents, the issuance of Letters of Credit, the
borrowings hereunder and the use of the proceeds thereof will not violate any
Requirement of Law or any Contractual Obligation of the Borrower or any of its
Subsidiaries and will not result in, or require, the creation or imposition of
any Lien on any of their respective properties or revenues pursuant to any
Requirement of Law or any such Contractual Obligation (other than the Liens
created by the Security Documents). No Requirement of Law or Contractual
Obligation applicable to the Borrower or any of its Subsidiaries could
reasonably be expected to have a Material Adverse Effect.
4.6 Litigation. No litigation, investigation or proceeding of or
----------
before any arbitrator or Governmental Authority is pending or, to the knowledge
of the Borrower, threatened by or against the Borrower or any of its
Subsidiaries or against any of their respective properties or revenues (a) with
respect to any of the Loan Documents or any of the transactions contemplated
hereby or thereby, or (b) that could reasonably be expected to have a Material
Adverse Effect.
4.7 No Default. Neither the Borrower nor any of its Subsidiaries is
----------
in default under or with respect to any of its Contractual Obligations in any
respect that could
<PAGE>
35
reasonably be expected to have a Material Adverse Effect. No Default or Event
of Default has occurred and is continuing.
4.8 Ownership of Property; Liens. Each of the Borrower and its
----------------------------
Subsidiaries has title in fee simple to, or a valid leasehold interest in, all
its real property, and good title to, or a valid leasehold interest in, all its
other property, and none of such property is subject to any Lien except as
permitted by Section 7.3.
4.9 Intellectual Property. The Borrower and each of its Subsidiaries
---------------------
owns, or is licensed to use, all Intellectual Property necessary for the conduct
of its business as currently conducted. No material claim has been asserted and
is pending by any Person challenging or questioning the use of any Intellectual
Property or the validity or effectiveness of any Intellectual Property, nor does
the Borrower know of any valid basis for any such claim. The use of
Intellectual Property by the Borrower and its Subsidiaries does not infringe on
the rights of any Person in any respect that could reasonably be expected to
have a Material Adverse Effect.
4.10 Taxes. Each of the Borrower and each of its Subsidiaries has
-----
filed or caused to be filed all Federal, state and other material tax returns
that are required to be filed and has paid all taxes shown to be due and payable
on said returns or on any assessments made against it or any of its property and
all other taxes, fees or other charges imposed on it or any of its property by
any Governmental Authority (other than any the amount or validity of that are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower or its Subsidiaries, as the case may be); no tax Lien has
been filed, and, to the knowledge of the Borrower, no claim is being asserted,
with respect to any such tax, fee or other charge.
4.11 Federal Regulations. No part of the proceeds of any Loans will
-------------------
be used for "buying" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U as now and from time to
time hereafter in effect or for any purpose that violates the provisions of the
Regulations of the Board. If requested by any Lender or the Administrative
Agent, the Borrower will furnish to the Administrative Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR Form
G-3 or FR Form U-1, as applicable, referred to in Regulation U.
4.12 Labor Matters. Except as, in the aggregate, could not reasonably
-------------
be expected to have a Material Adverse Effect: (a) there are no strikes or
other labor disputes against the Borrower or any of its Subsidiaries pending or,
to the knowledge of the Borrower, threatened; (b) hours worked by and payment
made to employees of the Borrower and its Subsidiaries have not been in
violation of the Fair Labor Standards Act or any other applicable Requirement of
Law dealing with such matters; and (c) all payments due from the Borrower or any
of its Subsidiaries on account of employee health and welfare insurance have
been paid or accrued as a liability on the books of the Borrower or the relevant
Subsidiary.
<PAGE>
36
4.13 ERISA. Neither a Reportable Event nor an "accumulated funding
-----
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no
Lien in favor of the PBGC or a Plan has arisen, during such five-year period.
The present value of all accrued benefits under each Single Employer Plan (based
on those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits by a material amount. Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan that
has resulted or could reasonably be expected to result in a material liability
under ERISA, and neither the Borrower nor any Commonly Controlled Entity would
become subject to any material liability under ERISA if the Borrower or any such
Commonly Controlled Entity were to withdraw completely from all Multiemployer
Plans as of the valuation date most closely preceding the date on which this
representation is made or deemed made. No such Multiemployer Plan is in
Reorganization or Insolvent.
4.14 Investment Company Act; Other Regulations. No Loan Party is an
-----------------------------------------
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board) that limits its ability to incur Indebtedness.
4.15 Subsidiaries. Except as disclosed to the Administrative Agent by
------------
the Borrower in writing from time to time after the Closing Date, (a) Schedule
4.15 sets forth the name and jurisdiction of organization of each Subsidiary
and, as to each such Subsidiary, the percentage of each class of Capital Stock
owned by any Loan Party and (b) there are no outstanding subscriptions, options,
warrants, calls, rights or other agreements or commitments (other than stock
options granted to employees or directors and directors' qualifying shares) of
any nature relating to any Capital Stock of the Borrower or any Subsidiary,
except as created by the Loan Documents.
4.16 Environmental Matters. Except as, in the aggregate, could not
---------------------
reasonably be expected to have a Material Adverse Effect:
(a) the facilities and properties owned, leased or operated by the
Borrower or any of its Subsidiaries (the "Properties") do not contain, and
----------
have not previously contained, any Materials of Environmental Concern in
amounts or concentrations or under circumstances that constitute or
constituted a violation of, or could give rise to liability under, any
Environmental Law;
(b) neither the Borrower nor any of its Subsidiaries has received or
is aware of any notice of violation, alleged violation, non-compliance,
liability or potential liability regarding environmental matters or
compliance with Environmental Laws with regard to any of the Properties or
the business operated by the Borrower or any of its
<PAGE>
37
Subsidiaries (the "Business"), nor does the Borrower have knowledge or
--------
reason to believe that any such notice will be received or is being
threatened;
(c) Materials of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a manner or to a
location that could give rise to liability under, any Environmental Law,
nor have any Materials of Environmental Concern been generated, treated,
stored or disposed of at, on or under any of the Properties in violation
of, or in a manner that could give rise to liability under, any applicable
Environmental Law;
(d) no judicial proceeding or governmental or administrative action
is pending or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any Subsidiary is or will be
named as a party with respect to the Properties or the Business, nor are
there any consent decrees or other decrees, consent orders, administrative
orders or other orders, or other administrative or judicial requirements
outstanding under any Environmental Law with respect to the Properties or
the Business;
(e) there has been no release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related
to the operations of the Borrower or any Subsidiary in connection with the
Properties or otherwise in connection with the Business, in violation of or
in amounts or in a manner that could give rise to liability under
Environmental Laws;
(f) the Properties and all operations at the Properties are in
compliance, and have in the last five years been in compliance, with all
applicable Environmental Laws, and there is no contamination at, under or
about the Properties or violation of any Environmental Law with respect to
the Properties or the Business; and
(g) neither the Borrower nor any of its Subsidiaries has assumed any
liability of any other Person under Environmental Laws.
4.17 Accuracy of Information, etc. No statement or information
----------------------------
contained in this Agreement, any other Loan Document or any other document,
certificate or statement furnished by or on behalf of any Loan Party to the
Administrative Agent or the Lenders, or any of them, for use in connection with
the transactions contemplated by this Agreement or the other Loan Documents,
contained as of the date such statement, information, document or certificate
was so furnished, any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements contained herein or therein not
misleading. The projections and pro forma financial information contained in
--- -----
the materials referenced above are based upon good faith estimates and
assumptions believed by management of the Borrower to be reasonable at the time
made, it being recognized by the Lenders that such financial information as it
relates to future events is not to be viewed as fact and that actual results
during the period or periods covered by such financial information may differ
from the projected results set forth therein by a material amount. There is no
fact known to any Loan Party that could reasonably be expected to have a
Material Adverse Effect that has not been
<PAGE>
38
expressly disclosed herein, in the other Loan Documents or in any other
documents, certificates and statements furnished to the Administrative Agent and
the Lenders for use in connection with the transactions contemplated hereby and
by the other Loan Documents.
4.18 Security Documents. The Guarantee and Collateral Agreement is
------------------
effective to create in favor of the Administrative Agent, for the benefit of the
Lenders, a legal, valid and enforceable security interest in the Collateral
described therein and proceeds thereof. In the case of the Pledged Stock, if
any, described in the Guarantee and Collateral Agreement, when stock
certificates representing such Pledged Stock are delivered to the Administrative
Agent, and in the case of the other Collateral described in the Guarantee and
Collateral Agreement, when financing statements and other filings specified on
Schedule 4.18 in appropriate form are filed in the offices specified on Schedule
4.18, the Guarantee and Collateral Agreement shall constitute a fully perfected
Lien on, and security interest in, all right, title and interest of the Loan
Parties in such Collateral and the proceeds thereof, as security for the
Obligations (as defined in the Guarantee and Collateral Agreement), in each case
prior and superior in right to any other Person (except, in the case of
Collateral other than Pledged Stock, Liens permitted by Section 7.3).
4.19 Solvency. Each Loan Party is, and after giving effect to
--------
incurrence of all Indebtedness being incurred in connection herewith will be and
will continue to be, Solvent.
4.20 Year 2000 Matters. Any reprogramming required to permit the
-----------------
proper functioning (but only to the extent that such proper functioning would
otherwise be impaired by the occurrence of the year 2000) in and following the
year 2000 of computer systems and other equipment containing embedded
microchips, in either case owned or operated by the Borrower or any of its
Subsidiaries or used or relied upon in the conduct of their business (including
any such systems and other equipment supplied by others or with which the
computer systems of the Borrower or any of its Subsidiaries interface), and the
testing of all such systems and other equipment as so reprogrammed, will be
completed by January 1, 1999. The costs to the Borrower and its Subsidiaries
that have not been incurred as of the date hereof for such reprogramming and
testing and for the other reasonably foreseeable consequences to them of any
improper functioning of other computer systems and equipment containing embedded
microchips due to the occurrence of the year 2000 could not reasonably be
expected to result in a Default or Event of Default or to have a Material
Adverse Effect. Except for any reprogramming referred to above, the computer
systems of the Borrower and its Subsidiaries are with ordinary course upgrading
and maintenance, sufficient for the conduct of their business as currently
conducted.
4.21 Related Agreements. The Borrower has delivered to each Lender a
------------------
complete and correct copy of the Coaxial Senior Note Indenture, the Coaxial
Discount Note Indenture, the Operating Agreement and the Contribution Agreement.
<PAGE>
39
SECTION 5. CONDITIONS PRECEDENT
5.1 Initial Conditions. The obligations of the Lenders to extend
------------------
credit hereunder are subject to the satisfaction, prior to or concurrently with
the Closing Date (but in any event no later than October 7, 1998), of the
following conditions precedent:
(a) Credit Agreement; Guarantee and Collateral Agreement. The
----------------------------------------------------
Administrative Agent shall have received (i) this Agreement, executed and
delivered by the Administrative Agent, the Borrower and each Person listed
on Schedule 1.1, and (ii) the Guarantee and Collateral Agreement, executed
and delivered by the Borrower.
(b) Minimum Consolidated Annualized Adjusted Operating Cash Flow.
------------------------------------------------------------
The Administrative Agent shall have received a certificate from a
Responsible Officer of the Borrower to the effect that Consolidated
Annualized Adjusted Operating Cash Flow for the fiscal quarter ended June
30, 1998 is at least equal to $21,778,000.
(c) Related Transactions. The following transactions shall have been
--------------------
consummated, in each case on terms and conditions reasonably satisfactory
to the Lenders:
(i) the Discount Note Issuers shall have received at least
$30,000,000 in gross cash proceeds from the issuance of the Coaxial
Discount Notes;
(ii) Coaxial and Phoenix shall have received at least
$140,000,000 in gross cash proceeds from the issuance of the Coaxial
Senior Notes;
(iii) the proceeds of the Coaxial Discount Notes and the Coaxial
Senior Notes shall have been used to repay indebtedness under
Coaxial's then existing credit agreement under which The Chase
Manhattan Bank acted as administrative agent;
(iv) Coaxial shall hold the Junior Preferred Membership
Interests and the Senior Preferred Membership Interests;
(v) the Borrower shall have received from Insight LLC at least
$10,000,000 in cash as a common equity contribution; and
(vi) the Borrower shall have received from Coaxial, as a common
equity contribution, the Contributed Assets.
(d) Financial Statements. The Lenders shall have received the
--------------------
financial statements described in Section 4.1.
<PAGE>
40
(e) Approvals. All governmental and third party approvals (including
---------
landlords' and other consents) necessary in connection with the continuing
operations of the Borrower and its Subsidiaries and the transactions
contemplated hereby shall have been obtained and be in full force and
effect, and all applicable waiting periods shall have expired without any
action being taken or threatened by any competent authority that would
restrain, prevent or otherwise impose adverse conditions on the financing
contemplated hereby.
(f) Lien Searches. The Administrative Agent shall have received the
-------------
results of a recent lien search in each of the jurisdictions where assets
of the Loan Parties are located, and such search shall reveal no liens on
any of the assets of the Borrower or its Subsidiaries except for liens
permitted by Section 7.3 or discharged on or prior to the Closing Date
pursuant to documentation satisfactory to the Administrative Agent.
(g) Fees. The Lenders and the Administrative Agent shall have
----
received all fees required to be paid, and all expenses for which invoices
have been presented (including the reasonable fees and expenses of legal
counsel), on or before the Closing Date.
(h) Closing Certificate. The Administrative Agent shall have
-------------------
received, with a counterpart for each Lender, a certificate of each Loan
Party, dated the Closing Date, substantially in the form of Exhibit C, with
appropriate insertions and attachments.
(i) Legal Opinions. The Administrative Agent shall have received the
--------------
following executed legal opinions:
(i) the legal opinion of Cooperman Levitt Winikoff Lester &
Newman, P.C., counsel to the Borrower, substantially in the form of
Exhibit E; and
(ii) the legal opinion of local counsel in Ohio, in form and
substance satisfactory to the Administrative Agent.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent may
reasonably require.
(j) Filings, Registrations and Recordings. Each document (including
-------------------------------------
any Uniform Commercial Code financing statement) required by the Security
Documents or under law or reasonably requested by the Administrative Agent
to be filed, registered or recorded in order to create in favor of the
Administrative Agent, for the benefit of the Lenders, a perfected Lien on
the Collateral described therein, prior and superior in right to any other
Person (other than with respect to Liens expressly permitted by Section
7.3), shall be in proper form for filing, registration or recordation.
<PAGE>
41
(k) Insurance. The Administrative Agent shall have received
---------
insurance certificates satisfying the requirements of Section 5.2(b) of the
Guarantee and Collateral Agreement.
5.2 Conditions to Each Extension of Credit. The agreement of each
--------------------------------------
Lender to make any extension of credit requested to be made by it on any date
(including its initial extension of credit) is subject to the satisfaction of
the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by any Loan Party in or pursuant to the Loan Documents
shall be true and correct on and as of such date as if made on and as of
such date.
(b) No Default. No Default or Event of Default shall have occurred
----------
and be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the conditions contained in this
Section 5.2 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
Borrower hereby agrees that, so long as the Revolving Commitments
remain in effect, any Letter of Credit remains outstanding or any Loan or other
amount is owing to any Lender or the Administrative Agent hereunder, the
Borrower shall and shall cause each of its Subsidiaries to:
6.1 Financial Statements. Furnish to the Administrative Agent and
--------------------
each Lender:
(a) as soon as available, but in any event within 120 days after the
end of each fiscal year of the Borrower, a copy of the audited consolidated
balance sheet of the Borrower and its consolidated Subsidiaries as at the
end of such year and the related audited consolidated statements of income
and of cash flows for such year, setting forth in each case in comparative
form the figures for the previous year, reported on without a "going
concern" or like qualification or exception, or qualification arising out
of the scope of the audit, by Ernst & Young LLP or other independent
certified public accountants of nationally recognized standing; and
(b) as soon as available, but in any event not later than 45 days
after the end of each fiscal quarter of the Borrower, the unaudited
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such quarter and the related unaudited
consolidated statements of income and of cash flows for such quarter and
the portion of the fiscal year through the end of such quarter, setting
forth in each case in comparative form the figures for the previous year,
certified by a Responsible
<PAGE>
42
Officer as being fairly stated in all material respects (subject to normal
year-end audit adjustments).
All such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
6.2 Certificates; Other Information. Furnish to the Administrative
-------------------------------
Agent and each Lender:
(a) concurrently with the delivery of any financial statements
pursuant to Section 6.1, (i) a certificate of a Responsible Officer stating
that, to the best of each such Responsible Officer's knowledge, each Loan
Party during such period has observed or performed all of its covenants and
other agreements, and satisfied every condition, contained in this
Agreement and the other Loan Documents to which it is a party to be
observed, performed or satisfied by it, and that such Responsible Officer
has obtained no knowledge of any Default or Event of Default except as
specified in such certificate and (ii) in the case of quarterly or annual
financial statements, (x) a Compliance Certificate containing all
information and calculations necessary for determining compliance by the
Borrower and its Subsidiaries with the provisions of this Agreement
referred to therein as of the last day of the fiscal quarter or fiscal year
of the Borrower, as the case may be, and (y) to the extent not previously
disclosed to the Administrative Agent, a listing of any county or state
within the United States where any Loan Party keeps inventory or equipment
and of any Intellectual Property acquired by any Loan Party since the date
of the most recent list delivered pursuant to this clause (y) (or, in the
case of the first such list so delivered, since the Closing Date);
(b) as soon as available, and in any event no later than 45 days
after the end of each fiscal year of the Borrower, a detailed consolidated
budget for the following fiscal year (including a projected consolidated
balance sheet of the Borrower and its Subsidiaries as of the end of the
following fiscal year, the related consolidated statements of projected
cash flow, projected changes in financial position and projected income and
a description of the underlying assumptions applicable thereto), and, as
soon as available, significant revisions, if any, of such budget and
projections with respect to such fiscal year (collectively, the
"Projections"), which Projections shall in each case be accompanied by a
-----------
certificate of a Responsible Officer stating that such Projections are
based on reasonable estimates, information and assumptions and that such
Responsible Officer has no reason to believe that such Projections are
incorrect or misleading in any material respect;
(c) within 45 days after the end of each fiscal quarter of the
Borrower, a narrative discussion and analysis of the financial condition
and results of operations of the Borrower and its Subsidiaries for such
fiscal quarter and for the period from the beginning of the then current
fiscal year to the end of such fiscal quarter, as compared
<PAGE>
43
to the portion of the Projections covering such periods and to the
comparable periods of the previous year;
(d) within five days after the same are sent, copies of all financial
statements and reports that the Borrower sends to the holders of any class
of its debt securities or public equity securities and, within five days
after the same are filed, copies of all financial statements and reports or
the Borrower may make to, or file with, the SEC; and
(e) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at
----------------------
or before maturity or before they become delinquent, as the case may be, all its
material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Borrower or its Subsidiaries, as the case may be.
6.4 Maintenance of Existence; Compliance. (a) (i) preserve, renew
------------------------------------
and keep in full force and effect its legal existence and (ii) take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its business, except, in each case, as
otherwise permitted by Section 7.4 and except, in the case of clause (ii) above,
to the extent that failure to do so could not reasonably be expected to have a
Material Adverse Effect; and (b) comply with all Contractual Obligations and
Requirements of Law except to the extent that failure to comply therewith could
not, in the aggregate, reasonably be expected to have a Material Adverse Effect.
6.5 Maintenance of Property; Insurance. (a) Keep all property
----------------------------------
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted and (b) maintain with financially sound and
reputable insurance companies insurance on all its property in at least such
amounts and against at least such risks (but including in any event public
liability, product liability and business interruption) as are usually insured
against in the same general area by companies engaged in the same or a similar
business.
6.6 Inspection of Property; Books and Records; Discussions. (a)
------------------------------------------------------
Keep proper books of records and account in which full, true and correct entries
in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities and (b)
permit representatives of any Lender to visit and inspect any of its properties
and examine and make abstracts from any of its books and records at any
reasonable time and as often as may reasonably be desired and to discuss the
business, operations, properties and financial and other condition of the
Borrower and its Subsidiaries with officers and employees of the Borrower and
its Subsidiaries and with its independent certified public accountants.
<PAGE>
44
6.7 Notices. Promptly give notice to the Administrative Agent and
-------
each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries or (ii) litigation,
investigation or proceeding that may exist at any time between the Borrower
or any of its Subsidiaries and any Governmental Authority, that in either
case, if not cured or if adversely determined, as the case may be, could
reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or any of its
Subsidiaries in which the amount involved is $2,500,000 or more and not
covered by insurance or in which injunctive or similar relief is sought;
(d) the following events, as soon as possible and in any event within
30 days after the Borrower knows or has reason to know thereof: (i) the
occurrence of any Reportable Event with respect to any Plan, a failure to
make any required contribution to a Plan, the creation of any Lien in favor
of the PBGC or a Plan or any withdrawal from, or the termination,
Reorganization or Insolvency of, any Multiemployer Plan or (ii) the
institution of proceedings or the taking of any other action by the PBGC or
the Borrower or any Commonly Controlled Entity or any Multiemployer Plan
with respect to the withdrawal from, or the termination, Reorganization or
Insolvency of, any Plan; and
(e) any development or event that has had or could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this Section 6.7 shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Borrower or the relevant Subsidiary proposes
to take with respect thereto.
6.8 Environmental Laws. (a) Comply in all material respects with,
------------------
and ensure compliance in all material respects by all tenants and subtenants, if
any, with, all applicable Environmental Laws, and obtain and comply in all
material respects with and maintain, and ensure that all tenants and subtenants
obtain and comply in all material respects with and maintain, any and all
licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws.
6.9 Additional Collateral, etc. (a) With respect to any property
--------------------------
acquired after the Closing Date by the Borrower or any of its Subsidiaries
(other than (x) any property
<PAGE>
45
described in paragraph (b), (c) or (d) below and (y) any property subject to a
Lien expressly permitted by Section 7.3(g)) as to which the Administrative
Agent, for the benefit of the Lenders, does not have a perfected Lien, promptly
(i) execute and deliver to the Administrative Agent such amendments to the
Guarantee and Collateral Agreement or such other documents as the Administrative
Agent deems necessary or advisable to grant to the Administrative Agent, for the
benefit of the Lenders, a security interest in such property and (ii) take all
actions necessary or advisable to grant to the Administrative Agent, for the
benefit of the Lenders, a perfected first priority security interest in such
property, including the filing of Uniform Commercial Code financing statements
in such jurisdictions as may be required by the Guarantee and Collateral
Agreement or by law or as may be requested by the Administrative Agent.
(b) With respect to any fee interest in any real property having a
value (together with improvements thereof) of at least $500,000 owned on the
date hereof by the Borrower or acquired after the Closing Date by the Borrower
or any of its Subsidiaries (other than any such real property subject to a Lien
expressly permitted by Section 7.3(g)), promptly upon request by the
Administrative Agent (i) execute and deliver a first priority mortgage or deed
of trust, in favor of the Administrative Agent, for the benefit of the Lenders,
covering such real property, (ii) if requested by the Administrative Agent,
provide the Lenders with (x) title and extended coverage insurance covering such
real property in an amount at least equal to the purchase price of such real
property (or such other amount as shall be reasonably specified by the
Administrative Agent) as well as a current ALTA survey thereof, together with a
surveyor's certificate and (y) any consents or estoppels reasonably deemed
necessary or advisable by the Administrative Agent in connection with such
mortgage or deed of trust, each of the foregoing in form and substance
reasonably satisfactory to the Administrative Agent and (iii) if requested by
the Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described above, which opinions shall be in form and
substance, and from counsel, reasonably satisfactory to the Administrative
Agent.
(c) With respect to any new Subsidiary created or acquired after the
Closing Date by the Borrower or any of its Subsidiaries, promptly (i) execute
and deliver to the Administrative Agent such amendments to the Guarantee and
Collateral Agreement as the Administrative Agent deems necessary or advisable to
grant to the Administrative Agent, for the benefit of the Lenders, a perfected
first priority security interest in the Capital Stock of such new Subsidiary
that is owned by the Borrower or any of its Subsidiaries, (ii) deliver to the
Administrative Agent the certificates representing such Capital Stock, together
with undated stock powers, in blank, executed and delivered by a duly authorized
officer of the Borrower or such Subsidiary, as the case may be, (iii) cause such
new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement,
(B) to take such actions necessary or advisable to grant to the Administrative
Agent for the benefit of the Lenders a perfected first priority security
interest in the Collateral described in the Guarantee and Collateral Agreement
with respect to such new Subsidiary, including the filing of Uniform Commercial
Code financing statements in such jurisdictions as may be required by the
Guarantee and Collateral Agreement or by law or as may be requested by the
Administrative Agent and (C) to deliver to the Administrative Agent a
certificate of such Subsidiary, substantially in the form of Exhibit C, with
appropriate insertions and attachments, and (iv) if requested by the
<PAGE>
46
Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described above, which opinions shall be in form and
substance, and from counsel, reasonably satisfactory to the Administrative
Agent.
6.10 Use of Proceeds. Use the proceeds of the Loans to finance
---------------
capital expenditures and for working capital and general purposes.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Revolving Commitments
remain in effect, any Letter of Credit remains outstanding or any Loan or other
amount is owing to any Lender or the Administrative Agent hereunder, the
Borrower shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly:
7.1 Financial Condition Covenants.
-----------------------------
(a) Consolidated Leverage Ratio. Permit the Consolidated Leverage
---------------------------
Ratio on any day during any period set forth below to exceed the ratio set forth
below opposite such period:
Consolidated
Period Leverage Ratio
------ --------------
August 21, 1998 to December 31, 1999 7.00 to 1.00
January 1, 2000 to December 31, 2000 6.50 to 1.00
January 1, 2001 to December 31, 2001 6.00 to 1.00
January 1, 2002 to December 31, 2002 5.50 to 1.00
January 1, 2003 to September 30, 2004 5.00 to 1.00
(b) Consolidated Interest Coverage Ratio. Permit the Consolidated
------------------------------------
Interest Coverage Ratio for any period of four consecutive fiscal quarters of
the Borrower (or, if less, the number of full fiscal quarters subsequent to the
Closing Date) ending with any fiscal quarter set forth below to be less than the
ratio set forth below opposite such fiscal quarter:
Consolidated Interest
Fiscal Quarter Coverage Ratio
-------------- ---------------------
December 31, 1998 1.25 to 1.00
March 31, 1999 1.25 to 1.00
June 30, 1999 1.25 to 1.00
September 30, 1999 1.25 to 1.00
December 31, 1999 1.25 to 1.00
March 31, 2000 1.25 to 1.00
June 30, 2000 1.25 to 1.00
September 30, 2000 1.25 to 1.00
December 31, 2000 1.25 to 1.00
<PAGE>
47
March 31, 2001 1.50 to 1.00
June 30, 2001 1.50 to 1.00
September 30, 2001 1.50 to 1.00
December 31, 2001 1.50 to 1.00
March 31, 2002 1.50 to 1.00
June 30, 2002 1.50 to 1.00
September 30, 2002 1.50 to 1.00
December 31, 2002 1.50 to 1.00
March 31, 2003 1.50 to 1.00
June 30, 2003 1.50 to 1.00
September 30, 2003 1.50 to 1.00
December 31, 2003 1.50 to 1.00
March 31, 2004 1.50 to 1.00
June 30, 2004 1.50 to 1.00
September 30, 2004 1.50 to 1.00
(c) Consolidated Fixed Charge Coverage Ratio. Permit the Consolidated
----------------------------------------
Fixed Charge Coverage Ratio for any period of four consecutive fiscal quarters
of the Borrower (or, if less, the number of full fiscal quarters subsequent to
the Closing Date) ending with any fiscal quarter set forth below to be less than
the ratio set forth below opposite such fiscal quarter:
Consolidated Fixed
Fiscal Quarter Charge Coverage Ratio
-------------- ---------------------
March 31, 2001 1.00 to 1.00
June 30, 2001 1.00 to 1.00
September 30, 2001 1.00 to 1.00
December 31, 2001 1.00 to 1.00
March 31, 2002 1.10 to 1.00
June 30, 2002 1.10 to 1.00
September 30, 2002 1.10 to 1.00
December 31, 2002 1.10 to 1.00
March 31, 2003 1.10 to 1.00
June 30, 2003 1.10 to 1.00
September 30, 2003 1.10 to 1.00
December 31, 2003 1.10 to 1.00
March 31, 2004 1.10 to 1.00
June 30, 2004 1.10 to 1.00
September 30, 2004 1.10 to 1.00
(d) Consolidated Pro Forma Debt Service Ratio. Permit the ratio of
-----------------------------------------
(i) Consolidated Annualized Adjusted Operating Cash Flow for any period of four
consecutive fiscal quarters to (ii) Consolidated Pro Forma Debt Service for the
immediately succeeding period of four consecutive fiscal quarters to be less
than 1.20 to 1.00.
<PAGE>
48
7.2 Indebtedness. Create, issue, incur, assume, become liable in
------------
respect of or suffer to exist any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
(b) Indebtedness of the Borrower to any Subsidiary and of any Wholly
Owned Subsidiary of the Borrower to the Borrower or any other Subsidiary;
(c) Guarantee Obligations incurred in the ordinary course of business
by the Borrower or any of its Subsidiaries of obligations of any Wholly
Owned Subsidiary of the Borrower;
(d) Indebtedness outstanding on the date hereof and listed on
Schedule 7.2(d);
(e) Indebtedness (including, without limitation, Capital Lease
Obligations and purchase money Indebtedness) secured by Liens permitted by
Section 7.3(g) in an aggregate principal amount not to exceed $5,000,000 at
any one time outstanding;
(f) Guarantee Obligations of the Borrower or its Subsidiaries in
respect of the obligations of the respective Issuers under the Coaxial
Senior Note Indenture and the Coaxial Discount Note Indenture;
(g) Refinancing Indebtedness; and
(h) additional Indebtedness of the Borrower or any of its
Subsidiaries in an aggregate principal amount (for the Borrower and all of
its Subsidiaries) not to exceed $250,000 at any one time outstanding.
7.3 Liens. Create, incur, assume or suffer to exist any Lien upon
-----
any of its property, whether now owned or hereafter acquired, except for:
(a) Liens for taxes not yet due or that are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
--------
respect thereto are maintained on the books of the Borrower or its
Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business that are not
overdue for a period of more than 30 days or that are being contested in
good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance
<PAGE>
49
bonds and other obligations of a like nature incurred in the ordinary
course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business that, in the
aggregate, are not substantial in amount and that do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower or any of its Subsidiaries;
(f) Liens in existence on the date hereof listed on Schedule 7.3(f),
securing Indebtedness permitted by Section 7.2(d), provided that no such
--------
Lien is spread to cover any additional property after the Closing Date and
that the amount of Indebtedness secured thereby is not increased;
(g) Liens securing Indebtedness of the Borrower or any other
Subsidiary incurred pursuant to Section 7.2(e) to finance the acquisition
of fixed or capital assets, provided that (i) such Liens shall be created
--------
substantially simultaneously with the acquisition of such fixed or capital
assets, (ii) such Liens do not at any time encumber any property other than
the property financed by such Indebtedness and (iii) the amount of
Indebtedness secured thereby is not increased;
(h) Liens created pursuant to the Security Documents; and
(i) any interest or title of a lessor under any lease entered into by
the Borrower or any other Subsidiary in the ordinary course of its business
and covering only the assets so leased.
7.4 Fundamental Changes. Enter into any merger, consolidation or
-------------------
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or Dispose of, all or substantially all of its
property or business, except that:
(a) any Subsidiary of the Borrower may be merged or consolidated with
or into the Borrower (provided that the Borrower shall be the continuing or
--------
surviving corporation) or with or into any Wholly Owned Subsidiary of the
Borrower (provided that the Wholly Owned Subsidiary of the Borrower shall
--------
be the continuing or surviving corporation); and
(b) any Subsidiary of the Borrower may Dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the Borrower or any
Wholly Owned Subsidiary of the Borrower.
7.5 Disposition of Property. Dispose of any of its property, whether
-----------------------
now owned or hereafter acquired, or, in the case of any Subsidiary, issue or
sell any shares of such Subsidiary's Capital Stock to any Person, except:
<PAGE>
50
(a) the Disposition of obsolete or worn out property in the ordinary
course of business;
(b) the sale of inventory in the ordinary course of business;
(c) Dispositions permitted by Section 7.4(b);
(d) the sale or issuance of any Subsidiary's Capital Stock to the
Borrower or any Wholly Owned Subsidiary of the Borrower;
(e) the Disposition of other property having a fair market value not
to exceed $1,000,000 in the aggregate for any fiscal year of the Borrower;
and
(f) so long as after giving effect thereto the Borrower is in pro
forma compliance with the covenants in Section 7.1 and no Default or Event
of Default shall occur or be continuing, any Asset Swap; provided that if
--------
and to the extent that the Borrower or such Subsidiary receives
consideration for the asset or assets transferred by them in connection
with such Asset Swap that is in addition to the asset or assets received in
exchange therefor, such Asset Swap shall be deemed to be a Disposition and
shall be permitted if Section 7.5(e) shall be complied with in connection
therewith and, provided, further, that the aggregate fair market value of
-------- -------
the assets of the Borrower and its Subsidiaries that are transferred
pursuant to Asset Swaps during any fiscal year of the Borrower may in no
event exceed 10% of the aggregate consolidated book value of the assets of
the Borrower and its Subsidiaries as at the last day of the immediately
preceding fiscal year.
7.6 Restricted Payments. Declare or pay any dividend (other than
-------------------
dividends payable solely in common stock of the Person making such dividend) on,
or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any Capital Stock of the Borrower or any Subsidiary, whether now
or hereafter outstanding, or make any other distribution in respect thereof,
either directly or indirectly, whether in cash or property or in obligations of
the Borrower or any Subsidiary, or make any payments to any Person for
management, advisory, overhead or similar items (collectively, "Restricted
----------
Payments"), except that:
- --------
(a) any Subsidiary may make Restricted Payments to the Borrower or
any Wholly Owned Subsidiary of the Borrower;
(b) so long as no Default or Event of Default shall have occurred and
be continuing under Section 8(a) after giving effect to the payment of any
such distribution, the Borrower may pay distributions to holders of Senior
Preferred Membership Interests and Junior Preferred Membership Interests at
rates no greater than those in effect on the date hereof;
<PAGE>
51
(c) so long as no Default or Event of Default shall have occurred and
be continuing after giving effect to the payment thereof, the Borrower may
pay management fees and reimburse Insight for expenses incurred by Insight
on behalf of the Borrower and its Subsidiaries pursuant to the Operating
Agreement; and
(d) so long as no Default or Event of Default shall have occurred and
be continuing after giving effect to the payment thereof, the Borrower may
make Tax Distributions.
7.7 Capital Expenditures. Make or commit to make any Capital
--------------------
Expenditure, except:
(a) Capital Expenditures of the Borrower and its Subsidiaries in the
ordinary course of business in any fiscal year of the Borrower not
exceeding the amount set forth below opposite such fiscal year:
Fiscal Year Ending Amount
------------------ ------
1999 $ 24,000,000
2000 $ 12,500,000
2001 $ 11,000,000
2002 $ 11,000,000
2003 $ 11,000,000
2004 $ 11,000,000;
provided, that (i) any amount referred to above, if not so expended in the
--------
fiscal year for which it is permitted, may be carried over for expenditure
in the next succeeding fiscal year and (ii) Capital Expenditures made
pursuant to this clause (a) during any fiscal year shall be deemed made,
first in respect of amounts permitted for such fiscal year as provided
-----
above and, second, in respect of amounts carried over from the prior fiscal
------
year pursuant to subclause (i) above; and
(b) Capital Expenditures made with the proceeds of any Reinvestment
Deferred Amount.
7.8 Investments. Make any advance, loan, extension of credit (by way
-----------
of guaranty or otherwise) or capital contribution to, or purchase any Capital
Stock, bonds, notes, debentures or other debt securities of, or any assets
constituting a business unit of, or make any other investment in, any Person
(all of the foregoing, "Investments"), except:
-----------
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) Guarantee Obligations permitted by Section 7.2;
<PAGE>
52
(d) loans and advances to employees of the Borrower or any Subsidiary
of the Borrower in the ordinary course of business (including for travel,
entertainment and relocation expenses) in an aggregate amount for the
Borrower or any Subsidiary of the Borrower not to exceed $500,000 at any
one time outstanding;
(e) Investments in assets useful in the business of the Borrower and
its Subsidiaries made by the Borrower or any of its Subsidiaries with the
proceeds of any Reinvestment Deferred Amount;
(f) Investments by the Borrower or any of its Subsidiaries in the
Borrower or any Person that, prior to such investment, is a Wholly Owned
Subsidiary of the Borrower; and
(g) in addition to Investments otherwise expressly permitted by this
Section, Investments by the Borrower or any of its Subsidiaries in an
aggregate amount (valued at cost) not to exceed $500,000 during the term of
this Agreement.
7.9 Modifications of Preferred Membership Interests or Operating
------------------------------------------------------------
Agreement. Amend, modify, waive or otherwise change, or consent or agree to any
- ---------
amendment, modification, waiver or other change to, any of the terms of the
Operating Agreement (a) relating to the Senior Preferred Membership Interests or
the Junior Preferred Membership Interests (other than any such amendment,
modification, waiver or other change that (i) would extend the scheduled
redemption date or reduce the amount of any scheduled redemption payment or
reduce the rate or extend any date for payment of dividends thereon or make any
covenant applicable to the Borrower less burdensome on the Borrower and (ii)
does not involve the payment of a consent fee), or (b) relating to any other
matter (other than such amendment, modification, waiver or other change that
would (i) reduce the fees payable by the Borrower thereunder or (ii) not
adversely affect the ability of the Borrower to perform its obligations under
the Loan Documents).
7.10 Transactions with Affiliates. Enter into any transaction,
----------------------------
including any purchase, sale, lease or exchange of property, the rendering of
any service or the payment of any management, advisory or similar fees, with any
Affiliate (other than the Borrower or any Wholly Owned Subsidiary of the
Borrower) unless such transaction is (a) otherwise permitted under this
Agreement, (b) in the ordinary course of business of the Borrower or such
Subsidiary, as the case may be, and (c) upon fair and reasonable terms
substantially similar to terms which could reasonably be expected to be obtained
by the Borrower or such Subsidiary, as the case may be, in a comparable arm's
length transaction with a Person that is not an Affiliate. Notwithstanding
anything contained in this Section to the contrary, the terms of the Operating
Agreement and the Management Agreement, dated as of August 21, 1998, between the
Borrower and Coaxial as in effect on the date hereof and the performance by any
party thereto of its obligations thereunder shall not be considered prohibited
by this Section.
7.11 Sales and Leasebacks. Enter into any arrangement with any Person
--------------------
providing for the leasing by the Borrower or any Subsidiary of real or personal
property that has been or is to be sold or transferred by the Borrower or such
Subsidiary to such Person or
<PAGE>
53
to any other Person to whom funds have been or are to be advanced by such Person
on the security of such property or rental obligations of the Borrower or such
Subsidiary.
7.12 Changes in Fiscal Periods. Permit the fiscal year of the
-------------------------
Borrower to end on a day other than December 31 or change the Borrower's method
of determining fiscal quarters.
7.13 Negative Pledge Clauses. Enter into or suffer to exist or become
-----------------------
effective any agreement that prohibits or limits the ability of the Borrower or
any of its Subsidiaries to create, incur, assume or suffer to exist any Lien
upon any of its property or revenues, whether now owned or hereafter acquired,
to secure its obligations under the Loan Documents to which it is a party other
than (a) this Agreement and the other Loan Documents and (b) any agreements
governing any purchase money Liens or Capital Lease Obligations otherwise
permitted hereby (in which case, any prohibition or limitation shall only be
effective against the assets financed thereby).
7.14 Clauses Restricting Subsidiary Distributions. Enter into or
--------------------------------------------
suffer to exist or become effective any consensual encumbrance or restriction on
the ability of any Subsidiary of the Borrower to (a) make Restricted Payments in
respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness
owed to, the Borrower or any other Subsidiary of the Borrower, (b) make loans or
advances to, or other Investments in, the Borrower or any other Subsidiary of
the Borrower or (c) transfer any of its assets to the Borrower or any other
Subsidiary of the Borrower, except for such encumbrances or restrictions
existing under or by reason of (i) any restrictions existing under the Loan
Documents and (ii) any restrictions with respect to a Subsidiary imposed
pursuant to an agreement that has been entered into in connection with the
Disposition of all or substantially all of the Capital Stock or assets of such
Subsidiary.
7.15 Lines of Business. Enter into any business, either directly or
-----------------
through any Subsidiary, except for those businesses in which the Borrower and
its Subsidiaries are engaged on the date of this Agreement or that are
reasonably similar, related, ancillary or complimentary thereto.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) the Borrower shall fail to pay any principal of any Loan or
Reimbursement Obligation when due in accordance with the terms hereof; or
the Borrower shall fail to pay any interest on any Loan or Reimbursement
Obligation, or any other amount payable hereunder or under any other Loan
Document, within five days after any such interest or other amount becomes
due in accordance with the terms hereof; or
(b) any representation or warranty made or deemed made by any Loan
Party herein or in any other Loan Document or that is contained in any
certificate, document
<PAGE>
54
or financial or other statement furnished by it at any time under or in
connection with this Agreement or any such other Loan Document shall prove
to have been inaccurate in any material respect on or as of the date made
or deemed made; or
(c) (i) any Loan Party shall default in the observance or
performance of any agreement contained in clause (i) or (ii) of Section
6.4(a) (with respect to Borrower only), Section 6.7(a) or Section 7 of this
Agreement or Sections 5.5 and 5.7(b) of the Guarantee and Collateral
Agreement or (ii) an "Event of Default" under and as defined in any
Mortgage shall have occurred and be continuing; or
(d) any Loan Party shall default in the observance or performance of
any other agreement contained in this Agreement or any other Loan Document
(other than as provided in paragraphs (a) through (c) of this Section), and
such default shall continue unremedied for a period of 30 days after notice
to the Borrower from the Administrative Agent or any Lender; or
(e) the Borrower or any of its Subsidiaries shall (i) default in
making any payment of any principal of any Indebtedness (including any
Guarantee Obligation, but excluding the Loans) on the scheduled or original
due date with respect thereto; or (ii) default in making any payment of any
interest on any such Indebtedness beyond the period of grace, if any,
provided in the instrument or agreement under which such Indebtedness was
created; or (iii) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or contained in
any instrument or agreement evidencing, securing or relating thereto, or
any other event shall occur or condition exist, the effect of which default
or other event or condition is to cause, or to permit the holder or
beneficiary of such Indebtedness (or a trustee or agent on behalf of such
holder or beneficiary) to cause, with the giving of notice if required,
such Indebtedness to become due prior to its stated maturity or (in the
case of any such Indebtedness constituting a Guarantee Obligation) to
become payable; provided, that a default, event or condition described in
--------
clause (i), (ii) or (iii) of this paragraph (e) shall not at any time
constitute an Event of Default unless, at such time, one or more defaults,
events or conditions of the type described in clauses (i), (ii) and (iii)
of this paragraph (e) shall have occurred and be continuing with respect to
Indebtedness the outstanding principal amount of which exceeds in the
aggregate $2,500,000; or
(f) (i) the Borrower or any of its Subsidiaries shall commence any
case, proceeding or other action (A) under any existing or future law of
any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or
its debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial
part of its assets, or the Borrower or any of its Subsidiaries shall make a
general assignment for the benefit of its creditors; or (ii) there shall be
commenced against the Borrower or any
<PAGE>
55
of its Subsidiaries any case, proceeding or other action of a nature
referred to in clause (i) above that (A) results in the entry of an order
for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 60 days; or (iii)
there shall be commenced against the Borrower or any of its Subsidiaries
any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its assets that results in the entry of an order for
any such relief that shall not have been vacated, discharged, or stayed or
bonded pending appeal within 60 days from the entry thereof; or (iv) the
Borrower or any of its Subsidiaries shall take any action in furtherance
of, or indicating its consent to, approval of, or acquiescence in, any of
the acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower
or any of its Subsidiaries shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they become due;
or
(g) (i) any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Majority Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Borrower or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Majority Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist with respect
to a Plan; and in each case in clauses (i) through (vi) above, such event
or condition, together with all other such events or conditions, if any,
could, in the sole judgment of the Majority Lenders, reasonably be expected
to have a Material Adverse Effect; or
(h) one or more judgments or decrees shall be entered against the
Borrower or any of its Subsidiaries involving in the aggregate a liability
(not paid or fully covered by insurance as to which the relevant insurance
company has acknowledged coverage) of $2,500,000 or more, and all such
judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within 30 days from the entry thereof; or
(i) any of the Security Documents shall cease, for any reason, to be
in full force and effect, or any Loan Party or any Affiliate of any Loan
Party shall so assert, or any Lien created by any of the Security Documents
shall cease to be enforceable and of the same effect and priority purported
to be created thereby; or
<PAGE>
(j) the guarantee, if any, contained in Section 2 of the Guarantee
and Collateral Agreement shall cease, for any reason, to be in full force
and effect or any Loan Party or any Affiliate of any Loan Party shall so
assert; or
(k) a Change of Control shall occur; or
(l) either Coaxial (i) conduct, transact or otherwise engage in, or
commit to conduct, transact or otherwise engage in, any business or
operations other than those incidental to its ownership of the Capital
Stock of the Borrower, (ii) incur, create, assume or suffer to exist any
Indebtedness or other liabilities or financial obligations, except (A)
nonconsensual obligations imposed by operation of law, (B) pursuant to the
Loan Documents to which it is a party and (C) obligations with respect to
its Capital Stock, or (iii) own, lease, manage or otherwise operate any
properties or assets (including cash (other than cash received in
connection with dividends made by the Borrower in accordance with Section
7.6 pending application in the manner contemplated by said Section) and
cash equivalents) other than the ownership of shares of Capital Stock of
the Borrower;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Revolving Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement and the other Loan Documents (including all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder) shall immediately
become due and payable, and (B) if such event is any other Event of Default,
either or both of the following actions may be taken: (i) with the consent of
the Majority Lenders, the Administrative Agent may, or upon the request of the
Majority Lenders, the Administrative Agent shall, by notice to the Borrower
declare the Revolving Commitments to be terminated forthwith, whereupon the
Revolving Commitments shall immediately terminate; and (ii) with the consent of
the Majority Lenders, the Administrative Agent may, or upon the request of the
Majority Lenders, the Administrative Agent shall, by notice to the Borrower,
declare the Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement and the other Loan Documents (including all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) to be due and payable forthwith, whereupon the same shall
immediately become due and payable. With respect to all Letters of Credit with
respect to which presentment for honor shall not have occurred at the time of an
acceleration pursuant to this paragraph, the Borrower shall at such time deposit
in a cash collateral account opened by the Administrative Agent an amount equal
to the aggregate then undrawn and unexpired amount of such Letters of Credit.
Amounts held in such cash collateral account shall be applied by the
Administrative Agent to the payment of drafts drawn under such Letters of
Credit, and the unused portion thereof after all such Letters of Credit shall
have expired or been fully drawn upon, if any, shall be applied to repay other
obligations of the Borrower hereunder and under the other Loan Documents. After
all such Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations of
the Borrower hereunder and under the
<PAGE>
57
other Loan Documents shall have been paid in full, the balance, if any, in such
cash collateral account shall be returned to the Borrower (or such other Person
as may be lawfully entitled thereto). Except as expressly provided above in
this Section, presentment, demand, protest and all other notices of any kind are
hereby expressly waived by the Borrower.
SECTION 9. THE ADMINISTRATIVE AGENT
9.1 Appointment. Each Lender hereby irrevocably designates and
-----------
appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Loan Documents, and each such Lender irrevocably
authorizes the Administrative Agent, in such capacity, to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
9.2 Delegation of Duties. The Administrative Agent may execute any
--------------------
of its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys in-fact selected by it with reasonable care.
9.3 Exculpatory Provisions. Neither the Administrative Agent nor any
----------------------
of its officers, directors, employees, agents, attorneys-in-fact or affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any other Loan
Document (except to the extent that any of the foregoing are found by a final
and nonappealable decision of a court of competent jurisdiction to have resulted
from its or such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by any Loan Party or any officer thereof
contained in this Agreement or any other Loan Document or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Administrative Agent under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of any Loan Party a party thereto to perform its obligations
hereunder or thereunder. The Administrative Agent shall not be under any
obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of any Loan Party.
9.4 Reliance by Administrative Agent. The Administrative Agent shall
--------------------------------
be entitled to rely, and shall be fully protected in relying, upon any
instrument, writing,
<PAGE>
58
resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including
counsel to the Borrower), independent accountants and other experts selected by
the Administrative Agent. The Administrative Agent may deem and treat the payee
of any Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Majority Lenders (or, if so specified by this Agreement, all Lenders) as it
deems appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense that may be incurred by it by
reason of taking or continuing to take any such action. The Administrative
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the other Loan Documents in accordance with a
request of the Majority Lenders (or, if so specified by this Agreement, all
Lenders), and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
Loans.
9.5 Notice of Default. The Administrative Agent shall not be deemed
-----------------
to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Lender or
the Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event
that the Administrative Agent receives such a notice, the Administrative Agent
shall give notice thereof to the Lenders. The Administrative Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Majority Lenders (or, if so specified by this
Agreement, all Lenders); provided that unless and until the Administrative Agent
--------
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.
9.6 Non-Reliance on Administrative Agent and Other Lenders. Each
------------------------------------------------------
Lender expressly acknowledges that neither the Administrative Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or affiliates have
made any representations or warranties to it and that no act by the
Administrative Agent hereinafter taken, including any review of the affairs of a
Loan Party or any affiliate of a Loan Party, shall be deemed to constitute any
representation or warranty by the Administrative Agent to any Lender. Each
Lender represents to the Administrative Agent that it has, independently and
without reliance upon the Administrative Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Loan Parties and their
affiliates and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon the Administrative Agent or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the
<PAGE>
59
other Loan Documents, and to make such investigation as it deems necessary to
inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Loan Parties and their affiliates. Except
for notices, reports and other documents expressly required to be furnished to
the Lenders by the Administrative Agent hereunder, the Administrative Agent
shall not have any duty or responsibility to provide any Lender with any credit
or other information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of any Loan Party or any
affiliate of a Loan Party that may come into the possession of the
Administrative Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates.
9.7 Indemnification. The Lenders agree to indemnify the
---------------
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Borrower and without limiting the obligation of the Borrower to do so),
ratably according to their respective Aggregate Exposure Percentages in effect
on the date on which indemnification is sought under this Section (or, if
indemnification is sought after the date upon which the Revolving Commitments
shall have terminated and the Loans shall have been paid in full, ratably in
accordance with such Aggregate Exposure Percentages immediately prior to such
date), from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever that may at any time (whether before or after the payment of the
Loans) be imposed on, incurred by or asserted against the Administrative Agent
in any way relating to or arising out of, the Revolving Commitments, this
Agreement, any of the other Loan Documents or any documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
or any action taken or omitted by the Administrative Agent under or in
connection with any of the foregoing; provided that no Lender shall be liable
--------
for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
that are found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from the Administrative Agent's gross negligence
or willful misconduct. The agreements in this Section shall survive the payment
of the Loans and all other amounts payable hereunder.
9.8 Administrative Agent in Its Individual Capacity. The
-----------------------------------------------
Administrative Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with any Loan Party as though it
was not the Administrative. With respect to its Loans made or renewed by it and
with respect to any Letter of Credit issued or participated in by it, the
Administrative Agent shall have the same rights and powers under this Agreement
and the other Loan Documents as any Lender and may exercise the same as though
it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall
include the Administrative Agent in its individual capacity.
9.9 Successor Administrative Agent. The Administrative Agent may
------------------------------
resign as Administrative Agent upon 10 days' notice to the Lenders and the
Borrower. If the Administrative Agent shall resign as Administrative Agent
under this Agreement and the other Loan Documents, then the Majority Lenders
shall appoint from among the Lenders a successor agent for the Lenders, which
successor agent shall (unless an Event of Default under Section 8(a) or Section
8(f) with respect to the Borrower shall have occurred and be
<PAGE>
60
continuing) be subject to approval by the Borrower (which approval shall not be
unreasonably withheld or delayed), whereupon such successor agent shall succeed
to the rights, powers and duties of the Administrative Agent, and the term
"Administrative Agent" shall mean such successor agent effective upon such
appointment and approval, and the former Administrative Agent's rights, powers
and duties as Administrative Agent shall be terminated, without any other or
further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement or any holders of the Loans. If no successor
agent has accepted appointment as Administrative Agent by the date that is 10
days following a retiring Administrative Agent's notice of resignation, the
retiring Administrative Agent's resignation shall nevertheless thereupon become
effective and the Lenders shall assume and perform all of the duties of the
Administrative Agent hereunder until such time, if any, as the Majority Lenders
appoint a successor agent as provided for above. After any retiring
Administrative Agent's resignation as Administrative Agent, the provisions of
this Section 9 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Administrative Agent under this Agreement and the
other Loan Documents.
9.10 Authorization to Release Guarantees and Liens. Notwithstanding
---------------------------------------------
anything to the contrary contained herein or in any other Loan Document, the
Administrative Agent is hereby irrevocably authorized by each of the Lenders
(without requirement of notice to or consent of any Lender except as expressly
required by Section 10.1) to take any action requested by the Borrower having
the effect of releasing any Collateral or guarantee obligations to the extent
necessary to permit consummation of any transaction not prohibited by any Loan
Document or that has been consented to in accordance with Section 10.1.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, any other Loan
----------------------
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Majority Lenders and each Loan Party party to the relevant Loan Document may,
or, with the written consent of the Majority Lenders, the Administrative Agent
and each Loan Party party to the relevant Loan Document may, from time to time,
(a) enter into written amendments, supplements or modifications hereto and to
the other Loan Documents for the purpose of adding any provisions to this
Agreement or the other Loan Documents or changing in any manner the rights of
the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such
terms and conditions as the Majority Lenders or the Administrative Agent, as the
case may be, may specify in such instrument, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences; provided, however, that no such waiver and no such amendment,
-------- -------
supplement or modification shall (i) forgive the principal amount or extend the
final scheduled date of maturity of any Loan, extend the scheduled date of any
reduction of Revolving Commitments, reduce the stated rate of any interest or
fee payable hereunder or extend the scheduled date of any payment thereof, or
increase the amount or extend the expiration date of any Lender's Revolving
Commitment, in each case without the consent of each Lender directly affected
thereby; (ii) amend, modify or waive any provision of this Section 10.1 or
reduce any percentage specified in the definition
<PAGE>
61
of Majority Lenders, consent to the assignment or transfer by the Borrower of
any of its rights and obligations under this Agreement and the other Loan
Documents, release all or substantially all of the Collateral or release all or
substantially all of the Subsidiary Guarantors from their obligations under the
Guarantee and Collateral Agreement, in each case without the written consent of
all Lenders; (iii) reduce the percentage specified in the definition of Majority
Lenders without the written consent of all Lenders; (iv) amend, modify or waive
any provision of Section 9 without the written consent of the Administrative
Agent; or (v) amend, modify or waive any provision of Section 3 without the
written consent of the Issuing Lender. Any such waiver and any such amendment,
supplement or modification shall apply equally to each of the Lenders and shall
be binding upon the Loan Parties, the Lenders, the Administrative Agent and all
future holders of the Loans. In the case of any waiver, the Loan Parties, the
Lenders and the Administrative Agent shall be restored to their former position
and rights hereunder and under the other Loan Documents, and any Default or
Event of Default waived shall be deemed to be cured and not continuing; but no
such waiver shall extend to any subsequent or other Default or Event of Default,
or impair any right consequent thereon.
10.2 Notices. All notices, requests and demands to or upon the
-------
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of the Borrower and the
Administrative Agent, and as set forth in an administrative questionnaire
delivered to the Administrative Agent in the case of the Lenders, or to such
other address as may be hereafter notified by the respective parties hereto:
The Borrower:
126 East 56th Street
New York, New York 10022
Attention: Kim Kelly
Telecopy: 212/371-1549
Telephone: 212/371-2266
The Administrative Agent:
425 Lexington Avenue
New York, NY 10017
Attention: Tefta Ghilaga
Telecopy: 212-856-3558
Telephone: 212-856-3867
with a copy to:
CIBC, Inc.
Two Paces West
2727 Paces Ferry Road, Suite 1200
Atlanta, Georgia 30339
<PAGE>
62
Attention: Bonnie Harris
Telecopy: 770-319-4850
Telephone: 770-319-4950
provided that any notice, request or demand to or upon the Administrative Agent
- --------
or the Lenders shall not be effective until received.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder or under the other Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans and other extensions of credit hereunder.
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or
-----------------------------
reimburse the Administrative Agent for all its out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including the reasonable fees and disbursements of counsel to the
Administrative Agent and filing and recording fees and expenses, with statements
with respect to the foregoing to be submitted to the Borrower prior to the
Closing Date (in the case of amounts to be paid on the Closing Date) and from
time to time thereafter on a quarterly basis or such other periodic basis as the
Administrative Agent shall deem appropriate, (b) to pay or reimburse each Lender
and the Administrative Agent for all its costs and expenses incurred in
connection with the enforcement or preservation of any rights under this
Agreement, the other Loan Documents and any such other documents, including the
fees and disbursements of counsel (including the allocated fees and expenses of
in-house counsel) to each Lender and of counsel to the Administrative Agent, (c)
to pay, indemnify, and hold each Lender and the Administrative Agent harmless
from, any and all recording and filing fees and any and all liabilities with
respect to, or resulting from any delay in paying, stamp, excise and other
taxes, if any, that may be payable or determined to be payable in connection
with the execution and delivery of, or consummation or administration of any of
the transactions contemplated by, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this Agreement, the other
Loan Documents and any such other documents, and (d) to pay, indemnify, and hold
each Lender and the Administrative Agent and their respective officers,
directors, employees, affiliates, agents and controlling persons (each, an
"Indemnitee") harmless from and against any and all other liabilities,
- -----------
obligations, losses, damages, penalties, actions, judgments, suits,
<PAGE>
63
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents and any such other documents, including any
of the foregoing relating to the use of proceeds of the Loans or the violation
of, noncompliance with or liability under, any Environmental Law applicable to
the operations of the Borrower any of its Subsidiaries or any of the Properties
and the reasonable fees and expenses of legal counsel in connection with claims,
actions or proceedings by any Indemnitee against any Loan Party under any Loan
Document (all the foregoing in this clause (d), collectively, the "Indemnified
-----------
Liabilities"), provided, that the Borrower shall have no obligation hereunder to
- ----------- --------
any Indemnitee with respect to Indemnified Liabilities to the extent such
Indemnified Liabilities are found by a final and nonappealable decision of a
court of competent jurisdiction to have resulted from the gross negligence or
willful misconduct of such Indemnitee. Without limiting the foregoing, and to
the extent permitted by applicable law, the Borrower agrees not to assert and to
cause its Subsidiaries not to assert, and hereby waives and agrees to cause its
Subsidiaries to so waive, all rights for contribution or any other rights of
recovery with respect to all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, under or
related to Environmental Laws, that any of them might have by statute or
otherwise against any Indemnitee. All amounts due under this Section 10.5 shall
be payable promptly after written demand therefor. Statements payable by the
Borrower pursuant to this Section 10.5 shall be submitted to Kim Kelly
(Telephone No. 212/371-2266) (Telecopy No. 212/371-1549), at the address of the
Borrower set forth in Section 10.2, or to such other Person or address as may be
hereafter designated by the Borrower in a written notice to the Administrative
Agent. The agreements in this Section 10.5 shall survive repayment of the Loans
and all other amounts payable hereunder.
10.6 Successors and Assigns; Participations and Assignments. (a)
------------------------------------------------------
This Agreement shall be binding upon and inure to the benefit of the Borrower,
the Lenders, the Administrative Agent, all future holders of the Loans and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of each Lender.
(b) Any Lender may, without the consent of the Borrower, in accordance
with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "Participant") participating interests
-----------
in any Loan owing to such Lender, any Revolving Commitment of such Lender or any
other interest of such Lender hereunder and under the other Loan Documents. In
the event of any such sale by a Lender of a participating interest to a
Participant, such Lender's obligations under this Agreement to the other parties
to this Agreement shall remain unchanged, such Lender shall remain solely
responsible for the performance thereof, such Lender shall remain the holder of
any such Loan for all purposes under this Agreement and the other Loan
Documents, and the Borrower and the Administrative Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. In no event
shall any Participant under any such participation have any right to approve any
amendment or waiver of any provision of any Loan Document, or any consent to any
departure by any Loan Party therefrom, except to the extent that such amendment,
waiver or consent would reduce the principal of, or interest on, the Loans or
any
<PAGE>
64
fees payable hereunder, or postpone the date of the final maturity of the Loans,
in each case to the extent subject to such participation. The Borrower agrees
that if amounts outstanding under this Agreement and the Loans are due or
unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant shall, to the maximum
extent permitted by applicable law, be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest were owing
directly to it as a Lender under this Agreement, provided that, in purchasing
--------
such participating interest, such Participant shall be deemed to have agreed to
share with the Lenders the proceeds thereof as provided in Section 10.7(a) as
fully as if it were a Lender hereunder. The Borrower also agrees that each
Participant shall be entitled to the benefits of Sections 2.13, 2.14 and 2.15
with respect to its participation in the Revolving Commitments and the Loans
outstanding from time to time as if it was a Lender; provided that, in the case
--------
of Section 2.14, such Participant shall have complied with the requirements of
said Section and provided, further, that no Participant shall be entitled to
-------- -------
receive any greater amount pursuant to any such Section than the transferor
Lender would have been entitled to receive in respect of the amount of the
participation transferred by such transferor Lender to such Participant had no
such transfer occurred.
(c) Any Lender (an "Assignor") may, in accordance with applicable law,
--------
at any time and from time to time assign to any Lender or any affiliate thereof
or, with the consent of the Borrower and the Administrative Agent (which, in
each case, shall not be unreasonably withheld or delayed), to an additional
bank, financial institution or other entity (an "Assignee") all or any part of
--------
its rights and obligations under this Agreement pursuant to an Assignment and
Acceptance, executed by such Assignee, such Assignor and any other Person whose
consent is required pursuant to this paragraph, and delivered to the
Administrative Agent for its acceptance and recording in the Register; provided
--------
that no such assignment to an Assignee (other than any Lender or any affiliate
thereof) shall be in an aggregate principal amount of less than $5,000,000
(other than in the case of an assignment of all of a Lender's interests under
this Agreement), unless otherwise agreed by the Borrower and the Administrative
Agent. Upon such execution, delivery, acceptance and recording, from and after
the effective date determined pursuant to such Assignment and Acceptance, (x)
the Assignee thereunder shall be a party hereto and, to the extent provided in
such Assignment and Acceptance, have the rights and obligations of a Lender
hereunder with a Revolving Commitment and/or Loans as set forth therein, and (y)
the Assignor thereunder shall, to the extent provided in such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all of an Assignor's rights and
obligations under this Agreement, such Assignor shall cease to be a party
hereto). Notwithstanding any provision of this Section 10.6, the consent of the
Borrower shall not be required for any assignment that occurs when an Event of
Default pursuant to Section 8(f) shall have occurred and be continuing with
respect to the Borrower.
(d) The Administrative Agent shall, on behalf of the Borrower,
maintain at its address referred to in Section 10.2 a copy of each Assignment
and Acceptance delivered to it and a register (the "Register") for the
--------
recordation of the names and addresses of the Lenders and the Revolving
Commitment of, and the principal amount of the Loans owing to, each Lender from
time to time. The entries in the Register shall be conclusive, in the
<PAGE>
65
absence of manifest error, and the Borrower, each other Loan Party, the
Administrative Agent and the Lenders shall treat each Person whose name is
recorded in the Register as the owner of the Loans and any Notes evidencing the
Loans recorded therein for all purposes of this Agreement. Any assignment of
any Loan, whether or not evidenced by a Note, shall be effective only upon
appropriate entries with respect thereto being made in the Register (and each
Note shall expressly so provide). Any assignment or transfer of all or part of
a Loan evidenced by a Note shall be registered on the Register only upon
surrender for registration of assignment or transfer of the Note evidencing such
Loan, accompanied by a duly executed Assignment and Acceptance, and thereupon
one or more new Notes shall be issued to the designated Assignee.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assignor, an Assignee and any other Person whose consent is required by Section
10.6(c), together with payment to the Administrative Agent of a registration and
processing fee of $3,500, the Administrative Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) record the information contained therein
in the Register on the effective date determined pursuant thereto.
(f) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this Section 10.6 concerning assignments of Loans and
Notes relate only to absolute assignments and that such provisions do not
prohibit assignments creating security interests, including any pledge or
assignment by a Lender of any Loan or Note to any Federal Reserve Bank in
accordance with applicable law.
(g) The Borrower, upon receipt of written notice from the relevant
Lender, agrees to issue Notes to any Lender requiring Notes to facilitate
transactions of the type described in paragraph (f) above.
10.7 Adjustments; Set-off. (a) Except to the extent that this
--------------------
Agreement expressly provides for payments to be allocated to a particular
Lender, if any Lender (a "Benefitted Lender") shall receive any payment of all
-----------------
or part of the Obligations owing to it, or receive any collateral in respect
thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or
proceedings of the nature referred to in Section 8(f), or otherwise), in a
greater proportion than any such payment to or collateral received by any other
Lender, if any, in respect of the Obligations owing to such other Lender, such
Benefitted Lender shall purchase for cash from the other Lenders a participating
interest in such portion of the Obligations owing to each such other Lender, or
shall provide such other Lenders with the benefits of any such collateral, as
shall be necessary to cause such Benefitted Lender to share the excess payment
or benefits of such collateral ratably with each of the Lenders; provided,
--------
however, that if all or any portion of such excess payment or benefits is
- -------
thereafter recovered from such Benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Borrower, any
such notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount
<PAGE>
66
becoming due and payable by the Borrower hereunder (whether at the stated
maturity, by acceleration or otherwise), to set off and appropriate and apply
against such amount any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such Lender or
any branch or agency thereof to or for the credit or the account of the
Borrower, as the case may be. Each Lender agrees promptly to notify the
Borrower and the Administrative Agent after any such setoff and application made
by such Lender, provided that the failure to give such notice shall not affect
--------
the validity of such setoff and application.
10.8 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. Delivery of an executed signature page of this Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Borrower and the Administrative Agent.
10.9 Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents
-----------
represent the agreement of the Borrower, the Administrative Agent and the
Lenders with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent or any
Lender relative to subject matter hereof not expressly set forth or referred to
herein or in the other Loan Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
-------------
OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. The Borrower hereby
-----------------------------------
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the courts of
the State of New York, the courts of the United States for the Southern
District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such
<PAGE>
67
action or proceeding in any such court or that such action or proceeding
was brought in an inconvenient court and agrees not to plead or claim the
same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Borrower, as the case may be at its address set forth in Section 10.2 or at
such other address of which the Administrative Agent shall have been
notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section any special, exemplary, punitive or consequential damages.
10.13 Acknowledgements. The Borrower hereby acknowledges that:
----------------
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to the Borrower arising out of or in connection
with this Agreement or any of the other Loan Documents, and the
relationship between Administrative Agent and Lenders, on one hand, and the
Borrower, on the other hand, in connection herewith or therewith is solely
that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among the Borrower and the Lenders.
10.14 Confidentiality. Each of the Administrative Agent and each
---------------
Lender agrees to keep confidential all non-public information provided to it by
any Loan Party pursuant to this Agreement that is designated by such Loan Party
as confidential; provided that nothing herein shall prevent the Administrative
--------
Agent or any Lender from disclosing any such information (a) to the
Administrative Agent, any other Lender or any affiliate of any Lender, (b) to
any Transferee or prospective Transferee that agrees to comply with the
provisions of this Section, (c) to its employees, directors, agents, attorneys,
accountants and other professional advisors or those of any of its affiliates,
(d) upon the request or demand of any Governmental Authority, (e) in response to
any order of any court or other Governmental Authority or as may otherwise be
required pursuant to any Requirement of Law, (f) if requested or required to do
so in connection with any litigation or similar proceeding, (g) that has been
publicly disclosed, (h) to the National Association of Insurance Commissioners
or any similar organization or any nationally recognized rating agency that
requires access to information about a Lender's investment portfolio in
connection with ratings issued with
<PAGE>
68
respect to such Lender, or (i) in connection with the exercise of any remedy
hereunder or under any other Loan Document.
10.15 WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT
---------------------
AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
By:___________________
Title:
CANADIAN IMPERIAL BANK OF COMMERCE, as
Administrative Agent
By:___________________
Title:
CIBC INC., as Lender
By:___________________
Title:
<PAGE>
Annex A
-------
PRICING GRID FOR LOANS
<TABLE>
<CAPTION>
===================================================================================
Consolidated Leverage Ratio Applicable Margin Applicable Margin for ABR
for Eurodollar Loans Loans
-----------------------------------------------------------------------------------
<S> <C> <C>
greater or equal to 5.00 to 1.00 2.00% 0.75%
- ------------------------------------------------------------------------------------
less than 5.00 to 1.00 1.50% 0.25%
====================================================================================
</TABLE>
Changes in the Applicable Margin with respect to the Loans resulting from
changes in the Consolidated Leverage Ratio shall become effective on the date
(the "Adjustment Date") on which financial statements are delivered to the
---------------
Lenders pursuant to Section 6.1 (but in any event not later than the 45th day
after the end of each fiscal quarter) and shall remain in effect until the next
change to be effected pursuant to this paragraph. If any financial statements
referred to above are not delivered within the time periods specified above,
then, until such financial statements are delivered, the Consolidated Leverage
Ratio as at the end of the fiscal period that would have been covered thereby
shall for the purposes of this definition be deemed to be greater than 5.00 to
1.0. Each determination of the Consolidated Leverage Ratio pursuant to this
pricing grid shall be made with respect to (or, in the case of Consolidated
Total Debt, as at the end of) the quarterly period of the Borrower covered by
the relevant financial statements.
<PAGE>
Schedule 1.1
COMMITMENTS AND NOTICE ADDRESS
Name and Notice Revolving
Address of Lender Credit Commitment
- ----------------- -----------------
CIBC, Inc. $25,000,000
Two Paces West
2727 Paces Ferry Road, Suite 1200
Atlanta, Georgia 30339
Attention: Bonnie Harris
Telephone: 770-319-4950
Telecopy: 770-319-4850
<PAGE>
SCHEDULE 4.4
CONSENTS, AUTHORIZATIONS, FILING AND NOTICES
I. Franchise Authorities - Required Consents
a. Columbus
b. Whitehall
II. Landlords
The following lease requires consent of the landlord in connection with the
Agreement:
LEASES LESSOR EXP. DATE CLASSIFICATION
------ ------ --------- --------------
Design and Drafting Office AB REO, L.L.C mo. to mo. Non-Headend
Requires Consent
III. No authorizations with respect to FCC licenses are required, as the
Communications Act of 1934 is currently interpreted by the FCC.
IV. Consents may be required under non-material agreements including, but not
limited to, pole attachment agreements, joint trench agreements, bulk and
access agreements, and equipment leases.
<PAGE>
SCHEDULE 4.15
SUBSIDIARIES
I. Subsidiaries of Insight Communications of Central Ohio, LLC: None
<PAGE>
SCHEDULE 4.18
UCC FILING JURISDICTIONS
STATE COUNTY
- ----- ------
OH Delaware
Fairfield
Franklin
Licking
Pickaway
<PAGE>
SCHEDULE 7.2(D)
EXISTING INDEBTEDNESS
None
<PAGE>
SCHEDULE 7.3(F)
EXISTING LIENS
I. Existing liens other than those permitted under Section 7.3: None
<PAGE>
EXHIBIT B
FORM OF COMPLIANCE CERTIFICATE
This Compliance Certificate is delivered to you pursuant to Section
6.2 of the Revolving Credit Agreement, dated as of October 7, 1998, as amended,
supplemented or modified from time to time (the "Credit Agreement"), among
----------------
Insight Communications of Central Ohio, LLC, a limited liability company
organized under the laws of Delaware (the "Borrower"), the several banks and
--------
other financial institutions party thereto as Lenders (the "Lenders") and
-------
Canadian Imperial Bank of Commerce, as administrative agent for the Lenders (in
such capacity, the "Administrative Agent"). Terms defined in the Credit
--------------------
Agreement and not otherwise defined herein are used herein with the meanings so
defined.
1. I am the duly elected, qualified and acting [Chief Financial
Officer] [Vice President - Finance] of the Borrower.
2. I have reviewed and are familiar with the contents of this
Certificate.
3. I have reviewed the terms of the Credit Agreement and the Loan
Documents and have made or caused to be made under my supervision, a review in
reasonable detail of the transactions and condition of the Borrower during the
accounting period covered by the financial statements attached hereto as
Attachment 1 (the "Financial Statements"). Such review did not disclose the
- ------------ --------------------
existence during or at the end of the accounting period covered by the Financial
Statements, and I have no knowledge of the existence, as of the date of this
Certificate, of any condition or event which constitutes a Default or Event of
Default, [, except as set forth below].
4. Attached hereto as Attachment 2 are the computations showing
------------
compliance with the covenants set forth in Section 7.1, 7.2, 7.5, 7.6 and 7.7 of
the Credit Agreement.
IN WITNESS WHEREOF, I execute this Certificate this _____ day of ____,
[199_] [200_].
INSIGHT COMMUNICATIONS OF CENTRAL
OHIO, LLC
By:________________________
Title
<PAGE>
Attachment 2
to Exhibit B
The information described herein is as of ________, [199_] [200_], and
pertains to the period from _____ ____, [199_] [200_] to _____________ ____,
[199_] [200_].
[Set forth Covenant Calculations]
<PAGE>
EXHIBIT C
FORM OF CLOSING CERTIFICATE
Pursuant to subsection 5.1(h) of the Revolving Credit Agreement dated
as of October 7, 1998 (the "Credit Agreement"; terms defined therein being used
----------------
herein as therein defined), among Insight Communications of Central Ohio, LLC, a
limited liability company organized under the laws of Delaware, the Lenders
parties thereto, and Canadian Imperial Bank of Canada, as Administrative Agent,
the undersigned [INSERT TITLE OF OFFICER] of [INSERT NAME OF COMPANY] (the
"Company") hereby certifies as follows:
-------
1. The representations and warranties of the Company set forth in
each of the Loan Documents to which it is a party or which are contained in any
certificate furnished by or on behalf of the Company pursuant to any of the Loan
Documents to which it is a party are true and correct in all material respects
on and as of the date hereof with the same effect as if made on the date hereof,
except for representations and warranties expressly stated to relate to a
specific earlier date, in which case such representations and warranties were
true and correct in all material respects as of such earlier date.
2. _______________________ is the duly elected and qualified
Corporate Secretary of the Company, and the signature set forth for such officer
below is such officer's true and genuine signature.
3. No Default or Event of Default has occurred and is continuing as
of the date hereof or after giving effect to the Loans to be made on the date
hereof. [Borrower only]
4. The conditions precedent set forth in Section 5.1 of the Credit
Agreement were satisfied as of the Closing Date except as set forth on Schedule
I hereto. [Borrower only]
The undersigned Corporate Secretary of the Company certifies as
follows:
5. There are no liquidation or dissolution proceedings pending or to
my knowledge threatened against the Company, nor has any other event occurred
adversely affecting or threatening the continued corporate existence of the
Company.
6. The Company is a limited liability company duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization.
7. Attached hereto as Annex 1 is a true and complete copy of
-------
resolutions duly adopted by the Management Committee of the Company on August
21, 1998; such resolutions have not in any way been amended, modified, revoked
or rescinded, have been in full force and effect since their adoption to and
including the date hereof and are now in full force and effect and are the only
corporate proceedings of the Company now in force relating to or affecting the
matters referred to therein.
<PAGE>
2
8. Attached hereto as Annex 2 is a true and complete copy of the
-------
Operating Agreement of the Company as the Company as in effect on the date
hereof.
9. Attached hereto as Annex 3 is a true and complete copy of the
-------
Certificate of Formation of the Company as in effect on the date hereof, and
such certificate has not been amended, repealed, modified or restated.
10. The following persons are now duly elected and qualified officers
of the Company holding the offices indicated next to their respective names
below, and such officers have held such offices with the Company at all times
since the date indicated next to their respective titles to and including the
date thereof, and the signatures appearing opposite their respective names below
are the true and genuine signatures of such officers, and each of such officers
is duly authorized to execute and deliver on behalf of the Company each of the
Loan Documents to which it is a party and any certificate or other document to
be delivered by the Company pursuant to the Loan Documents to which it is a
party:
Name Office Date Signature
---- ------ ---- ---------
IN WITNESS WHEREOF, the undersigned have hereunto set our names as of the date
set forth below.
_______________________________ _______________________________________
Name Name
Title Title
Date: October 7, 1998
<PAGE>
EXHIBIT D
FORM OF
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Revolving Credit Agreement, dated as of
October 7, 1998 (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among Insight Communications of Central
----------------
Ohio, LLC (the "Borrower"), the Lenders named therein, and Canadian
--------
Imperial Bank of Commerce, as administrative agent for the Lenders (in such
capacity, the "Administrative Agent"). Unless otherwise defined herein, terms
--------------------
defined in the Credit Agreement and used herein shall have the meanings given to
them in the Credit Agreement.
The Assignor identified on Schedule 1 hereto (the "Assignor") and the
---------
Assignee identified on Schedule 1 hereto ( the "Assignee") agree as follows:
---------
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date (as defined below), the interest described in Schedule 1 hereto
(the "Assigned Interest") in and to the Assignor's rights and obligations under
-----------------
the Credit Agreement, in a principal amount as set forth on Schedule 1 hereto.
2. The Assignor (a) makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or with respect to the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Credit Agreement, any other Loan Document or any other instrument or
document furnished pursuant thereto, other than that the Assignor has not
created any adverse claim upon the interest being assigned by it hereunder and
that such interest is free and clear of any such adverse claim; (b) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower, any of its Subsidiaries or any other
obligor or the performance or observance by the Borrower, any of its
Subsidiaries or any other obligor of any of their respective obligations under
the Credit Agreement or any other Loan Document or any other instrument or
document furnished pursuant hereto or thereto; and (c) attaches any Notes held
by it evidencing the Credit Agreement and (i) requests that the Administrative
Agent, upon request by the Assignee, exchange the attached Notes for a new Note
or Notes payable to the Assignee and (ii) if the Assignor has retained any
interest in the Credit Agreement, requests that the Administrative Agent
exchange the attached Notes for a new Note or Notes payable to the Assignor, in
each case in amounts which reflect the assignment being made hereby (and after
giving effect to any other assignments which have become effective on the
Effective Date).
3. The Assignee (a) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (b) confirms that is
has received a copy of the Credit Agreement, together with copies of the
financial statements delivered pursuant to subsection 4.1 thereof and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance;
<PAGE>
2
(c) agrees that it will, independently and without reliance upon the Assignor,
the Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement, the
other Loan Documents or any other instrument or document furnished pursuant
hereto or thereto; (d) appoints and authorizes the Administrative Agent to take
such action as agent on its behalf and to exercise such powers and discretion
under the Credit Agreement, the other Loan Documents or any other instrument or
document furnished pursuant hereto or thereto as are delegated to the
Administrative Agent by the terms thereof, together with such powers as are
incidental thereto; and (e) agrees that it will be bound by the provisions of
the Credit Agreement and will perform in accordance with its terms all the
obligations which by the terms of the Credit Agreement are required to be
performed by it as a Lender including, if it is organized under the laws of a
jurisdiction outside the United States, its obligation pursuant to subsection
2.14(d) of the Credit Agreement.
4. The effective date of this Assignment and Acceptance shall be
the Effective Date of Assignment described in Schedule 1 hereto (the "Effective
---------
Date"). Following the execution of this Assignment and Acceptance, it will be
- ----
delivered to the Administrative Agent for acceptance by it and recording by the
Administrative Agent pursuant to the Credit Agreement, effective as of the
Effective Date (which shall not, unless otherwise agreed to by the
Administrative Agent, be earlier than five Business Days after the date of such
acceptance and recording by the Administrative Agent).
5. Upon such acceptance and recording, from and after the Effective
Date, the Administrative Agent shall make all payments in respect of the
Assigned Interest (including payments of principal, interest, fees and other
amounts) [to the Assignor for amounts which have accrued to the Effective Date
and to the Assignee for amounts which have accrued subsequent to the Effective
Date] [to the Assignee whether such amounts have accrued prior to the Effective
Date or accrue subsequent to the Effective Date. The Assignor and the Assignee
shall make all appropriate adjustments in payments by the Agent for periods
prior to the Effective Date or with respect to the making of this assignment
directly between themselves.]
6. From and after the Effective Date, (a) the Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and under the
other Loan Documents and shall be bound by the provisions thereof and (b) the
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.
7. This Assignment and Acceptance shall be governed by and construed
in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the date first above written by their respective
duly authorized officers on Schedule 1 hereto.
<PAGE>
Schedule I
to Assignment and Acceptance
Name of Assignor:_____________________________
Name of Assignee:_____________________________
Effective Date of Assignment:________________
Principal Amount Revolving Revolving
Assigned Commitment Assigned Percentage Assigned/1/
- --------------------- ------------------- ----------------------
$________ $________ ______________%
[Name of Assignee] [Name of Assignor]
By: _____________________________ By: ____________________________________
Title: Title:
_____________________
1. Calculate the Revolving Percentage that is assigned to at least 15 decimal
places and show as a percentage of the Total Revolving Commitments.
<PAGE>
2
Accepted: Consented To:
CANADIAN IMPERIAL BANK OF INSIGHT COMMUNICATIONS OF
COMMERCE, as Administrative Agent CENTRAL OHIO, LLC
By: ______________________________ By: ______________________________
Title: Title:
CANADIAN IMPERIAL BANK OF
COMMERCE, as Administrative Agent
By: ______________________________
Title:
<PAGE>
EXHIBIT F
FORM OF EXEMPTION CERTIFICATE
Reference is made to the Revolving Credit Agreement, dated as of
October 7, 1998 (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement") among Insight Communications of Central Ohio, LLC,
----------------
a limited liability company organized under the laws of Delaware (the
"Borrower"), the several banks and other financial institutions or entities
--------
from time to time parties thereto (the "Lenders"), Canadian Imperial Bank of
------
Commerce, as administrative agent for the Lenders (in such capacity, the
"Administrative Agent"). Capitalized terms used herein that are not defined
--------------------
herein shall have the meanings ascribed to them in the Credit Agreement.
________ (the "Non-U.S. Lender") is providing this certificate pursuant to
---------------
subsection 2.14(d) of the Credit Agreement. The Non-U.S. Lender hereby
represents and warrants that:
1. The Non-U.S. Lender is the sole record and beneficial owner of
the Loans or the obligations evidenced by Note(s) in respect of which it is
providing this certificate.
2. The Non-U.S. Lender is not a "bank" for purpose of Section
881(c)(3)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). In
----
this regard, the Non-U.S. Lender further represents and warrants that:
(a) the Non-U.S. Lender is not subject to regulatory or other legal
requirements as a bank in any jurisdiction; and
(b) the Non-U.S. Lender has not been treated as a bank for purposes
of any tax, securities law or other filing or submission made to any
Governmental Authority, any application made to a rating agency or
qualification for any exemption from tax, securities law or other
legal requirements;
3. The Non-U.S. Lender is not a 10-percent shareholder of the
Borrower within the meaning of Section 881(c)(3)(B) of the Code; and
4. The Non-U.S. Lender is not a controlled foreign corporation
receiving interest from a related person within the meaning of Section
881(c)(3)(C) of the Code.
IN WITNESS WHEREOF, the undersigned has duly executed this
certificate.
[NAME OF NON-U.S. LENDER]
By: ___________________________
Name:
Title:
Date:___________________________________
<PAGE>
Exhibit 12.1
COAXIAL LLC
RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------- -------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income (loss) from continuing operations $ 2,726 $ 9,560 $ 12,583 $17,461 $ 17,095 $ 16,488 $ 14,350
Total fixed charges 4,156 4,343 5,731 5,780 5,428 2,909 2,133
------- ------- -------- ------- -------- -------- --------
Earnings $ 6,882 $13,903 $ 18,314 $23,241 $ 22,523 $ 19,397 $ 16,483
======= ======= ======== ======= ======== ======== ========
Fixed Charges:
Interest $ 3,553 $ 3,838 $ 5,047 $ 5,159 $ 4,803 $ 2,562 $ 1,988
Amortization of loan acquisition costs 502 409 549 507 508 223 24
Interest Element of Rental Expense 101 96 135 114 117 124 121
------- ------- -------- ------- -------- -------- --------
Total of Fixed Charges $ 4,156 $ 4,343 $ 5,731 $ 5,780 $ 5,428 $ 2,909 $ 2,133
======= ======= ======== ======= ======== ======== ========
Ratio of Earnings to Fixed Charges 1.65 3.20 3.19 4.02 4.14 6.66 7.72
======= ======= ======== ======= ======== ======== ========
</TABLE>
<PAGE>
Exhibit 12.1
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------- -------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income (loss) from continuing operations $ 3,036 $ 9,560 $ 12,583 $17,461 $ 17,095 $ 16,488 $ 14,350
Total fixed charges 3,703 4,343 5,731 5,780 5,428 2,909 2,133
------- ------- -------- ------- -------- -------- --------
Earnings $ 6,739 $13,903 $ 18,314 $23,241 $ 22,523 $ 19,397 $ 16,483
======= ======= ======== ======= ======== ======== ========
Fixed Charges:
Interest $ 3,114 $ 3,838 $ 5,047 $ 5,159 $ 4,803 $ 2,562 $ 1,988
Amortization of loan acquisition costs 488 409 549 507 508 223 24
Interest Element of Rental Expense 101 96 135 114 117 124 121
------- ------- -------- ------- -------- -------- --------
Total of Fixed Charges $ 3,703 $ 4,343 $ 5,731 $ 5,780 $ 5,428 $ 2,909 $ 2,133
======= ======= ======== ======= ======== ======== ========
Ratio of Earnings to Fixed Charges 1.81 3.20 3.19 4.02 4.14 6.66 7.72
======= ======= ======== ======= ======== ======== ========
</TABLE>
<PAGE>
PHOENIX ASSOCIATES
RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------- -------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income (loss) from continuing operations $(9,667) $(8,982) $(12,183) $(12,596) $ (12,481) $ (7,247) $ (7,050)
Total fixed charges 10,246 10,323 13,882 14,526 14,386 9,061 8,590
------- ------- -------- ------- -------- -------- --------
Earnings $ 579 $ 1,341 $ 1,699 $ 1,930 $ 1,905 $ 1,814 $ 1,540
======= ======= ======== ======= ======== ======== ========
Fixed Charges:
Interest $10,194 $10,323 $ 13,882 $ 14,526 $ 14,386 $ 8,872 $ 8,415
Amortization of loan acquisition costs 52 - - - - 189 175
------- ------- -------- ------- -------- -------- --------
Total of Fixed Charges $10,246 $10,323 $ 13,882 $ 14,526 $ 14,386 $ 9,061 $ 8,590
======= ======= ======== ======= ======== ======== ========
Coverage Deficiency in Earnings to cover Fixed $(9,667) $ (8,982) $(12,183) $(12,596)$ (12,481) $ (7,247) $ (7,050)
Charges ======= ======= ======== ======== ======== ======== ========
</TABLE>
<PAGE>
Exhibit 12.1
COMBINED PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
-------------- --------------
1998 1997
---- ----
<S> <C> <C>
Pro forma pre-tax (loss) from continuing operations-
Coaxial LLC $ 4,818 $ 8,619
Pro forma pre-tax income (loss) from continuing
operations - Phoenix (8,313) (9,768)
Total pro forma fixed charges 14,025 18,637
------- --------
Earnings $10,530 $ 17,488
======= ========
Pro forma fixed Charges
Interest $13,437 $ 17,875
Amortization of loan acquisition costs 487 627
Interest Element of Rental Expense 101 135
------- --------
Total pro forma fixed charges $14,025 $ 18,637
======= ========
Pro forma Ratio of earnings to fixed charges N/A N/A
======= ========
Pro forma coverage deficiency in earnings to
cover fixed charges $(3,495) $ (1,149)
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in this registration statement.
ARTHUR ANDERSEN LLP
Columbus, Ohio,
December 22, 1998.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001071003
<NAME> COAXIAL LLC
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,848,045
<SECURITIES> 0
<RECEIVABLES> 4,143,083
<ALLOWANCES> 315,000
<INVENTORY> 0
<CURRENT-ASSETS> 9,684,410
<PP&E> 74,746,301
<DEPRECIATION> 45,423,723
<TOTAL-ASSETS> 51,104,115
<CURRENT-LIABILITIES> 9,692,650
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (24,785,590)
<TOTAL-LIABILITY-AND-EQUITY> 51,104,115
<SALES> 0
<TOTAL-REVENUES> 35,808,519
<CGS> 0
<TOTAL-COSTS> 31,583,482
<OTHER-EXPENSES> 432,733
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,066,436
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 846,641
<CHANGES> 0
<NET-INCOME> 1,879,227
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001071001
<NAME> COAXIAL FINANCING CORP.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-24-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 990
<TOTAL-LIABILITY-AND-EQUITY> 1,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001070242
<NAME> CENTRAL OHIO CABLE
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 30,583,731
<TOTAL-REVENUES> 30,583,731
<CGS> 0
<TOTAL-COSTS> 28,415,660
<OTHER-EXPENSES> 432,735
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (22,632)
<INCOME-PRETAX> 1,757,968
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,757,968
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,757,968
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001070242
<NAME> INSIGHT COMMUNICATIONS OF CENTRAL OHIO LLC
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,848,045
<SECURITIES> 0
<RECEIVABLES> 4,144,083
<ALLOWANCES> 316,000
<INVENTORY> 832,817
<CURRENT-ASSETS> 9,684,410
<PP&E> 74,746,301
<DEPRECIATION> 45,423,723
<TOTAL-ASSETS> 39,055,631
<CURRENT-LIABILITIES> 11,338,096
<BONDS> 0
0
170,000,000
<COMMON> 26,378,575
<OTHER-SE> 17,429
<TOTAL-LIABILITY-AND-EQUITY> 39,055,631
<SALES> 5,224,788
<TOTAL-REVENUES> 5,224,788
<CGS> 0
<TOTAL-COSTS> 3,167,820
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,199
<INCOME-PRETAX> 2,051,769
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,051,769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,051,769
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
