<PAGE>
As filed with the Securities and Exchange Commission on June 24, 1999
REGISTRATION NO. 333-78293
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INSIGHT COMMUNICATIONS COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4841 13-4053502
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
126 EAST 56TH STREET
NEW YORK, NEW YORK 10022
(212) 371-2266
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SIDNEY R. KNAFEL
CHAIRMAN OF THE BOARD
INSIGHT COMMUNICATIONS COMPANY, 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:
<TABLE>
<S> <C>
ROBERT L. WINIKOFF, ESQ. PHILIP E. COVIELLO, ESQ.
ELLIOT E. BRECHER, ESQ. MARC D. JAFFE, ESQ.
COOPERMAN LEVITT WINIKOFF LESTER & NEWMAN, P.C. LATHAM & WATKINS
800 THIRD AVENUE 885 THIRD AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
(212) 688-7000 (212) 906-1200
FAX: (212) 755-2839 FAX: (212) 751-4864
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please 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 Rule
462(c) 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 Rule
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. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, $.01 par
value per share................ 23,575,000 $23.00 $542,225,000 $150,739(2)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to Rule 457(o) under the Securities Act of 1933 solely
for the purpose of calculating the registration fee.
(2) $143,865 previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION--JUNE 24, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
, 1999
[LOGO]
20,500,000 SHARES OF CLASS A COMMON STOCK
- --------------------------------------------------------------------------------
INSIGHT COMMUNICATIONS COMPANY, INC.:
o We own, operate and manage cable television systems that provide an array of
entertainment, information and communications services.
PROPOSED SYMBOL & MARKET:
o ICCIA/Nasdaq National Market
INSIGHT'S COMMON STOCK:
o Each share of Class A common stock is entitled to one vote and each share of
Class B common stock is entitled to ten votes. After this offering, the
holders of Class B common stock will have 68.7% of our total voting power.
THE OFFERING:
o We are offering 20,500,000 shares of our Class A common stock.
o The underwriters have an option to purchase an additional 3,075,000 shares
from us to cover over-allotments.
o We currently estimate that the initial public offering price of the shares
will be between $21 and $23.
o This is our initial public offering and no public market currently exists for
our shares.
<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
Public offering price: $ $
Underwriting fees:
Proceeds to Insight:
- -----------------------------------------------------------------------------------------------------------------------------------
THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 13.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
MORGAN STANLEY DEAN WITTER
CIBC WORLD MARKETS
DEUTSCHE BANC ALEX. BROWN
The undersigned is facilitating Internet distribution.
DLJDIRECT INC.
We will amend and complete the information in this prospectus.
Athough we are permitted by U.S. federal securities laws to offer these
securities using this prospectus, we may not sell them or accept your
offer to buy them until the registration statement filed with the SEC
relating to these securities is effective. This prospectus
is not an offer to sell these securities or our solicitation of your
offer to buy these securities in any jurisdiction where that would not be
permitted or legal.
<PAGE>
[MAP SHOWING INSIGHT'S SERVICE AREA]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 13
Use of Proceeds................................ 20
Dividend Policy................................ 20
Capitalization................................. 21
Dilution....................................... 23
Pro Forma Financial Statements................. 24
Selected Consolidated Historical Financial and
Other Data................................... 32
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 34
Industry....................................... 41
Business....................................... 43
Legislation and Regulation..................... 67
<CAPTION>
PAGE
----
<S> <C>
Management..................................... 76
Certain Transactions........................... 81
Principal Stockholders......................... 81
Corporate Structure............................ 82
Description of Recent Transactions............. 83
Description of Certain Indebtedness............ 87
Description of Capital Stock................... 90
Shares Eligible for Future Sale................ 92
Underwriters................................... 94
Legal Matters.................................. 96
Experts........................................ 96
Available Information.......................... 97
Glossary....................................... G-1
Index to Financial Statements.................. F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
The following section highlights the key information contained in this
prospectus. You should read the entire prospectus, including the "Risk Factors"
and the financial statements and all notes. Prior to the exchange of limited
partnership interests for common stock to occur upon completion of this
offering, we operated as a limited partnership, and all taxable earnings were
taxed directly to our then-existing partners.
INSIGHT
We are the 8th largest cable television system operator in the United
States based on customers served, after giving effect to our proposed
acquisition of the Kentucky cable television systems and other recently
announced industry acquisitions. We have approximately 1,049,000 customers and
pass approximately 1,635,000 homes as of March 31, 1999, after giving effect to
the Kentucky acquisition and our proposed provision of consulting services to
additional cable television systems located in Indiana. We have a tightly
grouped cluster of cable television systems with approximately 98% of our
customers concentrated in the four contiguous states of Indiana, Kentucky, Ohio
and Illinois. Our systems have a very high concentration of customers served by
each headend or technical center of the network allowing us to more economically
deliver an array of entertainment, information and telecommunication services,
including interactive digital video, high-speed data access and telephone
service products. Upon completion of our rebuild efforts, which is expected to
occur in 2000, over 96% of our customers will be served from nine headends. In
addition to our optimal state-of-the-art technical configuration, our market
research indicates that our clusters have attractive market characteristics and
demographics for offering new and enhanced products and services that take
advantage of the significant bandwidth of our cable network. We believe that
because of this advantageous combination, we are very well positioned to exploit
the new business opportunities available to cable television operators.
After giving effect to the above transactions:
<TABLE>
<CAPTION>
BASED ON OUR INTERESTS IN EACH OF THE OPERATING
SYSTEMS ON A PROPORTIONAL BASIS, WHICH REFLECTS OUR
100% INTEREST IN THE NATIONAL SYSTEMS, OUR 75%
CONSOLIDATION OF THE NATIONAL, INTEREST IN THE COLUMBUS SYSTEM, ADJUSTED AS IF WE
INDIANA AND KENTUCKY SYSTEMS WERE CONSOLIDATING COLUMBUS ON A PROPORTIONAL BASIS,
AND OUR EQUITY INTERESTS IN AND OUR 50% INTEREST IN THE INDIANA AND KENTUCKY
THE COLUMBUS SYSTEM SYSTEMS
------------------------------ ------------------------------------------------------
(IN MILLIONS)
<S> <C> <C>
For the year ended December 31, 1998
Revenues......................... $375.7 $244.5
EBITDA........................... 178.6 112.2
Loss from operations............. (46.7) (17.9)
Net loss......................... (73.1) (72.9)
Loss per share................... (1.36)
For the three months ended March 31, 1999
Revenues......................... $ 97.5 $ 62.7
EBITDA........................... 45.4 29.0
Loss from operations............. (16.3) (5.0)
Net loss......................... (21.9) (21.5)
Loss per share................... (.41)
</TABLE>
Our marketing strategy is to offer our customers an array of entertainment,
information and telecommunication services on a bundled basis. By bundling our
products and services, our customers would have an increased choice of services
at a reduced cost resulting in higher customer satisfaction, increased use of
our services and greater customer retention. We began offering new and enhanced
products and services, such as interactive digital video and high-speed data
access, during the second quarter of 1999, and intend to offer telecommunication
services beginning in 2000.
We believe that the highly clustered nature of our systems will enable us
to more efficiently invest our marketing dollars and maximize our ability to
establish customer awareness, increase use of our services and build brand
support. In addition to our broad product offering, we also emphasize a high
level of locally
3
<PAGE>
focused customer service. Our emphasis is on system reliability, engineering
support and superior customer satisfaction.
To facilitate the deployment of our enhanced products and services, we are
in the process of rebuilding almost all of our network to provide at least 750
MHz of capacity with two-way communications capability. We have rebuilt
approximately 29% of our network miles as of March 31, 1999 after giving effect
to the proposed acquisition of the Kentucky cable television systems, and intend
to have approximately 71% of our network at or above 750 MHz by the end of 1999.
We intend to complete our network rebuild in 2000 having invested a total of
approximately $233.8 million.
BUSINESS STRATEGY
Our management team developed and is executing a clear strategy to become a
competitive, full-service provider of entertainment, information and
telecommunication services. We developed this strategy because we recognize the
opportunities presented by new technology, the strength of our market
characteristics and favorable changes in the regulatory environment.
Our operating strategy is centered on the development of new and enhanced
products and services for the communities served by our networks and consists of
the following elements:
o Focus on operating clusters with attractive technical and demographic
profiles;
o Expeditiously rebuild our cable network;
o Introduce new and enhanced products and services; and
o Leverage strong local presence to enhance customer and community
relations.
To support our business strategy, we have developed a financial strategy to
pursue value-enhancing transactions and preserve our financial flexibility by
maintaining an appropriate capital structure.
RECENT DEVELOPMENTS
THE KENTUCKY ACQUISITION
In April 1999, we entered into an agreement with related parties of
Blackstone Capital Acquisition Company, LLC, related parties of InterMedia
Capital Management VI, LLC and a subsidiary and related party of AT&T Broadband
& Internet Services to purchase a combined 50% interest in InterMedia Capital
Partners VI, L.P. for $335.0 million, including expenses, subject to adjustment.
We also entered into an agreement with AT&T Broadband & Internet Services, which
provides that we will each own a 50% interest in, and we will manage and
operate, the Kentucky systems upon the completion of the Kentucky acquisition.
MANAGED INDIANA SYSTEMS
We expect to enter into a five-year agreement with AT&T Broadband &
Internet Services to provide consulting services to cable television systems
being acquired by AT&T Broadband & Internet Services, which systems as of
March 31, 1999 passed approximately 160,000 homes and served approximately
114,000 customers in the State of Indiana. We will earn an annual fee of 3% of
gross revenues in exchange for providing consulting services.
PRINCIPAL EXECUTIVE OFFICES
Our principal executive offices are located at 126 East 56th Street, New
York, New York 10022. Our telephone number is (212) 371-2266.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A common stock offered................ 20,500,000 shares(1)
Common stock to be outstanding after this
offering:
Class A................................... 43,806,263 shares (1)(2)
Class B................................... 9,626,967 shares(2)
Total................................ 53,433,230 shares (1)(2)
Use of proceeds............................. We intend to use the net proceeds of $422.0 million from this
offering to finance:
o the Kentucky acquisition; and
o the introduction of new and enhanced products and services
for our customers, other strategic acquisitions and general
corporate activities.
Voting rights of common stock............... Each share of Class A common stock is entitled to one vote and each
share of Class B common stock is entitled to ten votes. After this
offering, the holders of Class B common stock will have 68.7% of our
total voting power.
Proposed Nasdaq National Market symbol ..... ICCIA
</TABLE>
- ------------------
(1) Excludes 3,075,000 shares of Class A common stock if the underwriters'
over-allotment option is exercised in full. You should read the discussion
under "Underwriters" for additional information concerning the
over-allotment option.
(2) This number of shares excludes:
o 750,000 shares of Class A common stock and 2,500,000 shares of
Class B common stock issuable upon exercise of stock options to be
outstanding upon completion of this offering, none of which will be
then exercisable.
o 2,000,000 additional shares of common stock reserved for issuance
under our stock option plan. You should read the discussion under
"Management--1999 Stock Option Plan" for additional information
concerning our stock option plan.
Except as otherwise indicated, the information in this prospectus assumes
that the Class A common stock being offered will be sold at $22.00 per share,
which is the mid-point of the range set forth on the cover page of this
prospectus, and that the underwriters' over-allotment option is not exercised.
5
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL AND OTHER DATA
The following tables set forth summary pro forma combined financial and
other data of the national, Columbus, Indiana and Kentucky systems and the
managed Indiana systems which are systems in which we have or will have a
significant economic interest. Such data have been adjusted to illustrate the
estimated effects of the following transactions as if they had occurred on
January 1, 1999 with respect to transactions that occurred in 1999 and
January 1, 1998 with respect to transactions that occurred in 1998:
o the acquisition by us of the Rockford system on January 22, 1998;
o the acquisition of the Columbus system by Insight Ohio on August 21, 1998;
o the formation of Insight Indiana and related contributions of systems by
AT&T Broadband & Internet Services and us on October 31, 1998;
o the systems exchanged on March 22, 1999 between Falcon Cablevision and
us, in which we swapped our Franklin system in exchange for Falcon's Scottsburg
system and cash;
o the acquisition by us of the Portland system on March 31, 1999;
o the proposed acquisition by us of the Kentucky systems, which is expected
to be completed in the second half of 1999;
o the proposed provision of consulting services to the managed Indiana
systems, which is expected to commence during the fourth quarter of 1999;
o the exchange of limited partnership interests in Insight Communications
Company, L.P. for our common stock; and
o the receipt of approximately $422.0 million of net proceeds in connection with
this offering.
The summary pro forma combined financial and other data do not purport to
be indicative of what our financial position or results of operations would have
been had the above transactions been completed on the dates indicated or to
project our results of operations for any future date. See "Description of
Recent Transactions."
When you read this summary pro forma combined financial and other data, it
is important that you read along with it the pro forma financial statements and
our historical financial statements and related notes, and the historical
financial statements of the TCI Insight Systems, which are the systems
contributed to Insight Indiana by AT&T Broadband & Internet Services, Insight
Communications of Central Ohio, LLC, TCI IPVI Systems, which are the Kentucky
systems prior to April 30, 1998 and InterMedia Capital Partners VI, L.P., which
are the Kentucky systems subsequent to April 30, 1998, which are included
elsewhere in this prospectus.
Our operations consist of our:
o national systems, which are cable television systems wholly-owned and operated
by us, which include our Rockford, Illinois, Griffin, Georgia, Claremont,
California and Scottsburg and Portland, Indiana systems, except that the
technical and operating data of the Scottsburg and Portland systems are
included with the Indiana systems since they are managed by Insight Indiana;
o Columbus system, which is the cable television system of Insight Ohio, in
which we own a 75% non-voting equity interest and serve as manager;
o Indiana systems, which are the cable television systems of Insight Indiana, in
which we own a 50% equity interest and serve as manager;
o Kentucky systems, which are the TCI IPVI Systems prior to April 30, 1998 and
the cable television systems of InterMedia Capital Partners VI, L.P.
subsequent to April 30, 1998, in which we will own a 50% equity interest and
will serve as manager upon completion of the proposed acquisition; and
o managed Indiana systems, which are the cable television systems in Indiana
being acquired by related parties of AT&T Broadband & Internet Services and
for which we will provide consulting services, subject to the ultimate control
of AT&T Broadband & Internet Services.
6
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------------------
PRO FORMA FOR THE THREE
--------------------------------------------------------------------- MONTHS ENDED
NATIONAL COLUMBUS INDIANA KENTUCKY MARCH 31, 1999
SYSTEMS SYSTEM SYSTEMS SYSTEMS(1) PRO FORMA
PERCENTAGE OWNED 100% 75% 50% 50% ADJUSTMENTS(2) TOTAL(3) TOTAL(3)
-------- -------- -------- ---------- -------------- -------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER CUSTOMER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Revenues...................... $ 41,314 $47,956 $138,861 $ 195,507 $(47,956) $375,682 $ 97,458
Operating expense........... 11,069 17,431 39,604 65,328 (17,431) 116,001 30,369
Selling, general and
administrative............ 11,885 17,086 24,749 44,416 (17,086) 81,050 21,665
Depreciation and
amortization.............. 19,649 5,311 83,401 122,278 (5,311) 225,328 61,750
-------- -------- -------- ---------- -------- -------- --------
Operating income (loss)....... (1,289) 8,128 (8,893) (36,515) (8,128) (46,697) (16,326)
EBITDA(4)..................... 18,360 18,261 74,508 85,763 (18,261) 178,631 45,424
Annualized EBITDA(5)................................................................................ 181,696
EBITDA margin(6).............. 44.4% 38.1% 53.7% 43.9% -- 47.5% 46.6%
Net income (loss)............. $(10,686) $ 1,116 $(45,691) $(80,183) $ 62,324 $(73,120) $(21,887)
Pro forma loss per share...... (1.36) (.41)
System cash flow(7)........... 20,653 20,124 77,774 89,148 (20,124) 187,575 48,169
Annualized system cash flow(5)...................................................................... 192,676
Net cash provided by operating
activities.................. 11,174 14,399 49,878 54,936 (14,399) 115,988 30,053
Net cash used in investing
activities.................. (137,595) (6,679) (16,479) (40,440) 6,679 (194,514) (43,170)
Net cash (used in) provided by
financing activities........ (125,536) (1,585) 225,848 8,456 1,585 108,768 26,000
Monthly revenue
per customer(8)............. 32.64 44.52 36.00 38.62 -- 36.92 38.05
</TABLE>
SELECTED TECHNICAL AND OPERATING DATA
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999, EXCEPT WHERE NOTED
------------------------------------------------------------
PRO FORMA
------------------------------------------------------------
MANAGED
NATIONAL COLUMBUS INDIANA KENTUCKY INDIANA
SYSTEMS SYSTEM SYSTEMS SYSTEMS SYSTEMS
---------- ----------- -------- -------- -------
TECHNICAL DATA:
<S> <C> <C> <C> <C> <C>
Network miles................................ 1,729 2,655 7,455 7,930 2,785
Number of headends........................... 5 1 45 16 21
Number of headends as of December 31,
2000(9).................................... 5 1 5 4 1
Number of headends serving 90% of our
customers expected as of December 31,
2000(9).................................... 2 1 3 4 0
OPERATING DATA:
Homes passed................................. 149,399 172,975 495,605 657,361 159,644
Basic customers(10).......................... 86,846 86,620 336,252 425,445 114,262
Basic penetration(11)........................ 58.1% 50.1% 67.8% 64.7% 71.6%
Premium units(12)............................ 96,869 85,526 234,528 351,703 44,381
Premium penetration(13)...................... 111.5% 98.7% 69.7% 82.7% 38.8%
Number of addressable homes(14).............. 30,218 71,041 81,582 130,881 22,000
OTHER DATA:
Insight's ownership.......................... 100% 75% 50% 50% 0%
Location of systems.......................... CA, GA, IL OH IN KY IN
Date of acquisition/consulting............... Various August 1998 Various Pending Pending
</TABLE>
(Footnotes on next page)
7
<PAGE>
(Footnotes from previous page)
- ------------------
(1) The financial data of Kentucky represents the combination of the results of
TCI IPVI Systems from January 1, 1998 through April 30, 1998 and InterMedia
Capital Partners VI, L.P. from April 30, 1998 through December 31, 1998.
The combination of the two periods is not necessarily indicative of what
the results of InterMedia Capital Partners VI, L.P. or TCI IPVI would have
been for the year.
(2) Represents the following:
o the elimination of the operating results of the Columbus system,
which is not consolidated by us but includes our equity interest in
the Columbus system;
o AT&T Broadband & Internet Services' share of losses of the Indiana
and Kentucky systems; and
o reduction in interest expense related to the paydown of our debt
from the proceeds of this offering.
See "Pro Forma Financial Statements."
(3) Represents the combined results of operations of the national, Indiana and
Kentucky systems, and our equity interest in the Columbus system. Based
upon our ownership interest in the national, Columbus and Indiana systems,
and our interest in the Kentucky systems which is expected to be acquired
in the second half of 1999, pro forma revenues and pro forma system cash
flow approximated $244.5 million and $119.7 million for the year ended
December 31, 1998 and $62.7 million and $31.2 million for the three month
period ended March 31, 1999. Pro forma revenues and pro forma system cash
flow are not intended to be performance measures that should be regarded as
alternatives to, or more meaningful than, other measures in accordance with
generally accepted accounting principles. The pro forma data exclude a
one-time non-recurring charge to earnings to record a net deferred tax
liability at December 31, 1998 and March 31, 1999 of approximately $45.0
million and $50.0 million that would have been recognized upon the exchange
of limited partnership interests in Insight Communications Company, L.P.
for our common stock. Excludes a one-time $17.1 million non-cash
compensation charge associated with the distribution of shares, resulting
from the general partner's share of Class B unit allocation to certain
of our employees.
(4) Represents earnings (loss) before interest, taxes, depreciation and
amortization and in 1998, with respect to the Columbus system, before
severance and transaction structure costs of $4.8 million associated with
the contribution of the Columbus system to Insight Ohio. Our management
believes that EBITDA is a meaningful measure of performance as 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, EBITDA 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. EBITDA is not necessarily
comparable to similarly titled amounts of other companies. See our
financial statements, including the statements of cash flows, which are
included elsewhere in this prospectus.
(5) Represents results for the three months ended March 31, 1999 multiplied by
four.
(6) Represents EBITDA as a percent of revenues.
(7) Represents EBITDA before corporate overhead and management fees. Our
management believes that system cash flow is a meaningful measure of
performance as 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 is not necessarily
8
<PAGE>
comparable to similarly titled amounts of other companies. See our
financial statements, including the statements of cash flows, which are
included elsewhere in this prospectus.
(8) Represents average monthly revenue per average customer. For the national
systems, the average monthly revenue per average customer includes
approximately 10,900 customers from the Scottsburg and Portland systems,
currently managed by Insight Indiana, but whose financial results are
currently consolidated with the national systems as they are wholly-owned
by us.
(9) Represents an estimate based on our current rebuild program.
(10) Basic customers are customers of a cable television system who receive a
package of over-the-air broadcast stations, local access channels and
certain satellite-delivered cable television services, other than premium
services, and who are usually charged a flat monthly rate for a number of
channels.
(11) Basic penetration means basic customers as a percentage of total number of
homes passed.
(12) Premium units mean the number of subscriptions to premium services, which
are paid for on an individual basis.
(13) Premium penetration means premium service units as a percentage of the
total number of basic customers. A customer may purchase more than one
premium service, each of which is counted as a separate premium service
unit. This ratio may be greater than 100% if the average customer
subscribes to more than one premium service unit.
(14) Number of addressable homes reflects the number of homes with a converter
box that enables the cable television operator to electronically control
from its central facilities the cable television services delivered to the
customer.
9
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary historical and pro forma financial data set forth below were
derived from our consolidated financial statements and the pro forma combined
financial statements for the three-month periods ended March 31, 1998 and 1999.
The summary statement of operations data for the three-month periods ended March
31, 1998 and 1999 and the balance sheet data as of March 31, 1999 were derived
from our unaudited consolidated financial statements. The summary pro forma data
have been adjusted to illustrate the estimated effects of the transactions as if
they had occurred on January 1, 1999 for the statement of operations data and
March 31, 1999 for the balance sheet data.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------
HISTORICAL
-------------------- PRO FORMA
1998 1999 1999(1)
------- ------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Revenues................................................................ $23,161 $45,377 $ 97,458
Costs and expenses:
Operating expenses.................................................... 6,474 13,263 30,369
Selling, general and administrative................................... 5,023 10,180 21,665
Depreciation and amortization......................................... 5,801 25,739 61,750
------- ------- ---------
17,298 49,182 113,784
------- ------- ---------
Operating income (loss)................................................. 5,863 (3,805) (16,326)
Other income (expense):
Gain on cable system exchanges........................................ -- 19,762 --
Interest expense...................................................... (5,771) (10,493) (22,620)
Other expense......................................................... (19) (7) (65)
------- ------- ---------
(5,790) 9,262 (22,685)
------- ------- ---------
Income (loss) before minority interest and equity in losses of Insight
Ohio.................................................................. 73 5,457 (39,011)
Minority interest....................................................... -- 4,494 19,837
Equity in losses of Insight Ohio........................................ -- (2,713) (2,713)
------- ------- ---------
Net income (loss)....................................................... 73 7,238 (21,887)
Accretion of redeemable Class B units................................... -- (3,125) --
------- ------- ---------
Net income (loss) applicable to Class A and B units..................... $ 73 $ 4,113 $ (21,887)
------- ------- ---------
------- ------- ---------
Pro forma loss per share(2).................................................................... $ (0.41)
---------
---------
OTHER FINANCIAL DATA:
EBITDA(3)............................................................. $11,664 $21,934 $ 45,424
EBITDA margin(4)...................................................... 50.4% 48.3% 46.6%
System cash flow(5)................................................... $12,799 $23,486 $ 48,169
Capital expenditures.................................................. 3,099 20,831 39,848
Net cash provided by operating activities............................. 7,992 18,453 30,053
Net cash used in investing activities................................. 91,405 27,688 43,170
Net cash provided by financing activities............................. 85,506 19,000 26,000
</TABLE>
10
<PAGE>
The summary historical and pro forma financial data set forth below were
derived from our consolidated financial statements and the pro forma combined
financial statements for the years ended December 31, 1994, 1995, 1996, 1997 and
1998. The summary statement of operations data for the years ended December 31,
1994, 1995, 1996, 1997 and 1998 were derived from our audited consolidated
financial statements. The summary pro forma data have been adjusted to
illustrate the estimated effects of the transactions as if they had occurred on
January 1, 1998 for the statement of operations data. The 1997 historical
financial statements have been restated to reflect a change in accounting for
cable system exchanges. See the notes to our financial statements included
elsewhere in the prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
HISTORICAL
------------------------------------------------------- PRO FORMA
1994 1995 1996 1997 1998 1998(1)
---------- --------- --------- --------- ---------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 52,820 $ 57,108 $ 61,839 $ 67,698 $ 112,902 $ 375,682
Costs and expenses:
Operating expenses.................... 13,852 15,364 16,774 18,397 30,376 116,001
Selling, general and administrative... 13,323 13,629 14,062 15,020 24,471 81,050
Depreciation and amortization......... 14,649 13,937 15,694 18,125 43,849 225,328
---------- --------- --------- --------- ---------- ---------
Operating income........................ 10,996 14,178 15,309 16,156 14,206 (46,697)
Other income (expense):
Gain on cable systems exchange........ -- -- -- 78,931 111,746 --
Gain on contribution of cable systems
to joint venture................... -- -- -- -- 44,312 --
Costs related to pursuance of sale of
assets............................. -- (763) -- -- -- --
Interest expense, net................. (17,031) (17,965) (17,644) (15,962) (28,106) (83,458)
Other income (expense)................ 365 (52) -- -- (444) 729
---------- --------- --------- --------- ---------- ---------
Income (loss) before minority interest
and equity in losses of Insight Ohio.. (5,670) (4,602) (2,335) 79,125 141,714 (129,426)
Minority interest....................... -- -- -- -- 3,410 62,938
Equity in losses of Insight Ohio........ -- -- -- -- (3,251) (6,632)
---------- --------- --------- --------- ---------- ---------
Income (loss) before extraordinary
item.................................. (5,670) (4,602) (2,335) 79,125 141,873 (73,120)
---------- --------- --------- --------- ---------- ---------
Extraordinary loss from early
extinguishment of debt................ -- -- (480) (5,243) (3,267) --
---------- --------- --------- --------- ---------- ---------
Net income (loss)....................... (5,670) (4,602) (2,815) 73,882 138,606 (73,120)
Accretion of redeemable Class B units... -- -- -- -- (5,729) --
Accretion to redemption value of
preferred limited units............... (2,500) (2,604) (5,421) (15,275) -- --
---------- --------- --------- --------- ---------- ---------
Net income (loss) applicable to Class A
and B units........................... $ (8,170) $ (7,206) $ (8,236) $ 58,607 $ 132,877 $ (73,120)
---------- --------- --------- --------- ---------- ---------
---------- --------- --------- --------- ---------- ---------
Pro forma loss per share(2)...................................................................... $ (1.37)
---------
---------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
HISTORICAL
------------------------------------------------------- PRO FORMA
1994 1995 1996 1997 1998 1998(1)
---------- --------- --------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
OTHER FINANCIAL DATA:
<S> <C> <C> <C> <C> <C> <C>
EBITDA(3)............................. $ 25,645 $ 28,115 $ 31,003 $ 34,281 $ 58,055 $ 178,631
EBITDA margin(4)...................... 48.6% 49.2% 50.1% 50.6% 51.4% 47.5%
System cash flow(5)................... $ 29,172 $ 31,691 $ 34,601 $ 38,228 $ 62,732 $ 187,575
Capital expenditures.................. 12,492 15,154 16,414 27,981 44,794 39,848
Net cash provided by operating
activities......................... 12,557 13,337 15,976 10,436 44,760 30,053
Net cash used in investing
activities......................... 12,945 15,120 16,589 27,981 142,190 43,170
Net cash provided by financing
activities......................... 70 1,600 870 17,891 116,250 26,000
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
---------------------------------
PRO FORMA
HISTORICAL AS ADJUSTED(6)
-------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................... $ 29,667 $ 33,179
Property, plant and equipment, net........................................... 164,203 412,244
Total assets................................................................. 687,376 1,860,556
Total debt................................................................... 592,663 1,238,663
Partners' deficit............................................................ 3,812 --
Stockholders' equity......................................................... -- 422,632
</TABLE>
- ------------------
(1) Represents the combined results of operations of the national, Indiana and
Kentucky systems, and our equity interest in the Columbus system.
Based upon our ownership interest in the national, Columbus and Indiana
systems, and our interest in the Kentucky systems which is expected to be
acquired in the second half of 1999, pro forma revenues and pro forma system
cash flow approximated $244.5 million and $119.7 million for the year ended
December 31, 1998 and $62.7 million and $31.2 million for the three-month
period ended March 31, 1999. Pro forma revenues and pro forma system cash
flow are not intended to be performance measures that should be regarded as
alternatives to, or more meaningful than other measures in accordance with
generally accepted accounting principles. The pro forma data exclude a
one-time non-recurring charge to earnings to record a net deferred tax
liability at December 31, 1998 and March 31, 1999 of approximately $45
million and $50 million that would have been recognized upon the exchange of
limited partnership interests in Insight Communications Company, L.P. for
our common stock.
(2) Pro forma loss per share is calculated by dividing net loss by
53.4 million common shares outstanding after completion of this offering.
(3) Represents earnings (loss) before interest, taxes, depreciation and
amortization and, in 1998, with respect to the Columbus system, before
severance and transaction structure costs of $4.8 million associated with
the contribution of the Columbus system to Insight Ohio. Our management
believes that EBITDA is a meaningful measure of performance as 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, EBITDA 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
(Footnotes continued on next page)
12
<PAGE>
(Footnotes continued from previous page)
generally accepted accounting principles. EBITDA is not necessarily
comparable to similarly titled amounts of other companies. See our
financial statements, including the statements of cash flows, which are
combined later in this prospectus.
(4) Represents EBITDA as a percent of total revenues.
(5) Represents EBITDA before corporate overhead and management fees. Our
management believes that system cash flow is a meaningful measure of
performance as 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 is not necessarily comparable to
similarly titled amounts of other companies. See our financial statements,
including the Statements of Cash Flows, which are included later in this
prospectus.
(6) Gives effect to the transactions as if they had each occurred on January 1,
1999.
13
<PAGE>
RISK FACTORS
You should carefully consider these risk factors, together with all of the
other information included in this prospectus, before you decide whether to
purchase shares of our Class A common stock.
WE HAVE A HISTORY OF NET LOSSES, AND MAY NOT BE PROFITABLE IN THE FUTURE
We expect to incur additional net losses in the future, which could cause
our stock price to decline and adversely affect our access to capital markets.
We reported net loss applicable to the Class A units of $8.2 million,
$7.2 million and $8.2 million for the years ended December 31, 1994, 1995 and
1996. We reported net income applicable to the Class A and B units of
$58.6 million and $132.9 million for the years ended December 31, 1997 and 1998
and $4.1 million for the three months ended March 31, 1999, as a result of gains
resulting from swaps of cable systems. We have and will continue to have a
substantial amount of interest expense in respect of debt incurred and
depreciation and amortization expenses relating to acquisitions of cable systems
as well as expansion and rebuild programs. Such expenses have contributed to the
net losses we experienced. We expect that we will continue to incur such
non-operating expenses at increased levels as a result of our network rebuild
program and recent acquisitions, which expenses will result in continued net
losses.
WE HAVE A LIMITED HISTORY OF OPERATING OUR CURRENT CABLE TELEVISION SYSTEMS AND
THESE SYSTEMS MAY NOT GENERATE SALES AT OR EXCEEDING HISTORICAL LEVELS
With only approximately 15% of our existing customers having been served by
us for greater than one year, we are still in the process of integrating our new
systems. After giving effect to recent and proposed transactions, our historical
financial information and the historical financial information of the Indiana
systems, the Columbus system and the Kentucky systems may not be indicative of
our future operating results. This makes it difficult for you to completely
evaluate our performance. We have grown rapidly since December 1997, and after
giving effect to our proposed transactions, would have completed three
acquisitions, three asset swaps and two joint ventures of cable television
systems. The Indiana joint venture with AT&T Broadband & Internet Services, the
acquisition by Insight Ohio of the Columbus system, the proposed acquisition of
the Kentucky systems and the proposed provision of consulting services to the
managed Indiana systems, increases the number of customers served by systems we
own, operate and manage from approximately 180,000 to approximately 1,049,000.
THE KENTUCKY ACQUISITION MAY NOT BE COMPLETED AND, IF NOT COMPLETED, WE WILL
HAVE THE ABILITY TO APPLY SOME OF THE PROCEEDS OF THIS OFFERING TO FUND AS YET
UNIDENTIFIED ACQUISITIONS, INVESTMENTS OR JOINT VENTURES
If the Kentucky acquisition is not completed, a significant portion of the
net proceeds from this offering will not be designated for a specific use.
Therefore, we will have broad discretion with respect to the use of such
proceeds. Accordingly, our investors may not have the opportunity to evaluate
the economic, financial and other relevant information that we may consider in
the application of the net proceeds.
In April 1999, we entered into an agreement to purchase a 50% interest in
InterMedia Capital Partners VI, L.P. for $335.0 million, including expenses,
subject to adjustment. The completion of this transaction is subject to several
conditions including:
o Receipt or waiver of all necessary material consents from third parties;
o Absence of any material adverse changes in the conditions, properties or
business of the Kentucky systems; and
o Notification, approval and compliance with the requirements of
appropriate governmental agencies, including, without limitation,
approval of cable television franchise authorities.
If these conditions are not met, the Kentucky acquisition will not be
completed. There can be no assurance that the Kentucky acquisition will be
completed on the terms described in this prospectus, or at all. This offering is
not contingent or in any way dependent on the Kentucky acquisition.
14
<PAGE>
OTHER EQUITY OWNERS OF SOME OF OUR SYSTEMS MAY RESTRICT OUR ABILITY TO FURTHER
DEVELOP THOSE SYSTEMS, WHICH WOULD IMPAIR OUR ABILITY TO ACHIEVE OUR CURRENTLY
CONTEMPLATED BUSINESS STRATEGY
The Indiana systems and the Columbus system are not, and the Kentucky
systems will not be, wholly owned by us. Under the terms of each of the
operating agreements between us and the other equity owners, the other equity
owners have approval rights for certain significant actions, including related
party transactions and specified asset sales, which may be taken with respect to
our systems. Such approval rights may interfere with our future operating
strategies and restrict us from taking actions our board of directors considers
to be in your best interests.
Commencing on October 30, 2003, AT&T Broadband & Internet Services has the
right to require us to redeem its 50% interest in Insight Indiana. If the
Kentucky acquisition is completed, AT&T Broadband & Internet Services will have
a similar right with respect to its 50% interest in the proposed joint venture
for the Kentucky systems. If AT&T Broadband & Internet Services elects to redeem
its interest, we may not have sufficient cash available or be able to obtain
financing on acceptable terms to redeem its interest. Our failure to obtain
acceptable financing upon such election could force us to sell assets at
unfavorable prices in order to generate the cash needed to redeem AT&T Broadband
& Internet Services' interests. If we were to issue shares of common stock to
effect this redemption, this:
o would result in substantial dilution to other stockholders;
o could adversely affect the market price of the common stock; and
o could impair our ability to raise additional capital through the sale of
our equity securities.
We may in the future enter into other joint venture agreements that have similar
redemption provisions. See "Description of Recent Transactions--The Transactions
to Acquire the Indiana Systems" and "--The Transactions to Acquire the Kentucky
Systems."
OUR PROGRAMMING COSTS ARE SUBSTANTIAL AND THEY MAY INCREASE, WHICH COULD RESULT
IN A DECREASE IN PROFITABILITY IF WE ARE UNABLE TO PASS THAT INCREASE ON TO OUR
CUSTOMERS
In recent years the cable industry has experienced a rapid escalation in
the cost of programming, and sports programming in particular. For 1997 and
1998, programming costs for our top 20 cable programming channels, excluding
premium channels, as ranked by Nielsen Media Research, increased approximately
11.0% and 18.6%. Our cable programming services are dependent upon our ability
to procure programming that is attractive to our customers at reasonable rates.
The escalation in programming costs may continue and we may not be able to pass
programming cost increases on to our customers. Our financial condition and
results of operations could therefore be negatively impacted by further
increases in programming costs. Programming has been and is expected to continue
to be our largest single expense item and accounted for approximately 41.3% and
43.8% of our total operating expenses for the years ended December 31, 1997 and
1998.
WE COULD LOSE OUR CURRENT ACCESS TO FAVORABLE PROGRAMMING SERVICE RATES AND
EXPERIENCE INCREASES IN PROGRAMMING COSTS AS A RESULT
Because of our relationship with AT&T Broadband & Internet Services, we
have the right to purchase programming services for the Indiana systems and,
upon completion of the Kentucky acquisition, for the Kentucky systems, at AT&T
Broadband & Internet Services' cost plus a small administrative surcharge. We
believe that the cost of AT&T Broadband & Internet Services' programming
services is lower than the cost we would incur if we purchased such programming
services independently. If AT&T Broadband & Internet Services was not to
continue as our significant partner and we were unable to enter into a similar
arrangement, we believe our programming costs would increase. Loss of access to
programming services at such favorable rates could have a material adverse
effect on our financial condition and results of operations.
Since 1986, MediaOne Group, Inc., formerly known as Continental
Cablevision, Inc., has held a significant interest in Insight allowing us to buy
programming services for the national systems and the Columbus system at
MediaOne's cost. Under a 1997 agreement with MediaOne, we will redeem MediaOne's
interest in Insight in November 1999. At such time, we will no longer be
entitled to buy programming
15
<PAGE>
services at MediaOne's cost. We believe we will experience some increases in
programming costs for the national systems and the Columbus system. Loss of
access to programming services at such favorable rates could have a material
adverse effect on our financial condition and results of operations.
You should read "Business--Programming Supply" for additional information
concerning programming service rates.
IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE OUR NEWLY ACQUIRED CABLE SYSTEMS OUR
BUSINESS COULD BE ADVERSELY AFFECTED
The integration of new cable systems will place significant demands on our
management and our operational, financial and marketing resources. After giving
effect to our proposed transactions, we would have completed since December
1997, three acquisitions, three asset swaps and two joint ventures of cable
systems and approximately 85% of our customers would have been acquired through
such acquisitions and other transactions. We expect to continue to acquire and
enter into swaps and joint ventures with respect to cable systems as an element
of our business strategy. Our current operating and financial systems and
controls may not be adequate and any steps taken to improve these systems and
controls may not be sufficient. Our business, financial condition and results of
operations could suffer materially if we fail to successfully integrate and
manage new cable systems in a timely manner.
AS WE INTRODUCE NEW AND ENHANCED PRODUCTS AND SERVICES, A FAILURE TO PREDICT AND
REACT TO CONSUMER DEMAND OR SUCCESSFULLY INTEGRATE NEW TECHNOLOGY COULD
ADVERSELY AFFECT OUR BUSINESS
Introduction of new and enhanced products and services includes various
risks. The cable television industry is in the early stages of introducing new
and enhanced products and services utilizing new technology allowing for
products such as video-on-demand, high-speed Internet access and voice telephone
services. In order to successfully introduce new and enhanced products and
services, we must anticipate and meet the demand for new products and services,
as well as integrate technology. Our inability to effectively introduce, market
and sell new and enhanced products and services or to anticipate consumer demand
for such products and services could have a material adverse effect on our
business, results of operations, prospects and financial condition. You should
read the discussion under "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" for
additional information concerning our anticipated capital expenditures to fund
these new and enhanced products and services and the discussion under
"Business--New and Enhanced Products and Services" for additional information
concerning the new and enhanced products and services that we are preparing to
introduce to our customers. You should also read "Business--Competition" for
additional information.
IF WE WERE TO LOSE MEMBERS OF OUR SENIOR MANAGEMENT AND COULD NOT FIND
APPROPRIATE REPLACEMENTS IN A TIMELY MANNER, OUR BUSINESS COULD BE ADVERSELY
AFFECTED
If any member of our senior management team becomes unable or unwilling to
participate in our business and operations, our profitability could suffer. Our
success is substantially dependent upon the retention of, and the continued
performance by, our senior management, including Sidney Knafel, Chairman of the
Board of Directors, Michael Willner, President and Chief Executive Officer, and
Kim Kelly, Executive Vice President and Chief Operating and Financial Officer.
We do not have an employment agreement with any member of our senior management
team. You should read the discussion under "Management--Directors and Executive
Officers" for information concerning the experience of these individuals.
Our success will also depend upon our ability to attract and retain
personnel for customer relations and field operations. We continually need to
hire, integrate and retain personnel for positions which require a higher level
of technical expertise and the ability to communicate technical concepts to our
customers. There is no guarantee that we will be able to recruit or retain these
skilled workers. Failure to do so could impair our ability to operate
efficiently and maintain our reputation for high quality service. This could
also impair our ability to retain current customers and attract new customers
which could cause our financial performance to decline.
16
<PAGE>
THE COMPETITION WE FACE FROM OTHER CABLE NETWORKS AND ALTERNATIVE SERVICE
PROVIDERS MAY CAUSE US TO LOSE MARKET SHARE
The impact from competition, particularly from direct broadcast satellite
television systems and companies that overbuild in our market areas, has
resulted in a decrease in customer growth rates. The annualized growth rate for
basic customers was 1.7% in March 1999 as compared to 3.5% in March 1997 while
satellite penetration as of March 1999 averaged 11.4% nationwide, up from 7.4%
in March 1997. The percentage of customers taking the basic only level of
service was 6.0% in March 1999 as compared to 4.4% in March 1997 and premium
customer penetration declined to 22.8% of total customers as compared to 25.5%
for the same two-year period. This in turn has negatively impacted our financial
performance. Increased competition may continue to impact our financial
performance. Many of our potential competitors have substantially greater
resources than us, and we cannot predict the market share our competitors will
eventually achieve, nor can we predict their ability to develop products which
will compete with our planned new and enhanced products and services such as
high-speed data access and video-on-demand.
Competition in geographic areas where a secondary franchise is obtained and
a cable network is constructed under the terms of the franchise is called
"overbuilding." A cable subsidiary of Ameritech Corporation, the telephone local
exchange carrier in Columbus, Ohio, has overbuilt a majority of the homes passed
by our Columbus system. In addition, a joint venture which is a related party of
Southern Indiana Gas and Electric Co. is overbuilding a portion of our
Evansville, Indiana system and there is a small overbuild by FrontierVision of
our Kentucky systems relating to approximately 7,400 homes in Boone County,
Kentucky. We cannot predict whether competition from these or future competitors
will have a material effect on us and our business and operations.
You should read "Business--Competition" for additional information.
OUR NON-EXCLUSIVE FRANCHISES ARE SUBJECT TO NON-RENEWAL OR TERMINATION, WHICH
COULD CAUSE US TO LOSE OUR RIGHT TO OPERATE SOME OF OUR SYSTEMS
Cable television companies operate under non-exclusive franchises granted
by local authorities which are subject to renewal and renegotiation from time to
time. Our cable systems are dependent upon the retention and renewal of their
respective local franchises. 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 comply with its material provisions. Franchises typically
impose conditions relating to the operation of the cable television system,
including requirements relating to the payment of fees, system bandwidth
capacity, customer service, franchise renewal and termination. No assurance can
be given that our cable systems will be able to retain or renew such franchises
or that the terms of any such renewals will be on terms as favorable as their
respective existing franchises. Furthermore, it is possible that a franchise
authority might grant a franchise to another cable company or a local utility or
telephone company. The non-renewal or termination of franchises or the granting
of competing franchises with respect to a significant portion of any of our
cable systems would have a material adverse effect on our ability to provide
service to current or future customers and on our financial performance. You
should read the discussion under "Business--Franchises" for additional
information concerning our franchises.
OUR BUSINESS HAS BEEN AND CONTINUES TO BE SUBJECT TO EXTENSIVE GOVERNMENTAL
LEGISLATION AND REGULATION, AND CHANGES IN THIS LEGISLATION AND REGULATION COULD
INCREASE OUR COSTS OF COMPLIANCE AND REDUCE THE PROFITABILITY OF OUR BUSINESS
The cable television industry is subject to extensive legislation and
regulation at the federal and local levels, and, in some instances, at the state
level, and many aspects of such regulation are currently the subject of judicial
proceedings and administrative or legislative proposals. The rules and
regulations governing our business have at times had a material adverse effect
on our business. For example, rules issued under the Cable Television Consumer
Protection and Competition Act of 1992, resulted in significant reductions in
our pricing which reduced operating cash flow and our ability to support capital
rebuild programs. In addition, operating in a regulated industry increases the
cost of doing business generally. We may also become subject to additional
regulatory burdens and related increased costs. As we continue to offer
telecommunication
17
<PAGE>
services, we may be required to obtain federal, state and local licenses or
other authorizations to offer such services. We may not be able to obtain such
licenses or authorizations in a timely manner, or at all, or conditions could be
imposed upon such licenses and authorizations that may not be favorable to us.
Future changes in legislation or regulations could have an adverse impact on us
and our business operations. You should read "Legislation and Regulation" for
additional information.
WE HAVE A SIGNIFICANT AMOUNT OF INDEBTEDNESS AND SUCH INDEBTEDNESS REQUIRES US
TO COMPLY WITH VARIOUS FINANCIAL AND OPERATING RESTRICTIONS, AND MAY ADVERSELY
AFFECT OUR ABILITY TO OBTAIN FINANCING IN THE FUTURE AND REACT TO CHANGES IN OUR
BUSINESS
We have a significant amount of debt. We borrowed this money to fund our
acquisitions and for capital expenditures such as expanding and rebuilding our
network. As of March 31, 1999, after giving effect to our proposed transactions,
our consolidated indebtedness would have totaled approximately $1.2 billion.
Our level of outstanding indebtedness can have material adverse
consequences to us and to you. These consequences include:
o Our ability to obtain additional financing in the future for capital
expenditures, acquisitions, working capital or other purposes may be
limited;
o A material portion of our cash flow from operations will be dedicated to
the payment of, and interest on, our debt; and
o This indebtedness may limit our ability to withstand competitive
pressures and reduce our flexibility in responding to changing business
and economic conditions.
In addition, such indebtedness subjects us and each of our subsidiaries to
various financial and operating restrictions and covenants which could limit our
ability to compete as well as our ability to expand. Such restrictions and
covenants may, among other things, include:
o A limit on the amount of additional indebtedness that may be incurred and
the ability to pay dividends or make capital contributions;
o A limit on investments, loans and other payments, transactions with
related parties and mergers and acquisitions; and
o A requirement to maintain specified financial ratios and meet financial
tests.
Our and our subsidiaries' ability to comply with such restrictions and
covenants can be affected by events beyond our control, and there can be no
assurance that we or our subsidiaries will achieve operating results that would
permit compliance with such terms. A failure to comply with the covenants and
other terms of the indebtedness could result in events of default, which could
permit acceleration of the debt.
There can be no assurance that we will continue to generate cash and obtain
financing sufficient to meet our debt service, capital expenditure and working
capital obligations. You should read the discussion under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for additional information.
EXISTING STOCKHOLDERS MAY SELL THEIR COMMON STOCK AFTER THE OFFERING, WHICH
COULD HURT THE MARKET PRICE OF OUR COMMON STOCK
We cannot predict the effect, if any, that future sales of shares, or the
availability of shares for future sale, will have on the market price of the
Class A common stock. Sales of substantial amounts of common stock, or the
perception that such sales could occur, may adversely affect prevailing market
prices for the Class A common stock.
Upon completion of the exchange of partnership interests for common stock
and without giving effect to this offering, there will be 32,933,230 shares of
common stock outstanding. At any time commencing six months after this offering,
Vestar, who will hold 10,096,079 of such shares of common stock, will be
entitled to demand registration of its shares under the Securities Act of 1933
at our expense. All of the shares of
18
<PAGE>
common stock issued and exchanged for partnership interests also may be sold
under Rule 144 of the Securities Act, depending on the holding period of such
securities and subject to significant restrictions in the case of shares held by
persons deemed to be our related parties.
We, as well as our officers, our directors, our stockholders prior to this
offering and our employees who purchase in excess of 100 shares in this
offering, have agreed not to offer, sell, contract to sell or otherwise dispose
of any common stock for a period of 180 days after the date of this prospectus
without the written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
MEMBERS OF MANAGEMENT, AS MAJOR STOCKHOLDERS, POSSESS UNEQUAL VOTING RIGHTS
RESULTING IN THE ABILITY TO CONTROL ALL MAJOR CORPORATE DECISIONS, AND OTHER
SHAREHOLDERS MAY BE UNABLE TO INFLUENCE THESE CORPORATE DECISIONS
We have two classes of common stock--Class A which carries one vote per
share and Class B which carries ten votes per share. Upon the completion of this
offering, investors in this offering will own 46.8% of the outstanding Class A
common stock. Our directors and executive officers will own 100% of the
outstanding Class B common stock. As a result of their stock ownership, our
directors and executive officers will have the power to elect all of our
directors and control stockholder decisions on other matters such as amendments
to our certificate of incorporation and bylaws, and mergers or other fundamental
corporate transactions. The interests of our controlling stockholders, including
our management, may conflict with the interests of the other holders of Class A
common stock.
The disproportionate voting rights of the Class A common stock relative to
the Class B common stock may make us a less attractive target for a takeover
than we otherwise might be or render more difficult or discourage a merger
proposal or a tender offer.
IF OUR COMPUTER SYSTEMS OR THOSE OF THIRD PARTIES WITH WHOM WE DO BUSINESS ARE
NOT YEAR 2000 COMPLIANT, OUR OPERATIONS MAY BE DISRUPTED
We are evaluating the impact of the Year 2000 problem on our business
operations, as well as our products and services. Areas that could be adversely
impacted by the Year 2000 problem include the following:
o Information processing and financial reporting systems;
o Customer billing systems;
o Customer service systems;
o Cable headend equipment and advertising insertion equipment; and
o Services from third-party vendors.
System failure or miscalculation could result in an inability to process
transactions, send invoices, accept customer orders or provide customers with
products and services. We presently do not have a formal contingency plan in
place if we or any third parties with whom we have material relationships
sustain business interruptions caused by Year 2000 problems.
For a description of our Year 2000 compliance efforts you should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."
THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS THAT MAY NOT BE ACCURATE
INDICATORS OF OUR FUTURE PERFORMANCE
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate," and "continue" or similar words. You should
read statements that contain these words carefully because they:
o discuss our future expectations;
19
<PAGE>
o contain projections of our future results of operations or of our
financial condition; or
o state other "forward-looking" information.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
accurately predict or over which we have no control. The risk factors listed in
this section, as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Before you invest in our Class A common stock, you should be aware
that the occurrence of the events described in these risk factors and elsewhere
in this prospectus could have a material adverse effect on our business,
operating results and financial condition.
20
<PAGE>
USE OF PROCEEDS
The estimated net proceeds from the sale of the 20,500,000 shares of Class
A common stock offered by us will be approximately $422.0 million, or
approximately $485.4 million if the underwriters' over-allotment option is
exercised in full, after deducting the estimated underwriting discounts and
offering expenses.
We intend to use the net proceeds of this offering to finance:
o the Kentucky acquisition and the related fees which we estimate to be
$335.0 million; and
o the introduction of new and enhanced products and services for our
customers, other strategic acquisitions and general corporate
activities which we estimate to be $87.0 million.
You should read the discussion under "Business--The Systems--The Kentucky
Systems" for further information concerning the Kentucky systems and
"Business--Products and Services--New and Enhanced Products and
Services--Telephony" for further information concerning the joint venture with
AT&T. The amounts actually spent by us may vary significantly and will depend on
a number of factors, including our future revenues and the other factors
described under "Risk Factors." We continually evaluate potential acquisition
candidates, but we have not reached any agreements, commitments or
understandings for any future acquisitions except for the Kentucky acquisition.
There is no assurance that any additional acquisitions will be identified or
completed.
Pending our use of the net proceeds of this offering, approximately $87.0
million will temporarily reduce the debt outstanding under our senior revolving
credit facility and the remainder will be invested in short-term investment
grade investments. We expect that the Kentucky acquisition will be completed
during the second half of 1999. There can be no assurance that the Kentucky
acquisition will be completed on the terms described in this prospectus, or at
all. This offering is not contingent or in any way dependent on the Kentucky
acquisition. If the Kentucky acquisition is not completed, a significant portion
of the net proceeds from this offering will not be designated for a specific
use. See "Risk Factors--The Kentucky acquisition may not be completed and if not
completed, we will have the ability to apply some of the proceeds of this
offering to fund as yet unidentified acquisitions, investments or joint
ventures."
As of March 31, 1999, there was approximately $124.1 million outstanding
under the Insight credit facility which has a final maturity in December 2005.
For the quarter ended March 31, 1999, the interest rates for loans outstanding
under the Insight credit facility ranged from approximately 7.0% to 7.4% and the
weighted average interest rate as of March 31, 1999 was 7.2%. Loans obtained
under the Insight credit facility during the past 12 months were for the rebuild
of our cable network, the introduction of new and enhanced products and services
for our customers, strategic acquisitions and general corporate activities. You
should read the discussion under "Description of Certain Indebtedness--Credit
Facilities" for further information about the Insight credit facility.
DIVIDEND POLICY
We have never paid any cash dividends and intend, for the foreseeable
future, to retain any future earnings for the development of our business. The
Insight credit facility restricts our ability to pay dividends. Our future
dividend policy will be determined by the Board of Directors on the basis of
various factors, including our results of operations, financial condition,
capital requirements and investment opportunities.
21
<PAGE>
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents
and capitalization as of March 31, 1999, and as adjusted to give effect to:
o Our receipt of the net proceeds from our sale of 20,500,000 shares of
Class A common stock at an assumed initial public offering price of
$22.00 per share, after deducting the underwriting discount and estimated
offering expenses payable by us in this offering;
o The application of the net proceeds therefrom as described under "Use of
Proceeds."
And as further adjusted:
o To give effect to the Kentucky acquisition.
In addition, the following table should be read in conjunction with our
financial statements and the accompanying notes, which are contained later in
this prospectus. For a description of our corporate structure, see "Corporate
Structure."
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
-------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................................. $ 29,667 $ 327,567 $ 29,667
-------- --------- ----------
-------- --------- ----------
Total debt:
Insight credit facility................................................. $124,100 $ --(1) $ 37,100(2)
Insight Indiana credit facility(3)...................................... 466,000 466,000 466,000
Kentucky credit facilities(4)........................................... -- -- 733,000
Note payable to MediaOne................................................ 2,563 2,563 2,563
-------- --------- ----------
Total debt(5)........................................................ 592,663 468,563 1,238,663
Redeemable Class B units.................................................. 54,444 -- --
Partners' deficit......................................................... (3,812) -- --
Stockholders' equity:(6)
Class A common stock, $.01 par value; as adjusted, 300,000,000 shares
authorized, 43,806,263 shares issued and outstanding................. -- 438 438
Class B common stock, $.01 par value; 100,000,000 shares authorized,
9,626,967 shares issued and outstanding.............................. -- 96 96
Additional paid-in capital.............................................. -- 536,141 536,141
Accumulated deficit(4).................................................. -- (114,043) (114,043)
-------- --------- ----------
Total stockholders' equity........................................... -- 422,632 422,632
-------- --------- ----------
Total capitalization...................................................... $643,295 $ 891,195 $1,661,295
-------- --------- ----------
-------- --------- ----------
</TABLE>
- ------------------
(1) As adjusted, there was approximately $140.0 million of unused credit
commitments, of which approximately $128.0 million could have been borrowed
under the most restrictive covenants of the Insight credit facility. See
"Description of Certain Indebtedness--Credit Facilities."
(2) As further adjusted, there was approximately $102.9 million of unused credit
commitments, of which approximately $90.9 million could have been borrowed
under the most restrictive covenants of the Insight credit facility. See
"Description of Certain Indebtedness--Credit Facilities."
(3) There was approximately $84.0 million of unused credit commitments, of which
approximately $14.1 million could have been borrowed under the most
restrictive covenants of the Insight Indiana credit facility. See
"Description of Certain Indebtedness--Credit Facilities."
(4) The reduction in stockholders' equity resulting from a one-time
$50.0 million charge to earnings recognized by us upon the completion of the
exchange of shares for limited partnership interests, to record a net
deferred tax liability associated with the change from a partnership to a
corporation;
(Footnotes continued on next page)
22
<PAGE>
(Footnotes continued from previous page)
recognition of our accumulated losses through March 31, 1999 of
$46.9 million within accumulated deficit and to record a one time
$17.1 million non-cash compensation charge associated with the distribution
of shares, resulting from the general partner's share of Class B unit
allocation to certain of our employees.
(5) There was approximately $120.0 million of unused credit commitments, of
which approximately $90.7 million could have been borrowed under the most
restrictive covenants of the Kentucky credit facilities. See "Description of
Certain Indebtedness--Credit Facilities."
(6) Since the financial statements of Insight Ohio, which contain the financial
information of the Columbus system, are not consolidated with the financial
statements of Insight, total long-term debt does not include any debt under
the Insight Ohio credit facility. There was no debt outstanding under the
Insight Ohio credit facility as of March 31, 1999. There was approximately
$25.0 million of unused credit commitments, of which approximately
$25.0 million could have been borrowed under the most restrictive covenants
of the Insight Ohio credit facility. Insight Ohio has guaranteed on a
conditional basis $140.0 million aggregate principal amount of 10% senior
notes due 2006 issued by Coaxial Communications of Central Ohio, Inc. and
Phoenix Associates, a related party of Coaxial Communications, and
approximately $55.9 million aggregate principal amount at maturity of
12 7/8% senior discount notes due 2008 issued by Coaxial LLC and Coaxial
Financing Corp. See "Description of Recent Transactions--The Transactions to
Acquire the Columbus System" and "Description of Certain Indebtedness."
(7) Gives pro forma effect to the exchange of limited partnership interests in
Insight Communications Company, L.P. for our common stock upon completion of
this offering.
23
<PAGE>
DILUTION
The difference between the public offering price per share of our Class A
common stock and the pro forma net tangible book value per share of our Class A
and Class B common stock after this offering constitutes the dilution to
investors in this offering. Net tangible book value per share is determined by
dividing our net tangible book value (total tangible assets less total
liabilities) by the number of outstanding shares of Class A and Class B common
stock.
As of March 31, 1999, our net tangible book value was a deficit of $479.4
million (after consideration of the conversion of redeemable Class B units into
our common stock and the recognition of a $50 million deferred tax liability
that would have been recognized upon the exchange of limited partnership
interests for common stock in a corporation), or $14.56 per share of Class A and
Class B common stock prior to the issuance of shares pursuant to this offering.
After giving effect to the sale of 20,500,000 shares of our Class A common stock
at an assumed initial public offering price of $22.00 per share, which is the
mid-point of the estimated range of the initial public offering price, less the
estimated expenses of this offering, our pro forma net negative tangible book
value as of March 31, 1999 would have been $57.4 million, or $1.07 per share of
Class A and Class B common stock, representing an immediate decrease in our net
negative tangible book value of $13.48 per share to current stockholders and an
immediate dilution of $23.07 per share to new investors. The following table
illustrates the foregoing information as of March 31, 1999 with respect to
dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price of the Class A common stock......... $22.00
Net tangible book value (deficit) per share before the offering........... $(14.56)
Increase per share attributable to the offering(1)........................ 13.48
-------
Net tangible book value (deficit) per share after the offering(2)......... (1.07)
------
Dilution per share to new investors(2)(3)................................. $23.07
------
------
</TABLE>
- ------------------
(1) After deducting the underwriting discounts and estimated expenses payable by
us in this offering.
(2) Does not give effect to the Kentucky acquisition which is expected to
further increase the net negative tangible book value per share to $17.67.
(3) Dilution is determined by subtracting net tangible book value per share
after giving effect to this offering from the assumed initial public
offering price paid by new investors.
The following table sets forth, with respect to our current stockholders
and new investors, a comparison of the number of shares of common stock acquired
from us, the percentage ownership of such shares, the total consideration paid,
the percentage of total consideration paid and the average price per share in
thousands except average price per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................... 32,933 61.6% $109,627 19.6% $ 3.33
New Investors....................................... 20,500 38.4 451,000 80.4 22.00
------ ----- -------- ----- -------
Total............................................... 53,433 100.0% $560,627 100.0% $ 10.49
------ ----- -------- ----- -------
------ ----- -------- ----- -------
</TABLE>
These computations do not give effect to either of the following:
o 750,000 shares of Class A common stock and 2,250,000 shares of Class B
common stock issuable upon exercise of stock options to be outstanding
upon completion of this offering, none of which will be then exercisable;
and
o 2,000,000 additional shares of common stock reserved for issuance under
our stock option plan.
To the extent that shares of common stock are issued in connection with the
stock option arrangements, there will be further dilution to new investors.
24
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
The following table sets forth selected pro forma financial information and
other data of the national, Columbus, Indiana and Kentucky systems and the
managed Indiana systems and pro forma adjusted financial information for the
national, Columbus, Indiana and Kentucky systems which have been adjusted to
illustrate the estimated effects of the following transactions as if they had
occurred on January 1, 1999 with respect to transactions that occurred in 1999
and January 1, 1998 with respect to transactions that occurred in 1998:
o the acquisition by us of the Rockford system on January 22, 1998;
o the acquisition of the Columbus system by Insight Ohio on August 21,
1998;
o the formation of Insight Indiana and related contribution of systems by
AT&T Broadband & Internet Services and us on October 31, 1998;
o the systems exchange on March 22, 1999 between Falcon and us, in which we
swapped our Franklin system in exchange for Falcon's Scottsburg system
and cash;
o the acquisition by us of the Portland system on March 31, 1999;
o the proposed acquisition by us of the Kentucky systems, which is expected
to be completed in the second half of 1999;
o the proposed provision of consulting services to the managed Indiana
systems, which is expected to commence during the fourth quarter of 1999;
o the exchange of limited partnership interests in Insight Communcations
Company, L.P. for our common stock; and
o the receipt of approximately $422.0 million of net proceeds in
connection with this offering.
The 1998 pro forma statement of operations does not include the receipt of
management fees by us from Insight Indiana or management fees from the Kentucky
systems as those amounts would eliminate in consolidation. The 1998 pro forma
statement of operations does not purport to be indicative of what our results of
operations would actually have been had the above transactions been completed on
the dates indicated or to project our results of operations for any future date.
When you read the 1998 pro forma statement of operations, it is important that
you read along with it our historical financial statements and related notes,
and the historical financial statements and related notes of the TCI Insight
Systems, which are the systems contributed to Insight Indiana by AT&T Broadband
& Internet Services, Insight Ohio, TCI IPVI Systems, which are the Kentucky
systems prior to April 30, 1998, and InterMedia Capital Partners VI, L.P., which
are the Kentucky systems subsequent to April 30, 1998, which are included
elsewhere in this prospectus.
The pro forma financial statements exclude a one-time non-recurring charge
to earnings to record a net deferred tax liability at December 31, 1998 and at
March 31, 1999 of approximately $45.0 million and $50.0 million that would have
been recognized upon the exchange of limited partnership interests in Insight
Communcations Company, L.P. for our common stock.
The data included in the pro forma statement of operations for the three
months ended March 31, 1999 under the column headings "National (as reported),"
"Indiana Adjustments" and "Kentucky (as reported)" represent:
o National (as reported):
o the operating results for the Rockford, Claremont and Griffin
systems for the three months ended March 31, 1999 and the operating
results for the Franklin system through March 22, 1999; and
o corporate overhead expenses.
o Indiana Adjustments:
o the operating results of the Indiana systems for the three months
ended March 31, 1999.
o Kentucky (as reported):
o the operating results of InterMedia Capital Partners VI, L.P. for
the three months ended March 31, 1999.
The data included in the pro forma statement of operations for the year
ended December 31, 1998 under the column headings "National (as reported),"
"Indiana (as reported)" and "Kentucky (as reported)" represent:
o National (as reported):
o the operating results for the Franklin system;
25
<PAGE>
o ten months of operating results of our Utah systems which were
swapped for the Evansville and Jasper systems;
o the full year's operating results of the Indiana systems
contributed by us to Insight Indiana;
o two months of the operating results of the TCI Insight Systems,
which are the systems contributed to Insight Indiana by AT&T
Broadband & Internet Services;
o the operating results of the Rockford system since January 22, 1998;
and
o corporate overhead expenses.
o Indiana (as reported):
o ten months of operating results of the TCI Insight Systems
contributed to Insight Indiana which includes ten months of the
Evansville and Jasper systems acquired by us from AT&T Broadband &
Internet Services.
o Kentucky (as reported):
o the operating results of the TCI IPVI systems for the period from
January 1, 1998 through April 30, 1998 and the operating results of
InterMedia Capital Partners VI, L.P. for the period from April 30,
1998 through December 31, 1998.
The data included in the pro forma balance sheet for the three months ended
March 31, 1999 under the column headings "National (as reported)," "Indiana
Adjustments" and "Kentucky (as reported)" represent:
o National (as reported):
o the assets and liabilities of the Scottsburg, Portland, Claremont,
Griffin and Rockford systems; and
o the Indiana systems.
o Indiana Adjustments:
o the assets and liabilities of Insight Indiana contributed by us and
AT&T Broadband & Internet Services.
o Kentucky (as reported):
o the assets and liabilities of InterMedia Capital Partners VI, L.P.
The financial data of Kentucky represents the combination of the results of
TCI IPVI Systems from January 1, 1998 through April 30, 1998 and InterMedia
Capital Partners VI, L.P. from April 30, 1998 through December 31, 1998. The
combination of the two periods is not necessarily indicative of what the results
of InterMedia Capital Partners VI, L.P. or TCI IPVI would have been for the
year. We have consolidated the Kentucky systems in the accompanying pro forma
financial statements as after we acquire our 50% interest we will control its
operations.
All references to our performance on a pro forma basis give effect to the
national systems, the Columbus system, the Indiana systems, the Kentucky
acquisition and, except in the technical discussion of headends, network miles,
fiber nodes, network capacity and density, the provision of consulting services
to the managed Indiana systems as if acquired or serviced at the beginning of
the related period or as of the applicable date, and to adjustments made to our
historical financial statements that present our financial information as if
shares of common stock, rather than limited partnership interests, were
outstanding and as if we were taxed as a C corporation in all periods presented.
Pro forma proportional basis represents our 100% ownership interest in the
national systems, our 75% ownership interest in the Columbus system, and our 50%
ownership interest in the Indiana and Kentucky systems as if acquired at the
beginning of the applicable period or as of the applicable date. Pro forma
proportional basis revenues and pro forma proportional basis EBITDA are not
intended to be performance measures that should be regarded as an alternative
to, or more meaningful than our net income as determined in accordance with
generally accepted accounting principles. We have included pro forma
proportional basis revenues and pro forma proportional basis EBITDA as we
believe that some analysts will find such information useful in evaluating us.
26
<PAGE>
INSIGHT COMMUNICATIONS
PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NATIONAL NATIONAL COLUMBUS COLUMBUS INDIANA
(AS REPORTED) ADJUSTMENTS(A)(B) (AS ADJUSTED) ADJUSTMENTS (AS ADJUSTED) (AS REPORTED)
------------- ----------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $ 45,377 $ (35,628)(C) $ 10,405 $ -- $ -- $ --
(845)(D)
451 (E)
636 (F)
414 (G)
Costs & expenses:
Programming and other operating
costs........................... 13,263 (10,442)(C) 2,887 -- -- --
(256)(D)
126 (E)
196 (F)
Selling, general and
administrative.................. 10,180 (7,830)(C) 2,419 -- -- --
(129)(D)
91 (E)
107 (F)
Depreciation and amortization..... 25,739 (22,019)(C) 3,886 -- -- --
(122)(D)
86 (E)
202 (F)
--------- ------------- --------- -------- ------- -------
Operating income................... (3,805) 5,018 1,213 - -- --
Other income (expenses):
Gain on cable system exchange..... 19,762 (19,762)(H) -- -- -- --
Interest income (expense)......... (10,493) 8,226 (C) (2,268) -- -- --
(1)(E)
Other income (expense)............ (7) (58)(F) (65) -- -- --
Minority interest.................. 4,494 (4,494)(I) -- -- -- --
Equity in loss of Insight Ohio..... (2,713) 2,713 (I) -- (552)(J) (2,713) --
(2,161)(K)
--------- ------------- --------- -------- ------- -------
Income (loss) from continuing
operations........................ $ 7,238 $ (8,358) $ (1,120) $ (2,713) $(2,713) $ --
--------- --------- -------- ------- -------
--------- ------------- --------- -------- ------- -------
-------------
Loss from continuing operations per share........................................................................................
<CAPTION>
INDIANA INDIANA KENTUCKY
ADJUSTMENTS(L) (AS ADJUSTED) ADJUSTMENTS(M) SUBTOTAL (AS REPORTED) ADJUSTMENTS
-------------- ------------- -------------- -------- ---------------- -----------
<S> <C> <C> <C> <C>
Revenues........................... $ 35,628 $ 35,628 $ -- $ 46,033 $ 51,425 $ --
Costs & expenses:
Programming and other operating
costs........................... 10,442 10,442 -- 13,329 17,040 --
Selling, general and
administrative.................. 7,830 7,830 -- 10,249 11,416 --
Depreciation and amortization..... 22,019 22,019 -- 25,905 31,154 4,691 (O)
-------- --------- ------ -------- -------- -------
Operating income................... (4,663) (4,663) -- (3,450) (8,185) (4,691)
Other income (expenses):
Gain on cable system exchange..... -- -- -- -- 2,312 (2,312)(H)
Interest income (expense)......... (8,226) (8,226) -- (10,494) (13,910) --
Other income (expense)............ -- -- -- (65) -- --
Minority interest.................. -- -- 6,444 (N) 6,444 -- --
Equity in loss of Insight Ohio..... -- -- -- (2,713) -- --
-------- --------- ------ -------- -------- -------
Income (loss) from continuing
operations........................ $(12,889) $ (12,889) $6,444 $(10,278) $(19,783) $(7,003)
-------- --------- ------ -------- -------- -------
-------- --------- ------ -------- -------- -------
Loss from continuing operations per
<CAPTION>
KENTUCKY OTHER
(AS ADJUSTED) SUBTOTAL ADJUSTMENTS TOTAL
------------- -------- ----------- --------
Revenues........................... $ 51,425 $ 97,458 $ -- $ 97,458
Costs & expenses:
Programming and other operating
costs........................... 17,040 30,369 -- 30,369
Selling, general and
administrative.................. 11,416 21,665 -- 21,665
Depreciation and amortization..... 35,845 61,750 -- 61,750
--------- -------- ------- --------
Operating income................... (12,876) (16,326) -- (16,326)
Other income (expenses):
Gain on cable system exchange..... -- -- -- --
Interest income (expense)......... (13,910) (24,404) 1,784(P) (22,620)
Other income (expense)............ -- (65) -- (65)
Minority interest.................. -- 6,444 13,393(Q) 19,837
Equity in loss of Insight Ohio..... -- (2,713) -- (2,713)
--------- -------- ------- --------
Income (loss) from continuing
operations........................ $ (26,786) $(37,064) $15,177 $(21,887)
--------- -------- ------- --------
--------- -------- ------- --------
Loss from continuing operations per $ (0.41)
--------
--------
</TABLE>
27
<PAGE>
NOTES TO PRO FORMA STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
1999
(A) Does not include management fees received by us from Insight Indiana and
the Kentucky systems in the amount of 3% of revenues since such adjustment
would eliminate upon consolidation.
(B) Excludes a one-time non-recurring charge to earnings to record a net
deferred tax liability at March 31, 1999 of approximately $50.0 million
that would have been recognized upon the exchange of limited partnership
interests for common stock in a corporation. Prior to such exchange of
limited partnership interests into common stock in a corporation, Insight
Communications Company, L.P.'s operating results were included in the
individual income tax returns of its partners.
(C) Eliminates the three months' operating results of Insight Indiana.
(D) Eliminates the operating results of the Franklin system.
(E) Includes the operating results of the Scottsburg system for the three-month
period ended March 31, 1999.
(F) Includes the operating results of the Portland system for the period ended
March 31, 1999.
(G) Includes the managed Indiana systems' consulting fee for the three-month
period ended March 31, 1999. Consulting fee is equal to 3% of gross revenue
($13,800,000 x 3%).
(H) Eliminates gains from cable system exchanges.
(I) Eliminates AT&T Broadband & Internet Services' minority interest in Insight
Indiana and our equity in losses of Insight Ohio.
(J) Eliminates our equity in losses of Insight Ohio and reflects them within
Columbus.
(K) Includes the amortization of the difference between our investment in
Insight Ohio and Insight Ohio's underlying member's deficit, which is
members' deficit at the date of acquisition multiplied by our 75% interest
in Insight Ohio divided by a 12 1/2 year amortization period.
(L) Includes the operating results of Insight Indiana for the three-month
period ended March 31, 1999.
(M) These adjustments are included in order to combine the full year's results
of operations of the national, Columbus, and Indiana systems.
(N) Includes AT&T Broadband & Internet Services' minority interest in Insight
Indiana.
(O) Includes additional amortization related to step-up in value of the
intangible assets of the Kentucky systems of $281.4 million over a period
of fifteen years.
(P) Includes reduction in interest expense related to the paydown of $87
million of debt from the proceeds of this offering assuming an annual
interest rate of 8.2%.
(Q) Includes AT&T Broadband & Internet Services' minority interest in the
Kentucky systems.
(R) Pro forma loss per share is calculated based on common shares outstanding
of 52.9 million upon completion of this offering.
28
<PAGE>
INSIGHT COMMUNICATIONS
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NATIONAL NATIONAL COLUMBUS COLUMBUS INDIANA
(AS REPORTED) ADJUSTMENTS(A)(B) (AS ADJUSTED) ADJUSTMENTS (AS ADJUSTED) (AS REPORTED)
------------- ----------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $ 112,902 $ (58,504)(C) $ 41,314 $ -- $80,357
(17,423)(D)
1,383 (E)
(3,843)(F)
2,086 (G)
919 (H)
2,329 (I)
1,465 (J)
Costs & expenses:
Programming and other operating
costs........................... 30,376 (15,229)(C) 11,069 -- 24,375
(4,463)(D)
396 (E)
(1,149)(F)
413 (G)
725 (I)
Selling, general and
administrative.................. 24,471 (9,857)(C) 11,885 -- 14,892
(3,030)(D)
249 (E)
(680)(F)
340 (G)
392 (I)
Depreciation and amortization..... 43,849 (21,788)(C) 19,649 -- 12,223
(3,632)(D)
558 (E)
(431)(F)
330 (G)
763 (I)
--------- --------- --------- --------- ------- -------
Operating income................... 14,206 (15,495) (1,289) -- 28,867
Other income (expenses):
Gain on cable system exchange and
contribution of cable systems to
joint venture................... 156,058 (156,058)(K) -- -- -- --
Interest income (expense)......... (28,106) 5,818 (C) (9,133) -- -- --
2 (D)
13,153 (L)
Other income (expense)............ (444) 79 (C) (264) -- (159)
387 (D)
(52)(G)
(234)(J)
Minority interest.................. 3,410 (3,410)(M) -- -- -- --
Equity in loss of Insight Ohio..... (3,251) 3,251 (M) -- 837 (N) (6,632) --
(7,469)(O)
--------- --------- --------- --------- ------- -------
Income (loss) from continuing
operations before income taxes.... 141,873 (152,559) (10,686) (6,632) (6,632) 28,708
Income taxes....................... -- -- -- -- -- (9,969)
--------- --------- --------- --------- ------- -------
Income (loss) from continuing
operations........................ $ 141,873 $(152,559) $ (10,686) $ (6,632) $(6,632) $18,739
--------- --------- --------- --------- ------- -------
--------- --------- --------- --------- ------- -------
Loss from continuing operations per
share..........................................................................................................................
<CAPTION>
INDIANA INDIANA KENTUCKY
ADJUSTMENTS (AS ADJUSTED) ADJUSTMENTS(T) SUBTOTAL (AS REPORTED) ADJUSTMENTS
----------- ------------- -------------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $ 58,504 (P) $ 138,861 $ -- $ 180,175 $ 195,507 $ --
Costs & expenses:
Programming and other operating
costs........................... 15,229 (P) 39,604 -- 50,673 65,328 --
Selling, general and
administrative.................. 9,857 (P) 24,749 -- 36,634 44,416 --
Depreciation and amortization..... 21,788 (P) 83,401 -- 103,050 103,514 18,764 (V)
49,390 (S)
--------- --------- -------- --------- --------- ---------
Operating income................... (37,760) (8,893) -- (10,182) (17,751) (18,764)
Other income (expenses):
Gain on cable system exchange and
contribution of cable systems to
joint venture................... -- -- -- -- -- --
Interest income (expense)......... (5,818)(C) (36,560) -- (45,693) (44,899) --
(13,153)(L)
(17,589)(Q)
Other income (expense)............ (79)(P) (238) -- (502) 1,231 --
Minority interest.................. -- -- 22,846(U) 22,846 -- --
Equity in loss of Insight Ohio..... -- -- -- (6,632) -- --
--------- --------- -------- --------- --------- ---------
Income (loss) from continuing
operations before income taxes.... (74,399) (45,691) 22,846 (40,163) (61,419) (18,764)
Income taxes....................... 9,969 (R) -- -- -- (1,971) 1,971(W)
--------- --------- -------- --------- --------- ---------
Income (loss) from continuing
operations........................ $ (64,430) $ (45,691) $ 22,846 $ (40,163) $ (63,390) $ (16,793)
--------- --------- -------- --------- --------- ---------
--------- --------- -------- --------- --------- ---------
Loss from continuing operations per
share.......................................................................................................................
<CAPTION>
KENTUCKY SUB OTHER
(AS ADJUSTED) TOTAL ADJUSTMENTS TOTAL
------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues........................... $ 195,507 $ 375,682 $ -- $ 375,682
Costs & expenses:
Programming and other operating
costs........................... 65,328 116,001 -- 116,001
Selling, general and
administrative.................. 44,416 81,050 -- 81,050
Depreciation and amortization..... 122,278 225,328 -- 225,328
--------- --------- ------- ---------
Operating income................... (36,515) (46,697) -- (46,697)
Other income (expenses):
Gain on cable system exchange and
contribution of cable systems to
joint venture................... -- -- -- --
Interest income (expense)......... (44,899) (90,592) 7,134(X) (83,458)
Other income (expense)............ 1,231 729 -- 729
Minority interest.................. -- 22,846 40,092(Y) 62,938
Equity in loss of Insight Ohio..... -- (6,632) -- (6,632)
--------- --------- ------- ---------
Income (loss) from continuing
operations before income taxes.... (80,183) (120,346) 47,406 (73,120)
Income taxes....................... -- -- -- --
--------- --------- ------- ---------
Income (loss) from continuing
operations........................ $ (80,183) $(120,346) $47,406 $ (73,120)
--------- --------- ------- ---------
--------- --------- ------- ---------
Loss from continuing operations per $ 1.38
share................................................................ ---------
---------
</TABLE>
29
<PAGE>
NOTES TO PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1999
(A) Does not include management fees received by us from Insight Indiana and
the Kentucky systems in the amount of 3% of revenues as such amounts would
be eliminated upon consolidation.
(B) Excludes a one-time non-recurring charge to earnings to record a net
deferred tax liability at December 31, 1998 of approximately $45 million
that would have been recognized upon the exchange of limited partnership
interests for common stock in a corporation. Prior to such exchange of
limited partnership interests into common stock of a corporation, Insight
Communications Company, L.P.'s operating results were included in the
individual income tax returns of its partners.
(C) Eliminates operating results of: (1) the systems contributed by us to
Insight Indiana for ten months; and (2) Insight Indiana for two months.
(D) Eliminates operating results of the Utah systems for ten months.
(E) Includes operating results of the Rockford system from January 1, 1998 to
January 21, 1998.
(F) Eliminates the operating results of the Franklin system.
(G) Includes the operating results of the Scottsburg system.
(H) Includes the Insight Ohio management fee from January 1, 1998 to August
21, 1998.
(I) Includes the full year's operating results of the Portland system.
(J) Includes the managed Indiana systems' consulting fee for the full year.
Consulting fee is equal to 3% of gross revenues ($48,833,000 x 3%).
(K) Eliminates gains from cable system exchange and gain on contribution of
systems to Insight Indiana.
(L) Adjusts interest expense to reflect our contribution of debt to Insight
Indiana.
(M) Eliminates AT&T Broadband & Internet Services' minority interest in Insight
Indiana and our equity in losses of Insight Ohio.
(N) Records our 75% non-voting equity interest in Insight Ohio.
(O) Includes the amortization of the difference between our investment in
Insight Ohio and Insight Ohio's underlying members deficit, which is
members' deficit at the date of acquisition multiplied by our 75% interest
in Insight Ohio divided by a 12 1/2 year amortization period.
(P) Includes ten months of operating results of our systems contributed to
Insight Indiana and two months of operating results of Insight Indiana.
(Q) Adjusts interest expense related to $214.5 million of contributed debt of
AT&T Broadband & Internet Services at an annual interest rate of 8.2% as
if such contribution had occurred on January 1, 1998.
(R) Eliminates income tax provision due to pro forma combined net loss. No
provision has been made in the accompanying financial statements for
federal, state or local income taxes since income or losses of the
partnership are reportable by the individual partners in their respective
tax returns.
(S) Includes additional depreciation and amortization related to step-up in
value of the Insight Indiana systems for ten months. See Notes C and D of
our consolidated financial statements.
(T) These adjustments are included in order to combine the full year's results
of operations of the national, Columbus and Indiana systems.
(U) Includes AT&T Broadband & Internet Services' minority interest in Insight
Indiana.
(V) Includes additional amortization related to step-up in value of intangible
assets pertaining to the Kentucky systems of $281.4 million over a period
of fifteen years.
(W) Eliminates income tax provision due to pro forma combined net loss.
(X) Includes reduction in interest expense related to the paydown of
$87 million of debt from the proceeds of this offering assuming an annual
interest rate of 8.2%.
(Y) Includes AT&T Broadband & Internet Services' minority interest in the
Kentucky systems.
(Z) Pro forma loss per share is calculated based on common shares outstanding
of 52.9 million upon completion of this offering.
30
<PAGE>
INSIGHT COMMUNICATIONS PRO FORMA BALANCE SHEET
MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NATIONAL NATIONAL INSIGHT OHIO INSIGHT OHIO INDIANA
(AS REPORTED) ADJUSTMENTS (AS ADJUSTED) ADJUSTMENTS (AS ADJUSTED) (AS REPORTED)
------------- ----------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........... $ 29,667 $ (26,911)(A) $ 2,756 $ -- $ -- $ --
Trade accounts receivable, net of
allowance.......................... 5,796 (5,069)(A) 727 -- -- --
Due from related parties............ 136 1,492 (A) 1,628 -- -- --
Prepaid expenses & other current
assets............................. 3,469 (1,238)(A) 2,231 -- -- --
Investment in Insight Ohio.......... 4,036 (4,036)(B) -- 4,036 (B) 4,036 --
Fixed assets, net................... 164,203 (132,063)(A) 32,140 -- -- --
Intangible assets, net.............. 480,069 (369,954)(A) 110,115 -- -- --
Other assets........................ -- -- -- -- -- --
--------- --------- --------- -------- --------- ---------
Total assets........................ $ 687,376 $(537,779) $ 149,597 $ 4,036 $ 4,036 $ --
--------- --------- --------- -------- --------- ---------
--------- --------- --------- -------- --------- ---------
LIABILITIES & PARTNERS' CAPITAL
Accounts payable.................... $ 30,378 $ (23,465)(A) $ 6,913 $ -- $ -- $ --
Accrued expenses and other
liabilities........................ 4,943 (3,743)(A) 1,200 -- -- --
Due to affiliates................... 790 -- 790 -- -- --
Interest payable.................... 5,788 (5,327)(A) 461 -- -- --
Accrued interest.................... -- -- -- -- -- --
Deferred revenue.................... -- -- -- -- -- --
Other............................... -- -- -- -- -- --
-- -- -- -- -- --
Deferred income taxes............... -- 50,000 (C) 50,000 -- -- --
Debt................................ 592,663 (466,000)(A) 126,663 -- -- --
--------- --------- --------- -------- --------- ---------
Total liabilities................... 634,562 (448,535) 186,027 -- -- --
Minority interest................... 2,182 -- 2,182 -- -- --
Redeemable Class B units............ 54,444 -- 54,444 -- -- --
Partners' (deficiency)/equity....... (3,812) (35,208)(A) (43,056) 4,036 (B) 4,036 --
-- (4,036)(B) -- -- -- --
Stockholders' equity:
Common Stock........................ -- -- -- -- -- --
Paid-in-capital..................... -- -- -- -- -- --
Retained earnings (deficit)......... -- (50,000)(C) (50,000) -- -- --
--------- --------- --------- -------- --------- ---------
$ 687,376 $(537,779) $ 149,597 $ 4,036 $ 4,036 $ --
--------- --------- --------- -------- --------- ---------
--------- --------- --------- -------- --------- ---------
<CAPTION>
INDIANA INDIANA KENTUCKY KENTUCKY SUB
ADJUSTMENTS (D) (AS ADJUSTED) (AS REPORTED) ADJUSTMENTS (AS ADJUSTED) TOTAL
--------------- ------------- ------------- ----------- ------------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents........... $ 26,911 $ 26,911 $ 3,512 -- $ 3,512 $ 33,179
Trade accounts receivable, net of
allowance.......................... 5,069 5,069 14,451 -- 14,451 20,247
Due from related parties............ -- -- 8,385 -- 8,385 10,013
Prepaid expenses & other current
assets............................. 1,238 1,238 1,058 -- 1,058 4,527
Investment in Insight Ohio.......... -- -- -- -- -- 4,036
Fixed assets, net................... 132,063 132,063 248,041 -- 248,041 412,244
Intangible assets, net.............. 369,954 369,954 613,430 281,441(E) 894,871 1,374,940
Other assets........................ -- -- 2,862 -- 2,862 2,862
--------- --------- --------- --------- ----------- ----------
Total assets........................ $ 535,235 $ 535,235 $ 891,739 281,441 $ 1,173,180 $1,862,048
--------- --------- --------- --------- ----------- ----------
--------- --------- --------- --------- ----------- ----------
LIABILITIES & PARTNERS' CAPITAL
Accounts payable.................... $ 23,465 $ 23,465 $ 22,634 $ $ 22,634 $ 53,012
Accrued expenses and other
liabilities........................ 3,743 3,743 -- -- 0 4,943
Due to affiliates................... 1,492 1,492 3,196 -- 3,196 5,478
Interest payable.................... 5,327 5,327 -- -- -- 5,788
Accrued interest.................... -- -- 5,899 -- 5,899 5,899
Deferred revenue.................... -- -- 19,027 -- 19,027 19,027
Other............................... -- -- 866 -- 866 866
-- -- -- -- -- --
Deferred income taxes............... -- -- -- -- -- 50,000
Debt................................ 466,000 466,000 733,000 -- 733,000 1,325,663
--------- --------- --------- --------- ----------- ----------
Total liabilities................... 500,027 500,027 784,622 -- 784,622 1,470,676
Minority interest................... -- -- -- -- -- 2,182
Redeemable Class B units............ -- -- -- -- -- 54,444
Partners' (deficiency)/equity....... 35,208 35,208 107,117 281,441(E) 388,558 384,746
-- -- -- -- -- --
Stockholders' equity:
Common Stock........................ -- -- -- -- -- --
Paid-in-capital..................... -- -- -- -- -- --
Retained earnings (deficit)......... -- -- -- -- -- (50,000)
--------- --------- --------- --------- ----------- ----------
$ 535,235 $ 535,235 $ 891,739 $ 281,441 $ 1,173,180 $1,862,048
--------- --------- --------- --------- ----------- ----------
--------- --------- --------- --------- ----------- ----------
<CAPTION>
OTHER
ADJUSTMENTS TOTAL
----------- ----------
ASSETS
Cash and cash equivalents........... $ -- $ 33,179
Trade accounts receivable, net of
allowance.......................... -- 20,247
Due from related parties............ (1,492)(G) 8,521
Prepaid expenses & other current
assets............................. -- 4,527
Investment in Insight Ohio.......... -- 4,036
Fixed assets, net................... -- 412,244
Intangible assets, net.............. -- 1,374,940
Other assets........................ -- 2,862
--------- ----------
Total assets........................ $ (1,492) $1,860,556
--------- ----------
--------- ----------
LIABILITIES & PARTNERS' CAPITAL
Accounts payable.................... $ -- $ $53,012
Accrued expenses and other
liabilities........................ -- 4,943
Due to affiliates................... (1,492)(G) 3,986
Interest payable.................... -- 5,788
Accrued interest.................... -- 5,899
Deferred revenue.................... -- 19,027
Other............................... -- 866
-- --
Deferred income taxes............... -- 50,000
Debt................................ (87,000)(F) 1,238,663
--------- ----------
Total liabilities................... (88,492) 1,382,184
Minority interest................... 53,558(F) 55,740
Redeemable Class B units............ (54,444)(F) --
Partners' (deficiency)/equity....... (388,558)(F) --
3,812 (F) --
Stockholders' equity: (F)
Common Stock........................ 534(F) 534
Paid-in-capital..................... 536,141 536,141
Retained earnings (deficit)......... (64,043) (114,043)
--------- ----------
$ (1,492) $1,860,556
--------- ----------
--------- ----------
</TABLE>
31
<PAGE>
NOTES TO PRO FORMA BALANCE SHEET
(A) Eliminates assets and liabilities of the Insight Indiana systems.
(B) Eliminates our investment in Insight Ohio and reflects investment in Insight
Ohio at Insight Ohio.
(C) Includes deferred tax liability that would have been recognized upon the
exchange of limited partnership interests in Insight Communications Company,
L.P. for our common stock.
(D) Includes assets and liabilities of the Insight Indiana systems.
(E) Reflects step up in value of intangible assets of Kentucky. The Kentucky
system is consolidated by Insight as Insight will effectively control the
board and manage the system.
(F) Reflects the following assumptions:
o receipt of estimated net proceeds from the offering of $422 million;
o acquisition of the Kentucky systems for $335 million;
o recognition of a minority interest liability in Kentucky equivalent to 50%
of the historical equity of Kentucky;
o reduction of our debt of $87 million;
o elimination of the partners' deficit upon the exchange of limited
partnership interests in Insight Communications Company, L.P. for our
common stock;
o includes our cumulative capitalization and accumulated losses through
March 31, 1999 of $43.1 million and $46.9 million within paid-in capital
and accumulated deficit;
o includes a one-time $17.1 million non-cash compensation charge associated
with the distribution of shares, resulting from the general partner's
share of Class B unit allocation to certain of our employees; and
o conversion of Redeemable Class B units into our Common Stock.
(G) Eliminates intercompany balances.
32
<PAGE>
INSIGHT COMMUNICATIONS PRO FORMA OPERATING DATA
In the table below we provide you with pro forma operating data as follows:
o national systems, which includes the Rockford, Griffin and Claremont systems.
The operating data of the Scottsburg system and the Portland system, which are
wholly-owned by us, are included with the Indiana systems since they are managed
by Insight Indiana;
o Columbus system, which was acquired by Insight Ohio on August 21, 1998. See
"Description of Recent Transactions--The Transactions to Acquire the Columbus
System;"
o Indiana systems, which were contributed to Insight Indiana on October 31,
1998. Also includes the operating data of the Scottsburg system, which was
acquired on March 22, 1999, and the Portland system, which was acquired on March
31, 1999, since these systems are managed by Insight Indiana. See "Description
of Recent Transactions--The Transactions to Acquire the Indiana Systems;"
o Kentucky systems, in which we expect to acquire a 50% ownership interest
during the second half of 1999. We expect that we will control the operations of
the Kentucky systems and, therefore, consolidate the operating results. There
can be no assurance that the acquisition of the Kentucky systems will be
completed. See "Description of Recent Transactions--The Transactions to Acquire
the Kentucky Systems;"
o managed Indiana systems, in which we expect to provide consulting services to
the managed Indiana systems commencing in the fourth quarter of 1999. There can
be no assurance this transaction will be completed;
o total systems, which includes the national systems, the Columbus system, the
Indiana systems, the Kentucky systems and the managed Indiana systems;
o total systems proportional, which includes the national systems of which we
have an equity ownership of 100%, the Columbus system in which we have a
non-voting equity ownership of 75%, the Indiana systems in which we have an
equity ownership of 50%, the Kentucky systems in which we have an equity
ownership of 50% and the managed Indiana systems in which we have no ownership
interest, giving effect only to our pro forma percentage equity ownership in
such systems.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
------------------------------------------------------------------------------------
MANAGED
NATIONAL COLUMBUS INDIANA KENTUCKY INDIANA TOTAL TOTAL SYSTEMS
SYSTEMS SYSTEM SYSTEMS SYSTEMS SYSTEMS SYSTEMS PROPORTIONAL
------- -------- ------- -------- ------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Homes passed..................... 149,399 170,975 495,605 657,361 159,644 1,634,984 855,613
Basic customers.................. 86,846 86,620 336,252 425,445 114,262 1,049,425 532,660
Basic penetration................ 58.1% 50.7% 67.8% 64.7% 71.6% 64.2% 62.3%
Premium units.................... 96,869 85,526 234,528 351,703 44,381 813,007 454,129
Premium penetration.............. 111.5% 98.7% 69.7% 82.7% 38.8% 85.3% 84.3%
</TABLE>
33
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OTHER DATA
In the table below, we provide you with selected consolidated historical
information and other operating data of Insight. We have prepared the
consolidated selected financial information using our consolidated financial
statements for the five years ended December 31, 1998 and for the three-month
periods ended March 31, 1998 and 1999. In our opinion, the unaudited financial
data for the three-month periods have been prepared on the same basis as the
audited consolidated financial statements and include all normal recurring
adjustments and accruals necessary for a fair presentation of such information.
The 1997 historical financial statements have been restated to reflect a change
in accounting for cable system exchanges. See the notes to our financial
statements included elsewhere in this prospectus. When you read this selected
consolidated historical financial and other data, it is important that you read
along with it the historical financial statements and related notes in our
consolidated financial statements included herein, as well as "Management's
Discussion and Analysis of Financial Condition and Results of Operations," also
included in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ 52,820 $ 57,108 $ 61,839 $ 67,698 $112,902 $ 23,161 $ 45,377
Costs and expenses:
Programming and other operating costs..... 13,852 15,364 16,774 18,397 30,376 6,474 13,263
Selling, general and administrative....... 13,323 13,629 14,062 15,020 24,471 5,023 10,180
Depreciation and amortization............. 14,649 13,937 15,694 18,125 43,849 5,801 25,739
-------- -------- -------- -------- -------- -------- --------
41,824 42,930 46,530 51,542 98,696 17,298 49,182
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)..................... 10,996 14,178 15,309 16,156 14,206 5,863 (3,805)
Other income (expense):
Gain on cable systems exchanges........... -- -- -- 78,931 111,746 -- 19,762
Gain on contribution of cable systems to
Joint Venture........................... -- -- -- -- 44,312 -- --
Costs related to pursuance of sale of
assets.................................. -- (763) -- -- -- -- --
Interest expense, net..................... (17,031) (17,965) (17,644) (15,962) (28,106) (5,771) (10,493)
Other income (expense).................... 365 (52) -- -- (444) (19) (7)
-------- -------- -------- -------- -------- -------- --------
(16,666) (18,780) (17,644) 62,969 127,508 (5,790) 9,262
-------- -------- -------- -------- -------- -------- --------
Income (loss) before minority interest,
equity in losses of Insight Ohio.......... (5,670) (4,602) (2,335) 79,125 141,714 73 5,457
Minority interest........................... -- -- -- -- 3,410 -- 4,494
Equity in losses of Insight Ohio............ (3,251) -- (2,713)
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations.... (5,670) (4,602) (2,335) 79,125 141,873 73 7,238
Extraordinary loss from early extinguishment
of debt................................... -- -- (480) (5,243) (3,267) -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)........................... (5,670) (4,602) (2,815) 73,882 138,606 73 7,238
Accretion of redeemable Class B units....... -- -- -- -- (5,729) -- (3,125)
Accretion to redemption value of preferred
limited units............................. (2,500) (2,604) (5,421) (15,275) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) applicable to Class A and
B units................................... $ (8,170) $ (7,206) $ (8,236) $ 58,607 $132,877 $ 73 $ 4,113
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
OTHER FINANCIAL DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA(1)................................... $ 25,645 $ 28,115 $ 31,003 $ 34,281 $ 58,055 $ 11,664 $ 21,934
EBITDA margin(2)............................ 48.6% 49.2% 50.1% 50.6% 51.4% 50.4% 48.3%
System cash flow(3)......................... $ 29,172 $ 31,691 $ 34,601 $ 38,228 $ 62,732 $ 12,799 $ 23,486
Capital expenditures........................ 12,492 15,154 16,414 27,981 44,794 3,099 20.831
Net cash provided by operating activities... 12,557 13,337 15,976 10,436 44,760 7,992 18,453
Net cash used in investing activities....... 12,945 15,120 16,589 27,981 142,190 91,405 27,688
Net cash provided by financing activities... 70 1,600 870 17,891 116,250 85,506 19,000
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 662 $ 479 $ 738 $ 1,082 $ 19,902 $ 3,174 $ 29,667
Property, plant and equipment, net.......... 24,322 30,190 36,079 63,842 155,412 160,714 164,203
Total assets................................ 63,428 64,510 68,574 158,103 659,837 247,526 687,376
Total debt.................................. 170,236 172,975 178,327 207,488 573,663 307,288 592,663
Partners' deficit........................... 160,808 169,601 177,837 127,982 7,928 125,310 3,812
</TABLE>
- ------------------
(1) Represents earnings (loss) before interest, taxes depreciation and
amortization. Our management believes that EBITDA is a meaningful measure of
performance as 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, EBITDA 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. EBITDA, 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, which are included later in this prospectus.
(2) Represents EBITDA as a percent of total revenues.
(3) Represents EBITDA before home office expenses and management fees. Our
management believes that system cash flow is a meaningful measure of
performance as 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, which are included later
in this prospectus.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Because of the recently completed and pending corporate transactions,
including the contribution agreement with AT&T Broadband & Internet Services
with respect to the Indiana systems and the Kentucky acquisition, we do not
believe the discussion and analysis of our historical financial condition and
results of operations below are indicative of our future performance. In the
contribution agreement with AT&T Broadband & Internet Services, we exchanged our
Utah systems for AT&T Broadband & Internet Services' Evansville, Indiana system
and simultaneously contributed all of our Indiana systems including Evansville
and AT&T Broadband & Internet Services contributed most of its Indiana systems
into the joint venture. The financial results and analysis include the results
of the acquisition of the Rockford, Illinois system from January 22, 1998, the
contribution agreement with AT&T Broadband & Internet Services since
October 31, 1998, and Columbus system management fees since August 21, 1998.
Because of the timing of these corporate transactions, coupled with the expected
close of the Kentucky acquisition in the second half of 1999, our future
operating results are likely to be substantially different from what is
presented in the following analysis.
GENERAL
Substantially all of our historical revenues were earned from customer fees
for cable television programming services including premium and pay-per-view
services and ancillary services, such as rental of converters and remote control
devices and installations, and from selling advertising. In addition, we earn
revenues from commissions for products sold through home shopping networks and,
since August 21, 1998, from management fees for managing Insight Ohio.
We have generated increases in revenues and EBITDA for each of the past
three fiscal years primarily through internal customer growth, increases in
monthly revenue per customer and growth in advertising and specifically in 1998
from acquisitions, swaps and a joint venture.
RESULTS OF OPERATIONS
The following table is derived for the periods presented from our
consolidated financial statements that are included in this prospectus and sets
forth certain statement of operations data for our consolidated operations. The
1997 historical financial statements have been restated to reflect a change in
accounting for cable system exchanges. See the notes to our financial statements
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1997
----------------------- -----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenue.................................................. $ 61,839 $ 67,698
Costs and expenses:
Programming and other operating costs.................. 16,774 18,397
Selling, general and administrative.................... 14,062 15,020
Depreciation and amortization.......................... 15,694 18,125
--------- ---------
46,530 51,542
--------- ---------
Operating income (loss).................................. 15,309 16,156
EBITDA................................................... 31,003 34,281
Interest expense......................................... (17,644) (15,962)
Net income (loss)........................................ (2,815) 73,882
Net cash provided by operating activities................ 15,976 10,436
Net cash used in investing activities.................... 16,589 27,981
Net cash provided by financing activities................ 870 17,891
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------------------------------------------------
1998 1998 1999
----------------------- --------------- ---------------
<S> <C> <C> <C>
Revenue.................................................. $ 112,902 $23,161 $45,377
Costs and expenses:
Programming and other operating costs.................. 30,376 6,474 13,263
Selling, general and administrative.................... 24,471 5,023 10,180
Depreciation and amortization.......................... 43,849 5,801 25,739
--------- ------- -------
98,696 17,298 49,182
--------- ------- -------
Operating income (loss).................................. 14,206 5,863 (3,805)
EBITDA................................................... 58,055 11,664 21,934
Interest expense......................................... (28,106) (5,771) (10,493)
Net income (loss)........................................ 138,606 73 7,238
Net cash provided by operating activities................ 44,760 7,992 18,453
Net cash used in investing activities.................... 142,190 91,405 27,688
Net cash provided by financing activities................ 116,250 85,506 19,000
</TABLE>
36
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THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Revenues increased 96.0% to $45.3 million for the three months ended
March 31, 1999 as compared to the three months ended March 31, 1998. The results
were impacted by an exchange and contribution agreement with AT&T Broadband &
Internet Services completed on October 31, 1998. Our results for the three
months ended March 31, 1998 include revenue from our Utah systems, which were
exchanged as part of the joint venture with AT&T Broadband & Internet Services.
The incremental revenue generated from AT&T Broadband & Internet Services'
contributed systems approximated $17.1 million accounting for 76.0% of the
consolidated revenue increase. In addition, revenues increased as a result of
internal customer growth, rate increases and growth in advertising revenues.
Excluding the systems contributed by AT&T Broadband & Internet Services,
revenues increased by approximately $3.1 million due to an increase of 10,549
customers on average, and by approximately $700,000 attributable to customer
rate increases.
Revenues per customer per month averaged $35.91 for the three months ended
March 31, 1999 compared to $31.16 for the three months ended March 31, 1998
primarily reflecting an increase in advertising revenue per customer per month
which averaged $2.44 during the first three months of 1999 compared to $1.03
accounting for approximately 10.4% of the total revenue increase during the
comparable period in 1998.
Programming and other operating costs increased 104.9% to $13.3 million for
the three months ended March 31, 1999 as compared to the three months ended
March 31, 1998. The Indiana systems contributed by AT&T Broadband & Internet
Services accounted for approximately 69.2% or approximately $4.7 million of the
total increase. Excluding these systems, these costs increased by approximately
$1.3 million accounting for 18.6% of the total increase, primarily as a result
of increased programming costs and additional programming carried by our
systems.
Selling, general and administrative expenses increased 102.7% to
$10.2 million for the three months ended March 31, 1999 as compared to the three
months ended March 31, 1998 primarily reflecting increased marketing activity
associated with new product introductions and increased corporate expenses.
Depreciation and amortization expense increased 343.7% to $25.7 million for
the three months ended March 31, 1999 as compared to the three months ended
March 31, 1998. This increase was primarily due to the acquisitions and
additional capital expenditures associated with the rebuilds of our systems.
For the three months ended March 31, 1999, an operating loss of
$3.8 million was incurred as compared to operating income of $5.9 million for
the three months ended March 31, 1998, primarily due to increased depreciation
and amortization.
EBITDA increased 88.0% to $21.9 million for the three months ended
March 31, 1999 as compared to the three months ended March 31, 1998 reflecting
the acquisitions plus the results of the items described above.
Interest expense increased 81.8% to $10.5 million for the three months
ended March 31, 1999 compared to the three months ended March 31, 1998. The
increase was primarily due to higher average outstanding indebtedness related to
acquisitions. Average debt outstanding during the first three months of 1999 was
$583.2 million at an average interest rate of 7.2%.
Net income increased to $7.2 million for the three months ended March 31,
1999 primarily reflecting gains related to system swaps aggregating
$19.8 million. Excluding these gains, we generated a net loss totaling
$12.5 million.
The March 31, 1999 financial statements exclude a one-time non-recurring
charge to earnings to record a net deferred tax liability at March 31, 1999 of
approximately $50 million that would have been recognized upon the exchange of
limited partnership interests in Insight Communications Company L.P. for our
common stock. The aforementioned financial statements also exclude a one-time
$17.1 million non-cash compensation charge associated with the distribution of
shares resulting from the general partner's share of Class B unit allocation,
to certain of our employees.
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YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues increased 66.8% to $112.9 million for the year ended December 31,
1998 as compared to the prior year. The results were impacted by two significant
transactions including: (a) on January 22, 1998 we purchased the Rockford,
Illinois system which contributed $23.1 million of revenue during the year
accounting for 51.1% of the total increase in consolidated revenue, and (b) on
October 31, 1998, we completed an exchange and contribution agreement with AT&T
Broadband & Internet Services. Our 1998 results include revenue from our Utah
systems, which were exchanged as part of the joint venture with AT&T Broadband &
Internet Services, for the first ten months and for Insight Indiana for the last
two months. The incremental revenue generated from AT&T Broadband & Internet
Services' contributed systems approximated $11.2 million accounting for 24.8% of
the consolidated revenue increase. In addition, revenues increased as a result
of internal customer growth, rate increases and growth in advertising revenues.
Excluding the systems contributed by AT&T Broadband & Internet Services,
revenues increased by approximately $6.2 million due to an increase of 8,760
customers on average, and by approximately $2.5 million attributable to customer
rate increases.
Revenues per customer per month averaged $32.80 for the year compared to
$32.22 for the prior year primarily reflecting an increase in advertising
revenue per customer per month which averaged $1.60 during 1998 compared to
$0.43 in 1997. This helped offset the lack of growth in basic revenue per
customer which remained unchanged at $24.24 because of the Rockford system which
has lower revenue per customer per month reflecting its limited channel
offering. Following the completion of our planned rebuild, rate increases will
be implemented consistent with the expanded channel offering which should result
in an increase in the average revenue per customer closer to the national
average of $27.43.
Programming and other operating costs increased 65.1% to $30.4 million for
the year ended December 31, 1998 as compared to the prior year. Excluding the
Rockford system and the Indiana systems contributed by AT&T Broadband & Internet
Services, these costs increased by 17.9% to $21.7 million, primarily as a result
of increased programming costs and additional programming carried by our
systems.
Selling, general and administrative expenses increased 62.9% to
$24.5 million for the year ended December 31, 1998 as compared to the prior year
primarily reflecting increased marketing activity associated with new product
introductions and increased corporate expenses.
Depreciation and amortization expense increased 141.9% to $43.8 million for
the year ended December 31, 1998 as compared to the prior year. This increase
was primarily due to the acquisitions and additional capital expenditures
associated with the rebuilds of our systems.
Operating income for the year ended December 31, 1998 was $14.2 million, a
12.1% decrease over the prior year, as a result of the items discussed above.
EBITDA increased 69.4% to $58.1 million for the year ended December 31,
1998 as compared to the prior year reflecting the acquisitions plus the results
of the items described above.
Interest expense increased 76.1% to $28.1 million for the year ended
December 31, 1998 compared to the prior year. The increase was primarily due to
higher average outstanding indebtedness related to acquisitions. Average debt
outstanding during 1998 was $344.0 million at an average interest rate of 8.2%.
Net income increased 87.6% to $138.6 million for the year ended
December 31, 1998 primarily reflecting gains related to system swaps aggregating
$156 million. Excluding these one-time gains we generated a net loss totaling
$17.4 million.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues increased 9.5% to $67.7 million during the year ended
December 31, 1997 as compared to the prior year, due primarily to internal
customer growth and, to a lesser extent, rate increases. Increases in customers
served accounted for 49.6% of the total increase in revenues. During 1997, we
gained 7,879 basic customers representing an annual increase of 4.6%. The
average monthly revenue per customer for 1997 was approximately $32.22, as
compared to approximately $30.76 for the prior year. The average monthly basic
revenue per customer, which accounts for 75% of total average monthly revenue
per customer, increased
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<PAGE>
6.9% to $24.31 during the year, reflecting rate increases associated with
rebuilds and annual rate increases implemented primarily during the fourth
quarter. Revenues increased by approximately $3.3 million due to an increase of
7,560 customers on average, and by approximately $2.1 million attributable to
customer rate increases.
Programming and other operating costs increased 9.7% to $18.4 million for
the year ended December 31, 1997 as compared to the prior year. The increase
over the prior year reflects additional programming and increased programming
costs.
Selling, general and administrative expenses increased 6.8% to
$15.0 million for the year ended December 31, 1997 as compared to the prior
year. The increase was primarily due to higher marketing and personnel expenses.
Depreciation and amortization expense increased 15.5% to $18.1 million for
the year ended December 31, 1997 as compared to the prior year reflecting
increased capital expenditures from rebuilds and plant extension for our
existing systems.
Operating income increased 5.5% to $16.2 million for the year ended
December 31, 1997 as compared to the prior year. The operating income increased
primarily due to rate increases and other revenue increases described above,
offset by increases in programming expenses, operating expenses and depreciation
expenses.
EBITDA increased 10.6% to $34.3 million for the year ended December 31,
1997 as compared to the prior year. This increase reflects the results of the
items described above.
Interest expense decreased 9.5% to $16.0 million for the year ended
December 31, 1997 as compared to the prior year. The decrease over the prior
year reflects the retirement of our 11.25% senior subordinated notes on
March 3, 1997. These notes were replaced with bank borrowings on which the
average interest rate was 8.4% for the year ended December 31, 1997.
Net income totaled $73.9 million for the year ended December 31, 1997 as
compared to the prior year primarily reflecting gains related to system swaps
aggregating $78.9 million. Excluding these one-time gains we generated a net
loss totaling $5.0 million.
LIQUIDITY AND CAPITAL RESOURCES
Our business requires cash for operations, debt service, capital
expenditures and acquisitions. The cable television business has substantial
on-going capital requirements for the construction, expansion and maintenance of
its broadband networks. Expenditures have primarily been used to rebuild and
upgrade our existing cable network, and in the future will be used for plant
extensions, new services, converters and system rebuilds. Historically we have
been able to meet our cash requirements with cash flow from operations,
borrowings under our credit facilities and equity contributions from our
partners.
For the year ended December 31, 1998 and three months ended March 31, 1998,
we spent $44.8 million and $20.8 million, respectively, in capital expenditures
largely to support our plant rebuild, digital converter purchases and to a
lesser extent plant extensions. For the year ended December 31, 1998 and the
three months ended March 31, 1999, cash from operations totaled $44.8 million
and $18.5 million, which together with borrowing under our credit facilities,
funded the above noted capital expenditures.
It is anticipated that during 1999, we will have approximately
$123.0 million of capital expenditures. Included in the planned 1999 capital
expenditures is $89.0 million for the upgrading of our Rockford and most of our
Indiana cable television systems, which will involve the wide deployment of
fiber optics and other capital projects associated with implementing our
clustering strategy. The amount of such capital expenditures for years
subsequent to 1999 will depend on numerous factors including the level of
success in deploying our new services which will impact the amount of capital we
will need for digital converters and other network service infrastructure to
support demand for new products and services.
During 1998, we acquired the Rockford, Illinois system for $97.0 million
excluding fees and cash associated with the acquisition. In addition, we
acquired a 75% non-voting interest in Insight Ohio which
39
<PAGE>
owns and operates the Columbus system for $10.0 million. We funded these
acquisitions through existing credit facilities.
At March 31, 1999, we had aggregate indebtedness of $592.7 million, which
consisted of borrowings totaling $590.1 million under senior bank credit
facilities and a note payable to MediaOne due November 24, 1999 in the amount of
$2.6 million entered into in connection with our purchase of partnership
interests from MediaOne. The senior bank facilities consisted of:
o $140.0 million eight year reducing revolver credit facility, which
supports our national systems, of which $124.1 million was borrowed; and
o $550.0 million eight year revolving credit/term loan which supports our
Indiana systems, of which $466.0 million was borrowed.
See "Description of Certain Indebtedness."
We believe these facilities are sufficient to support our current operating
plan for the national and Indiana systems. With respect to the Kentucky
acquisition, we project aggregate indebtedness outstanding of approximately
$733.0 million as of March 31, 1999. For financing purposes, we intend to
combine the operations of the Kentucky and Indiana systems to meet our overall
financial objectives and achieve a balanced financial leverage across all of our
operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Our revolving credit and term loan agreements bear interest at floating
rates. Accordingly, we are exposed to potential losses related to changes in
interest rates. We do not enter into derivatives or other financial instruments
for trading or speculative purposes; however, in order to manage our exposure to
interest rate risk, we enter into derivative financial instruments, typically
interest rate swaps and collars. The counterparties to our swap and collar
agreements are major financial institutions. As of December 31, 1998, we had
hedged approximately $301 million, or 53%, of our borrowings under our Insight
credit facility and Insight Indiana credit facility. Accordingly, a hypothetical
100 basis point increase in interest rates along the entire interest rate yield
curve would increase our annual interest expense by approximately $2.7 million.
As of December 31, 1998, our interest rate swap and collar agreements expire in
varying amounts through 2003.
The fair market value of our long-term debt approximates its carrying value
as it bears interest at floating rates of interest. As of December 31, 1998, the
estimated fair value of our interest rate swap and collar agreements was
approximately $1.2 million, which amount represents the amount required to enter
into offsetting contracts with similar remaining maturities based on quoted
market prices.
As of March 31, 1999, we had hedged approximately $366 million, or 62%, of
our borrowings under our Insight credit facility and Insight Indiana credit
facility. Accordingly, a hypothetical 100 basis point increase in interest rates
along the entire interest rate yield curve would increase our annual interest
expense by approximately $3.8 million. As of March 31, 1999, the estimated fair
value of our interest rate swap and collar agreements was approximately
$679,000. As of the date of this prospectus we have hedged approximately
$266 million, or 45%, of our borrowings under our Insight credit facility and
the Insight Indiana credit facility.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. We expect to adopt the new statement
effective January 1, 2000. The statement will require us to recognize all
derivatives on the balance sheet at fair value. Although we have not completed
our assessment of the impact of FASB No. 133 on our results of operations and
financial position, we do not anticipate that the adoption of this statement
will be material.
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<PAGE>
INFLATION AND CHANGING PRICES
Our systems' costs and expenses are subject to inflation and price
fluctuations. Although changes in costs can be passed through to customers, such
changes may be constrained by competition. We do not expect inflation to have a
material effect on our results of operations.
YEAR 2000 COMPLIANCE
STATE OF READINESS
We are evaluating the impact of the Year 2000 problem on our business
systems and our ability to deliver our products and services to our customers.
This evaluation includes a review of our information technology systems, cable
network equipment and other imbedded technologies. We are also evaluating the
potential impact as a result of our reliance on third-party suppliers that may
have the Year 2000 problem. We believe the following business systems and
equipment are vulnerable to the Year 2000 problem:
o Information processing and financial reporting systems;
o Customer billing systems;
o Customer service systems; and
o Cable headend equipment including addressable controllers and
advertising insertion equipment.
We have developed a program to assess and address the Year 2000 problem.
This program consists of the following six phases:
1. Inventorying and assessing the impact on affected technology and
systems;
2. Developing solutions for affected technology and systems;
3. Modifying or replacing affected technology and systems;
4. Testing and verifying solutions;
5. Implementing solutions; and
6. Developing contingency plans.
As of May 31, 1999, the status of our Year 2000 compliance program was as
follows: Phase 1 was substantially completed. Phases 2, 3, 4 and 5 were underway
with expected completion by September 30, 1999. We are working on contingency
plans at this time, which will include customer notification and plans for
additional personnel.
The completion dates set forth above are based on current expectations. Due
to uncertainties inherent in Year 2000 remediation, however, no assurances can
be given as to whether such projects will be completed on such dates.
COSTS
To date, costs incurred that were directly related to addressing the Year
2000 problem have not been material. We have reviewed our cable systems to
inventory our equipment and have sent letters to our programming suppliers and
other vendors. We have not used a consultant but have worked closely with AT&T
Broadband & Internet Services, adopting its Year 2000 program and to a large
extent utilizing its independent certifications. In addition, we have tested our
billing system by entering years such as 2001 and have determined it to be
working properly.
We do not expect that the total cost of our Year 2000 remediation program
will be material. This includes the cost of replacing advertising insertion
equipment and a local addressable controller in one system.
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<PAGE>
RISKS
We purchase most of our technology from third parties. We have been
communicating with all vendors with whom we do business to determine their Year
2000 readiness and to determine the extent to which we are vulnerable to the
Year 2000 problem related to those third parties. To assess Year 2000 compliance
and any potential exposure to the Year 2000 problem, we have sent letters to
such third parties requesting that they certify as to their Year 2000
preparedness. To date, 83% of these critical third parties have responded that
they are Year 2000 compliant.
There can be no assurance that third-party systems on which our systems
rely will be Year 2000 ready or timely converted into systems compatible with
our systems. Our failure or a third party's failure to become Year 2000 ready,
or our inability to become compatible with third parties with which we have a
material relationship, may have a material adverse effect on us, including
significant service interruption or outages. We cannot currently estimate the
extent of any such adverse effects.
CONTINGENCY PLANNING
We are working on contingency plans to minimize the effect of any potential
Year 2000 related disruptions. We intend to prepare plans which relate to
systems, software, equipment and services we deem to be critical to customer
service and business operations and expect them to be in place by September
1999. These services include:
o The failure of addressable controllers contained in the cable television
system headends could disrupt the delivery of services to customers and
could necessitate crediting customers for failure to receive services;
o Customer service networks and/or automated voice response systems
failure could prevent access to customer account information, hamper
installation scheduling and disable the processing of pay-per-view
requests;
o Billing system failure could result in a loss of customer records which
could disrupt the ability to bill customers for a protracted period; and
o Advertising insertion equipment failure could impede or prevent the
insertion of advertising spots resulting in loss of advertising
revenues.
The financial impact of any or all of the above worst-case scenarios has
not been and cannot be estimated by us due to the numerous uncertainties and
variables associated with such scenarios.
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INDUSTRY
The following section and other parts of this prospectus contain cable
industry terms and technical jargon which readers of this prospectus may find
unfamiliar. We have therefore included a glossary in this prospectus beginning
on page G-1 to assist readers unfamiliar with such terms.
Unless otherwise specified, all cable television industry statistical data
in this prospectus are from Paul Kagan & Associates, a leading cable television
industry publisher.
OVERVIEW
Approximately 95.6 million U.S. households currently have access to, or are
passed by, cable television. In the aggregate, these cable systems serve
approximately 66.1 million customers, representing a penetration of 69.1% of the
homes passed. The cable industry has grown steadily from approximately 57.0
million basic customers in the United States in 1992 to approximately 66.1
million in 1998, a compound annual growth rate of 2.5%. It is estimated that the
annual revenues received from U.S. cable customers exceeded $33.0 billion in
1998.
Cable television continues to evolve. The enactment in February 1996 of the
sweeping telecommunications reform law, the first comprehensive revision of the
federal telecommunications laws since 1934, is having a dramatic impact on the
industry's development. As the new law opens up local telephone markets to
competition for the first time and brings regulatory relief and flexibility to
cable companies, we believe the new law will continue to facilitate growth of
the cable industry. Significant investments in new infrastructure and services
are being made as cable companies enter new businesses in addition to the
conventional cable business.
Many cable operators are rebuilding their infrastructure to deliver new
technologies, products and services to provide their customers with greater
value and choices in the face of growing competition in their core businesses.
Modern network architecture now can connect customers to a broadly enhanced
range of video, voice and high-speed data communication possibilities, as well
as improved signal reliability, better quality and superior two-way transmission
capability. Cable operators spent approximately $7.7 billion in 1998 to rebuild
their network in order to create new capability for the delivery of more
channels, digital and high definition television programming and two-way
interactive services. It is estimated that 56% of all homes with cable
television are passed by activated digital two-way cable network, with an
estimated increase to 86% by the end of 1999, allowing for the deployment by
cable television operators of digital, interactive, high-speed data access and
telecommunication products.
According to the National Cable Television Association, in 1998, the
channel capacity of cable television systems increased to an average of 61
channels, up from 53 channels in 1997. As cable continues to expand its channel
capacity, we expect that the industry's competitive position relative to direct
broadcast satellite television systems and other multichannel video providers
should be further enhanced.
The core businesses of cable television are subject to increasing
competition. Satellite, wireless and wireline competitors are increasing their
market share in the delivery of multichannel programming. During the past five
years, alternative providers have increased their share of the multichannel
market to nearly 13.0% of the total number of households with televisions.
During this period, cable television has increased its market share to 69.0% of
the homes passed from 61.5% as the overall market has increased due to
population growth as well as increased awareness of multichannel distribution.
Meanwhile, cable operators are rebuilding their networks in order to begin
competing in other telecommunications and entertainment services. A brief
explanation of some of the major new businesses under development is described
below.
DIGITAL VIDEO
Cable companies are using their rebuilt digital networks to offer a wide
array of new broadband video services to customers. Through the use of
compressed digital video technology, which converts, on average, one analog
channel into a digital format and compresses such signal into 8 to 12 digital
channels, cable operators are able to greatly increase their channel offerings.
The digitally compressed signal is uplinked to a satellite, which sends the
signal back down to a cable system's headend to be distributed, via optical
fiber and coaxial cable, to the customer's home. At the home, a set-top video
terminal converts the digital signal
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back into analog channels that can be viewed on a normal television set. We
believe the implementation of digital technology will significantly enhance the
quantity and quality of channel offerings, allowing the cable operator to offer
near video-on-demand, premium services and incremental special interest
programming.
An estimated 1.5 million homes currently subscribe to a digital cable
service. The number of digital service customers is expected to increase
approximately seven times to 10.6 million homes by the end of 2000, representing
a penetration of 10.9% of the homes passed, and to approximately 47.6 million
homes by 2008, representing a penetration of 45.3% of the homes passed.
HIGH-SPEED DATA
The broad bandwidth of cable network enables data to be transmitted up to
100 times faster than traditional telephone-based modem technologies, and the
cable connection does not interfere with normal telephone activity or usage. For
example, cable's on-line customers can download large files from the Internet in
a fraction of the time it takes when using any widely available telephone modem
technology. Moreover, surfing the Internet on a high-speed network removes the
long delays for Web pages to fully appear on the computer screen, allowing the
experience to more closely approximate the responsiveness of changing channels
on a television set. In addition, the cable modem is always on and does not
require the customer to dial into an Internet service provider and await
authorization. We believe that these factors of speed and easy accessibility
will increase the use and impact of the Internet among our customers. Although
other high-speed alternatives are being developed to compete with cable, we
believe that the cable platform currently is best able to deliver these
services.
In 1998, cable companies delivered Internet services into over 100 markets
throughout the United States. In 1999, approximately 29.0 million homes will be
passed by cable systems offering high-speed, residential cable Internet
services, which is projected to increase to approximately 39.0 million homes by
2000, and to more than 73.6 million homes by 2008.
Over 500,000 cable customers currently subscribe to cable access to the
Internet. The number of cable high-speed data service customers is expected to
increase more than 6.6 times to approximately 3.3 million homes by the end of
2000, representing a penetration of 9.1% of the homes that will have been
marketed this service. It is further expected that data service customers will
increase to approximately 18.0 million homes by the end of 2008, representing a
penetration of 25.0% of the homes that will have been marketed this service.
The cable industry also has developed standards so that inter-operable,
non-proprietary cable modems will be made available in retail outlets beginning
in the second half of 1999. Such availability will allow customers to use their
modems in different systems while decreasing our need to maintain an inventory
of such equipment. In March 1998, the Data Over Cable Service Interface
Specifications created by Cable Television Laboratories, Inc. and others was
approved by the International Telecommunications Union as an international
standard for transmitting data over cable systems. CableLabs also established a
formal certification process for cable modem equipment suppliers to obtain a
compliance certificate for their data delivery devices based on this standard.
TELEPHONY
During the last several years, the cable industry has been developing the
capability to provide telephony services. At least seven of the nation's largest
cable operators now offer residential and/or commercial phone service in more
than 25 markets overall and cable companies have reached interconnection
agreements in 40 states and the District of Columbia.
Recent developments, including AT&T's purchase of TCI and the proposed
joint ventures between AT&T and six cable operators, including Insight and Time
Warner, and AT&T's proposed acquisition of MediaOne, will likely accelerate the
pace of development of the voice telephony business. The number of cable
telephony customers is expected to be approximately 600,000 homes by the end of
2000, representing a penetration of 9.0% of the homes that will have been
marketed this service and approximately 23.9 million homes by 2008, representing
a penetration of 36.0% of the homes that will have been marketed this service.
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BUSINESS
The following section and other parts of this prospectus contain cable
industry terms and technical jargon which readers of this prospectus may find
unfamiliar. We have therefore included a glossary in this prospectus beginning
on page G-1 to assist readers with such terms.
GENERAL
We are the 8th largest cable television system operator in the United
States based on customers served, after giving effect to our proposed
acquisition of the Kentucky cable television systems and other recently
announced industry acquisitions. We have approximately 1,049,000 customers and
pass approximately 1,635,000 homes as of March 31, 1999, after giving effect to
the Kentucky acquisition and our proposed provision of consulting services to
additional cable television systems located in Indiana. We have a tightly
grouped cluster of cable television systems with approximately 98% of our
customers concentrated in the four contiguous states of Indiana, Kentucky, Ohio
and Illinois. Our systems have a very high concentration of customers served by
each headend or technical center of the network allowing us to more economically
deliver an array of entertainment, information and telecommunication services,
including interactive digital video, high-speed data access and telephone
service products. Upon completion of our rebuild efforts, which is expected to
occur in 2000, over 96% of our customers will be served from nine headends. In
addition to our optimal state-of-the-art technical configuration, our market
research indicates that our clusters have attractive market characteristics and
demographics for offering new and enhanced products and services that take
advantage of the significant bandwidth of our cable network. We believe that
because of this advantageous combination, we are very well positioned to exploit
the new business opportunities available to cable television operators.
After giving effect to the above transactions:
<TABLE>
<CAPTION>
BASED ON OUR INTERESTS IN EACH OF THE OPERATING SYSTEMS
ON A PROPORTIONAL BASIS, WHICH REFLECTS OUR 100%
CONSOLIDATION OF THE NATIONAL, INTEREST IN THE NATIONAL SYSTEMS, OUR 75% INTEREST IN
INDIANA AND KENTUCKY SYSTEMS AND THE COLUMBUS SYSTEM, ADJUSTED AS IF WE WERE
OUR EQUITY INTERESTS IN THE CONSOLIDATING COLUMBUS ON A PROPORTIONAL BASIS, AND OUR
COLUMBUS SYSTEM 50% INTEREST IN THE INDIANA AND KENTUCKY SYSTEMS
--------------------------------- --------------------------------------------------------
(IN MILLIONS)
<S> <C> <C>
For the year ended December 31, 1998
Revenues................. $ 375.7 $244.5
EBITDA................... 178.6 112.2
Loss from operations..... (46.7) (17.9)
Net loss................. (73.1) (72.9)
For the three months ended March 31, 1999
Revenues................. $ 97.5 $ 62.7
EBITDA................... 45.4 29.0
Loss from operations..... (16.3) (5.0)
Net loss................. (21.9) (21.5)
</TABLE>
Recognizing the opportunities presented by newly available products and
services, the strength of our market characteristics and favorable changes in
the regulatory environment, our management team developed and executed a
strategy to become a competitive, full service provider of entertainment,
information and telecommunication services for the communities served by our
networks. We intend to capitalize on our highly clustered cable television
systems to economically rebuild the technological capabilities of our broadband
networks in order to deploy enhanced new services. We believe that an integrated
package of existing multi-channel video, new and enhanced products and services,
such as interactive digital video, including video-on-demand or near
video-on-demand, high-speed Internet access and telephone services, coupled with
our commitment to locally focused customer service, will enhance our ability to
acquire and retain customers in a competitive environment while increasing
revenues per customer. To augment this growth, we will continue to seek
strategic acquisitions that fit our clustering and operating strategy.
Our marketing strategy is designed to capitalize on these trends by
offering our customers an array of entertainment, information and
telecommunication services on a bundled basis. By bundling our products and
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services, our customers would have an increased choice of services at a reduced
cost resulting in higher customer satisfaction, increased use of our services
and greater customer retention. Because our broadband cable network can offer
such a wide variety of communication services, we believe our service offering
will provide us with a competitive advantage over alternative wireline and
wireless telecommunications and multichannel video providers, such as incumbent
telephone companies and direct broadcast satellite television systems. We began
offering new and enhanced products and services, such as interactive digital
video and high-speed data access, during the second quarter of 1999 and intend
to offer telecommunication services beginning in 2000.
We have conducted research and held numerous focus group sessions in our
local markets leading us to believe that products and services such as
interactive digital video, high-speed data access and telephony will have high
customer appeal. As a result of our capital investment, we expect to be able to
provide these products and services on a cost effective basis capitalizing on
the high bandwidth capabilities of our cable network. Likewise, we believe that
the highly clustered nature of our systems will enable us to more efficiently
invest our marketing dollars and maximize our ability to establish customer
awareness, increase use of our services and build brand support. In addition to
our broad product offering, we also emphasize a high level of locally focused
customer service. Our emphasis is on system reliability, engineering support and
superior customer satisfaction.
To facilitate the deployment of our enhanced products and services, we are
in the process of rebuilding almost all of our network to provide at least 750
MHz of capacity with two-way communications capability. We have rebuilt
approximately 29% of our network miles as of March 31, 1999 after giving effect
to the proposed acquisition of the Kentucky cable television systems and the
proposed provision of consulting services to additional cable television systems
located in Indiana and intend to have approximately 71% of our network at or
above 750 MHz by the end of 1999. We expect to complete our network rebuild in
2000 having invested a total of approximately $233.8 million.
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The following table presents a profile of our systems and systems in which
we have an economic interest or service on a pro forma basis as of March 31,
1999, except as otherwise indicated.
SELECTED TECHNICAL, OPERATING AND FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MANAGED
NATIONAL COLUMBUS INDIANA KENTUCKY INDIANA
SYSTEMS SYSTEM SYSTEMS SYSTEMS(1) SYSTEMS
---------- ----------- -------- -------- --------
TECHNICAL DATA:
<S> <C> <C> <C> <C> <C>
Network miles.................................. 1,729 2,655 7,455 7,930 2,785
Number of headends............................. 5 1 45 16 21
Number of headends as of December 31, 2000(2).. 5 1 5 4 1
Number of headends serving 90% of
our customers expected as of
December 31, 2000(2)......................... 2 1 3 4 0
OPERATING DATA:
Homes passed................................... 149,399 172,975 495,605 657,361 159,644
Basic customers................................ 86,846 86,620 336,252 425,445 114,262
Basic penetration.............................. 58.1% 50.1% 67.8% 64.7% 71.6%
Premium units.................................. 96,869 85,526 234,528 351,703 44,381
Premium penetration............................ 111.5% 98.7% 69.7% 82.7% 38.8%
Number of addressable homes.................... 30,218 71,041 81,582 130,881 22,000
FINANCIAL DATA FOR THE THREE MONTHS ENDED MARCH 31, 1999:
Revenues....................................... $ 10,405 $ 11,696 $ 35,628 $ 51,425 $ 13,800
EBITDA(3)...................................... 5,099 5,015 17,356 22,969 n/a
EBITDA margin(4)............................... 49.0% 42.9% 48.7% 44.7% n/a
Operating income (loss)........................ $ 1,213 $ 3,416 $ (4,663) $(12,876) n/a
Net income (loss).............................. (1,120) 3,486 (12,889) (26,786) n/a
FINANCIAL DATA FOR THE YEAR ENDED DECEMBER 31, 1998:
Revenues....................................... $ 41,314 $ 47,956 $138,861 $195,507 $ 48,800
EBITDA(3)...................................... 18,360 18,261 74,508 85,763 n/a
EBITDA margin(4)............................... 44.4% 38.1% 53.7% 43.9% n/a
Operating income (loss)........................ $ (1,289) $ 8,128 $ (8,893) $(36,515) n/a
Net income (loss).............................. (10,686) 1,116 (45,691) (80,183) n/a
OTHER DATA:
Insight's ownership............................ 100% 75% 50% 50% 0%
Location of systems............................ CA, GA, IL OH IN KY IN
Date of acquisition/consulting................. Various August 1998 Various Pending Pending
</TABLE>
- ------------------
(1) The financial data represents the combination of the results of TCI IPVI
Systems from January 1, 1998 through April 30, 1998 and InterMedia Capital
Partners VI, L.P. from April 30, 1998 through December 31, 1998. The
combination of the two periods is not necessarily indicative of what the
results of InterMedia Capital Partners VI, L.P. or TCI IPVI would have been
for the year.
(2) Represents an estimate based on our current rebuild program.
(3) Represents earnings (loss) before interest, taxes, depreciation and
amortization and in 1998, with respect to the Columbus system, before
severance and transaction structure costs of $4.8 million associated with
the contribution of the Columbus system to Insight Ohio. Our management
believes that EBITDA is a meaningful measure of performance as 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, EBITDA 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. EBITDA is not necessarily
comparable to similarly titled amounts of other companies. See our financial
statements, including the Statements of Cash Flows, which are combined later
in this prospectus.
(4) Represents EBITDA as a percent of total revenues.
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BUSINESS STRATEGY
Our operating strategy is centered on the development of new and enhanced
products and services for the communities served by our telecommunications
network and consists of the following elements:
FOCUS ON OPERATING CLUSTERS WITH ATTRACTIVE TECHNICAL AND DEMOGRAPHIC PROFILES
We operate highly clustered systems, most of which have attractive
technical and demographic profiles. Our systems are characterized by high
housing densities and high ratios of customers to headends. As a result, the
amount of capital necessary to deploy new and enhanced products and services is
significantly reduced on a per home basis because of the large number of
customers served by a single headend. We believe that the highly clustered
nature of our systems enables us to more efficiently invest our marketing
dollars and maximize our ability to establish customer awareness, increase
penetration and build brand support. Our demographic profile is characterized by
strong new housing growth and low unemployment in rapidly growing communities,
most of which are centered around large universities and/or major commercial
enterprises. We believe that households with our demographic profile are more
likely to subscribe to these new and enhanced products and services than the
national average demographic profile.
EXPEDITIOUSLY REBUILD OUR BROADBAND CABLE NETWORK
We are committed to rebuild our cable network expeditiously in order to
provide new and enhanced products and services, increase the programming and
telecommunications choices for our customers, improve our competitive position
and increase overall customer satisfaction. We are in the process of rebuilding
almost all of our network to provide at least 750 MHz bandwidth and two-way
active capability. The result will be a significant increase in network
capacity, quality and reliability which facilitates the delivery of new and
enhanced products and services and reduced operating costs. Our aggressive
investment in our broadband cable network rebuild will allow us to expeditiously
offer these services to substantially all of our customers. By the end of 1999,
we expect that approximately 85% of our customers on a pro forma basis will be
served by systems with at least 750 MHz bandwidth and two-way active capability,
with the balance being substantially complete by the end of 2000. As each
system's rebuild progresses, we will deploy new and enhanced products and
services allowing us to provide these new services in many of our markets by
late 1999. In 1998, we invested approximately $46.6 million, and we plan to
invest approximately $89.0 million more to rebuild our systems by the end of
1999.
INTRODUCE NEW AND ENHANCED PRODUCTS AND SERVICES
Our marketing strategy is to offer our customers an array of entertainment,
information and telecommunication services on a bundled basis. We believe by
bundling our products and services our customers will have an increased choice
at a reduced cost resulting in higher customer satisfaction, higher penetration
and reduced churn. We have conducted research and held numerous focus group
sessions in our local markets which lead us to believe that these services will
have high customer appeal. We expect that our ability to provide bundled
services will provide us with a strong competitive advantage over alternative
video providers, such as direct broadcast satellite television systems, and
incumbent telephone companies. To accelerate the deployment of these services,
we have partnered with several industry leaders, including AT&T, @Home and 3Com.
LEVERAGE STRONG LOCAL PRESENCE TO ENHANCE CUSTOMER AND COMMUNITY RELATIONS
Strong customer service is a key element of our business strategy. We are
dedicated to quality customer service and seek a high level of customer
satisfaction by employing localized customer care, extensively using market
research and providing customers with an attractively priced product offering.
Approximately 40% of our customers visit their local office on a monthly basis
providing us the opportunity to demonstrate and sell our new and enhanced
products and services. Our localized customer care initiatives create
substantial marketing and promotion opportunities which we believe will be
effective in the deployment of interactive and high-speed data products. In
addition, we are dedicated to fostering strong relations in the communities we
serve. We sponsor local charities and community causes through staged events and
48
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promotional campaigns, including the industry's Cable in the Classroom program.
Our emphasis on customer service and strong community involvement has led to
higher customer satisfaction, reduced customer churn and excellent franchise
relationships. To further strengthen community relations and differentiate us
from direct broadcast satellite television systems and other multichannel video
providers, we provide locally produced and oriented programming that offers,
among other things, community information, local government proceedings and
local specialty interest shows. In some of our markets, we are the only
broadcaster of local college and high school sporting events, which allows us to
provide unique programming and builds customer loyalty.
To support our business strategy, we have developed a financial strategy to
pursue value-enhancing transactions. To augment our internal customer growth, we
will seek acquisitions that strategically fit our clustering and operating
strategy. We will seek strategic acquisitions based upon disciplined criteria
with a focus on the following four primary factors:
o A high ratio of customers to headends;
o Market significance;
o Geographic proximity to our other systems; and
o An acceptable return on investment.
We have not reached any agreements, commitments or understandings for any future
acquisitions except for the Kentucky acquisition. There is no assurance that any
additional acquisitions will be identified or completed.
Since initiating this strategy in early 1997, we have completed on a pro
forma basis a total of three acquisitions, three asset swaps and two joint
ventures. As of December 31, 1997, our cable systems had approximately 180,000
customers and were located in seven states with no clear clustering of
properties. After completing these transactions, including a joint venture in
Indiana with AT&T Broadband & Internet Services, an asset swap with Cox
Communications, the proposed transaction to acquire the Kentucky systems and the
proposed provision of consulting services to the managed Indiana systems, we
owned, operated and managed, as of March 31, 1999 on a pro forma basis, cable
television systems serving approximately 1,049,000 customers with approximately
98% of our customers clustered in the State of Indiana; Rockford, Illinois;
Columbus, Ohio; and the State of Kentucky.
TECHNICAL OVERVIEW
We believe that in order to achieve consistently high levels of customer
service, reduce operating costs, maintain a strong competitive position and
deploy important new technologies, we will need to install and maintain a fiber
rich technical platform. The deployment of fiber optics, an increase in the
bandwidth to 750 MHz or higher, the activation of a two-way communications
network and the installation of digital equipment will allow us to deliver
interactive digital, video, high-speed data services and telecommunication
services.
As of March 31, 1999 on a pro forma basis, our systems were comprised of
approximately 19,800 miles of network passing approximately 1,475,300 homes
resulting in a density of approximately 75 homes per mile. As of that date, our
systems on a pro forma basis were made up of an aggregate of 67 headends. We
intend to continue our strategy of consolidating headends by eliminating
approximately 52 headends by December 31, 2000, at which point 96% of our
customers will be served by nine headends. As of March 31, 1999 on a pro forma
basis, approximately 28% of our network was at 450-550 MHz, while approximately
33% of our network was at 600 MHz or higher.
Our network design calls for a digital two-way active network with a fiber
optic trunk system carrying signals to nodes within our customers'
neighborhoods. The signals are transferred to coaxial network at the node for
delivery to our customers. At March 31, 1999, an average of approximately 1,500
homes were being served by each fiber node. We have designed the fiber system to
be capable of subdividing the nodes if traffic on the network requires
additional capacity.
We believe that active use of fiber optic technology as a supplement to
coaxial cable will play a major role in expanding channel capacity and improving
the performance of our systems. Fiber optic strands are
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<PAGE>
capable of carrying hundreds of video, data and voice channels over extended
distances without the extensive signal amplification typically required for
coaxial cable. We will continue to deploy fiber optic cable to further reduce
amplifier cascades while improving picture quality and system reliability.
A direct result of this extensive use of fiber optics is an improvement in
picture quality and a reduction of outages because system failures will be both
significantly reduced and will impact far fewer customers when they do occur.
Our design allows our systems to have the capability to run multiple separate
channel line-ups from a single headend and to insert targeted advertisements
into specific neighborhoods based on node location.
As of March 31, 1999, on a pro forma basis, approximately 32% of our
customers had addressable converters in their homes. Addressable technology
enables us to electronically control the cable television services being
delivered to the customer's home. Addressable technology allows us to
electronically upgrade or downgrade services to a customer immediately, from our
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 us to offer pay-per-view services,
including movies and special events, more conveniently.
The following chart outlines the status of the network capacities currently
and as planned over the next three years, based on our current rebuild program:
<TABLE>
<CAPTION>
PERCENT OF NETWORK MILES
-----------------------------------------------
GREATER THAN OR PERCENT OF
EQUAL TO 450 GREATER THAN OR NETWORK
LESS THAN MHZ AND LESS EQUAL TO 750 TWO-WAY
450 MHZ THAN 750 MHZ MHZ CAPABLE
--------- --------------- --------------- ----------
<S> <C> <C> <C> <C>
As of March 31, 1999 on a pro forma basis................ 39% 31% 29% 31%
As of December 31, 1999*................................. 8 21 71 74
As of December 31, 2000*................................. 2 7 91 94
</TABLE>
- ------------------------
* Estimate based on our current rebuild program. There can be no assurance that
our current rebuild program will be achieved.
PRODUCTS AND SERVICES
TRADITIONAL CABLE TELEVISION SERVICES
We offer our customers a full array of traditional cable television
services and programming offerings. We offer a basic level of service which
includes up to 25 channels of television programming. Approximately 94% of our
customers choose to pay an additional amount to receive up to 63 channels under
our "classic" service. Premium channels, which are offered individually or in
packages of several channels, are optional add-ons to the basic service or the
classic service. As of March 31, 1999, on a pro forma basis, premium units as a
percentage of basic subscribers was approximately 77%. We tailor both our basic
line-up and our additional channel offerings to each regional system in response
to demographics, programming preferences, competition, price sensitivity and
local regulation.
Our cable television service offering includes the following:
o Basic Service. All of our customers receive the basic level of service,
which generally consists of local broadcast television and local
community programming, including government and public access, and may
include a limited number of satellite programs.
o Classic Service. This expanded level of service includes a group of
satellite-delivered or non-broadcast channels such as ESPN, CNN,
Discovery Channel and Lifetime.
o Premium Channels. These channels provide unedited, commercial-free
movies, sports and other special event entertainment programming such as
HBO, Cinemax and Showtime. We offer subscriptions to these channels
either individually or in premium channel packages.
o Pay-Per-View. These analog channels allow customers with addressable set
top boxes to pay to view a single showing of a recently released movie or
a one-time special sporting event or music concert on an unedited,
commercial-free basis.
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NEW AND ENHANCED PRODUCTS AND SERVICES
As rebuilds are activated during 1999, we are deploying new and enhanced
products and services in most of our markets, including interactive digital
video and high-speed data services. In addition, we intend to deploy telephony
services in 2000.
Interactive Digital Video
The implementation of interactive digital technology will significantly
enhance and expand the video and service offerings we provide to our customers.
Most digital launches by other cable operators have been limited to simply
offering more channels as a defensive move against competition from direct
broadcast satellite television systems. Because of the significantly increased
bandwidth and two-way transmission capability of our state-of-the-art technical
platform, which is being built in conjunction with our digital launches, we have
the capacity to design a more extensive digital product that is rich in program
offerings and highly interactive with our customers. For example, we expect to
offer a video-on-demand service that will allow our customers significantly more
viewing options. Our interactive digital services also allow us to offer
customized information for our customers that is rich in local content and
targeted to a specific system or community. Our systems also are being activated
with two-way communication network capability, enabling us to provide truly
interactive and locally based Internet-style products and services.
We have conducted numerous focus groups and commissioned research studies,
the findings of which have helped to develop our interactive digital strategy.
We believe that our digital penetration will increase as a result of our
differentiated services such as a graphically rich local information network and
video-on-demand pay-per-view with full VCR functionality. In addition, nearly
75% of the homes passed by our systems still do not have an online account to
use the Internet, which we believe will make our local information product
particularly appealing to this group.
In most of our digital launches, we are providing a package of digital
services, known as "Digital Gateway." For $6.95 per month, our customers can
purchase Digital Gateway and receive the following services:
o A digital converter box;
o An interactive navigational program guide for all analog and digital
channels;
o A local, interactive Internet-style service;
o A significant multiplexing of premium channels for customers who
separately subscribe to premium channels, such as HBO and Showtime;
o Pay-per-view video-on-demand; and
o A digital 40-channel audio music service.
We have entered into a letter of intent with Source Media, Inc. to provide
their LocalSource product in our Digital Gateway. The LocalSource product is
designed to deliver the Internet experience to the television platform.
LocalSource delivers interactive programming that is both informative and
entertaining and provides extensive communications tools to support interaction
between customers, advertisers, sponsors, merchants and direct marketers
resulting in multimedia addressable advertising opportunities for both local and
national advertisers. The service is divided into four sub-categories:
o DailySource provides both current local information as well as national
news updates;
o LocalGuide provides a complete and current community guide that covers
everything from school homework assignments to restaurant specials,
sporting events or movie schedules;
o FastFacts is an on-demand library of useful facts on a range of subjects
from health to legal to car care or insurance; and
o MyTV is a service that allows customers to customize their screens by
selecting menus and viewing choices based upon their own tastes.
Other LocalSource applications that are under development include CableMail
and SourceNet. CableMail will allow customers to have e-mail accounts accessible
from their television sets and SourceNet will provide
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Internet access to the World Wide Web, also through the set top box and the
television set. We believe that LocalSource is a compelling introduction to
cable's broadband capability which will stimulate early demand for data services
and make cable a more essential service for the customer, resulting in increased
customer satisfaction and penetration and reduced churn.
We have signed a letter of intent with DIVA Systems Corporation, which will
allow us to be the first cable operator to offer DIVA's video-on-demand services
as part of a digital tier package. DIVA provides a true video-on-demand service
over the cable television infrastructure. We expect to launch DIVA's video-on-
demand product in Rockford, Illinois, in July 1999 and later this year in
Columbus, Ohio and Evansville, Indiana. A video-on-demand launch is also being
considered for Bloomington, Indiana later this year, with additional launches in
Indiana and Kentucky expected in 2000. We expect that our video-on-demand
service will offer immediate in-home access to a diverse and continuously
available selection of hundreds of movies. Customers will receive the movies
electronically over the network and will have full VCR functionality, including
pause, play, fast forward and rewind. The movies will be delivered with a high
quality digital picture and digital sound. DIVA is designed to provide movies at
prices comparable to those charged for videotape rentals, pay-per-view and near
video-on-demand movies, but with far greater convenience and functionality.
Although we expect fully to finalize our negotiations with DIVA, there can be no
assurance that they will come to a successful conclusion.
In addition to the Digital Gateway service, customers can select additional
digital packages, each of which includes a number of popular cable networks.
These packages allow viewers to customize their service to fit individual
interests. The packages will be tailored to satisfy the tastes and needs of the
specific local market but will be generally developed and available for an
additional $4.95 each per month. Currently, we are planning to offer three core
programming packages in all of our markets and to provide a discount by allowing
customers to purchase all three packages for the price of two. The packages may
include the following:
o The Family Pack, which is comprised of networks, such as six different
Discovery networks, BBC America, Much Music and the Sci-Fi Channel;
o The Movie Pack, which is comprised of specialty movie networks, such as
six Encore theme channels, Turner Classic Movies, the Independent Film
Channel and Romance Classics; and
o The Sports Pack, which consists of several ESPN channels, The Golf
Channel, Fox Sports World and Classic Sports.
In addition to these core programming packages, we intend to develop
additional niche packages, such as Spanish channels or music video channels,
reflective of local customer tastes.
We recently launched most of the Digital Gateway service in Rockford,
Illinois, added LocalSource in May 1999 and expect to add the video-on-demand
application in July 1999. We will launch the Digital Gateway service in all of
our markets as rebuilds are completed. As the rebuilds of the Indiana systems
are completed during 2000, we will migrate the AT&T Broadband & Internet
Services digital product to our interactive digital product. Additionally, in
2000, we expect to convert the Kentucky systems from the InterMedia Capital
Partners VI, L.P. digital product to our interactive digital product. While the
AT&T Broadband & Internet Services and InterMedia Capital Partners VI, L.P.
digital products were targeted to fill programming voids and compete with direct
broadcast satellite television systems, our Digital Gateway service is designed
to provide our customers with an Internet style experience as well as
programming choices, which we believe will result in higher penetration and
customer satisfaction and reduced churn. Therefore, we expect to achieve
improved penetration in the Indiana systems with our Digital Gateway service
from the 10% to 15% penetration that the AT&T Broadband & Internet Services
digital product currently achieves.
In the small markets where we do not plan a rebuild, we have launched a
digital product which is packaged and priced similarly but is not interactive.
We launched this type of limited digital service in Griffin, Georgia in December
1998 and achieved over 11% penetration within six months of launch with
incremental revenue per digital customer of over $16.00 per month.
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High-Speed Data
We plan to introduce high-speed data service for personal computers over
our network in all of our rebuilt systems. The broad bandwidth of cable network
enables data to be transmitted up to 100 times faster than traditional
telephone-based modem technologies, and the cable connection does not interfere
with normal telephone activity or usage. For example, cable's on-line customers
can download large files from the Internet in a fraction of the time it takes
when using any widely available telephone modem technology. Moreover, surfing
the Internet on a high-speed network removes the long delays for Web pages to
fully appear on the computer screen, allowing the experience to more closely
approximate the responsiveness of changing channels on a television set. In
addition, the cable modem is always on and does not require the customer to dial
into an Internet service provider and await authorization. We believe that these
factors of speed and easy accessibility will increase the use and impact of the
Internet. Although other high-speed alternatives are being developed to compete
with cable, we believe that the cable platform currently is best able to deliver
these services.
We have signed a distribution agreement with @Home to launch high-speed
data service in all of our markets serving 50,000 or more homes passed, except
for Columbus, Ohio. With respect to the Columbus system, we have a nonbinding
letter of intent to launch the Road Runner service. With respect to our small
system markets, we are considering separate distribution agreements with various
Internet service providers.
In addition to being an Internet service provider, @Home offers its own
content. @Home aggregates high quality web sites for customers to explore and
also offers various chat rooms, newsgroups, on-line stores, gaming channels, on
demand CNN, NBA and MTV video clips, and easy to use search engines and tip
wizards. We expect to offer our customers content of local interest, including
community information, local news, sports, entertainment, and weather, through
our local home page.
The @Home service offers unlimited access to the Internet. The service
includes three e-mail addresses and 15 megabytes of space with which to create a
personal web site. We are offering the @Home service to cable customers at a
price of $29.95 per month plus $15 to lease the cable modem. Non-cable customers
will be charged an additional $10 per month for the service. Both cable and
non-cable customers will be charged an installation fee of $150, which we may,
at our discretion, discount to promote usage of cable modems. @Home also
provides several additional services, such as the ability to dial-up away from
the customer's home, multiple computer access and internet fax services, which
should provide additional revenue potential. In addition to customer fees, we
expect to generate advertising and e-commerce revenue by selling advertisers and
retailers space on our local home pages in exchange for a fee or a share of the
revenues.
While we will initially lease cable modems to customers, we expect a
significant portion of our customers to purchase a cable modem once the Data
Over Cable Service Interface Specifications open standard has been implemented
by vendors and such vendors sell the cable modems in retail outlets and pre-
install them in new computers. The purchase of cable modems by our customers
will reduce our need to maintain an inventory of such equipment. We do not,
however, anticipate significant retail activity until 2000.
We believe our cable systems have attractive demographics for high-speed
data. Based on research of our systems at November 1998 by Peter D. Hart
Research Associates Inc., approximately 49% of our then customers had personal
computers in the home and approximately 51% of those that had computers were
currently on-line. We believe university markets, such as Bloomington and
Lafayette, Indiana, Lexington and Bowling Green, Kentucky and Columbus, Ohio and
affluent suburbs like Noblesville, Indiana are particularly well suited for this
product as each of these markets has above average personal computer
penetration.
Telephony
In December 1998, we entered into a letter of intent with AT&T to form a
joint venture to provide local phone services to residential consumers and small
business customers under the "AT&T" brand name over our cable infrastructure.
The joint venture would have the exclusive right to license our cable
infrastructure for such services and would have access to wholesale bulk long
distance services and other network services from AT&T. We believe there is
significant potential for the joint venture based both on our management's
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experience in the U.K. cable market and the success of other operators such as
Cox Communications and Cablevision since entering this business.
All of our systems would be included in the joint venture, and we expect to
invest up to 49% of the equity capital for the joint venture on terms to be
negotiated. Under the joint venture, we would be responsible for rebuilding our
cable systems and activating two-way network. In exchange for this contribution,
we would receive an initial connectivity payment for any cable television system
passing a specified number of homes and meeting certain specified technical
standards. The joint venture would also pay us monthly connectivity payments
based on the number of customers for maintenance of our network. In addition, we
would participate in the profitability of the business based on our equity
interest in the joint venture. There can be no assurance that a definitive
agreement will be successfully negotiated with AT&T, or, if negotiated, that
such agreement will be on the terms described in this prospectus. See
"Description of Recent Transactions--The Transaction with AT&T."
BUSINESS BACKGROUND
Insight was co-founded in 1985 as a limited partnership by Sidney R. Knafel
and Michael S. Willner after a previous association with one another at Vision
Cable Communications where Mr. Knafel was co-founder and Chairman and
Mr. Willner held various operating positions, ultimately holding the position of
Executive Vice President and Chief Operating Officer. Vision Cable was sold to
The Newhouse Group Inc. in 1981 and Mr. Willner remained there to run the cable
operations until 1985 when he and Mr. Knafel formed Insight.
Between 1985 and 1988, we assembled a group of systems that reflected our
focused acquisition criteria of high housing growth in markets with attractive
demographics. As a result of this strategy, we owned largely suburban systems in
high growth corridors of major metropolitan areas. Through housing growth and
increased basic penetration in the five years ended December 31, 1997, our
systems achieved growth rates for homes passed and customers of 4.8% and 5.9%,
respectively, over twice the national average and one of the highest internal
growth rates in the industry.
In addition to many years of conventional cable television experience, our
management team has been involved in the development and deployment of full
service telecommunications networks since 1989. Through a then related entity,
Insight Communications Company UK, L.P., our management and our related parties
entered the cable television market in the United Kingdom, where today modern
hybrid fiber-coaxial networks are widely deployed. Messrs. Knafel and Willner
remain on the board of NTL Incorporated, the publicly traded successor to the
former Insight UK related entity. NTL is currently one of the three largest
operators of local broadband communications systems in the United Kingdom.
As a result of our management's British experience, we recognized that the
technology and products developed in the United Kingdom would migrate to the
United States in similar form. We focused on planning to rebuild our network
promptly after it became clear that the 1996 Telecom Act would encourage
competition in the telecommunications industries. We understood, however, that
the new products and services available with new technology were best deployed
in markets which provided for efficiencies for branding and technical
investment. Our original acquisition strategy, which focused on customer growth,
was very successful. However, our management team recognized the opportunity to
evolve from our role as a cable television operator providing only home video
entertainment into a full service alternative telecommunications network
providing not only standard video services, but also interactive digital video,
high-speed data access and voice telephony products and services.
Recognizing the opportunities presented by newly available products and
services and favorable changes in the regulatory environment, we executed a
series of asset swaps and acquisitions and entered into a key joint venture that
resulted in our current composition. The largest of these transactions was the
50/50 joint venture formed between Insight and AT&T Broadband & Internet
Services in October 1998. Prior to December 31, 1997, our systems had
approximately 180,000 customers with the two largest concentrations in Utah and
Indiana, which together represented less than half of our customers. We believe
that we have successfully transformed our assets so that today on a pro forma
basis we own, operate and manage a cable television network serving
approximately 1,049,000 customers with approximately 98% of our customers
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clustered in the contiguous states of Illinois, Indiana, Ohio and Kentucky. Our
current assets are reflective of our strategy to own systems that have high
ratios of customers to headends.
The following is a list of significant recent transactions that were
designed to implement our new business strategy:
o Lafayette, Indiana. In December 1997, we exchanged with Cox
Communications our suburban Phoenix, Arizona system serving approximately
36,200 customers for a system in Lafayette, Indiana serving approximately
38,100 customers plus approximately $12.6 million paid in cash to
Insight. The Phoenix system comprised only 8% of its designated market
area and was made up of three separate headends while the Lafayette
system is made up of a single headend, is the major operator in the
market and is located in a region where we have substantial assets.
o Rockford, Illinois. In January 1998, we purchased a cable system serving
approximately 66,000 customers in the Rockford, Illinois area. The system
is made up of a single headend and is the primary cable system in the
market.
o Columbus, Ohio. In August 1998, we acquired a 75% non-voting interest in
a cable system serving approximately 90,000 customers in the eastern
portion of the City of Columbus and the surrounding suburban communities.
The Columbus system, which is made up of a single headend, passes
one-third of the homes in the Columbus area.
o Indiana Joint Venture. In October 1998, we exchanged with AT&T Broadband
& Internet Services our Utah systems serving approximately 56,200
customers for systems in Evansville and Jasper, Indiana serving
approximately 63,000 customers. Simultaneously with this transaction, we
contributed approximately 157,000 of our Indiana customers and AT&T
Broadband & Internet Services contributed approximately 162,000 of its
Indiana customers to a newly formed joint venture in which AT&T Broadband
& Internet Services and we each have a 50% interest. We have management
control of the Indiana joint venture, which upon formation became the
largest cable operator in Indiana.
o Kentucky Joint Venture. In April 1999, we entered into an agreement with
Blackstone Capital, InterMedia Capital Management VI, LLC and a
subsidiary and related party of AT&T Broadband & Internet Services to
purchase, subject to certain conditions set forth on page 14 of this
prospectus, a combined 50% interest in InterMedia Capital Partners VI,
L.P., which serves approximately 425,400 basic customers throughout
Kentucky. Under the agreement, we would have management control of the
Kentucky joint venture, which is the largest cable operator in Kentucky.
There can be no assurance that the Kentucky acquisition will be completed
on the terms described in this prospectus, or at all. This offering is
not contingent or in any way dependent on the Kentucky acquisition.
One of our original investors was Continental Cablevision, the third
largest cable operator in the United States at that time. After MediaOne
acquired Continental, we reached an agreement to repurchase its interest in our
company by the end of 1999. We replaced this important relationship by acquiring
the Indiana systems in a 50/50 joint venture with TCI, now known as AT&T
Broadband & Internet Services, the largest cable operator in the United States,
pro forma for its proposed acquisition of MediaOne. We believe that a
relationship with a major cable operator is an advantage to us because it helps
us to participate in the rapidly changing technical developments in the industry
and allows us to procure programming, equipment and services at better prices.
We already have benefited from our new AT&T Broadband & Internet Services
relationship by being one of the first companies to enter into a joint venture
arrangement with AT&T for the delivery of voice telephony services to
residential and small business markets. We also benefit from having two
nationally recognized financial investors, Vestar Capital Partners III, L.P. and
Sandler Capital Partners IV, L.P. This combination of strategic and financial
relationships gives us a clear view of the issues confronting the
telecommunications industry and increased access to capital, which we can
utilize when analyzing and pursuing new business opportunities.
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THE SYSTEMS
Our operations are conducted through the Indiana systems, the national
systems and the Columbus system, and will also be conducted upon the completion
of the Kentucky acquisition through the Kentucky systems.
THE INDIANA SYSTEMS
As of March 31, 1999, the Indiana systems passed approximately 495,600
homes and served approximately 336,300 customers. The Indiana systems are owned
by Insight Indiana, which is the largest cable operator in the state. Insight
Indiana, which was capitalized on October 31, 1998, is a 50/50 joint venture
between Insight and AT&T Broadband & Internet Services in which we serve as
manager of the Indiana systems. See "Description of Recent Transactions--The
Transactions to Acquire the Indiana Systems." We receive tangible and intangible
benefits from our partnership with AT&T Broadband & Internet Services, including
(a) substantial programming discounts for the Indiana systems and
(b) participation in AT&T Broadband & Internet Services affiliate meetings,
which affords us in-depth knowledge and understanding about principal and
material issues and challenges facing the cable television industry.
The Scottsburg system and the Portland system, which are included in the
Indiana systems as discussed above, passed approximately 18,300 homes and served
approximately 10,800 customers as of March 31, 1999. Both of these systems are
wholly-owned by us but are managed by Insight Indiana.
We believe that further investment in the Indiana systems will yield
opportunities for cash flow growth. We will increase capital investments, with
initial emphasis on rebuilding the network, activating two-way transmission and
combining headends. By March 2000, we expect that 90% of our customers in
Indiana, including the customers of the managed Indiana systems, will be served
by three headends. Upon implementation of our state-of-the-art technical
platform, we will be deploying new services based on our marketing strategy of
bundling products. In addition, we believe that there are additional
opportunities to augment our position in the state through additional
acquisitions and swaps.
The Indiana systems are organized in five management districts:
The Bloomington District
As of March 31, 1999, the Bloomington District passed approximately 77,500
homes and served approximately 58,800 customers. Bloomington, located 45 miles
south of Indianapolis, is the home of Indiana University. Besides the
University, major employers include United Technology and General Electric. The
median household income for the area is approximately $36,000 per year, while
the median family income is approximately $45,500 per year. Household income
differs from family income by including income from all persons in all
households, including persons living alone and other non-family households.
Interactive digital video was launched in Bloomington by AT&T Broadband &
Internet Services prior to the formation of Insight Indiana. Upon completion of
our rebuild, we will migrate the Bloomington digital customers to our Digital
Gateway service. The Bloomington system is expected to begin deploying @Home by
the end of 1999. Bloomington and parts of Monroe County are expected to be
rebuilt to 750 MHz by the end of 1999 with the remainder of the district
projected to be rebuilt to 750 MHz by the end of 2000.
The Evansville District
As of March 31, 1999 on a pro forma basis, the Evansville District passed
approximately 118,800 homes and served 72,000 customers. The median household
income for the area is approximately $34,800 per year, while the median family
income is approximately $44,700 per year.
A related party of Southern Indiana Gas and Electric Co. is overbuilding a
portion of our Evansville system. Southern Indiana Gas and Electric Co. has
obtained franchises to provide cable television service in the City of
Evansville and neighboring areas and commenced service in April 1999. Southern
Indiana Gas and Electric Co. is currently offering cable service to an estimated
7,500 homes in our service area and is
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expected to make the service available to additional homes and has announced
plans to offer telephone and data service by late summer or early fall of 1999.
We have responded to this competition by advancing our rebuild plans for
Evansville. We are rebuilding the network to 750 MHz and plan to introduce the
Digital Gateway service, including DIVA's video-on-demand service and the
LocalSource interactive information service, by late summer of 1999. We also
plan to launch the @Home service in Evansville by the fourth quarter of 1999.
The Evansville system recently won a competitive bid to supply a data
network to the Evansville school system. We are working with TCI Network
Solutions to supply this data network and have signed a five-year contract to
connect 42 K-12 schools to the data network. Our share of the revenues from this
contract will be $500,000 over the life of the contract.
The Jeffersonville District
As of March 31, 1999, the Jeffersonville District passed approximately
45,300 homes and served approximately 26,800 customers, including the Scottsburg
system, which passed 7,200 homes and served approximately 4,600 customers. The
Jeffersonville District is in the Louisville, Kentucky metropolitan area.
Jeffersonville's economy is largely influenced by Louisville, Kentucky's largest
city, which has developed a diverse economy by adding major service companies
such as UPS and Columbia Healthcare to its strong manufacturing base whose major
employers include General Electric and Ford Motor Company. The median household
income for the area is approximately $35,000 per year, while the median family
income is approximately $42,900 per year. We launched @Home in the
Jeffersonville system in April 1999. Our Digital Gateway service is expected to
be launched in the second half of 1999.
The Lafayette District
As of March 31, 1999, the Lafayette District passed approximately 107,300
homes and served approximately 80,400 customers, including the Lafayette
District is the Portland system, which passed approximately 11,100 homes and
served approximately 6,200 customers. Lafayette is the home of Purdue
University. Besides the University, major employers include Great Lakes
Chemical, Lafayette Life Insurance, General Motors and Delco Remy. The median
household income for the area is approximately $38,000 per year, while the
median family income is approximately $49,300 per year.
Most of the Lafayette, Kokomo, Fowler and Hartford City systems are
expected to be rebuilt to 750 MHz by the end of 1999, with a few areas being
finished in 2000. We launched @Home in the Lafayette market in May 1999 and
expect to launch @Home in the remaining markets by the end of 1999. AT&T
Broadband & Internet Services launched a digital service in the Kokomo market in
late 1998. We plan to migrate those customers to our digital service in 2000,
simultaneously with the launch throughout the district of our Digital Gateway
service.
The Anderson District
As of March 31, 1999, the Anderson District passed approximately 146,800
homes and served approximately 98,400 customers largely in the suburban
communities near Indianapolis. Indianapolis is the state capital of Indiana and
is the twelfth largest city in the United States. Major employers include
General Motors, Eli Lily and Belden Wire and Cable. The median household income
for the area is approximately $43,900 per year, while the median family income
is approximately $52,700 per year.
The Anderson District is expected to be rebuilt to 750 MHz by the summer of
2000. We launched @Home in Noblesville in early May 1999 and plan to extend the
offering throughout the district by the end of 1999. AT&T Broadband & Internet
Services launched digital service in several of the markets in 1998, and we plan
to migrate those customers to our Digital Gateway service in 2000,
simultaneously with the launch throughout the district of our Digital Gateway
service.
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The Managed Indiana Systems
We expect to enter into a five-year agreement with AT&T Broadband &
Internet Services to provide consulting services to cable television systems
being acquired by AT&T Broadband & Internet Services, which systems as of
March 31, 1999 passed approximately 160,000 homes and served approximately
114,300 customers in the State of Indiana. AT&T Broadband & Internet Services
will acquire these systems from Charter Communications as part of a series of
swaps between AT&T Broadband & Internet Services, Charter and InterMedia
Partners IV, L.P. We anticipate that the acquisition of these systems by AT&T
Broadband & Internet Services will be completed during the fourth quarter of
1999 and that we will earn an annual fee of 3% of gross revenues in exchange for
providing consulting services. For the year ended December 31, 1998, the managed
Indiana systems had revenues of $48.8 million. Nearly all of the managed Indiana
systems are contiguous to the Indiana systems.
Our consulting services are expected to be supervision and management of
the day-to-day operations of the managed Indiana systems. Ultimate control of
the systems will remain with AT&T Broadband & Internet Services. We will not be
permitted to take any actions outside of the ordinary course of business without
the consent of AT&T Broadband & Internet Services. Such extraordinary actions
would include specifically acquisitions and sales of assets, borrowing money,
handling litigations and related party transactions. The consulting arrangement
would be subject to termination upon 60 days' notice by AT&T Broadband &
Internet Services upon breach of the consulting arrangement with failure to cure
the breach within 15 days, as well as our commission of any acts constituting
bad faith, gross negligence or willful misconduct.
THE NATIONAL SYSTEMS
The national systems passed approximately 149,400 homes and served
approximately 86,800 customers on March 31, 1999. The national systems have
three major clusters: Rockford, Illinois; Griffin, Georgia; and Claremont,
California.
In addition to our traditional video and data services, we intend to begin
offering telecommunication services in 2000.
Rockford, Illinois
As of March 31, 1999, the Rockford system passed approximately 100,000
homes and served approximately 64,900 customers from a single headend. Rockford
is Illinois' second largest city. Major employers in the Rockford metropolitan
area include: Chrysler Corporation, Rockford Health System, Sundstrand
Corporation and Swedish American Health Systems. The median household income for
the area is approximately $39,300 per year, while the median family income is
approximately $47,800 per year.
Immediately after acquiring the system in January 1998, we began rebuilding
the existing channel-bound, 42 channel system to 750 MHz. We are adding 11
analog channels and launching our digital cable service on a node-by-node basis
as the network is activated. We launched our Digital Gateway service during
February 1999 to approximately 3,500 homes. We expect to introduce @Home
high-speed data services to our Rockford customers during the fourth quarter of
1999. We plan to complete the rebuild of the Rockford system by the end of 1999.
Griffin, Georgia
As of March 31, 1999, the Griffin system passed approximately 19,200 homes
and served approximately 13,100 customers from a single headend. Major employers
in the area include Springs Industries, NACOM and William Carter Apparel. The
median household income for the area is approximately $34,700 per year, while
the median family income is approximately $40,500 per year.
We launched our digital service in the Griffin system in December 1998,
bringing many new entertainment options to our customers. Being a smaller market
that still has unused channel capacity, we launched a scaled-down version of our
Digital Gateway service, similar to our full digital service except that it is
not interactive. Despite a more limited product offering, we have achieved
significant success with over 10% penetration within four months of launch
generating incremental revenue per month of over $16.00 per
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digital customer. The Griffin launch was the first digital deployment of our
multi-tiered approach in the country. We have no current plans to launch @Home
in the Griffin market. Instead of launching a fully two-way data service, we are
considering a cable modem technology that will utilize telephone lines for
upstream communications.
Claremont, California
As of March 31, 1999, the Claremont systems passed approximately 30,200
homes and served approximately 8,900 customers from three headends. The largest
portion of the system is in Claremont, which is located 30 miles east of Los
Angeles on the lower slopes of the San Gabriel Mountains. The community is
primarily residential with about 90% of the city's structures used as
residences. Claremont is the home of the Claremont Colleges, which includes
Claremont McKenna College, Harvey Mudd College, Pitzer College, Pomona College,
Scripps College and the Claremont Graduate University. The community has very
attractive demographics, with more than 50% of the residents holding a
bachelor's degree and a graduate or professional degree. Besides the Colleges,
major employers in the Claremont area include the Claremont Unified School
District, Bausch & Lomb and Hi-Rel Connectors, Inc. The median household income
for the area is approximately $38,200 per year, while the median family income
is approximately $42,400 per year. The smaller portion of the system serves
Artesia and Bell/Cudehy, California, which are also located east of Los Angeles.
We are currently contemplating a digital launch in Claremont which will be
similar to our digital launch in Griffin, Georgia.
THE COLUMBUS SYSTEM
As of March 31, 1999, the Columbus system passed approximately 173,000
homes and served approximately 86,600 customers from a single headend. The
system is located in the eastern portion of the City of Columbus and surrounding
suburban communities. We own 75% of the non-voting common membership interests
of Insight Ohio, the entity that was formed to acquire the Columbus system.
Coaxial Communications owns the remaining 25% of the non-voting common
membership interests and 100% of the voting preferred membership interests. We
serve as manager of Insight Ohio and of the three shareholders of Coaxial
Communications, and thereby have effective control of the management and affairs
of Coaxial Communications, its shareholders and Insight Ohio. See "Description
of Recent Transactions--The Transactions to Acquire the Columbus System."
The City of Columbus is the 34th largest designated market area, is the
capital of Ohio and is the home of Ohio State University. In addition to the
state government and university, the Columbus economy is well diversified with
the 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 approximately 2.9%. The median household income for our service area is
approximately $47,800 per year, while the median family income is approximately
$57,000 per year.
The Columbus system enjoys a high level of population growth in the
suburban communities east of Columbus. Over the past three years, more than
14,600 homes passed have been added to the Columbus system through network
extensions, primarily in new housing developments. This represents a 3.1%
compound annual growth rate of homes passed for the Columbus system.
In 1996, Ameritech obtained a citywide cable television franchise for the
City of Columbus. Ameritech has built its citywide franchise, both in our
service area and in the Time Warner service area on the west side of Columbus.
We and Time Warner service virtually distinct areas and therefore do not compete
with one another. The areas of the Columbus system served by both Insight and
Ameritech pass approximately 120,000 homes, representing 71% of the Columbus
system's total homes passed.
We are currently rebuilding the Columbus system to 870 MHz. We expect to
begin servicing customers from our rebuilt network by August 1999. We will begin
launching our Digital Gateway service, including DIVA's video-on-demand service
and the LocalSource interactive information service. We have entered into a
nonbinding letter of intent to launch the Road Runner service and expect to
begin offering the high-speed data service during the fourth quarter of 1999.
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When we acquired the Columbus system, we implemented a strategy to end deep
discounting as a defense against Ameritech. We believed that a relatively small
customer loss, caused by discontinuing discounts, would be preferable in
exchange for increasing the average monthly revenue per customer. As a result of
this strategy, from June 30, 1998 to December 31, 1998, the average monthly
revenue per customer increased from approximately $43.30 to $46.85, while the
number of customers decreased from approximately 91,100 to 88,600. Ameritech
seems to have responded to this strategy by recently announcing a $1.75 increase
in the price of their standard cable service and a $0.26 increase in the price
of pay-per-view movies.
As with our national, Indiana and Kentucky systems, we intend to launch a
voice telephony alternative to Ameritech through our joint venture with AT&T.
Time Warner, the other major cable television provider in the market, also has
announced a joint venture agreement with AT&T.
THE KENTUCKY SYSTEMS
In April 1999, we entered into an agreement with Blackstone Capital,
InterMedia Capital Management VI, LLC and a subsidiary and related party of AT&T
Broadband & Internet Services to purchase a combined 50% interest in InterMedia
Capital Partners VI, L.P. for $335.0 million, including expenses, subject to
adjustment, which was calculated based upon InterMedia's total outstanding debt
plus accrued interest, which was $738.9 million as of March 31, 1999. We also
entered into an agreement with AT&T Broadband & Internet Services, which
provides that we will each own a 50% interest and we will manage and operate the
Kentucky systems upon the completion of the Kentucky acquisition. InterMedia
Capital Partners VI, L.P. was formed by AT&T Broadband & Internet Services,
Blackstone Capital and InterMedia Capital Management VI, LLC to acquire cable
television systems which, as of March 31, 1999, served approximately 425,400
basic customers and passed approximately 657,400 homes primarily in four
operating clusters in the State of Kentucky. InterMedia Capital Partners VI,
L.P. is the largest cable operator in the state, with over 95% of its systems
located in four of the five largest cities in the state: Louisville; Lexington;
Covington; and Bowling Green. Presently, more than 87% of the systems' customers
are served by four headends, which is precisely consistent with our operating
strategy to own highly clustered properties.
In addition to our traditional video and data services, we intend to begin
offering telecommunications services in 2000.
Summary statistics for the Kentucky systems are as follows:
Louisville
As of March 31, 1999, the Louisville system passed approximately 363,200
homes and served approximately 234,300 customers. Louisville is Kentucky's
largest city and is located in the northern region of the state, bordering
Indiana. Louisville is located within a day's drive of nearly 50% of the United
States population, which makes it an important crossroads for trade and
business. Major employers in the Louisville metropolitan area include Humana,
UPS, General Electric and Ford. The median household income for the area is
approximately $38,100 while the median family income is approximately $46,100.
The Louisville system is currently undergoing a rebuild and we intend to
serve all of its customers with two-way 750 MHz hybrid fiber coaxial cable by
December 31, 1999. The system is also in the process of interconnecting six
headends, which will allow the entire system to be served from a single headend.
InterMedia Capital Partners VI, L.P. launched its digital service in
Louisville in November 1998. The service already has approximately 4,600
customers. The Louisville system recently launched the @Home service.
Lexington
As of March 31, 1999, the Lexington system passed approximately 116,500
homes and served approximately 81,000 customers from a single headend. Lexington
is Kentucky's second largest city, located in the Blue Grass region, in the
central part of the state. Major employers in the Lexington area include the
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University of Kentucky, Toyota and Lexmark International. The median household
income for the area is approximately $40,400, while the median family income is
approximately $51,500.
The Lexington system is currently undergoing a rebuild and we intend to
serve all of its customers with two-way 750 MHz hybrid fiber coaxial cable by
December 31, 1999. InterMedia Capital Partners VI, L.P. launched its digital
service in Lexington in October of 1998 and has achieved penetration levels of
approximately 16% in the areas where digital is available. The Lexington system
has launched the @Home service.
Covington
As of March 31, 1999, the Covington system passed approximately 123,400
homes and served approximately 71,900 customers from a single headend. Covington
is Kentucky's fifth largest city. Major employers in the Covington area include
Delta, Toyota, Citicorp and DHL. The median household income for the area is
approximately $42,700, while the median family income is approximately $51,500.
The Covington system is currently undergoing a rebuild and is expected to
serve all of its customers with two-way 750 MHz hybrid fiber coaxial cable by
December 31, 1999. The Covington system recently launched the @Home service.
Digital service is also available in Covington. There is a small overbuild by
FrontierVision of the Covington system relating to approximately 7,400 homes in
Boone County. Under an agreement with FrontierVision, we will aquire the
FrontierVision Covington customers, including those located in the overbuild.
Bowling Green
As of March 31, 1999, the Bowling Green system passed approximately 32,800
homes and served approximately 21,700 customers from a single headend. Bowling
Green is located 120 miles south of Louisville, 110 miles southwest of Lexington
and 70 miles north of Nashville, Tennessee. Bowling Green is the fourth largest
city in Kentucky and is the economic center for Southcentral Kentucky and is the
home of Western Kentucky University. Major employers in the Bowling Green area
include Fruit of the Loom, Camping World, Desa International and Holley
Replacement Parts. The median household income for the area is approximately
$34,500, while the median family income is approximately $41,800.
The Bowling Green system is fully rebuilt to two-way 750 MHz hybrid fiber
coaxial cable. Recently, digital and @Home services have been launched in
Bowling Green.
Other Kentucky Systems
InterMedia Capital Partners VI, L.P. has entered into an agreement to
exchange the Danville system, which passes 21,500 homes and serves 16,600
customers, for FrontierVision's Carrollton, Kentucky system. Completion of this
exchange agreement is subject to various conditions.
CUSTOMER RATES
Monthly customer rates for services vary from market to market. As of
March 31, 1999, our average monthly basic service rate for residential customers
was $10.22, monthly classic service rates for residential customers ranged from
$11.43 to $20.00, and per channel premium service rates, not including special
promotions, ranged from $5.95 to $15.28 per service. As of March 31, 1999, the
weighted average revenue, including special promotions, for our monthly combined
basic and classic service was approximately $25.46, which is below the national
average of $27.43 as reported by Paul Kagan & Associates.
A one-time installation fee, which we may reduce during promotional
periods, is charged to new customers, as well as reconnected customers. Insight
charges monthly fees for set top boxes and remote control devices. We also
charge 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.
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SALES AND MARKETING
We seek to increase penetration levels for our basic service, classic
service, premium channels and enhanced products and services through a variety
of marketing, branding and promotional strategies. We seek to maximize our
revenue per customer through the use of packaging strategies to market premium
services and to develop and promote niche programming services. We regularly use
targeted telemarketing campaigns to sell these packages and services to our
existing customer base. Our customer service representatives are trained and
given the support to use their daily contacts with customers as opportunities to
sell our new service offerings.
Due to the nature of the communities we serve, we are able to market our
services in ways not typically used by urban cable operators. We can market
products and services to our customers at our local offices where many of our
customers pay their cable bills in person. Examples of our in-store marketing
include the promotion of premium services as well as point-of-purchase displays
that will allow customers to experience our high-speed Internet service and
digital products. We aggressively promote our services utilizing both broad and
targeted marketing tactics, including outbound telemarketing, direct mail,
cross-channel promotion, print and broadcast.
We build awareness of the Insight brand through advertising campaigns and
strong community relations. As a result of our branding efforts and consistent
service standards, we believe we have developed a reputation for quality and
reliability. We also believe that our marketing strategies are particularly
effective due to our regional clustering, and market significance which enables
us to reach a greater number of both current and potential customers in an
efficient, uniform manner.
Prior to the introduction of telephony service by our joint venture with
AT&T we intend to aggressively pursue co-marketing campaigns with AT&T. We
expect to launch a campaign in Evansville, Indiana where customers subscribing
to the digital service who are also AT&T long distance customers will realize
savings off of their cable and long distance provided they remain customers of
us and AT&T. We expect to rollout similar programs in other systems until we are
able to provide the complete package of entertainment, information and telephony
products on a bundled basis.
PROGRAMMING SUPPLY
Most cable companies purchase their programming product directly from the
program networks by entering into a contractual relationship with the program
supplier. The vast majority of these program suppliers offer the cable operator
license fee rate cards with size-based volume discounts and other financial
incentives, such as launch and marketing support and cross-channel advertising.
Due to our different strategic partnerships, we have had the benefit of
securing our programming from a variety of sources. Since 1986, our partnership
with MediaOne has enabled us to purchase our core program product, for both our
national systems and the Columbus system, at MediaOne's cost. While these rates
have been more favorable due to MediaOne's overall size, we have been very
aggressive in successfully negotiating additional programming deals directly
with our suppliers, depending upon our respective systems' needs and location.
In anticipation of redeeming MediaOne's interest in Insight, we have
continued to secure competitive programming agreements, independent of our
current MediaOne partnership. While it is expected that product license fees,
such as those we pay for sports programming, will increase due to the loss of
MediaOne's volume benefit, we believe that through a combination of our own
market purchasing power, the possibility of new strategic MSO alliances and the
utilization of programming co-operatives, such as Tele-synergy and the National
Cable Television Cooperative, we will be able to secure rates which will be
consistent with the cable industry average. No assurance can be given that we
will be able to secure such rates. Programming co-operatives leverage their
cable members' total service customer size to maximize volume discounts to
purchase programming at reduced license fees.
Currently there are over 130 cable networks competing for carriage on our
analog and digital platforms. We have continued to leverage both our systems'
analog rebuilds and newly deployed digital packages as an
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incentive to our suppliers to secure long term programming deals with reasonable
price structures and other creative financial arrangements to offset license fee
increases.
Because of our relationship with AT&T Broadband & Internet Services, we
will have the right to purchase programming services for the Indiana systems
and, upon completion of the Kentucky acquisition, for the Kentucky systems,
directly through AT&T Broadband & Internet Services' programming supplier
Satellite Services, Inc. We believe that Satellite Services has attractive
programming costs. Additionally, given the clustering of our systems in the
Midwest, we have been successful in affiliating with regionally based
programming products such as sports and news, at lower than average license
fees.
COMMITMENT TO COMMUNITY RELATIONS
We believe that maintaining strong community relations will continue to be
an important factor in ensuring our long-term success. Our community-oriented
initiatives include educational programs and the sponsorship of programs and
events recognizing outstanding local citizens. In addition, members of our
management team host community events for political and business leaders as well
as representatives of the local media where they discuss the operations of
Insight and recent developments in the telecommunications industry. We have
received numerous awards recognizing our ongoing community relations. We believe
that our ongoing community relations initiatives result in consumer and
governmental goodwill and name recognition, which have increased customer
loyalty and will likely facilitate any future efforts to provide new
telecommunications services.
We encourage local management to take a leadership role in community and
civic activities. Over the years, our systems have received numerous awards in
recognition of their efforts to support local causes and charities as well as
programs that encourage a better way of life in the communities they serve.
Awards have been received from such diverse organizations as the Epilepsy
Foundation, the YMCA Black Achievers, the Domestic Violence Center and Project
Welcome Home, which provides assistance to less fortunate people in the
community.
The Griffin, Georgia system recently received the Star Award from the Cable
Association of Georgia for the production and airing of "Stay in School" and
"Parents Volunteer" public service announcements. The Rockford, Illinois system
received awards and recognition from 13 community organizations in 1998. Cable
industry recognition and awards for excellence in marketing and programming have
been received by several of our systems including the Columbus system and the
Lafayette, Indiana system.
All of our systems provide ongoing support for Cable in the Classroom, an
industry initiative that earns recognition both locally and nationally for its
efforts in furthering the education of children.
One of the advantages a local cable operator has over nationally
distributed competitors is its ability to develop local programming. To further
strengthen community relations and differentiate us from direct broadcast
satellite television systems and other multichannel video providers, we provide
locally produced and oriented programming. Several of our systems have full
production capabilities, with in-house and/or mobile production studios to
create local content. To attract viewers, we offer a broad range of local
programing alternatives, including community information, local government
proceedings and local specialty interest shows. In some of our markets, we are
the exclusive broadcaster of local college and high school sporting events,
which we believe provides unique programming and builds customer loyalty. We
believe that our emphasis on local programming creates significant opportunities
for increased advertising revenues. Locally originated programming will also
play an integral role in the deployment of our new and enhanced products and
services. Customized local content will be available to our customers through
our digital cable and high-speed data services, as users will be able to access
local information, such as weather reports, school closings and community event
schedules on-demand.
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FRANCHISES
Cable television systems are constructed and operated under fixed-term
non-exclusive franchises or other types of operating authorities that are
granted by either local governmental or centralized state authorities. These
franchises typically contain many conditions, such as:
o Time limitations on commencement and completion of construction;
o Conditions of service, including the number of channels, the provision of
free service to schools and other public institutions;
o The maintenance of insurance and indemnity bonds; and
o The payment of fees to communities.
These local franchises are subject to limits imposed by federal law.
As of January 31, 1999 on a pro forma basis, we held 385 franchises in the
aggregate, consisting of 156 in the Indiana systems, 15 in the national systems,
28 in the Columbus system and 186 in the Kentucky systems. As of the same date,
no such franchises accounted for more than 5% of our total revenues. Many of
these franchises require the payment of fees to the issuing authorities of 3% to
5% of gross revenues, as defined by each franchise agreement, from the related
cable system. The 1984 Cable Act prohibits franchising authorities from imposing
annual franchise fees in excess of 5% of gross annual revenues and also permits
the cable television system operator to seek renegotiation and modification of
franchise requirements if warranted by changed circumstances that render
performance commercially impracticable.
The following table summarizes information relating to the year of
expiration of our franchises as of March 31, 1999 on a pro forma basis:
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER OF PERCENTAGE OF
NUMBER OF TOTAL BASIC TOTAL BASIC
YEAR OF FRANCHISE EXPIRATION FRANCHISES** FRANCHISES CUSTOMERS** CUSTOMERS
- ----------------------------------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Expired*................................. 5 1.3% 24,683 2.6%
1999..................................... 8 2.1 10,205 1.1
2000..................................... 22 5.7 43,606 4.7
2001..................................... 14 3.6 23,323 2.5
2002..................................... 22 5.7 52,645 5.6
After 2002............................... 314 81.6 779,273 83.5
------ ----- ------- -----
Total.................................... 385 100.0% 916,445 100.0%
------ ----- ------- -----
------ ----- ------- -----
</TABLE>
- ------------------
* We operate these franchises on a month-to-month basis. We are in the process
of renewing them.
** Does not reflect the managed Indiana systems, and does not include the
proposed exchange of InterMedia Capital Partners VI, L.P.'s Danville,
Kentucky system for FrontierVision's Carrollton, Kentucky system.
The Cable Acts provide, among other things, for an orderly franchise
renewal process which limits a franchising authority's ability to deny a
franchise renewal if the incumbent operator follows prescribed renewal
procedures. In addition, the Cable Acts established comprehensive renewal
procedures which require, when properly elected by an operator, that an
incumbent franchisee's renewal application be assessed on its own merits and not
as part of a comparative process with competing applications.
We believe that our cable systems generally have good relationships with
their respective franchise authorities. We never had a franchise revoked or
failed to have a franchise renewed.
COMPETITION
Cable systems face increasing competition from alternative methods of
receiving and distributing their core video business. Both wireline and wireless
competitors have made inroads in competing against incumbent cable operators.
The extent to which a cable operator is competitive depends, in part, upon its
ability to provide to customers, at a reasonable price, a greater variety of
programming and other communications services than are available off-air or
through alternative delivery sources and upon superior technical performance and
customer service.
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The 1996 Telecom Act makes it easier for local exchange telephone companies
and others to provide a wide variety of video services competitive with services
provided by cable systems. Various local exchange telephone companies currently
are providing video services within and outside their telephone service areas
through a variety of distribution methods, including the deployment of broadband
cable networks and the use of wireless transmission facilities. Local exchange
telephone companies in various states have either announced plans, obtained
local franchise authorizations or are currently competing with our cable
communications systems. Currently, our most significant wireline competition is
from a related party of Ameritech Corporation, which has been awarded cable
franchises in the Columbus, Ohio metropolitan area that are currently served by
us as the incumbent cable operator. Local exchange telephone companies and other
companies also provide facilities for the transmission and distribution to homes
and businesses of interactive computer-based services, including the Internet,
as well as data and other non-video services. The ability of local exchange
telephone companies to cross-subsidize video, data and telephony services also
poses some threat to cable operators.
Franchised cable systems compete with private cable systems for the right
to service condominiums, apartment complexes and other multiple unit residential
developments. The operators of these private systems, known as satellite master
antenna television systems often enter into exclusive agreements with apartment
building owners or homeowners' associations that preclude franchised cable
television operators from serving residents of such private complexes. However,
the 1984 Cable Act gives franchised cable operators the right to use existing
compatible easements within their franchise areas on nondiscriminatory terms and
conditions. Accordingly, where there are preexisting compatible easements, cable
operators may not be unfairly denied access or discriminated against with
respect to access to the premises served by those easements. Conflicting
judicial decisions have been issued interpreting the scope of the access right
granted by the 1984 Cable Act, particularly with respect to easements located
entirely on private property.
The 1996 Telecom Act may exempt some of our competitors from regulation as
cable systems. The 1996 Telecom Act amends the definition of a "cable system"
such that providers of competitive video programming are only regulated and
franchised as "cable systems" if they use public rights-of-way. Thus, a broader
class of entities providing video programming, including operators of satellite
master antenna television systems, may be exempt from regulation as cable
television systems under the 1996 Telecom Act. This exemption may give these
entities a competitive advantage over us.
Congress has enacted legislation and the FCC has adopted regulatory
policies providing a more favorable operating environment for new and existing
technologies, in particular direct broadcast satellite television systems
operators, that have the potential to provide increased competition to cable
systems. We expect satellite companies to be permitted to retransmit local
television signals in the near future which will eliminate one of the objections
of consumers about switching to satellites.
Direct broadcast satellite television systems use digital video compression
technology to increase the channel capacity of their systems. Direct broadcast
satellite television system programming is currently available to individual
households, condominiums and apartment and office complexes through
conventional, medium and high-power satellites. High-power direct broadcast
satellite television system service is currently being provided by DIRECTV,
Inc., and EchoStar Communications Corporation, and medium-power service is being
provided by PrimeStar, Inc. DIRECTV recently acquired PrimeStar's medium-power
direct broadcast satellite business and United States Satellite Broadcasting.
These and other recently announced transactions would result in DIRECTV and
EchoStar obtaining additional high-power channel capacity of direct broadcast
satellite television systems through the acquisition of other direct broadcast
satellite television system facilities and channel capacity. If these
transactions are approved, DIRECTV and EchoStar will be able to significantly
increase the number of channels on which they can provide programming to
customers. Direct broadcast satellite television systems have some advantages
over cable systems that were not rebuilt, such as increased channel capacity and
digital picture quality. Alternatively, its disadvantages currently include
expensive up-front customer equipment and installation costs and a lack of local
programming and service.
Cable operators also compete with wireless program distribution services
such as analog and digital multichannel, multipoint distribution service, which
use microwave frequencies to transmit video programming over-the-air to
customers. There are operators of multipoint multichannel distribution systems
who are authorized to provide or are providing broadcast and satellite
programming to customers in areas served by our cable systems.
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Additionally, the FCC adopted regulations allocating frequencies in the 28 GHz
band for a new service called local multipoint distribution service that can be
used to provide video services similar to multipoint multichannel distribution
systems. The FCC held spectrum auctions for local multipoint distribution
service licenses in February-March 1998, and scheduled a further auction which
commenced in April 1999.
Other new technologies may become competitive with services that cable
communications systems can offer. Advances in communications technology, as well
as changes in the marketplace and the regulatory and legislative environment are
constantly occurring. Thus, we cannot predict the effect of ongoing or future
developments on the cable communications industry or on our operations.
The most competitive alternatives to the incumbent cable operator are
operators of direct broadcast satellite systems, operators of multipoint
distribution systems and direct wireline overbuilders.
o Direct broadcast satellite television systems have more channels and
better picture and sound quality over cable operators who have not
rebuilt their systems nor added digital. However, direct broadcast
satellite television systems do not offer locally produced programming,
nor does it have a significant local presence in the community. In
addition, direct broadcast satellite television systems are more
expensive than cable, especially if it is desired to be on more than one
TV in the household. Finally, direct broadcast satellite television
systems do not have the same full two-way capability, which we believe
will limit its ability to compete in a meaningful way in high-speed data
and voice telephony.
o Multipoint multichannel distribution systems offers a lower cost
alternative to direct broadcasting satellite television systems, but
serious transmission limitations caused by the need to have line of sight
access to customers have hampered its growth. Multipoint multichannel
distribution systems is also not currently capable of delivering a fully
two-way alternative to cable's high-speed data and has no immediate plans
to deliver voice telephony. Hybrid platforms, using the telephone for
upstream, have speed and technical limitations when compared to a
broadband network.
Cable television systems are operated under non-exclusive franchises
granted by local authorities thereby allowing more than one cable system to be
built in the same area. Although the number of municipal and commercial
overbuild cable systems is small, the potential profitability of a cable system
is adversely affected if the local customer base is divided among multiple
systems. Additionally, constructing a competing cable system is a capital
intensive process which involves a high degree of risk. We believe that in order
to be successful, a competitor's overbuild would need to be able to serve the
homes in the overbuilt area on a more cost-effective basis than we can. Any such
overbuild operation would require either significant access to capital or access
to facilities already in place that are capable of delivering cable television
programming.
EMPLOYEES
As of March 31, 1999, we employed 1,032 full-time employees and 53
part-time employees. We consider our relations with our employees to be good.
Other than 21 employees, none of our employees are subject to collective
bargaining agreements. Such 21 employees are represented by Local 4900 of the
Communications Workers of America, AFL-CIO-CLC. Their union contract expired on
October 30, 1998 and we are currently negotiating a new contract.
PROPERTIES
A cable television system consists of three principal operating components:
o The first component, the signal reception processing and originating
point called a "headend," receives television, cable programming service,
radio and data signals that are transmitted by means of off-air antennas,
microwave relay systems and satellite earth systems. Each headend
includes a tower, antennae or other receiving equipment at a location
favorable for receiving broadcast signals and one or more earth stations
that receives signals transmitted by satellite. The headend facility also
houses the electronic equipment which amplifies, modifies and modulates
the signals, preparing them for passage over the system's network of
cables;
o The second component of the system, the distribution network, originates
at the headend and extends throughout the system's service area. A cable
system's distribution network consists of microwave relays, coaxial or
fiber optic cables placed on utility poles or buried underground and
associated electronic equipment; and
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o The third component of the system is a "drop cable," which extends from
the distribution network into each customer's home and connects the
distribution system to the customer's television set.
We own and lease parcels of real property for signal reception sites which
house our antenna towers and headends, microwave complexes and business offices
which includes our principal executive offices. In addition, we own our cable
systems' distribution networks, various office fixtures, test equipment and
service vehicles. The physical components of our cable systems require
maintenance and periodic rebuilding to keep pace with technological advances. We
believe that our properties, both owned and leased, are in good condition and
are suitable and adequate for our business operations as presently conducted and
as proposed to be conducted.
LEGAL PROCEEDINGS
The Utah systems that we transferred to AT&T Broadband & Internet Services
in exchange for systems in Indiana were named on June 19, 1998 in the Third
Judicial Court of Salt Lake County, State of Utah in a class action entitled
Carl R. Buckland and Donna L. Callahan vs. TCI Cablevision of Utah, Inc.,
Telecommunications, Inc., TCI Communications, Inc., Insight Communications, Inc.
et al. Plaintiffs generally allege that the late fees charged by the systems are
not reasonably related to the costs incurred by the cable systems as a result of
the late payment. Plaintiffs seek compensation from the systems for late fees
charged in past periods. The cases are at various stages of litigation. The
exchange agreement between AT&T Broadband & Internet Services and Insight states
that the litigation will remain a liability of Insight.
Some of the systems AT&T Broadband & Internet Services contributed to
Insight Indiana were named on September 23, 1997 in the Morgan Superior Court in
a class action entitled Franklin E. Littell, John Herring, Jr., Scott Butcher,
Tracy B. Phillips vs. Telecommunications, Inc., TCI Communications, Inc., UACC
Midwest, Inc., dba TCI of Evansville, TCI of Indiana, Inc. Plaintiffs'
allegations are similar to those in the litigation concerning the Utah systems.
The cases are at various stages of litigation. The asset contribution agreement
between AT&T Broadband & Internet Services and Insight states that the
litigation will remain a liability of AT&T Broadband & Internet Services.
The Kentucky systems that will be acquired in the Kentucky acquisition were
named on January 26, 1998 in the Commonwealth of Kentucky, Bullitt Circuit Court
in a class action entitled Kathleen Schmidt vs. TeleCommunications, Inc., TCI
Cablevision of Kentucky Inc., TCI Cablevision of North Central. Plaintiffs'
allegations are similar to those in the litigation concerning the Utah systems.
On April 30, 1999, the plaintiff filed an amended complaint adding InterMedia
Partners of Kentucky, L.P., a subsidiary of InterMedia Capital Partners VI,
L.P., as an additional defendant. Pursuant to a contribution agreement between
InterMedia and TCI, InterMedia submitted on April 30, 1999 a request for
indemnity to TCI.
Some of the Kentucky systems that will be acquired in the Kentucky
acquisition were named on March 26, 1999 in the Jefferson County Circuit Court
in a class action entitled Alfred P. Sykes, Jr., Charles Pearl, Linda Pearl vs.
InterMedia Partners of Kentucky, L.P. and TCI TKR of Jefferson County, Inc.
Plaintiffs allege that InterMedia unlawfully passed through to its customers
state and local property tax charges. Plaintiffs seek to enjoin InterMedia from
collecting state and local property taxes and money damages. TCI is obligated to
indemnify and hold harmless InterMedia for this litigation insofar as it relates
to periods prior to closing.
Some of the Kentucky systems that will be acquired in the Kentucky
acquisition were named on March 24, 1999 in the Jefferson County Circuit Court
in a class action entitled James F. Dooley vs. TCI TKR of Jefferson County and
InterMedia Partners of Kentucky, L.P. Plaintiff's allegations are similar to the
other litigation concerning the pass through of state and local property taxes.
TCI is obligated to indemnify and hold harmless InterMedia for this litigation
insofar as it relates to periods prior to closing.
Some of the Kentucky systems that will be acquired in the Kentucky
acquisition were named on June 4, 1999 in the Franklin County Circuit Court in a
class action entitled Charles Show and Loretta Show vs. TCI TKR of Northern
Kentucky, Inc., TCI TKR of Southern Kentucky, Inc., TCI Cablevision of North
Central Kentucky, Inc., TCI CableVision of Kentucky, Inc. and InterMedia
Partners of Kentucky, L.P. Plaintiffs' allegations are similar to the other
litigation concerning the pass through of state and local property taxes. TCI is
obligated to indemnify and hold harmless InterMedia for this litigation insofar
as it relates to periods prior to closing.
We believe there are no other pending or threatened legal proceedings that,
if adversely determined, would have a material adverse effect on us.
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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 Insight. 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. We
believe that the regulation of the cable television 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 Insight.
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 number of rulemakings to implement the legislation, some of
which have yet to be completed.
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 non-basic 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 direct broadcast satellite television systems. Satisfaction of this test
deregulates all rates.
For cable systems not subject to effective competition, 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, 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 customers to purchase
service tiers above basic service in order to purchase premium services if the
system is technically capable of compliance; 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
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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 limited the class of complainants regarding cable programming
service tier rates to franchising authorities only, after first receiving two
rate complaints from local customers, and ended FCC regulation of cable
programming service tier rates on March 31, 1999. The 1996 Telecom Act also
relaxes existing uniform rate requirements by specifying that such requirements
do not apply where the operator faces effective competition, and by exempting
bulk discounts to multiple dwelling units, although complaints about predatory
pricing may be lodged with the FCC.
The FCC's implementing regulations contain standards for the regulation of
basic service rates. Local franchising authorities and the FCC, respectively,
are empowered to order a reduction of existing rates which exceed the maximum
permitted level for basic 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 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, converter boxes and remote control devices,
for example, 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. There is also a streamlined
cost-of-service methodology available to justify a rate increase on the basic
tier 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." A "small system" is defined as a cable television
system which has, on a headend basis, 15,000 or fewer basic customers. A "small
cable company" is defined as an entity serving a total of 400,000 or fewer basic
customers that is not affiliated with a larger cable television company, that is
to say that 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 customers, 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
customers. When a "small cable company" grows larger than 400,000 basic
customers, 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. Insight was a "small cable
company" prior to the October 30, 1998 completion of the AT&T Broadband &
Internet Services transaction but it no longer enjoys this status. However, as
noted above, the systems with less than 15,000 customers owned by Insight prior
to the completion of the AT&T Broadband & Internet Services transaction remain
eligible for "small system" rate regulation.
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.
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, that is to say that 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
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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 the 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," which are 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 Insight, 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.
Deletion of Certain Programming
Cable television systems that have 1,000 or more customers must, upon the
appropriate request of a local television station, delete the simultaneous or
nonsimultaneous network programming of a distant station when such programming
has also been contracted for by the local station on an exclusive basis. FCC
regulations also enable television stations that have obtained exclusive
distribution rights for syndicated programming in their market to require a
cable television system to delete or "black out" such programming from other
television stations which are carried by the cable television system.
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 rebuilding 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, we are not aware of any
current or past material failure on our part to comply with our franchise
agreements. We believe that we have generally complied with the terms of our
franchises and have provided quality levels of service.
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The 1992 Cable Act makes several changes to the process under which a cable
television operator seeks to enforce its renewal rights which could make it
easier in some cases for a franchising authority to deny renewal. 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.
OWNERSHIP
The 1996 Telecom Act repealed the statutory ban against local exchange
carriers 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, local exchange carriers may provide video service as broadcasters,
common carriers, or cable operators. In addition, local exchange carriers and
others may also provide video service through "open video systems," a regulatory
regime that may give them more flexibility than traditional cable television
systems. Open video system operators (including local exchange carriers) can,
however, be required to obtain a local cable franchise, and they can be required
to make payments to local governmental bodies in lieu of cable franchise fees.
In general, open video system 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 open video system, two-thirds of the channels must be
made available to programmers unaffiliated with the open video system operator.
The 1996 Telecom Act generally prohibits local exchange carriers from
purchasing any ownership interest in a cable television system exceeding 10%
located within the local exchange carriers telephone service area, prohibits
cable operators from purchasing local exchange carriers whose service areas are
located within the cable operator's franchise area, and prohibits joint ventures
between operators of cable television systems and local exchange carriers
operating in overlapping markets. There are some statutory exceptions, including
a rural exemption that permits buyouts in which the purchased cable television
system or local exchange carrier 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 certain circumstances.
The 1996 Telecom Act makes several other changes to relax ownership
restrictions and regulations of cable television systems. The 1996 Telecom Act
repeals the 1992 Cable Act's three-year holding requirement pertaining to sales
of cable television systems. The statutory broadcast/cable cross-ownership
restrictions imposed under the 1984 Cable Act have been eliminated, although the
FCC's regulations prohibiting broadcast/cable common-ownership currently remain
in effect. The FCC's rules also generally prohibit cable operators from offering
satellite master antenna service separate from their franchised systems in the
same franchise area, unless the cable operator is subject to "effective
competition" there.
The 1996 Telecom Act amends the definition of a "cable system" under the
Communications Act so that competitive providers of video services will be
regulated and franchised as "cable systems" only if they
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use public rights-of-way. Thus, a broader class of entities providing video
programming may be exempt from regulation as cable television systems under the
Communications Act.
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 its existing horizontal ownership 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 the horizontal ownership rules.
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.
Access to Programming
The 1992 Cable Act imposed restrictions on the dealings between cable
operators and cable programmers. Of special significance from a competitive
business posture, the 1992 Cable Act precludes video programmers affiliated with
cable companies from favoring their affiliated cable operators over competitors
and requires such programmers to sell their programming to other multichannel
video distributors. This provision limits the ability of vertically integrated
cable programmers to offer exclusive programming arrangements to cable
companies.
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 was 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 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 customer 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, among other things, 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.
Pursuant to those rules, consumers are given the right to attach compatible
equipment to the facilities of their multichannel video programming distributors
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, multichannel video programming distributors, other
than operators of direct broadcast satellite television systems, 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 multichannel video
programming distributors with set-top units purchased or leased from retail
outlets. As of January 1, 2005, multichannel video programming distributors 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. The rules require all cable television systems to
provide an audio and video emergency alert system 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 emergency alert system message. The FCC
rules permit cable television systems either to provide a separate means of
alerting persons with hearing disabilities of emergency alert system messages,
such as a terminal that displays emergency alert system messages and activates
other alerting mechanisms or lights, or to provide audio and video emergency
alert system messages on all channels. Cable television systems with 10,000 or
more basic customers per headend were required to install EAS equipment capable
of providing audio and video emergency alert system messages on all programmed
channels by December 31, 1998. Cable television systems with 5,000 or more but
fewer than 10,000 basic customers per headend will have until October 1, 2002 to
comply with that requirement. Cable television systems with fewer than 5,000
basic customers per headend will have a choice of providing either a national
level emergency alert system message on all programmed channels or installing
emergency alert system equipment capable of providing audio alert messages on
all programmed channels, a video interrupt on all channels, and an audio and
video emergency alert system message on one programmed channel. This must be
accomplished by October 1, 2002.
Inside Wiring; Customer Access
In a 1997 order, the FCC established rules that require an incumbent cable
operator upon expiration of a multiple dwelling unit service contract to sell,
abandon, or remove "home run" wiring that was installed by the cable operator in
a multiple dwelling unit building. These inside wiring rules are expected to
assist building owners in their attempts to replace existing cable operators
with new programming providers who are willing to pay the building owner a
higher fee, where such a fee is permissible. Additionally, the FCC
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has proposed to restrict exclusive contracts between building owners and cable
operators or other multichannel video programming distributors. The FCC has also
recently issued an order preempting state, local and private restrictions on
over-the-air reception antennas placed on rental properties in areas where a
tenant has exclusive use of the property, such as balconies or patios. However,
tenants may not install such antennas on the common areas of multiple dwelling
units, such as on roofs. This new order may limit the extent to which multiple
dwelling unit owners and Insight may enforce certain aspects of multiple
dwelling unit agreements which otherwise would prohibit, for example, placement
of direct broadcast satellite television systems television receiving antennae
in multiple dwelling unit areas, such as apartment balconies or patios, under
the exclusive occupancy of a renter.
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. Illinois, Kentucky and Ohio,
states in which Insight operates, have 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 to the 1996
Telecom Act, the FCC has adopted a new rate formula for any attaching party,
including cable television systems, which offers 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 recently ruled that the provision of Internet services
will not, in and of itself, trigger use of the new formula. 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; equal employment opportunity; 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.
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.
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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 agreements with the
American Society of Composers and Publishers, generally known as ASCAP, and BMI,
Inc., the two major performing rights organizations in the United States. Both
the American Society of Composers and Publishers and BMI offer "through to the
viewer" licenses to the cable networks which cover the retransmission of the
cable networks' programming by cable television systems to their 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 the American Society of Composers and Publishers, BMI and
SESAC, Inc., which is 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, none of the states in
which Insight currently operates has enacted state level regulation.
The foregoing describes all material 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 Insight can be predicted
at this time.
INTERNET ACCESS SERVICE
We offer a service which enables consumers to access the Internet at high
speeds via high capacity broadband transmission facilities and cable modems. We
compete with many other providers of Internet access services which are known as
Internet service providers. Internet service providers include such companies as
America Online and Mindspring Enterprises as well as major telecommunications
providers, including AT&T and local exchange telephone companies. Recently,
several Internet service providers asked the FCC as well as local authorities to
require cable companies offering Internet access services over their
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broadband facilities to allow access to those facilities on an unbundled basis
to other Internet service providers. In a recent report on the deployment of
advanced telecommunications capability under Section 706 of the 1996 Telecom
Act, the FCC declined to convene a proceeding to consider whether to impose such
an access requirement on cable companies. However, the FCC indicated that it
would continue to monitor the issue of broadband deployment. Also, the FCC
denied requests by certain Internet service providers that it condition its
approval of the merger of AT&T and TCI, now known as AT&T Broadband & Internet
Services, on a requirement that those companies allow access by Internet service
providers to their broadband facilities. Several local jurisdictions also are
reviewing this issue. Recently, a U.S. District Court in Oregon upheld a
requirement, imposed by a local franchising authority in the context of a
franchise transfer, that the cable operator, if it chooses to provide Internet
service, must provide open access to its system for other Internet service
providers. That decision has been appealed. In the wake of this opinion, several
other communities have begun to consider whether to impose a similar
requirement.
There are currently few laws or regulations which specifically regulate
communications or commerce over the Internet. Section 230 of the Communications
Act, added to that act by the 1996 Telecom Act, declares it to be the policy of
the United States to promote the continued development of the Internet and other
interactive computer services and interactive media, and to preserve the vibrant
and competitive free market that presently exists for the Internet and other
interactive computer services, unfettered by federal or state regulation. One
area in which Congress did attempt to regulate content over the Internet
involved the dissemination of obscene or indecent materials. The provisions of
the 1996 Telecom Act, generally referred to as the Communications Decency Act,
were found to be unconstitutional by the United States Supreme Court in 1997.
LOCAL TELECOMMUNICATIONS SERVICES
The 1996 Telecom Act provides that no state or local laws or regulations
may prohibit or have the effect of prohibiting any entity from providing any
interstate or intrastate telecommunications service. States are authorized,
however, to impose "competitively neutral" requirements regarding universal
service, public service, public safety and welfare, service quality and consumer
protection. State and local governments also retain their authority to manage
the public rights-of-way and may require reasonable, competitively neutral
compensation for management of the public rights-of-way when cable operators
provide telecommunications service.
We may in the future allow our cable infrastructure to be used for the
provision of local telecommunications services to residential and business
consumers. Local telecommunications service is subject to regulation by state
utility commissions. Use of local telecommunications facilities to originate and
terminate long distance services, a service commonly referred to as "exchange
access," is subject to regulation both by the FCC and by state utility
commissions. As a provider of local exchange service, we would be subject to the
requirements imposed upon local exchange carriers by the 1996 Telecom Act. These
include requirements governing resale, telephone number portability, dialing
parity, access to rights-of-way and reciprocal compensation. Our ability to
successfully offer local telecommunications service will be dependent, in part,
on the opening of local telephone networks by incumbent local telephone
companies as required of them by the 1996 Telecom Act. In January 1999, the
United States Supreme Court reversed and vacated in part an earlier decision of
a federal court of appeals striking down portions of the FCC's 1996 rules
governing local telecommunications competition. The Supreme Court held that the
FCC has authority under the Communications Act to establish rules to govern the
pricing of facilities and services provided by incumbent local exchange carriers
to open their local networks to competition. Also, as a result of that Supreme
Court decision, the FCC must determine what network elements of incumbent local
exchange carriers must be made available to other providers and under what
circumstances those elements must be made available. How the FCC resolves those
questions will impact our ability to provide local telecommunications service in
competition with incumbent local exchange telephone companies.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our current directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Sidney R. Knafel................................ 68 Chairman of the Board
Michael S. Willner.............................. 47 President, Chief Executive Officer and Director
Kim D. Kelly.................................... 42 Executive Vice President, Chief Operating and
Financial Officer and Director
Thomas L. Kempner............................... 71 Director Nominee
James S. Marcus................................. 69 Director Nominee
Prakash A. Melwani.............................. 40 Director Nominee
Daniel S. O'Connell............................. 45 Director Nominee
Other key employees include:
Steven E. Sklar................................. 35 Senior Vice President of Finance and Business
Development
James A. Stewart................................ 47 Senior Vice President of Operations
E. Scott Cooley................................. 39 Senior Vice President, Insight Communications of
Indiana
Pamela Euler Halling............................ 51 Senior Vice President of Marketing and
Programming
Charles E. Dietz................................ 52 Senior Vice President of Engineering
Daniel Mannino.................................. 39 Vice President and Controller
Gregory B. Graff................................ 38 Senior Vice President and General Manager of
Insight Ohio
Colleen Quinn................................... 46 Senior Vice President of Corporate Relations
William Gilbert................................. 48 Vice President of Advertising Sales
Susane Newell................................... 38 Vice President of Programming
Elizabeth Grier................................. 38 Vice President of Administration
Judy Poole...................................... 52 Vice President of Human Resources
Mary Rhodes..................................... 49 Vice President of Customer Service
Administration
Heather Wright.................................. 30 Vice President of Strategic Marketing
Lori Urias Gehris............................... 39 Vice President of Training
</TABLE>
Sidney R. Knafel has been Chairman of Insight 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. from 1971 until its sale in 1981. 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 of Puerto Rico,
Inc., CoreComm Limited, 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.
Michael S. Willner co-founded and has served as President of 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,
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Mr. Willner is a director of NTL, Inc. He is also 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 is a member of the Executive Committee and
serves as Treasurer. Mr. Willner is a graduate of Boston University's College of
Communication and serves on the school's Executive Committee.
Kim D. Kelly has been 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 Subcommittee for Telecommunications
Policy, as well as the National Cable Television Association Subcommittees for
Accounting. She also serves on the boards of Community Antenna Television
Association, Cable in the Classroom and Cable Advertising Bureau. Ms. Kelly is a
graduate of George Washington University.
Thomas L. Kempner is a nominee to become a member of the board of directors
upon the completion of this offering. He is and has been Chairman and Chief
Executive Officer of Loeb Partners Corporation, investment bankers in New York,
and its predecessors since February 1978. He is currently a director of Alcide
Corporation, CCC Information Services Group, Inc., Energy Research Corp., IGENE
Biotechnology, Inc., Intermagnetics General Corp., Northwest Airlines, Inc.
(Emeritus), Evercel, Inc. and Roper Starch Worldwide, Inc. Mr. Kempner is a
graduate of Yale University.
James S. Marcus is a nominee to become a member of the board of directors
upon the completion of this offering. He is a retired partner of Goldman, Sachs
Group, L.P., investment bankers. He is currently a director of American Biltrite
Inc. and Kellwood Company. Mr. Marcus is a graduate of Harvard College and
Harvard Business School.
Prakash A. Melwani is a nominee to become a member of the board of
directors upon the completion of this offering. He is a managing director of
Vestar Capital Partners, manager of over $1 billion in private equity capital,
and was a founding partner of Vestar at inception in 1988. Mr. Melwani has been
designated as a director by Vestar pursuant to a Securityholder Agreement
between Vestar, Insight and other parties. Mr. Melwani is a director of
International AirParts Corporation, McHugh Software International, Inc. and
Pinnacle Automation, Inc., all companies in which Vestar has a significant
equity interest. Mr. Melwani graduated from Cambridge University with a B.A.
degree and received a graduate degree from Harvard University.
Daniel S. O'Connell is a nominee to become a member of the board of
directors upon the completion of this offering. He was the founder in 1988 of
Vestar Capital Partners. He is currently the Chief Executive Officer of Vestar.
Mr. O'Connell has been designated as a director by Vestar pursuant to a
Securityholder Agreement between Vestar, Insight and other parties.
Mr. O'Connell is a director of Advanced Organics, Inc., Aearo Corporation,
Cluett American Corp., Remington Products Company L.L.C., Russell-Stanley
Holdings, Inc. and Siegel & Gale Holdings, Inc., all companies in which Vestar
has a significant equity interest. Mr. O'Connell is a graduate of Brown
University and Yale University.
Steven E. Sklar joined Insight in 1998 as Senior Vice President of Finance
and Business Development. From 1996 through 1998, Mr. Sklar was with Encore
Media Group, most recently as Division Vice President. He previously held the
position of Vice President--International Business Development at Encore.
Mr. Sklar was with Home Box Office from 1992-1996 where he held various
positions, most recently serving as Director of International Operations. He was
also employed by Marine Midland Bank, where he served as Assistant Vice
President for the Media/Commercial Lending Division.
James A. Stewart joined Insight in 1987 as a Vice President, and now serves
as Senior Vice President of Operations with responsibility for Insight's systems
outside of the Indiana cluster. Formerly, Mr. Stewart was Operations Manager for
National Guardian Security Services. He was also employed by Viacom
International, Inc.'s cable television division for eight years, where he
ultimately became Vice President and General Manager of Viacom Cablevision's
Nashville, Tennessee system.
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Scott Cooley joined Insight in 1998 as Senior Vice President of Operations
with responsibility for Insight's Indiana cluster. Formerly, Mr. Cooley was an
employee of AT&T Broadband & Internet Services for 18 years, having worked in
the areas of technical operations and purchasing and as general manager of the
Bloomington system. In 1994, he was appointed area manager of AT&T Broadband &
Internet Services southern Indiana, Illinois and Missouri systems serving
260,000 customers. In 1997, he received AT&T Broadband & Internet Services
Manager of the Year award. Mr. Cooley serves as a member of the Indiana Cable
Television Association and its subcommittee for public relations.
Pamela E. Halling joined Insight as Vice President, Marketing in 1988 and
has since become Senior Vice President of Marketing and Programming. Prior to
joining Insight, she had served since 1985 as Director of Consumer Marketing for
the Disney Channel. Previously, she was Vice President of Affiliate Marketing
for Rainbow Programming Holdings, Inc. and a marketing consultant for TCI. She
began her cable television career in 1973 with Continental Cablevision.
Charles E. Dietz joined Insight as Senior Vice President, Engineering in
1996. From 1973 to 1995, Mr. Dietz was employed by Vision Cable Communications
serving as Vice President of Technical Operations from 1988 through 1991,
becoming Vice President of Operations in 1991.
Daniel Mannino joined Insight 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. Mr. Mannino is a
certified public accountant.
Gregory B. Graff has served as Senior Vice President and General Manager of
Insight Ohio since August of 1998. Prior to joining Insight, Mr. Graff served as
Senior Vice President, Marketing, Programming and Advertising of Coaxial
Communications since 1997. He joined Coaxial Communications as Vice President,
Marketing and Sales in 1995. Prior to joining Coaxial Communications, 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.
Colleen Quinn joined Insight as Senior Vice President of Corporate
Relations in 1999. Prior to joining Insight, Ms. Quinn was the Senior Vice
President, Government Affairs, of the New York City Partnership and Chamber of
Commerce from 1997 to April 1999. She has also held positions at MacAndrews &
Forbes Holdings, Inc. and the Revlon Foundation as Vice President from 1996 to
1997 and at Pacific Telesis Group as Executive Director and Director of
Government Relations from 1993 to 1996.
William Gilbert has serviced as Vice President of Advertising Sales at
Insight Media Advertising since 1998. From 1988 to 1998, Mr. Gilbert served as
Vice President Advertising Sales and New Business for Coaxial Communications in
Columbus. Prior to joining Coaxial Communications, he spent several years with
Warner-Amex Cable both in its corporate office and at the system level.
Mr. Gilbert has 19 years of advertising sales, marketing and financial
experience in the cable television industry.
Susane Newell has served as Vice President of Programming for Insight since
1998. Prior to joining Insight, Ms. Newell served as Corporate Director of
Programming for Century Communications from 1995 to 1998. From 1991 to 1994 she
served as Corporate Programming Manager for TeleCable Corporation. Ms. Newell is
an attorney and has also served as Director of New Business Development for
Bellcore and station manager for an independent broadcast station.
Elizabeth Grier joined Insight in 1989 and became Vice President of
Administration in May of 1994. Previously, Ms. Grier served as Legal Affairs
Manager. Prior to joining Insight, Ms. Grier was employed by Microband Wireless
Cable Company.
Judy Poole has served as Vice President of Human Resources for Insight
since 1998. Prior to joining Insight, Ms. Poole spent 13 years at Cablevision
Systems, most recently as Corporate Director of Employee Relations.
Mary Rhodes joined Insight in 1986 and became Vice President of Customer
Service Administration in 1996. Ms. Rhodes previously served as general manager
of our Jeffersonville, Indiana and Sandy, Utah cable systems.
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<PAGE>
Heather Wright joined Insight in 1997 as the Director of Strategic
Marketing and became Vice President of Strategic Marketing in 1999. Prior to
joining Insight, Ms. Wright was employed by The Walt Disney Company from
1993-1997, most recently as National Account Manager for The Disney Channel.
Lori Urias Gehris joined Insight as the National Training Director in 1991
and has since become Vice President of Training. Her previous experience
includes three years as Regional Training Manager for Comcast Cable and from
1981 to 1985 she was employed as an Account Executive and Telemarketing Trainer
for Mountain Bell.
All directors hold office until the next annual meeting of stockholders and
until their successors have been elected and qualify. All executive officers
serve at the discretion of the Board of Directors. We, Mr. Knafel and parties
related to Mr. Knafel, Mr. Willner, Ms. Kelly and all of the members of
management listed above have agreed to cause the election of two directors
designated by Vestar so long as Vestar continues to own at least 25% of the
common stock it owns upon closing of this offering, and one such director so
long as Vestar continues to own at least 15% of such common stock.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon closing of the offering, we will appoint an audit committee, a
compensation committee and a stock option committee. The audit committee will
consist of three directors, two of whom will be independent directors. Its
functions are to
o recommend the appointment of independent accountants;
o review the arrangements for and scope of the audit by independent
accountants;
o review the independence of the independent accountants;
o consider the adequacy of the system of internal accounting controls
and review any proposed corrective actions;
o review and monitor our policies regarding business ethics and
conflicts of interest;
o discuss with management and the independent accountants our draft
annual financial statements and key accounting and reporting
matters; and
o review the activities and recommendations of our accounting
department.
The compensation committee will consist of four directors, two of whom will
be independent directors. The compensation committee has authority to review and
make recommendations to the Board of Directors with respect to the compensation
of our executive officers.
The stock option committee will consist of two directors, each of whom will
be a "non-employee" director. The stock option committee administers our 1999
stock option plan and determines, among other things, the time or times at which
options will be granted, the recipients of grants, whether a grant will consist
of incentive stock options, nonqualified stock options or stock appreciation
rights (in tandem with an option or free-standing) or a combination thereof, the
option periods, whether an option is exercisable for Class A common stock or
Class B common stock, the limitations on option exercise and the number of
shares to be subject to such options, taking into account the nature and value
of services rendered and contributions made to our success. The stock option
committee also has authority to interpret the plan and, subject to certain
limitations, to amend provisions of the plan as it deems advisable.
COMPENSATION OF DIRECTORS
Those directors who are not also our employees will receive an annual
retainer as fixed by the board, which may be in the form of cash or stock
options, or a combination of both. Non-employee directors will also receive
reimbursement of out-of-pocket expenses incurred for each Board or committee
meeting attended.
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EXECUTIVE COMPENSATION
The following table summarizes the compensation for services rendered to
Insight paid in 1998 to the Chief Executive Officer and Insight's other most
highly paid executive officers who received total annual salary and bonus in
excess of $100,000:
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION
- --------------------------------------------------------------- ---- ------------ ------------
<S> <C> <C> <C>
Sidney R. Knafel .............................................. 1998 $248,664 $5,000
Chairman of the Board
Michael S. Willner ............................................ 1998 465,616 5,000
President and Chief Executive Officer
Kim D. Kelly .................................................. 1998 411,927 5,000
Executive Vice President and Chief Financial and Operating
Officer
</TABLE>
1999 STOCK OPTION PLAN
The Board of Directors adopted our plan as of June 24, 1999. We have
reserved 5,000,000 shares of common stock with respect to which options and
stock appreciation rights ("SARs") may be granted under the plan. The purpose of
the plan is to promote the interests of Insight and its stockholders by
strengthening our ability to attract and retain competent employees, to make
service on our Board of Directors more attractive to present and prospective
non-employee directors and to provide a means to encourage stock ownership and
proprietary interest in Insight by officers, non-employee directors and valued
employees and other individuals upon whose judgment, initiative and efforts the
financial growth of Insight largely depends.
The plan may be administered by either the entire Board of Directors or a
committee consisting of two or more members of the Board of Directors, each of
whom is a "non-employee director." The plan will be administered by a stock
option committee of the Board of Directors consisting of two non-employee
directors.
Incentive stock options ("ISOs") may be granted only to officers and key
employees of Insight and its subsidiaries. Nonqualified stock options and SARs
may be granted to our officers, employees, directors, agents and consultants. In
determining the eligibility of an individual for grants under the plan, as well
as in determining the number of shares to be optioned to any individual, the
stock option committee takes into account the recommendations of our President,
Michael S. Willner, the position and responsibilities of the individual being
considered, the nature and value to Insight or its subsidiaries of his or her
service or accomplishments, his or her present or potential contribution to the
success of Insight or its subsidiaries, the number and terms of options and SARs
already held by an individual and such other factors as the stock option
committee may deem relevant. In making recommendations to the stock option
committee, Mr. Willner focuses upon individuals who would be motivated by a
direct economic stake in the equity of Insight. Options may provide for their
exercise into shares of any class of our common stock, Class A or Class B. Under
our agreement with Vestar, we have agreed not to grant options for Class B
common stock representing in excess of 6% of the fully-diluted shares.
The plan provides for the granting of ISOs to purchase our common stock at
not less than the fair market value on the date of the option grant and the
granting of nonqualified options and SARs with any exercise price. SARs granted
in tandem with an option have the same exercise price as the related option.
Upon completion of this offering, options for an aggregate of 3,000,000 shares
will have been granted to various individuals, including options for 562,500
shares to Sidney Knafel, options for 843,750 shares to Michael Willner and
options for 843,750 shares to Kim Kelly. The plan contains limitations
applicable only to ISOs granted thereunder. To the extent that the aggregate
fair market value, as of the date of grant, of the shares to which ISOs become
exercisable for the first time by an optionee during the calendar year exceeds
$100,000, the option will be treated as a nonqualified option. In addition, if
an optionee owns more than 10% of the total voting power of all classes of
Insight's capital stock at the time the individual is granted an ISO, the option
price per share cannot be less than 110% of the fair market value per share and
the term of the
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ISO cannot exceed five years. No option or SAR may be granted under the plan
after June 25, 2009, and no option or SAR may be outstanding for more than ten
years after its grant.
Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash, check or, under certain
circumstances, in shares of any class of Insight's common stock, or any
combination thereof. SARs, which give the holder the privilege of surrendering
such rights for the appreciation in the common stock between the time of the
grant and the surrender, may be settled, in the discretion of the Board or
committee, as the case may be, in cash, common stock, or in any combination
thereof. The exercise of an SAR granted in tandem with an option cancels the
option to which it relates with respect to the same number of shares as to which
the SAR was exercised. The exercise of an option cancels any related SAR with
respect to the same number of shares as to which the option was exercised.
Generally, options and SARs may be exercised while the recipient is performing
services for Insight and within three months after termination of such services.
The plan may be terminated at any time by the Board of Directors, which may
also amend the plan, except that without stockholder approval, it may not
increase the number of shares subject to the plan or change the class of persons
eligible to receive options under the plan.
CERTAIN TRANSACTIONS
On July 29, 1998, we entered into a letter of intent with Interactive
Channel, Inc., a subsidiary of Source Media, Inc., for the distribution and
marketing of Interactive Channel's interactive programming services of
LocalSource to customers of our systems. Michael S. Willner, the President,
Chief Executive Officer and a director of Insight, is a director of Source
Media. Pursuant to the letter of intent, we would pay Interactive Channel a
monthly license fee for the right to distribute LocalSource in an amount that is
based on the number of digital customers as adjusted for penetration. We would
share 50% of all revenues, other than advertising revenues, generated by
LocalSource. There can be no assurance that a definitive agreement will be
successfully negotiated with Interactive Channel, or, if negotiated, that such
agreement will be on the terms described in this prospectus. See
"Business--Products and Services--New and Enhanced Products and
Services--Interactive Digital Video."
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock upon completion of the exchange of partnership
interests for common stock by each of the following:
o each person who is known by us to beneficially own more than 5% of our
common stock;
o each of our directors and nominees; and
o all directors and executive officers as a group.
Unless otherwise indicated, the address of each person named in the table
below is Insight Communications Company, Inc., 126 East 56th Street, New York,
New York 10022. The amounts and percentage of common stock beneficially owned
are reported on the basis of regulations of the SEC governing the determination
of beneficial ownership of securities. Under the rules of the SEC, a person is
deemed to be a "beneficial owner" of a security if that person has or shares
"voting power," which includes the power to vote or to direct the voting of such
security, or "investment power," which includes the power to dispose of or to
direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities of which that person has a right to acquire
beneficial ownership within 60 days. Under these rules, more than one person may
be deemed a beneficial owner of the same securities and a person may be deemed
to be a beneficial owner of securities as to which such person has no economic
interest. The information set forth in the following table excludes any shares
purchased in the offering by the respective beneficial owner:
<TABLE>
<CAPTION>
CLASS A COMMON STOCK(1)
---------------------------------------------- PERCENT OF VOTE
CLASS B AS A SINGLE CLASS(1)
BEFORE OFFERING AFTER OFFERING COMMON STOCK(2) --------------------
--------------------- --------------------- --------------------- BEFORE AFTER
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT OFFERING OFFERING
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sidney R. Knafel(3)....... -- -- -- -- 6,854,002 71.2 57.3 48.9
Michael S. Willner(4)..... -- -- -- -- 1,493,207 15.15 12.5 10.7
Kim D. Kelly(5)........... -- -- -- -- 822,909 8.5 6.9 5.9
Thomas L. Kempner(6)...... 3,838,477 16.5 3,838,477 8.8 -- -- 3.2 2.7
James S. Marcus........... -- -- -- -- -- -- -- --
Loeb Investors Co.(6)..... 3,838,477 16.5 3,838,477 8.8 -- -- 3.2 2.7
Vestar Capital
Partners III,
L.P.(7)................. 10,096,078 43.3 10,096,078 23.0 -- -- 8.4 7.2
Prakash A. Melwani(7)..... 10,096,078 43.3 10,096,078 23.0 -- -- 8.4 7.2
Daniel S. O'Connell(7).... 10,096,078 43.3 10,096,078 23.0 -- -- 8.4 7.2
All executive officers,
directors and nominees
as a group
(7 persons)............. 15,059,555 60.7 15,059,555 33.2 10,295,118 95.8 89.2 77.2
</TABLE>
- ------------------
* Percentage of common stock beneficially owned does not exceed one percent.
(1) Holders of Class A common stock are entitled to one vote per share and
holders of Class B common stock are entitled to ten votes per share. Holders
of both classes of common stock will vote together as a single class on all
matters presented for a vote, except as otherwise required by law.
(2) No shares of Class B common stock will be sold in this offering.
(3) Represents 3,451,113 shares held by ICI Communications, Inc., of which
Mr. Knafel is the sole stockholder, 421,782 shares held by the estate of Mr.
Knafel's deceased wife and 2,981,107 shares held by trusts established for
the benefit of Mr. Knafel's children, each of which has agreed with Vestar
not to sell any shares during the 18-month period following the closing of
the offering. Does not include 562,500 shares of Class B common stock
underlying options granted pursuant to the Stock Option Plan, as they will
not be exercisable within 60 days after the closing of the offering.
(4) Includes 6,386 shares of Class B common stock held by his minor children.
Does not include 843,750 shares of Class B common stock underlying options
granted pursuant to the Stock Option Plan, as they will not be exercisable
within 60 days after the closing of the offering.
(5) Does not include 843,750 shares of Class B common stock underlying options
granted pursuant to the Stock Option Plan, as they will not be exercisable
within 60 days after the closing of the offering.
(6) Represents 1,712,966 shares held by Loeb Investors Co. LIX and 2,125,511
shares held by Loeb Investors Co. XXXVI, each of which may be deemed
beneficially owned by Mr. Kempner. Loeb Investor Co.'s address is
61 Broadway, New York, New York.
(7) Each of Mr. Melwani, a managing director of Vestar, and Mr. O'Connell, the
Chief Executive Officer of Vestar, may be deemed to beneficially own the
shares held by Vestar. Vestar's address is 245 Park Avenue, 41st floor, New
York, New York 10167.
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<PAGE>
CORPORATE STRUCTURE
The following chart sets forth our corporate structure upon completion of
the Kentucky acquisition and the commencement of consulting services to the
managed Indiana systems:
<TABLE>
<S> <C>
AT&T Broadband Coaxial
and Internet Insight Communications(1) Phoenix
Services Co-Issuer senior notes Co-Issuer senior notes
due 2006 due 2006
25% Common Equity 100% Preferred Equity
(non-voting) (voting)
Management Control
50% 50% 100%
Holding Company (2) Insight Holdings
75% Common Equity
100% (non-voting)
The Kentucky Systems The Indiana Systems The National Systems The Columbus System
425,400 customer(3) 450,500 customers(4) 86,800 customers 86,600 customers(5)
Borrower under Kentucky Borrower under Insight Indiana Borrower under Insight Conditional Guarantor of the notes
credit facilities credit facility credit facility Borrower under Insight Holdings
credit facility
</TABLE>
- ------------------
(1) The majority shareholder and an affiliate of Coaxial are co-issuers of
senior discount notes due 2008.
(2) The holding company structure will be set up upon completion of the Kentucky
acquisition. Currently, we have direct management control of the Indiana
systems.
(3) Upon completion of the Kentuckyt acquisition, Insight will have management
control.
(4) Includes 114,300 managed customers pending.
(5) Managed by Insight Holdings.
INSERT CHART
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<PAGE>
DESCRIPTION OF RECENT TRANSACTIONS
THE TRANSACTIONS TO ACQUIRE THE COLUMBUS SYSTEM
GENERAL
Insight Ohio, which owns the Columbus system, was formed as a Delaware
limited liability company. On August 21, 1998, a series of transactions were
completed to facilitate, among other things, the acquisition by Insight Ohio of
the Columbus system. Pursuant to these transactions:
o Coaxial Communications contributed to Insight Ohio substantially all of
the assets comprising the Columbus system for which Coaxial
Communications received a 25% non-voting common membership interest in
Insight Ohio as well as voting series A preferred interests and voting
series B preferred interests;
o Insight Holdings of Ohio, LLC, our wholly-owned subsidiary, contributed
$10.0 million in cash to Insight Ohio for which it received a 75%
non-voting common membership interest in Insight Ohio;
o Coaxial Communications and Phoenix, an affiliate of Coaxial
Communications, effected a private offering of the senior notes;
o Coaxial LLC, which is a 67.5% shareholder of Coaxial Communications, and
Coaxial Financing Corp. effected a private offering of the senior
discount notes; and
o Insight Holdings became the manager of Insight Ohio, Coaxial LLC and the
two other shareholders of Coaxial Communications, which are Coaxial DJM
LLC and Coaxial DSM LLC and Insight Holdings thereby has effective
control of the management and affairs of Insight Ohio, Coaxial
Communications, Coaxial LLC, Coaxial DJM LLC and Coaxial DSM LLC.
As a result of these transactions, we indirectly own 75% of the non-voting
common membership interest in Insight Ohio and Coaxial Communications owns the
remaining 25% non-voting common membership interest and the voting preferred
interests in Insight Ohio. Since Coaxial Communications is owned by Coaxial LLC,
Coaxial DJM LLC and Coaxial DSM LLC, which are entities in which we have no
ownership or economic interest, we have not consolidated the financial
statements of Insight Ohio with our financial statements.
DISTRIBUTIONS
Distributions to Coaxial Communications on the preferred interests will be
in such amounts as to allow for the payment of interest on the notes, with the
series A preferred interests to receive payments in priority to the series B
preferred interests. Insight Ohio will then make distributions to Insight
Holdings and Coaxial Communications in an amount equal to an estimate of their
respective tax liabilities. Insight Ohio will then distribute to Insight
Holdings a management fee equal to 3% of gross revenues. Thereafter,
distributions to Insight Holdings and Coaxial Communications are made only upon
approval of the management committee of Insight Ohio. Distributions in respect
of the membership interests of Insight Ohio and the management fee are
restricted under each of the indentures governing the notes and the Insight Ohio
credit facility.
REDEMPTION OF THE PREFERRED INTERESTS
The series A preferred interests have a liquidation preference of $140
million. Subject to Insight Holdings' agreement to use its commercially
reasonable efforts to obtain a refinancing proposal, 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 pledge agreement in respect of the collateral securing the senior notes, the
passage of ten days and upon request for redemption by the holders of the senior
notes. Insight Ohio may not otherwise redeem the series A preferred interests,
in whole or in part, without the consent of Barry Silverstein, Dennis J.
McGillicuddy and D. Stevens McVoy, who are the sole members of Coaxial LLC,
Coaxial DJM LLC and Coaxial DSM LLC, respectively.
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The series B preferred interests have an initial liquidation preference of
$30 million. Subject to Insight Holdings' agreement to use its commercially
reasonable efforts to obtain a refinancing proposal, Insight Ohio will be
required to redeem the series B preferred interests in full upon acceleration or
maturity of the senior discount notes, commencement of the enforcement of
remedies under the senior discount notes pledge agreement in respect of the
collateral securing the senior discount notes, the passage of ten days and upon
request for redemption by the holders of the senior discount notes. Insight Ohio
may not otherwise redeem the series B preferred interests, in whole or in part,
without the consent of the sole members of each of Coaxial LLC, Coaxial DJM LLC
and Coaxial DSM LLC. 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.
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 OF INSIGHT OHIO
Pursuant to the terms of the operating agreement of Insight Ohio, the
management of Insight Ohio is delegated to Insight Holdings. Insight Holdings
may not resign as the manager without the consent of Coaxial Communications and
the consent of the sole members of each of Coaxial LLC, Coaxial DJM LLC and
Coaxial DSM LLC except in the case of a permitted transfer of all of Insight
Holdings' membership interest to a successor, who will then become the manager.
If Coaxial Communications and the sole members of each of Coaxial LLC, Coaxial
DJM LLC and Coaxial DSM LLC consent to Insight Holdings' resignation as manager,
Insight Ohio will dissolve unless the members of Insight Ohio and the sole
members of each of Coaxial LLC, Coaxial DJM LLC and Coaxial DSM LLC elect to
continue the business of Insight Ohio and agree to a successor manager.
Insight Holdings is entitled to reimbursement from Insight Ohio for
expenses incurred 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 Coaxial LLC, Coaxial DJM LLC and Coaxial DSM LLC.
However, Insight Holdings is not entitled to reimbursement from Insight Ohio for
corporate overhead.
TRANSFER OF INTERESTS
Insight Holdings and Coaxial Communications may not sell, pledge or
otherwise transfer any part of their respective membership interests in Insight
Ohio, unless approved by the other member and the sole members of each of
Coaxial LLC, Coaxial DJM LLC and Coaxial DSM LLC, subject to a number of
significant exceptions, including transfers to related parties, redemption of
the preferred interests and pledges of the membership interests. In addition,
Insight Holdings may elect at any time, by delivering written notice of its
election to Coaxial Communications and the sole members of each of Coaxial LLC,
Coaxial DJM LLC and Coaxial DSM LLC, to require that a person designated by such
members purchase all of Insight Holdings' membership interest, for a nominal
purchase price. Insight Holdings would cease to manage Insight Ohio, Coaxial
LLC, Coaxial DJM LLC and Coaxial DSM LLC upon completion of the sale.
MANAGEMENT AGREEMENTS WITH COAXIAL LLC, COAXIAL DJM LLC AND COAXIAL DSM LLC
All of the issued and outstanding capital stock of Coaxial Communications
is held by Coaxial LLC, Coaxial DJM LLC and Coaxial DSM LLC. Coaxial LLC,
Coaxial DJM LLC and Coaxial DSM LLC have each entered into a management
agreement with Insight Holdings. Except for certain events, Coaxial LLC, Coaxial
DJM LLC and Coaxial DSM LLC have each delegated to Insight Holdings all rights
and powers of the member of such limited liability company with respect to the
management and conduct of the limited liability company's activities and
operation insofar as they relate to the ownership of shares of Coaxial
Communications and any senior discount notes. Insight Holdings is not entitled
to any compensation from Coaxial LLC, Coaxial DJM LLC or Coaxial DSM LLC under
any of the respective management agreements and is not deemed a partner,
co-venturer or other participant in the business or operations of Coaxial LLC,
Coaxial DJM LLC or Coaxial DSM LLC. Insight Holdings is not deemed a member of
Coaxial LLC, Coaxial DJM LLC or Coaxial DSM LLC.
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THE TRANSACTIONS TO ACQUIRE THE INDIANA SYSTEMS
GENERAL
Insight Indiana, which owns the Indiana systems, was formed as a Delaware
limited liability company. On October 31, 1998, a series of transactions were
completed to facilitate, among other things, the capitalization of Insight
Indiana. Pursuant to these transactions:
o We exchanged our Utah systems for systems owned by related parties of
AT&T Broadband & Internet Services in Evansville and Jasper, Indiana;
o We contributed to Insight Indiana the Evansville and Jasper systems
exchanged for our Utah systems together with other systems that we owned
and operated in Indiana and Kentucky, subject to debt, for which we
received a 50% membership interest in Insight Indiana;
o Several related parties of AT&T Broadband & Internet Services, including
TCI of Indiana Holdings, LLC, collectively contributed to Insight Indiana
systems that they owned and operated in Indiana, subject to debt, for
which TCI of Indiana Holdings, LLC received a 50% membership interest in
Insight Indiana;
o Insight Indiana entered into the $550 million Insight Indiana credit
facility;
o The Insight debt and the TCI debt was repaid from funds drawn down from
the Insight Indiana credit facility; and
o Insight became the manager of Insight Indiana.
DISTRIBUTIONS
Insight Indiana is required to make distributions to us in an amount equal
to an estimate of our tax liabilities and then make a pro rata distribution to
TCI Holdings. Insight Indiana may make additional distributions only upon
approval by us and TCI Holdings. Distributions in respect of the membership
interests of Insight Indiana are restricted under the Insight Indiana credit
facility. We are entitled to receive a management fee from Insight Indiana equal
to 3% of the total gross operating revenues of Insight Indiana.
MANAGEMENT OF INSIGHT INDIANA
Under the terms of the operating agreement of Insight Indiana, the
management of Insight Indiana is delegated to us. We may not resign as manager
without the consent of TCI Holdings. If TCI Holdings consents to our resignation
as manager, Insight Indiana will dissolve unless the members elect to continue
the business of Insight Indiana and either TCI Holdings elects to become the new
manager or, if TCI Holdings does not so elect, Insight and TCI Holdings agree to
a successor manager. The operating agreement prohibits Insight Indiana from
taking certain actions, including most significant dispositions of assets,
without the consent of TCI Holdings and Insight, unless we reimburse TCI
Holdings for any adverse tax consequences.
TRANSFERS OF INTERESTS
Neither we nor TCI Holdings may sell, pledge or otherwise transfer our
respective membership interests in Insight Indiana unless such transfer is
approved by the other member or such transfer is to a related party. Commencing
on October 30, 2003, we and AT&T Broadband & Internet Services each have the
right to commence a process in which we or AT&T Broadband & Internet Services
would each have the right to redeem the other's 50% interest in Insight Indiana.
THE TRANSACTIONS TO ACQUIRE THE KENTUCKY SYSTEMS
In April 1999, we entered into an agreement with Blackstone Capital,
InterMedia Capital Management VI, LLC and a subsidiary (TCI ICM VI, Inc.) and
related party (Leo J. Hindery, Jr.) of AT&T Broadband & Internet Services to
purchase a combined 50% interest in InterMedia Capital Partners VI, L.P. for
$335.0 million, including expenses, which was calculated based upon InterMedia's
total outstanding debt
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plus accrued interest, which was $738.9 million as of March 31, 1999. The
purchase price is subject to adjustment for certain events including an increase
in the purchase price by 50% of certain capital expenditures incurred by
InterMedia Capital Partners VI, L.P. between April 13, 1999 and completion of
the Kentucky acquisition, which capital expenditures relate to rebuilds of the
Kentucky systems' network capacity and the purchase of digital converters and
related inventory. TCI Holdings will own the other 50% interest in the Kentucky
systems. Pending completion of the Kentucky acquisition, InterMedia Capital
Management VI, LLC will continue to manage InterMedia Capital Partners VI, L.P.
The completion of the Kentucky acquisition is subject to several conditions
including
o receipt or waiver of all necessary material consents from third parties;
o absence of any material adverse changes in the conditions, properties or
business of the Kentucky systems; and
o notification, approval and compliance with the requirements of
appropriate governmental agencies, including, without limitation,
approval of cable television franchise authorities. We anticipate that
the acquisition will be completed during the second half of 1999.
There can be no assurance that the Kentucky acquisition will be completed on the
terms described in this prospectus, or at all. This offering is not contingent
or in any way dependent on the Kentucky acquisition.
In April 1999, we also entered into an agreement with TCI Holdings to form
a new limited partnership which will serve as a holding company for both Insight
Indiana and the Kentucky systems. Insight and TCI Holdings would each have a 50%
interest in this new entity. This reorganization is subject to the completion of
the Kentucky acquisition and several other conditions set forth in the
agreement, including the successful negotiation of a management agreement. We
expect that the terms of the management agreement will be similar to the terms
of our management agreement concerning the Indiana systems.
THE TRANSACTION WITH AT&T
In December 1998, we entered into a letter of intent with AT&T to form a
joint venture which would provide local or any-distance communication services,
other than mobile wireless services, video entertainment services and high-speed
Internet access services, to residential consumers and small business customers
under the "AT&T" brand name over our cable network. The joint venture would have
the exclusive right to use our cable network for such services and would have
access to wholesale bulk long distance services and other network services from
AT&T. AT&T would have majority representation on the Board of Directors of the
joint venture, appoint all officers of the joint venture and manage the
day-to-day operations of the joint venture. The joint venture would have a
15-year term with one five-year extension at AT&T's sole election.
The following points summarize the material terms under the letter of
intent:
o we are required to invest between 35% and 49% in the joint venture;
o we will receive payments based on number of homes passed upon receipt of
certification;
o we will be responsible to upgrade our plant to meet telephone
certification requirements;
o the joint venture will be responsible for all capital associated with
customer premise equipment and operating expenses; and
o we will receive a monthly operating payment for the license of our plant
to the joint venture.
Formation of the joint venture is subject to certain conditions precedent,
including the successful negotiation of definitive agreements. We cannot predict
if or when such conditions would be met or that the terms of the definitive
agreements will be on the same terms described in this prospectus.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITIES
Financings of Insight, Insight Indiana and Insight Ohio are currently
effected through three stand-alone credit facilities, each having a separate
lending group. The credit facilities of Insight Indiana and Insight Ohio are
non-recourse to us, and none of the three credit facilities has any
cross-default provisions relating directly to each other. Each credit facility
has different revolving credit and term periods and contains separately
negotiated, specifically tailored covenants.
INSIGHT CREDIT FACILITY
On December 21, 1998, we entered into a restatement of the Insight credit
facility with a group of banks and other financial institutions led by The Bank
of New York. The Insight credit facility provides for revolving credit loans of
up to $140 million, including a letter of credit subfacility of up to
$5 million. Loans under the Insight credit facility may be used for working
capital, capital expenditures and other general purposes, including
acquisitions. The Insight credit facility matures in December 2005, with
quarterly reductions in the amount of outstanding loans and commitments
commencing in March 2000. Obligations under the Insight credit facility are
secured by substantially all of our assets and our interests in our
subsidiaries. Loans under the Insight credit facility bear interest, at our
option, at an alternate base or Eurodollar rate, plus an additional margin tied
to our ratio of total debt to adjusted annualized operating cash flow, in the
case of alternate base rate loans ranging in increments from 1.25% when such
ratio exceeds 6.5:1.0 and zero when such ratio is less than 4.5:1.0, and, in the
case of Eurodollar loans, ranging in increments from 2.5% when such ratio
exceeds 6.5:1.0 and 1.0% when such ratio is less than 3.5:1.0.
The Insight credit facility contains a number of covenants that, among
other things, restricts our ability to make capital expenditures, acquire or
dispose of assets, incur additional indebtedness, pay dividends or other
distributions, create liens on assets, make investments, and engage in
transactions with related parties. In addition, the Insight credit facility
requires compliance with certain financial ratios, requires us to enter into
interest rate protection agreements covering at least 40% of our total
indebtedness and also contains customary events of default. To date, the
proceeds of term and revolving credit borrowings under the Insight credit
facility have been used for the introduction of new and enhanced products and
services for our customers, strategic acquisitions and general corporate
activities. As of March 31, 1999, there was approximately $124.1 million
outstanding under the Insight credit facility.
INSIGHT INDIANA CREDIT FACILITY
On October 31, 1998, Insight Indiana entered into a senior credit facility
with a group of banks and other financial institutions led by The Bank of New
York. The Insight Indiana credit facility provides for term loans of
$300 million and for revolving credit loans of up to $250 million, including a
letter of credit subfacility of up to $25 million. Loans under the Insight
Indiana credit facility may be used to finance acquisitions, capital
expenditures and for working capital and general purposes. The Insight Indiana
credit facility matures in December 2006, with quarterly reductions in the
amount of outstanding loans and commitments commencing in March 2001.
Obligations under the Insight Indiana credit facility are secured by the
membership interests of Insight Indiana owned by us and TCI Holdings and any
amounts payable by Insight Indiana to us and TCI Holdings. Loans under the
Insight Indiana credit facility bear interest, at Insight Indiana's option, at
an alternate base or Eurodollar rate, plus an additional margin tied to Insight
Indiana's ratio of total debt to adjusted annualized operating cash flow, in the
case of alternate base loans ranging in increments from 0.75% when such ratio
equals or exceeds 6.0:1.0 and zero when such ratio is less than 5.0:1.0, and, in
the case of Eurodollar loans, ranging in increments from 2.0% when such ratio
equals or exceeds 6.0:1.0 and 0.75% when such ratio is less than 3.5:1.0.
The Insight Indiana credit facility contains a number of covenants that,
among other things, restricts the ability of Insight Indiana to make capital
expenditures, acquire or dispose of assets, incur additional indebtedness, pay
dividends or other distributions, create liens on assets, make investments, and
engage in transactions with related parties. In addition, the Insight Indiana
credit facility requires compliance with certain financial ratios, requires
Insight Indiana to enter into interest rate protection agreements covering at
least 40% of its total indebtedness and also contains customary events of
default. To date, the proceeds of term and revolving credit borrowings under the
Insight Indiana credit facility have been used primarily to repay indebtedness
secured by or relating to the cable system assets transferred to Insight Indiana
by Insight
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and TCI and for general corporate activities. As of March 31, 1999, there was
approximately $466.0 million outstanding under the Insight Indiana credit
facility.
INSIGHT OHIO CREDIT FACILITY
On October 7, 1998, Insight Ohio entered into a senior credit facility with
a group of banks and other financial institutions led by Canadian Imperial Bank
of Commerce. The Insight Ohio credit facility provides for revolving credit
loans of $25.0 million to finance capital expenditures and for working capital
and general purposes, including the rebuild of the Columbus system's network and
for the introduction of new video services. The Insight Ohio credit facility has
a six-year maturity, with quarterly reductions to the amount of the commitment
commencing on March 31, 2002. The obligations under the Insight Ohio credit
facility are secured by substantially all of the assets of Insight Ohio. Loans
under the Insight Ohio credit facility bear interest, at Insight Ohio's option,
at the prime or Eurodollar rate, plus an additional margin tied to Insight
Ohio's ratio of total debt to adjusted annualized operating cash flow, in the
case of prime rate loans, 0.75% or, if under a 5.0:1.0 ratio, 0.25%; and in the
case of Eurodollar loans, 2.0% or, if under a 5.0:1.0 ratio, 1.5%.
The Insight Ohio credit facility contains a number of covenants that, among
other things, restricts the ability of Insight Ohio to make capital
expenditures, acquire or dispose of assets, incur additional indebtedness, pay
dividends or other distributions, create liens on assets, make investments, and
engage in transactions with related parties. In addition, the Insight Ohio
credit facility requires compliance with certain financial ratios, and also
contains customary events of default. As of March 31, 1999, there was no debt
outstanding under the Insight Ohio credit facility.
KENTUCKY CREDIT FACILITIES
On April 30, 1998, InterMedia Partners VI, L.P., a subsidiary of InterMedia
Capital Partners VI, L.P., entered into a senior credit facility with a group of
banks and other financial institutions led by Toronto Dominion (Texas), Inc., as
amended on March 23, 1999. This senior credit facility provides for two term
loans of $100.0 million and $250.0 million and for revolving credit loans of up
to $325.0 million, including up to $5.0 million of immediately available funds.
Loans under the $675.0 million Kentucky credit facility may be used to refinance
debt, finance acquisitions, capital expenditures and for working capital and
general corporate purposes as permitted by the agreement. The term loans mature
in September and December 2007 and the revolving credit loans mature in October
2006, with quarterly reductions in the amount of outstanding revolving credit
loans and commitments commencing in June 2001. Obligations under the
$675.0 million Kentucky credit facility are secured by all of the partnership
interests of InterMedia Partners VI, L.P. and any intercompany notes made in
favor of InterMedia Partners VI, L.P. Revolving loans under the $675.0 million
Kentucky credit facility bear interest, at InterMedia Partners VI, L.P.'s
option, at an alternate base or Eurodollar rate, plus an additional margin tied
to InterMedia Partners VI, L.P.'s ratio of total debt to annualized cash flow,
in the case of alternate base revolving loans ranging from 0.875% when such
ratio exceeds 6.5:1.0 and zero when such ratio is less than or equal to 5.0:1.0,
and, in the case of Eurodollar revolving loans, ranging from 1.875% when such
ratio exceeds 6.5:1.0 and 0.500% when such ratio is less than or equal to
4.0:1.0. The term loans under the $675.0 million Kentucky credit facility also
bear interest, at InterMedia Partners VI, L.P.'s option, at an alternate base or
Eurodollar rate, plus an additional margin tied to InterMedia Partners VI,
L.P.'s ratio.
The $675.0 million Kentucky credit facility contains a number of covenants
that, among other things, restrict the ability of InterMedia Partners VI, L.P.
to make capital expenditures, acquire or dispose of assets, incur additional
indebtedness, pay dividends or other distributions, create liens on assets, make
investments, and engage in transactions with related parties. In addition, the
$675.0 million Kentucky credit facility requires compliance with certain
financial ratios, requiring InterMedia Partners VI, L.P. to enter into interest
rate protection agreements covering at least 50% of its total indebtedness and
also contains customary events of default. As of March 31, 1999, there was
approximately $555.0 million outstanding under the $675.0 million Kentucky
credit facility.
On April 30, 1998, InterMedia Partners Group VI, L.P., a subsidiary of
InterMedia Capital Partners VI, L.P., entered into a credit facility with a
group of banks and other financial institutions led by Toronto Dominion (Texas),
Inc., as amended on March 23, 1999. This credit facility provides for a
subordinated term loan of $125.0 million. Loans under the $125.0 million
Kentucky credit facility may be used to refinance
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debt and to make contributions to subsidiaries. The term loan matures in April
2008, with quarterly installments payable commencing in June 2001. Obligations
under the $125.0 million Kentucky credit facility are secured by all of the
partnership interests of InterMedia Partners VI, L.P. and InterMedia Partners
Group VI, L.P. and any intercompany notes made in favor of InterMedia Partners
Group VI, L.P. The term loan bears interest, at InterMedia Partners Group VI,
L.P.'s option, at an alternate base or at an Eurodollar rate, plus in the case
of Eurodollar term loans an additional margin of 2.75%.
The $125.0 million Kentucky credit facility contains a number of covenants
that, among other things, restrict the ability of InterMedia Partners Group VI,
L.P. to make capital expenditures, acquire or dispose of assets, incur
additional indebtedness, pay dividends or other distributions, create liens on
assets, make investments, and engage in transactions with affiliates. In
addition, the $125.0 million Kentucky credit facility requires compliance with
certain financial ratios, requires InterMedia Partners Group VI, L.P. to enter
into interest rate protection agreements covering at least 50% of its total
indebtedness and also contains customary events of default. As of March 31,
1999, there was approximately $125.0 million outstanding under the
$125.0 million Kentucky credit facility.
Subsidiaries of AT&T Broadband & Internet Services have agreed to advance
InterMedia Partners VI, L.P. and InterMedia Partners Group VI up to
$489.5 million under certain events, including InterMedia Partners VI, L.P. and
InterMedia Partners Group VI, L.P. being unable to make payments under the
$675.0 million Kentucky credit facility and the $125.0 million Kentucky credit
facility.
On April 30, 1998, InterMedia Partners Group VI, L.P. entered into another
credit facility with a group of banks and other financial institutions led by
Toronto Dominion (Texas), Inc., as amended on March 23, 1999 and May 14, 1999.
This credit facility provides for a subordinated term loan of $60 million. Loans
under the $60.0 million Kentucky credit facility may be used to refinance debt
and to make contributions to subsidiaries. The term loan matures on January 1,
2000. The term loans under the $60.0 million Kentucky credit facility bear
interest, at InterMedia Partners Group VI, L.P.'s option, at an alternate base
or at an Eurodollar rate, plus in the case of Eurodollar term loans an
additional margin of 0.50% through September 30, 1999 and 0.625% after that
date. As of March 31, 1999, there was approximately $53.0 million outstanding
under the $60.0 million Kentucky credit facility.
COLUMBUS NOTES
In connection with the contribution of the Columbus system to Insight Ohio,
Coaxial Communications and Phoenix issued $140.0 million aggregate principal
amount of their 10% senior notes due 2006, and Coaxial LLC and Coaxial Financing
Corp. issued approximately $55.9 million aggregate principal amount at maturity
of their 12 7/8% senior discount notes due 2008. Each series of notes is
conditionally guaranteed on a senior unsecured basis by Insight Ohio. Such
guarantees will only become 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 preferred interests discussed below.
Interest on the senior notes is payable semi-annually on each February 15
and August 15. Cash interest on the senior discount notes will not begin to
accrue until August 15, 2003, and thereafter will be payable semi-annually on
each February 15 and August 15. Insight Ohio has outstanding the series A
preferred interests and the series B preferred interests with liquidation
preferences equal in amount to the principal or accreted amounts of the notes
and providing for distributions in amounts equal to the interest payments on the
notes. The series A preferred interests relating to the senior notes have
priority over the series B preferred interests relating to the senior discount
notes with respect to both distributions and redemptions. Furthermore, the
conditional guarantee of the senior discount notes is subordinated to the prior
payment in full of all obligations with respect to the conditional guarantee of
the senior notes. The Indentures impose restrictions on the ability of the
issuers of the Notes and Insight Ohio to, among other things, make capital
expenditures, acquire or dispose of assets, incur additional indebtedness, pay
dividends or other distributions, create liens on assets, make investments, and
engage in transactions with related parties. The issuers of the notes are
prohibited from conducting any business activities.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capitalization consists of 300,000,000 shares of Class A
common stock, par value $.01 per share, 100,000,000 shares of Class B common
stock, par value $.01 per share, and 100,000,000 shares of preferred stock, par
value $.01 per share.
Concurrently with the completion of this offering, the holders of the
general and limited partnership interests of Insight Communications Company,
L.P. will exchange all of their partnership interests for Class A and Class B
common stock in accordance with a formula based on the value ascribed to Insight
Communications Company, L.P.'s equity as a result of this offering. As a result
of the exchange, Insight Communications Company, L.P. will become a wholly-owned
subsidiary of Insight. Our assets and liabilities will remain with Insight
Communications Company, L.P. and our business operations will continue to be
conducted through Insight Communications Company, L.P.
Upon completion of the exchange of partnership interests for common stock
and without giving effect for this offering, 23,306,236 shares of Class A common
stock will be outstanding, and 9,626,967 shares of Class B common stock will be
outstanding. No shares of preferred stock will be outstanding.
COMMON STOCK
The rights of the holders of Class A and Class B common stock are
substantially identical in all respects, except for their voting rights. Only
members of our management and certain permitted transferees, as defined in our
certificate of incorporation, may hold Class B common stock. Our agreement with
Vestar further restricts eligible holders of Class B common stock. The Vestar
agreement terminates at such time as Vestar's shares constitute less than 10% of
the shares they held upon closing of this offering. Under our agreement with
Vestar, we have agreed to issue additional shares of Class B common stock only
to senior executives under an option plan, provided that the maximum number of
shares that may be issued does not exceed 3% of the fully-diluted outstanding
common stock and that the exercise price at the options are at fair market
value. There is no limitation on who may hold Class A common stock. Holders of
Class A common stock are entitled to one vote per share. Holders of Class B
common stock are entitled to ten votes per share. Holders of all classes of
common stock entitled to vote will vote together as a single class on all
matters presented to the stockholders for their vote or approval, except as
otherwise required by the Delaware General Corporation Law. Under Delaware law,
the holders of each class of common stock are entitled to vote as a separate
class with respect to any amendment to our certificate of incorporation that
would increase or decrease the aggregate number of authorized shares of such
class, increase or decrease the par value of such class, or modify or change the
powers, preferences or special rights of the shares of such class so as to
affect such class adversely. Our certificate of incorporation does not provide
for cumulative voting for the election of our directors, with the result that
stockholders owning or controlling more than 50% of the total votes cast for the
election of directors can elect all of the directors. See "Risk Factors--Members
of management, as major stockholders, possess unequal voting rights resulting in
the ability to control all major corporate decisions, and other shareholders may
be unable to influence these corporate decisions."
Subject to the dividend rights of holders of preferred stock, holders of
both classes of common stock are entitled to receive dividends when, as and if
declared by the board of directors out of funds legally available for this
purpose. In the event of our liquidation, dissolution or winding up, the holders
of both classes of common stock are entitled to receive on a pro rata basis any
assets remaining available for distribution after payment of our liabilities and
after provision has been made for payment of liquidation preferences to all
holders of preferred stock. Holders of Class A and Class B common stock have no
conversion or redemption provisions or preemptive or other subscription rights,
except that in the event any shares of Class B common stock held by a member of
the management group are transferred outside the management group, such shares
will be converted automatically into shares of Class A common stock on a
one-for-one basis.
PREFERRED STOCK
Our certificate of incorporation authorizes us to issue 100,000,000 shares
of "blank check" preferred stock having rights senior to our common stock. Our
Board of Directors is authorized, without further stockholder approval, to issue
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, redemption terms and liquidation preferences, and to fix
the number of shares constituting any series and the designations of these
series.
The issuance of preferred stock may have the effect of delaying or
preventing a change of control of Insight. The issuance of preferred stock could
decrease the amount of earnings and assets available for distribution to the
holders of common stock or could adversely affect the voting power or other
rights of the holders of Class A and Class B common stock. We currently have no
plans to issue any shares of preferred stock.
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LIMITATION OF LIABILITY
As permitted by Delaware law, our certificate of incorporation provides
that our directors shall not be personally liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability:
o for any breach of the director's duty of loyalty to us or our
stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o under Section 174 of the Delaware General Corporation Law, relating to
unlawful payment of dividends or unlawful stock purchases or redemption
of stock; or
o for any transaction from which the director derives an improper personal
benefit.
As a result of this provision, we and our stockholders may be unable to obtain
monetary damages from a director for breach of his or her duty of care.
Our certificate of incorporation and by-laws provide for the
indemnification of our directors and officers, and, to the extent authorized by
the Board of Directors in its sole and absolute discretion, employees and
agents, to the fullest extent authorized by, and subject to the conditions set
forth in Delaware law, except that we will indemnify a director or officer in
connection with a proceeding or part thereof, initiated by such person, only if
the proceeding or part thereof was authorized by our Board of Directors. The
indemnification provided under the certificate of incorporation and by-laws
includes the right to be paid the expenses, including attorneys's fees, in
advance of any proceeding for which indemnification may be had, provided that
the payment of these expenses, including attorneys' fees, incurred by a
director, officer, employee or agent in advance of the final disposition of a
proceeding may be made only upon delivery to us of an undertaking by or on
behalf of the director, officer, employee or agent to repay all amounts so paid
in advance if it is ultimately determined that the director or officer is not
entitled to be indemnified.
Under the by-laws, we have the power to purchase and maintain insurance on
behalf of any person who is or was one of our directors, officers, employees or
agents, against any liability asserted against the person or incurred by the
person in any such capacity, or arising out of the person's status as such, and
related expenses, whether or not we would have the power to indemnify the person
against such liability under the provisions of Delaware law. We currently have
no plans to purchase director and officer liability insurance on behalf of our
directors and officers.
DELAWARE ANTI-TAKEOVER LAW
We will be subject to the provisions of Section 203 of Delaware law.
Section 203 prohibits publicly held Delaware corporations from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless:
o prior to the business combination our Board of Directors approved either
the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
o upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, such stockholder owned at least 85%
of our outstanding voting stock at the time such transaction commenced,
excluding for such purposes shares owned (i) by our officers and
directors and (ii) employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer; or
o at or subsequent to such time the business combination is approved by our
Board of Directors and authorized at an annual or special meeting of our
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of our outstanding voting stock which is not owned by the
interested stockholder.
A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years did own,
15% or more of the corporation's voting stock. These provisions could have the
effect of delaying, deferring or preventing a change of control of Insight or
reducing the price that certain investors might be willing to pay in the future
for shares of our Class A common stock.
TRANSFER AGENT
The transfer agent for our Class A common stock will be The Bank of New
York, a New York banking corporation.
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SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon the completion of this offering, we will have 53,433,230 shares of
common stock issued and outstanding. All outstanding shares of common stock will
be "restricted securities" as that term is defined in Rule 144 and are also
subject to certain restrictions on disposition. Restricted securities may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rule 144 or Rule 701 under the Securities Act. Sales of
restricted securities in the public market, or the availability of such shares
for sale, could have an adverse effect on the price of the Class A common stock.
See "Dilution."
REGISTRATION RIGHTS
We and Vestar have entered into a registration rights agreement, pursuant
to which we have granted to Vestar various demand rights to cause us to file a
registration statement under the Securities Act covering resales of all shares
of common stock held by Vestar, and to cause such registration statement to
become effective. The registration rights agreement also grants "piggyback"
registration rights permitting Vestar to include its registrable securities in a
registration of securities by us. We are obligated to pay the expenses of such
registrations.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
Class A common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of either
of the following:
o 1% of the number of shares of Class A common stock then outstanding,
which will equal approximately 43,806,263 shares immediately after this
offering; and
o the average weekly trading volume of the common stock on The Nasdaq Stock
Market during the four calendar weeks preceding the filing of a notice on
Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about Insight.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
"affiliates" at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an "affiliate," is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering. The sale of such shares, or the perception that
sales will be made, could adversely effect the price of our Class A common stock
after the offering because a greater supply of shares would be, or would be
perceived to be, available for sale in the public market.
FURTHER RESTRICTIONS ON TRANSFER FOR CERTAIN PERSONS
Each of us, our executive officers, our directors, our stockholders prior
to this offering and our employees who purchase in excess of 100 shares in this
offering, have agreed that, for a period of 180 days from the date of this
prospectus, they will not, without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation, do either of the following:
o offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
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directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
o enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of the common
stock.
Either of the foregoing transaction restrictions will apply regardless of
whether a covered transaction is to be settled by the delivery of common stock
or such other securities, in cash or otherwise. In addition, during such period,
we have agreed not to file any registration statement with respect to, and each
of our executive officers and directors has agreed not to make any demand for,
or exercise any right with respect to, the registration of any shares of common
stock or any securities convertible into or exercisable for common stock without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. See "Underwriters."
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UNDERWRITERS
Subject to the terms and conditions contained in an underwriting agreement,
dated , 1999, the underwriters named below, who are represented
by Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co.
Incorporated, CIBC World Markets Corp. and Deutsche Bank Securities Inc., have
severally agreed to purchase from us the number of shares set forth opposite
their names below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........................
Morgan Stanley & Co. Incorporated...........................................
CIBC World Markets Corp.....................................................
Deutsche Bank Securities Inc................................................
----------
Total....................................................................... 20,500,000
----------
----------
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of certain legal matters by their counsel and
to certain other conditions including the effectiveness of the registration
statement, the continuing correctness of our representations, the receipt of a
"comfort letter" from our accountants, the listing of the Class A common stock
on the NMS and no occurrence of an event that would have a material adverse
effect on us. The underwriters are obligated to purchase and accept delivery of
all the shares, other than those covered by the over-allotment option described
below, if they purchase any of the shares.
The underwriters propose initially to offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to certain dealers at the public offering
price less a concession not in excess of $ per share. The underwriters may
allow, and such dealers may re-allow, a concession not in excess of $ per
share on sales to certain other dealers. After the initial offering of the
shares to the public, the representatives may change the public offering price
and such concessions. The underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
The following table shows the underwriting fees to be paid to the
underwriters by us in connection with this offering. The amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of Class A common stock.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share...................................................... $ $
Total.......................................................... $ $
</TABLE>
We have granted to the underwriters an option, exercisable for 30 days from
the date of the underwriting agreement, to purchase up to 3,075,000 additional
shares at the public offering price less the underwriting fees. The underwriters
may exercise such option solely to cover over-allotments, if any, made in
connection with this offering. To the extent that the underwriters exercise such
option, each underwriter will become obligated, subject to certain conditions,
to purchase a number of additional shares approximately proportionate to such
underwriter's initial purchase commitment.
We estimate our expenses relating to the offering to be $ .
We and the underwriters have agreed to indemnify each other against certain
civil liabilities, including liabilities under the Securities Act.
96
<PAGE>
Each of us, our executive officers, our directors, our stockholders prior
to this offering and our employees who purchase in excess of 100 shares in this
offering, have agreed that, for a period of 180 days from the date of this
prospectus, they will not, without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation do either of the following:
o offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
o enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock.
Either of the foregoing transaction restrictions will apply regardless of
whether a covered transaction is to be settled by the delivery of common stock
or such other securities, in cash or otherwise. In addition, during such period,
we have agreed not to file any registration statement with respect to, and each
of our executive officers and directors has agreed not to make any demand for,
or exercise any right with respect to, the registration of any shares of common
stock or any securities convertible into or exercisable for common stock without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
At our request, the underwriters have reserved up to five percent of the
shares offered hereby for sale at the initial public offering price to certain
of our employees, members of their immediate families and other individuals who
are our business associates. The number of shares of Class A common stock
available for sale to the general public will be reduced to the extent these
individuals purchase such reserved shares. Any reserved shares not purchased
will be offered by the underwriters to the general public on the same basis as
the other shares offered hereby.
Application will be made to list the Class A common stock on the NMS under
the symbol "ICCIA." In order to meet the requirements for listing the Class A
common stock on the NMS, the underwriters have undertaken to sell lots of 100 or
more shares to a minimum of 400 beneficial owners.
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of Class A common
stock included in this offering in any jurisdiction where action for that
purpose is required. The shares included in this offering may not be offered or
sold, directly or indirectly, nor may this prospectus or any other offering
material or advertisement in connection with the offer and sale of any such
shares be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons who receive this prospectus are
advised to inform themselves about and to observe any restrictions relating to
this offering of Class A common stock and the distribution of this prospectus.
This prospectus is not an offer to sell or a solicitation of an offer to buy any
shares of Class A common stock included in this offering in any jurisdiction
where that would not be permitted or legal.
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a member of the selling group, is facilitating the distribution
of the shares sold in the offering over the Internet. The underwriters have
agreed to allocate a limited number of shares to DLJdirect Inc. for sale to its
brokerage account holders.
DLJ Fund Investment Partners, L.P., an affiliate of Donaldson, Lufkin &
Jenrette Securities Corporation, is a limited partner of Vestar Capital Partners
III, L.P.
CIBC World Markets Corp. or affiliates of CIBC World Markets have provided
and may in the future provide investment banking or other financial advisory
services to us and our affiliates in the ordinary course of business, for which
they have received and are expected to receive customary fees and expenses. The
Insight Ohio credit facility was provided by a group of banks led by Canadian
Imperial Bank of Commerce, an affiliate of CIBC World Markets Corp. CIBC World
Markets was the initial purchaser of the senior notes and the senior discount
notes issued in connection with the acquisition of the Columbus system. See
"Description of Recent Transactions" and "Description of Certain Indebtedness."
97
<PAGE>
We have received a commitment from DLJ Bridge Finance, Inc., an affiliate
of Donaldson, Lufkin & Jenrette Securities Corporation, that if this offering is
not completed prior to the completion of the Kentucky acquisition, financing for
the Kentucky acquisition will be provided by a group of banks led by DLJ Bridge
Finance. In consideration for this commitment, we paid DLJ Bridge Finance a
commitment fee of $3,500,000 and agreed to pay it an additional fee if the
financing is drawn on.
Any underwriters who own indebtedness under the Insight credit facility
will receive their proportionate share of the repayment of the credit facility
with the proceeds from the sale of the common stock. Because potentially more
than 10% of the proceeds from this offering, not including underwriting
compensation, may be received by such underwriters, as lenders under the Insight
credit facility, this offering is being conducted in accordance with
Rule 2710(c)(8) of the Conduct Rules of the National Association of Securities
Dealers, which requires that the initial public offering price be no higher than
that recommended by a "qualified independent underwriter." In accordance with
this requirement, Donaldson, Lufkin & Jenrette Securities Corporation has
assumed the responsibilities of acting as a qualified independent underwriter
and recommended an initial public offering price in compliance with the
requirements of Rule 2720 of the Conduct Rules of the NASD. In connection with
this offering, Donaldson, Lufkin & Jenrette Securities Corporation has performed
due diligence investigations and reviewed and participated in the preparation of
this prospectus and the registration statement of which this prospectus forms a
part. As compensation for the services of Donaldson, Lufkin & Jenrette
Securities Corporation as a qualified independent underwriter, Insight has
agreed to pay Donaldson, Lufkin & Jenrette Securities Corporation $5,000.
STABILIZATION
In connection with this offering, certain underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Class A common stock. Specifically, the underwriters may overallot this
offering, creating a syndicate short position. In addition, the underwriters may
bid for and purchase shares of Class A common stock in the open market to cover
syndicate short positions or to stabilize the price of the Class A common stock.
In addition, the underwriting syndicate may reclaim selling concessions from
syndicate members and selected dealers if they repurchase previously distributed
Class A common stock in syndicate covering transactions, in stabilizing
transactions or otherwise. These activities may stabilize or maintain the market
price of the Class A common stock above independent market levels. The
underwriters are not required to engage in these activities and may end any of
these activities at any time.
PRICING OF THIS OFFERING
Prior to the offering, there has been no established market for the
Class A common stock. The initial public offering price for the shares of
Class A common stock offered by this prospectus will be determined by
negotiation among Insight and the representatives of the underwriters. The
factors to be considered in determining the initial public offering price
include:
o The history of and the prospects for the industry in which we compete;
o Our past and present operations;
o Our historical results of operations;
o Our prospects for future earnings;
o The recent market prices of securities of generally comparable companies;
and
o General conditions of the securities market at the time of this offering.
LEGAL MATTERS
The validity of the shares of Class A common stock offered hereby will be
passed upon for Insight by Cooperman Levitt Winikoff Lester & Newman, P.C., New
York, New York. Latham & Watkins, New York, New York, has acted as counsel for
the underwriters in connection with this offering. Members and related parties
of Cooperman Levitt Winikoff Lester & Newman, P.C. will own in the aggregate
178,463 shares of Class A common stock upon the closing of the offering.
98
<PAGE>
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1998 and 1997, and for each of the three
years in the period ended December 31, 1998, and the financial statements of
Insight Communications of Central Ohio, LLC at December 31, 1998 and for the
year then ended, as set forth in their reports. We have included our financial
statements and the financial statements of Insight Communications of Central
Ohio, LLC in this prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's reports, given on their authority as experts in
accounting and auditing.
The combined financial statements of TCI Insight Systems as of October 31,
1998 and December 31, 1997 and for the ten-month period ended October 31, 1998
and for each of the years in the two-year period ended December 31, 1997 have
been included herein and in this prospectus in reliance upon the report of KPMG
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
The combined financial statements of TCI IPVI Systems as of April 30, 1998
and December 31, 1997 and for the four-month period ended April 30, 1998 and for
each of the years in the two-year period ended December 31, 1997 have been
included herein and in this prospectus in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of InterMedia Capital Partners VI,
L.P., as of December 31, 1998 and for the period April 30, 1998 (commencement of
operations) to December 31, 1998 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Central Ohio Cable System Operating Unit as of
December 31, 1997 and for the two years then ended, included in this Prospectus,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report and are included herein in reliance upon the authority
of said firm as experts in giving said reports.
AVAILABLE INFORMATION
Insight has filed with the SEC a registration statement on Form S-1,
including all amendments, exhibits, schedules and supplements thereto, under the
Securities Act and the rules and regulations thereunder, for the registration of
the Class A common stock offered hereby. Although this prospectus, which forms a
part of the registration statement, contains all material information included
in the registration statement, parts of the registration statement have been
omitted as permitted by the rules and regulations of the SEC. For further
information with respect to Insight and the Class A common stock offered hereby,
reference is made to the registration statement and the exhibits filed with the
registration statement. The registration statement and any other document we
file with the SEC can be inspected and copied at prescribed rates at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. The public may obtain
information regarding the Washington, D.C. Public Reference Room by calling SEC
at 1-800-SEC-0330. In addition, the registration statement is publicly available
through the SEC's site on the Internet's World Wide Web, located at:
http://www.sec.gov. This site contains reports, proxy and information statements
and other information regarding issuers that file electronically with the SEC.
We intend to furnish to each of our stockholders annual reports containing
audited financial statements and quarterly reports containing unaudited
financial information for the first three quarters of each fiscal year. We will
also furnish to each of our stockholders such other reports, including proxy
statements, as may be required by law.
99
<PAGE>
GLOSSARY
The following is a description of certain terms used in this Prospectus:
<TABLE>
<S> <C>
Addressability........................ Addressable technology enables the cable television operator to
electronically control from its central facilities the cable television
services delivered to the customer. This technology facilitates pay-per-
view services, reduces service theft, and provides a cost-effective method
to upgrade and downgrade programming services to customers.
Amplifier cascades.................... The operation of two or more amplifiers in series so that the output of
one device feeds the input of the next device.
Bandwidth............................. Bandwidth measures the information-carrying capacity of a communication
channel and indicates the range of usable frequencies that can be carried
by a cable television system.
Basic customer........................ A customer 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.
Basic penetration..................... Basic customers 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).
Broadband............................. The ability to deliver multiple channels and/or services to customers.
Cable modem........................... A device similar to a telephone modem that sends and receives signals over
a cable television network at speeds up to 100 times the capacity of a
typical telephone modem.
Channel capacity...................... The number of traditional video programming channels that can be carried
over a communications system.
Clustering............................ A general term used to describe the strategy of operating cable television
systems in a specific geographic region, thus allowing for the achievement
of economies of scale and operating efficiencies in such areas as system
management, marketing and technical functions.
Converter............................. An electronic device that permits tuning of a cable television signal to
permit reception by customer television sets and VCRs and provides a means
of access control for cable television programming.
Density............................... A general term used to describe the number of homes passed per mile of
network.
Digital video......................... A distribution technology where video content is delivered in digital
format.
Direct broadcast satellite television A service by which packages of television programming are transmitted via
system.............................. high-powered satellites to individual homes, each served by a small
satellite dish.
</TABLE>
G-1
<PAGE>
<TABLE>
<S> <C>
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 system
which in turn goes to the customer's home. Capacity for a very large
number of channels can be more easily provided.
Fiber optic trunk system.............. The use of fiber optic cable from the headend to the distribution portion
of the cable television system.
Headend............................... A collection of hardware, typically including earth stations, satellite
receivers, towers, off-air antennae, modulators, amplifiers [, lasers] and
video cassette playback machines within which signals are processed and
then combined for distribution within the cable television network.
Equipment to process signals from the customer's home also are contained
at the headend.
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.
MSO................................... A term used to describe cable television companies that are multiple
system operators.
Multiplexing.......................... Additional screens of premium channels, such as HBO and Showtime, which
cable operators provide for no additional fees, provided the customer
subscribes to the primary premium channel.
Multipoint multichannel distribution A one-way radio transmission of television channels over microwave
system.............................. frequencies from a fixed station transmitting to multiple receiving
facilities located at fixed points.
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.
Near video-on-demand.................. A pay-per-view service that allows customers to select and order a movie
of their choice from a selection of movies being broadcast on several
dedicated channels. Each movie is broadcast on multiple channels to offer
the customer several start times for the same movie and the customer joins
the movie in progress when it is purchased.
Network............................... 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.
Node.................................. The interface between the fiber optic and coaxial distribution network.
Outage................................ The loss of service due to a failure in the distribution network.
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 customer selects and for which a customer pays a separate fee.
</TABLE>
G-2
<PAGE>
<TABLE>
<S> <C>
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.
Premium units......................... The number of subscriptions to premium services, which are paid for on an
individual basis.
Rebuild............................... The replacement or upgrade of an existing cable system, usually undertaken
to improve its technological performance and/or to expand the system's
channel capacity in order to provide more services.
Satellite master antenna television
system.............................. A video programming delivery system to multiple dwelling units.
Telephone modem....................... A device either inserted in a computer or attached externally that encodes
(modulates) or decodes (demodulates) an analog telephone signal to a data
format that the computer can process.
Telephony............................. The provision of telephone service.
Tiers................................. Varying levels of cable services consisting of differing combinations of
several over-the-air broadcast and satellite delivered cable television
programming services.
Video-on-demand....................... A pay-per-view service that allows customers to select and order a movie
of their choice from a large film library. The movie will play in its
entirety as soon as it is ordered.
</TABLE>
G-3
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INSIGHT COMMUNICATIONS COMPANY, L.P.
Insight Communications Company, L.P. Condensed Consolidated Balance Sheet at March 31, 1999.............. F-3
Insight Communications Company, L.P. Condensed Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1999......................................................................... F-4
Insight Communications Company, L.P. Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1999......................................................................... F-5
Insight Communications Company, L.P. Notes to Condensed Consolidated Financial Statements................ F-6
INTERMEDIA CAPITAL PARTNERS, VI, L.P.
InterMedia Capital Partners VI, L.P. Consolidated Balance Sheet at December 31, 1998 and March 31,
1999.................................................................................................. F-8
InterMedia Capital Partners VI, L.P. Consolidated Statement of Operations for the three months ended
March 31, 1999........................................................................................ F-9
InterMedia Capital Partners VI, L.P. Consolidated Statement of Changes in Partners' Capital at March 31,
1999.................................................................................................. F-10
InterMedia Capital Partners VI, L.P. Consolidated Statement of Cash Flows for the three months ended
March 31, 1999........................................................................................ F-11
InterMedia Capital Partners VI, L.P. Notes to Condensed Consolidated Financial Statements................ F-12
TCI IPVI
TCI IPVI Combined Statement of Operations and Parent's Investment for the three month period ended
March 31, 1998........................................................................................ F-19
TCI IPVI Combined Statement of Cash Flows for the three month period ended March 31, 1998................ F-20
TCI IPVI Notes to Combined Financial Statements.......................................................... F-21
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
Insight Communications of Central Ohio, LLC Condensed Balance Sheet at March 31, 1999.................... F-25
Insight Communications of Central Ohio, LLC Condensed Statement of Operations for the three months ended
March 31, 1999........................................................................................ F-26
Insight Communications of Central Ohio, LLC Condensed Statement of Cash Flows for the three months ended
March 31, 1999........................................................................................ F-27
Insight Communications of Central Ohio, LLC Notes to Financial Statements................................ F-28
INSIGHT COMMUNICATIONS COMPANY, L.P.
Report of Independent Auditors--Ernst & Young LLP........................................................ F-30
Insight Communications Company, L.P. Consolidated Balance Sheets at December 31, 1997 and 1998........... F-31
Insight Communications Company, L.P. Consolidated Statements of Operations for the years ended
December 31, 1996, 1997, and 1998..................................................................... F-32
Insight Communications Company, L.P. Consolidated Statements of Changes in Partners' Deficiency for the
years ended December 31, 1996, 1997, and 1998......................................................... F-33
Insight Communications Company, L.P. Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997, and 1998..................................................................... F-34
Insight Communications Company, L.P Notes to Consolidated Financial Statements........................... F-35
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
INTERMEDIA CAPITAL PARTNERS, VI, L.P.
<S> <C>
Report of Independent Accountants--PricewaterhouseCoopers LLP............................................ F-46
InterMedia Capital Partners VI, L.P. Consolidated Balance Sheet at December 31, 1998..................... F-47
InterMedia Capital Partners VI, L.P. Consolidated Statement of Operations for the period April 30, 1998
(commencement of operations) to December 31, 1998..................................................... F-48
InterMedia Capital Partners VI, L.P. Consolidated Statement of Changes in Partners' Capital for the
period April 30, 1998 (commencement of operations) to December 31, 1998............................... F-49
InterMedia Capital Partners VI, L.P. Consolidated Statement of Cash Flows for the period April 30, 1998
(commencement of operations) to December 31, 1998..................................................... F-50
InterMedia Capital Partners VI, L.P. Notes to Consolidated Financial Statements.......................... F-51
TCI IPVI
Report of Independent Auditors--KPMG LLP................................................................. F-61
TCI IPVI Combined Balance Sheets at December 31, 1997 and April 30, 1998................................. F-62
TCI IPVI Combined Statements of Operations and Parent's Investment for each of the years in the two-year
period ended December 31, 1997 and for the four month period ended April 30, 1998..................... F-63
TCI IPVI Combined Statements of Cash Flows for each of the years in the two-year period ended
December 31, 1997 and for the four month period ended April 30, 1998.................................. F-64
TCI IPVI Notes to Combined Financial Statements.......................................................... F-65
TCI INSIGHT SYSTEMS
Report of Independent Auditors--KPMG LLP................................................................. F-72
TCI Insight Systems Combined Balance Sheets as of October 31, 1998 and December 31, 1997................. F-73
TCI Insight Systems Combined Statements of Operations and Parent's Investment for the ten month period
ended October 31, 1998, and the years ended December 31, 1997 and 1996................................ F-74
TCI Insight Systems Combined Statements of Cash Flows for the ten month period ended October 31, 1998,
and the years ended December 31, 1997 and 1996........................................................ F-75
TCI Insight Systems Notes to Combined Financial Statements............................................... F-76
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
Report of Independent Auditors--Ernst & Young LLP........................................................ F-82
Insight Communications of Central Ohio, LLC Balance Sheet at December 31, 1998........................... F-83
Insight Communications of Central Ohio, LLC Statement of Operations and Changes in Members' Deficit for
the year ended December 31, 1998...................................................................... F-84
Insight Communications of Central Ohio, LLC Statement of Cash Flows for the year ended December 31,
1998.................................................................................................. F-85
Insight Communications of Central Ohio, LLC Notes to Financial Statements................................ F-86
CENTRAL OHIO CABLE OPERATING UNIT
Report of Independent Public Accountants--Arthur Andersen LLP............................................ F-91
Central Ohio Cable System Operating Unit Statement of Net Assets to be Contributed as of December 31,
1997.................................................................................................. F-92
Central Ohio Cable System Operating Unit Statements of Operations Related to Net Assets to be Contributed
for the years ended December 31, 1996 and 1997........................................................ F-93
Central Ohio Cable System Operating Unit Statements of Cash Flows for the years ended December 31, 1996
and 1997.............................................................................................. F-94
Central Ohio Cable System Operating Unit Notes to Financial Statements................................... F-95
</TABLE>
F-2
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
1999
---------
<S> <C>
ASSETS
Cash and cash equivalents............................................................................. $ 29,667
Trade accounts receivable, net........................................................................ 5,796
Due from Insight Communications of Central Ohio, LLC.................................................. 136
Prepaid expenses and other............................................................................ 3,469
Fixed assets, net..................................................................................... 164,203
Intangible assets, net................................................................................ 480,069
Investment in Insight Communications of Central Ohio, LLC............................................. 4,036
---------
$ 687,376
---------
---------
LIABILITIES AND PARTNERS' DEFICIENCY
Accounts payable...................................................................................... $ 30,378
Accrued expenses and other liabilities................................................................ 4,943
Due to affiliates..................................................................................... 790
Interest payable...................................................................................... 5,788
Debt.................................................................................................. 592,663
---------
634,562
Minority interest..................................................................................... 2,182
Redeemable Class B units, 47,215,859 units outstanding, net of
issuance costs of $4,410............................................................................ 54,444
Partners' deficiency.................................................................................. (3,812)
---------
$ 687,376
---------
---------
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-3
<PAGE>
<TABLE>
<S> <C>
INSIGHT COMMUNICATIONS COMPANY, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<CAPTION>
THREE
MONTHS
ENDED
MARCH 31
----------
1998
---------
1999
--
<S> <C>
Revenue.................................................................................... $23,161 $ 45,377
Costs and expenses:
Programming and other operating costs.................................................... 6,474 13,263
Selling, general and administrative...................................................... 5,023 10,180
Depreciation and amortization............................................................ 5,801 25,739
------- --------
17,298 49,182
------- --------
Operating income (loss).................................................................... 5,863 (3,805)
Other income (expense):
Gain on cable system exchanges........................................................... -- 19,762
Interest expense......................................................................... (5,771) (10,493)
Other expense............................................................................ (19) (7)
------- --------
(5,790) 9,262
------- --------
Income before minority interest and equity in losses of Insight Communications of Central
Ohio, LLC................................................................................ 73 5,457
Minority interest.......................................................................... -- 4,494
Equity in losses of Insight Communications of Central Ohio, LLC............................ -- (2,713)
------- --------
Net income................................................................................. 73 7,238
Accretion of redeemable Class B units...................................................... -- (3,125)
------- --------
Net income applicable to Class A units..................................................... $ 73 $ 4,113
------- --------
------- --------
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-4
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
1998 1999
-------- --------
<S> <C> <C>
Operating activities
Net income............................................................................... $ 73 $ 7,238
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization....................................................... 5,801 25,739
Equity in losses of Insight Communications of Central Ohio, LLC..................... -- 2,713
Gain on cable system exchanges...................................................... -- (19,762)
Minority interest................................................................... -- (4,494)
Provision for losses on trade accounts receivable................................... 210 378
Changes in operating assets and liabilities:
Trade accounts receivable........................................................... (212) 1,814
Due from and to affiliates.......................................................... 94 1,605
Prepaid expenses and other assets................................................... 421 (1,871)
Accounts payable.................................................................... 4,074 6,088
Accrued expenses and other liabilities.............................................. (4,347) 875
Interest payable.................................................................... 1,878 (1,870)
-------- --------
Net cash provided by operating activities.................................................. 7,992 18,453
-------- --------
Investing activities
Purchases of fixed assets.................................................................. (3,099) (20,831)
Purchase of cable television system........................................................ (84,101) (2,900)
Increase in intangible assets, net......................................................... (4,205) (3,957)
-------- --------
Net cash used in investing activities...................................................... (91,405) (27,688)
-------- --------
Financing activities
Proceeds from bank credit facility......................................................... 99,800 19,000
Issuance of Class B common units........................................................... 50,000 --
Class B common unit issuance costs......................................................... (4,410) --
Purchase of redeemable preferred limited units............................................. (60,000) --
Purchase of warrants....................................................................... 116 --
-------- --------
Net cash provided by financing activities.................................................. 85,506 19,000
-------- --------
Net increase in cash and cash equivalents.................................................. 2,093 9,765
Cash and cash equivalents, beginning of period............................................. 1,082 19,902
-------- --------
Cash and cash equivalents, end of period................................................... $ 3,175 $ 29,667
-------- --------
-------- --------
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-5
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
A. ORGANIZATION
Insight Communications Company, L.P., (the "Partnership"), is a Delaware
limited partnership, that owns, operates, and manages cable television systems.
Pursuant to the partnership agreement, the Partnership will terminate by
March 31, 2020 unless further extended. As of March 31, 1999, the Partnership
operates cable television systems in Illinois, California, Georgia, Indiana,
Kentucky, and Ohio.
B. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month period ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999.
For further information, refer to the Partnership's financial statements
and footnotes thereto for the year ended December 31, 1998, included elsewhere
in this registration statement.
C. GAIN ON CABLE SYSTEM EXCHANGES
On March 22, 1999 the Partnership exchanged its Franklin, Virginia cable
system ("Franklin") servicing approximately 9,200 subscribers for Falcon Cable's
Scottsburg ("Scottsburg") Indiana system servicing approximately 4,100
subscribers. Pursuant to section 1031 of the Internal Revenue Code, such
transaction was treated as a Tax Free Like-Kind Exchange. In connection with the
exchange, the Partnership received $8 million in cash which was held on deposit
with a qualified intermediary (see Note D). Furthermore, on February 1, 1999,
the Partnership exchanged its Oldham Kentucky cable system ("Oldham") servicing
approximately 8,500 subscribers for Intermedia Partners of Kentucky L.P.'s
Henderson, Kentucky cable system ("Henderson") servicing approximately 10,600
subscribers. These transactions have been accounted for by the Partnership as
sales of the Franklin and Oldham systems and purchases of the Scottsburg and
Henderson systems. Accordingly, based upon the preliminary purchase price
allocation, the Scottsburg and Henderson systems have been included in the
accompanying condensed consolidated balance sheets at their fair values
(approximately $31.3 million) and the Partnership recognized a gain on the sale
of the Franklin and Oldham systems of approximately $19.8 million, which amount
represents the difference between the carrying value of the Franklin and Oldham
Systems and their fair value. The Scottsburg and Henderson Systems purchase
price was allocated to the cable television assets acquired in relation to their
fair values as increases in property and equipment of $5.7 million and franchise
costs of $25.6 million. Franchise costs arising from the acquisition of the
Scottsburg and Henderson systems are being amortized on the straight-line method
over a period of 15 years.
D. PURCHASE OF CABLE SYSTEM
On March 31, 1999 the Partnership acquired Americable International of
Florida Inc.'s Portland, Indiana and Fort Recovery, Ohio cable systems
("Portland") servicing approximately 6,100 subscribers for $10.9 million. The
preliminary purchase price was allocated to the cable television assets acquired
in relation to their fair values as increases in property and equipment of
$2.3 million and franchise costs of $8.6 million. The Partnership has accounted
for the acquisition of the Portland system as a purchase. The Partnership paid
for the acquisition with borrowings under its credit facilities and with the
$8 million of cash received in the Franklin/Scottsburg Exchange (see Note C) and
held on deposit with a qualified intermediary.
F-6
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
MARCH 31, 1999
E. COMMITMENTS AND CONTINGENCIES
Certain of the Partnership's individual systems have been named in
purported class actions in various jurisdictions concerning late fee charges and
practices. Certain of the Partnership's cable television systems charge late
fees to subscribers who do not pay their cable bills on time. Plaintiffs
generally allege that the late fees charged by such cable television systems are
not reasonably related to the costs incurred by the cable television systems as
a result of the late payment. Plaintiffs seek to require cable television
systems to provide compensation for alleged excessive late fee charges for past
periods. These cases are at various stages of the litigation process. Based upon
the facts available, management believes that, although no assurances can be
given as to the outcome of these actions, the ultimate disposition of these
matters should not have a material adverse effect upon the financial condition
or results of operations of the Partnership.
The Partnership is subject to other various legal proceedings that arise in
the ordinary course of business. While it is impossible to determine with
certainty the ultimate outcome of these matters, it is management's opinion that
the resolution of these matters will not have a material adverse affect on the
consolidated financial condition of the Partnership.
F. SUBSEQUENT EVENTS
The Partnership has entered into an agreement with Blackstone Capital
Partners III Merchant Fund L.P. ("Blackstone") and a subsidiary of TCI to
acquire their combined 50% interest in InterMedia Partners VI, L.P. (the "IPVI
Partnership") for approximately $335.0 million (inclusive of expenses) plus
assumed debt. The IPVI Partnership was formed in August 1996 by TCI, Blackstone
and Intermedia Partners to acquire and operate cable television systems
servicing approximately 430,000 subscribers in four major markets in Kentucky,
including Louisville, Lexington, Bowling Green and Covington.
In a separate agreement, the Partnership will be appointed the manager of
the IPVI Partnership and will earn a management fee equivalent to 3% of the IPVI
Partnership's revenues.
F-7
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents.............................................................. $ 2,602 $ 3,512
Accounts receivable, net of allowance for doubtful accounts of $2,692 and $1,585,
respectively......................................................................... 15,160 14,451
Receivable from affiliates............................................................. 7,532 8,385
Prepaids and other current assets...................................................... 1,049 1,058
-------- ---------
Total current assets................................................................... 26,343 27,406
-------- ---------
Intangible assets, net................................................................. 632,002 613,430
Property and equipment, net............................................................ 243,100 248,041
Other non-current assets............................................................... 3,045 2,862
-------- ---------
Total assets........................................................................... $904,490 $ 891,739
-------- ---------
-------- ---------
LIABILITIES AND PARTNERS' CAPITAL
Short-term debt........................................................................ $ -- $ 53,000
Accounts payable and accrued liabilities............................................... 23,541 22,634
Payable to affiliates.................................................................. 2,913 3,196
Deferred revenue....................................................................... 11,429 11,666
Accrued interest....................................................................... 5,529 5,899
-------- ---------
Total current liabilities.............................................................. 43,412 96,395
-------- ---------
Deferred channel launch revenue........................................................ 7,767 7,361
Long-term debt......................................................................... 726,000 680,000
Other long-term liabilities............................................................ 411 866
-------- ---------
Total liabilities...................................................................... 777,590 784,622
-------- ---------
Commitments and contingencies
Total partners' capital................................................................ 126,900 107,117
-------- ---------
Total liabilities and partners' capital................................................ $904,490 $ 891,739
-------- ---------
-------- ---------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-8
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED
MARCH 31,
1999
---------------
(UNAUDITED)
<S> <C>
Revenues
Basic and cable services...................................................................... $ 36,208
Pay Service................................................................................... 7,618
Other service................................................................................. 7,599
---------
51,425
---------
Costs and expenses
Program fees.................................................................................. 12,461
Other direct expenses......................................................................... 4,579
Selling, general and administrative expenses.................................................. 10,911
Management and consulting fees................................................................ 505
Depreciation and amortization expenses........................................................ 31,154
---------
59,610
---------
Loss from operations............................................................................ (8,185)
---------
Other income (expense)
Interest and other income....................................................................... 267
Gain on exchange of cable systems............................................................... 2,312
Interest expense................................................................................ (14,177)
---------
(11,598)
---------
Net loss........................................................................................ $ (19,783)
---------
---------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-9
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------- -------- --------
<S> <C> <C> <C>
Cash contributions.............................................................. $ 2 $102,032 $102,034
In-kind contributions........................................................... -- 100,000 100,000
Syndication costs............................................................... -- (8,452) (8,452)
Net loss........................................................................ -- (66,682) (66,682)
--- -------- --------
Balance at December 31, 1998.................................................... 2 126,898 126,900
Net loss (unaudited)............................................................ (1) (19,782) (19,783)
--- -------- --------
Balance at March 31, 1999 (unaudited)........................................... $ 1 $107,116 $107,117
--- -------- --------
--- -------- --------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-10
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED
MARCH 31,
1999
---------------
(UNAUDITED)
<S> <C>
Cash flows from operating activities
Net loss...................................................................................... $ (19,783)
Depreciation and amortization.............................................................. 31,255
Gain on exchange of cable systems.......................................................... (2,312)
Changes in assets and liabilities:
Accounts receivable...................................................................... 709
Receivable from affiliates............................................................... (853)
Prepaids and other current assets........................................................ (9)
Other non-current assets................................................................. 183
Accounts payable and accrued liabilities................................................. (737)
Payable to affiliates.................................................................... 283
Deferred revenue......................................................................... 670
Deferred channel launch revenue.......................................................... (839)
Other long-term liabilities.............................................................. 443
Accrued interest......................................................................... 382
---------
Cash flows from operating activities............................................................ 9,392
---------
Cash flows from investing activities
Proceeds from exchange of cable systems....................................................... 3,820
Property and equipment........................................................................ (19,017)
Intangible assets............................................................................. (285)
---------
Cash flows from investing activities............................................................ (15,482)
---------
Cash flows from financing activities
Proceeds from long-term debt.................................................................. 7,000
---------
Cash flows from financing activities............................................................ 7,000
---------
Net change in cash and cash equivalents......................................................... 910
Cash and cash equivalents, beginning of period.................................................. 2,602
---------
Cash and cash equivalents, end of period........................................................ $ 3,512
---------
---------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-11
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. THE PARTNERSHIP AND BASIS OF PRESENTATION
InterMedia Capital Partners VI, L.P. ("ICP-VI"), a Delaware limited
partnership, was formed in October 1997 for the purpose of acquiring and
operating cable television systems located in the state of Kentucky. The
Partnership commenced business on April 30, 1998 upon contribution of cable
television systems serving subscribers throughout western and central Kentucky
(the "Systems") with significant concentrations in the state's four largest
cities: Lexington, Louisville, Covington and Bowling Green. ICP-VI and its
directly and indirectly majority-owned subsidiaries, InterMedia Partners Group
VI, L.P. ("IPG-VI"), InterMedia Partners VI, L.P. ("IP-VI"), and InterMedia
Partners of Kentucky, L.P. ("IP-KY") are collectively referred to as the
"Partnership." Prior to April 30, 1998, the Partnership had no operations.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements include all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of the Partnership's financial position as of March 31,
1999 and its results of operations and cash flows for the three months ended
March 31, 1999. The results of operations for the three months ended March 31,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. These condensed consolidated financial statements
should be read in conjunction with the Partnership's audited consolidated
financial statements as of December 31, 1998 and for the period from April 30,
1998 (commencement of operations) through December 31, 1998.
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 these estimates.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"). FAS 133 is currently effective
for all quarters of all fiscal years beginning after June 15, 1999 (January 1,
2000 for the Partnership). On May 20, 1999, the FASB issued an exposure draft to
amend FAS 133. The amendment, if approved, will extend the effective date of FAS
133 to all fiscal years beginning after June 15, 2000 (January 1, 2001 for the
Partnership). FAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. Management of the Partnership
anticipates that, due to its limited use of derivative instruments, the adoption
of FAS 133 will not have a significant effect on the Partnership's results of
operations, financial position or cash flows.
2. CONTRIBUTION OF CABLE PROPERTIES
On April 30, 1998, the Partnership borrowed $730,000 under bank term loans
and a revolving credit facility and received equity contributions from its
partners of $202,034, consisting of $102,034 in cash and $100,000 of in-kind
contributions from affiliates of AT&T Broadband and Internet Services
("AT&TBIS"), formerly Tele-Communications, Inc., and another limited partner of
ICP-VI. ICP-VI assumed debt from AT&TBIS of $803,743 and issued a combined 49.5%
limited partner interest to AT&TBIS and another limited partner in exchange for
the contributed systems with a fair market value of $753,743 and a long-term
programming fee discount agreement valued at $150,000. The AT&TBIS debt assumed
was repaid with proceeds from the borrowings under the bank loans and the cash
contributions received from its partners.
F-12
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
2. CONTRIBUTION OF CABLE PROPERTIES--(CONTINUED)
The total cost of the Systems contributed was as follows:
<TABLE>
<S> <C>
Value of debt assumed from AT&TBIS................................................ $803,743
Costs incurred in connection with the contributed systems......................... 3,629
Value of equity exchanged......................................................... 100,000
--------
$907,372
--------
--------
</TABLE>
The Partnership's allocation of costs related to the contributed systems is
as follows:
<TABLE>
<S> <C>
Tangible assets................................................................... $234,143
Intangible assets................................................................. 528,033
Programming agreement............................................................. 150,000
Current assets.................................................................... 12,037
Current liabilities............................................................... (12,389)
Non-current liabilities........................................................... (4,452)
--------
Net assets contributed............................................................ $907,372
--------
--------
</TABLE>
3. EXCHANGE OF CABLE PROPERTIES
On February 1, 1999, the Partnership exchanged with Insight Communications
of Indiana, LLC its cable television assets located in and around Henderson,
Kentucky ("Exchanged Assets") for cable television assets located in and around
Oldham County, Kentucky plus cash of $3,820. The cable system assets received
have been recorded at fair market value, subject to final valuation adjustments.
The exchange resulted in a gain of $2,312, calculated as the difference between
the fair value of the assets received and the net book value of the Exchanged
Assets, plus net proceeds received of $3,820.
4. @HOME WARRANTS
Under a distribution agreement with At Home Corporation ("@Home"), the
Partnership provides high-speed Internet access to subscribers over the
Partnership's distribution network in certain of its cable television systems.
In January 1999 the Partnership and certain of its affiliates entered into
related agreements whereby @Home would issue to the Partnership and its
affiliates warrants to purchase shares of @Home's Series A Common Stock ("@Home
Stock") at an exercise price of ten dollars and fifty cents per share. Under the
provisions of the agreements, management estimates that the Partnership may
purchase up to 229,600 shares of @Home Stock. The warrants become vested and
exercisable, subject to certain forfeiture and other conditions, based on
obtaining specified numbers of @Home subscribers over the remaining six-year
term of the @Home distribution agreement. The Partnership has not recognized any
income related to the warrants for the three months ended March 31, 1999.
5. CHANNEL LAUNCH REVENUE
During 1998, the Partnership received payments and recorded receivables
from certain programmers to launch and promote their new channels. During the
three months ended March 31, 1999, the Partnership recognized advertising
revenue of $441 for advertisements provided by the Partnership to promote the
new channels. The remaining deferred channel launch revenue is being amortized
over the respective terms of the program agreements which range between eight
and ten years. During the three months ended March 31, 1999, $542 of the
remaining deferred channel launch payments was amortized and recorded as other
service revenue.
F-13
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
SENIOR DEBT:
Bank revolving credit facility, $325,000 commitment as of March 31, 1999, interest
currently at LIBOR plus 1.625% (6.81%) or ABR plus .625% (8.38%) payable
quarterly, matures October 31, 2006............................................... $199,000 $ 205,000
Bank Term Loan A; interest at LIBOR plus 2.00% (7.19%) payable quarterly, matures
September 30, 2007................................................................ 100,000 100,000
Bank Term Loan B; interest at LIBOR plus 2.125% (7.31%) payable quarterly, matures
December 31, 2007................................................................. 250,000 250,000
-------- ---------
Total senior debt................................................................. 549,000 555,000
-------- ---------
SUBORDINATED DEBT:
Bank Term Loan A; interest at LIBOR plus 2.750% (7.94%) payable quarterly, matures
April 30, 2008.................................................................... 125,000 125,000
Bank Term Loan B; $60,000 commitment as of March 31, 1999, interest at LIBOR plus
0.300% (5.42%) payable quarterly, matures January 1, 2000......................... 52,000 53,000
-------- ---------
Total subordinated debt........................................................... 177,000 178,000
-------- ---------
726,000 733,000
Less: Current portion of long-term debt........................................... -- (53,000)
-------- ---------
Long-term debt.................................................................... $726,000 $ 680,000
-------- ---------
-------- ---------
</TABLE>
The Partnership's bank debt is outstanding under a revolving credit
facility and term loan agreements executed by the Partnership on April 30, 1998
(the "Bank Facility"). The revolving credit facility currently provides for
$325,000 of available credit. Starting June 30, 2001, revolving credit facility
commitments will be permanently reduced quarterly by increments ranging from
$7,500 to $40,000 through maturity on October 31, 2006. The senior Term Loan A
requires quarterly principal payments of $250 starting June 30, 2001 with final
payments in two equal installments of $47,125 on March 31 and September 30,
2007. The senior Term Loan B requires quarterly principal payments of $625
starting June 30, 2001 with final payments in two equal installments of $117,188
on September 30 and December 31, 2007. The subordinated Term Loan A requires
quarterly principal payments of $313 starting June 30, 2001 with final payments
in two equal installments of $58,281 on January 31 and April 30, 2008.
The borrowings outstanding under the subordinated Term Loan B were
initially due and payable on May 31, 1999. On May 14, 1999 the Partnership
amended the terms and conditions of the subordinated Term Loan B. The amendment
extends the maturity date of subordinated Term Loan B to January 1, 2000 and
increases the applicable margin to 0.500% for the period June 1, 1999 through
September 30, 1999 and 0.625% thereafter.
Advances under the Bank Facility are available under interest rate options
related to the base rate of the administrative agent for the Bank Facility
("ABR") or LIBOR. Interest rates vary on borrowings under the revolving credit
facility from LIBOR plus 0.500% to LIBOR plus 1.875% or ABR to ABR plus 0.875%
based on the Partnership's ratio of senior debt to annualized semi-annual cash
flow, as defined ("Senior Leverage Ratio"). Interest rates vary on borrowings
under the senior Term Loan A from LIBOR plus 1.500% to LIBOR plus 2.125% or ABR
plus 0.500% to ABR plus 1.125%, and under the senior Term Loan B from LIBOR plus
1.750% to LIBOR plus 2.250% or ABR plus 0.750% to ABR plus 1.250% based on the
Partnership's Senior Leverage
F-14
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
6. LONG-TERM DEBT--(CONTINUED)
Ratio. Interest rates on borrowings under the subordinated Term Loan A are at
LIBOR plus 2.75% or ABR plus 2.75%, and under the subordinated Term Loan B are
at LIBOR plus 0.300% or ABR plus 0.300%. The Bank Facility requires quarterly
interest payments, or more frequent interest payments if a shorter period is
selected under the LIBOR option, and quarterly payment of fees on the unused
portion of the revolving credit facility and the subordinated Term Loan B at
0.375% per annum when the Senior Leverage Ratio is greater than 5.0:1.0 and at
0.250% when the Senior Leverage Ratio is less than or equal to 5.0:1.0.
The Partnership has entered into interest rate swap agreements in the
aggregate notional principal amount of $500,000 to establish long-term fixed
interest rates on its variable rate debt. Under the swap agreements, the
Partnership pays quarterly interest at fixed rates ranging from 5.850% to 5.865%
and receives quarterly interest payments equal to LIBOR. The differential to be
paid or received in connection with an individual swap agreement is accrued as
interest rates change over the period for which the payment or receipts related.
The agreements expire July 2003.
Borrowings under the Bank Facility, excluding the subordinated Term Loan B,
("Permanent Debt") are secured by the partnership interests of IPG-VI and
IP-VI's subsidiaries and negative pledges of the stock and assets of certain
AT&TBIS subsidiaries that are parties to an agreement ("Keepwell Agreement") to
support the Permanent Debt. Under the Keepwell Agreement, the AT&TBIS
subsidiaries are required to make loans to IPG-VI and IP-VI in an amount not to
exceed $489,500 if (i) IPG-VI or IP-VI fails to make payment of principal in
accordance with the respective debt agreements, or (ii) amounts due under the
respective debt agreements have been accelerated for non-payment or bankruptcy.
The subordinated Bank Term Loan B is secured by guarantees of AT&TBIS and
Blackstone Cable Acquisition Company, LLC, a 49.5% limited partner of ICP-VI
("Blackstone").
The debt agreements contain certain covenants which restrict the
Partnership's ability to encumber assets, make investments or distributions,
retire partnership interests, pay management fees currently, incur or guarantee
additional indebtedness and purchase or sell assets. The debt agreements also
include financial covenants which require minimum interest and debt coverage
ratios and specify maximum debt to cash flows ratios.
7. RELATED PARTY TRANSACTIONS
InterMedia Capital Management VI, L.P. ("ICM-VI LP"), a California limited
partnership, which owns a 0.999% limited partner interest in ICP-VI, provides
certain management and administrative services to the Partnership for a per
annum fee of 1% of ICP-VI's total non-preferred partner contributions ("ICM
Management Fee") offset by certain expenses of the Partnership, as defined, up
to an amount equal to $500. In order to support the Partnership's debt, 50% of
the net ICM Management Fee is deferred until the Partnership's Senior Leverage
Ratio is less than five times. The remaining 50% of the net ICM Management Fee
is payable quarterly in advance. Any deferred ICM Management Fee bears interest
at 10%, compounded annually, payable upon payment of the deferred management
fee.
Based on current capital contributions, the management fee per annum is
$2,020 less partnership expenses of $500.
Pursuant to ICP-VI's partnership agreement, on April 30, 1998 the
Partnership prepaid $1,000 of the ICM Management Fee. ICM Management Fee expense
for the three-month period ended March 31, 1999 amounted to $380. At March 31,
1999 and December 31, 1998, the Partnership has a non-current payable to ICM-VI
LP of $393 and $13, respectively.
The Partnership pays monitoring fees of $250 per annum to each of AT&TBIS
and Blackstone. 50% of the monitoring fees are deferred until the Partnership's
Senior Leverage Ratio is less than five times in order to
F-15
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
7. RELATED PARTY TRANSACTIONS--(CONTINUED)
support the Partnership's debt. The remaining 50% is payable quarterly in
advance. Any deferred monitoring fees bear interest at 10%, compounded annually,
payable upon payment of the deferred monitoring fees. Management and consulting
fees of $505 for the three months ended March 31, 1999 include both the ICM
Management Fee and monitoring fees.
Pursuant to ICP-VI's partnership agreement, on April 30, 1998 the
Partnership prepaid its monitoring fees for the period from April 30, 1999
through April 29, 2000. The Partnership recorded monitoring fee expense of $125
for the three months ended March 31, 1999 and has a non-current payable of $115
and $83 each to AT&TBIS and Blackstone at March 31, 1999 and December 31, 1998,
respectively.
In connection with raising its capital, the Partnership paid aggregate
transaction fees of $4,942 to AT&TBIS and Blackstone on April 30, 1998. The
amount has been recorded as syndication costs.
InterMedia Management, Inc. ("IMI") is the sole member of InterMedia
Capital Management VI, LLC ("ICM-VI LLC"), the 0.001% general partner of ICP-VI.
IMI has entered into an agreement with the Partnership to provide accounting and
administrative services at cost. IMI also provides such services to other cable
systems which are affiliates of the Partnership. Administrative fees charged by
IMI for the three months ended March 31, 1999 were $1,015. Receivable from
affiliate includes $908 and $628 at March 31, 1999 and December 31, 1998,
respectively, of advances to IMI, net of administrative fees charged by IMI and
operating expenses paid by IMI on behalf of the Partnership.
As an affiliate of AT&TBIS, the Partnership is able to purchase programming
services from a subsidiary of AT&TBIS. Management believes that the overall
programming rates made available through this relationship are lower than the
Partnership could obtain separately. Such volume rates may not continue to be
available in the future should AT&TBIS's ownership in the Partnership
significantly decrease. Programming fees charged by the AT&TBIS subsidiary for
the three months ended March 31, 1999 amounted to $9,061. Payable to affiliates
at March 31, 1999 and December 31, 1998 represents programming fees payable to
the AT&TBIS subsidiary.
The Partnership entered into an agreement with an affiliate of AT&TBIS to
manage the Partnership's advertising business and related services for an annual
fixed fee per advertising sales subscriber, as defined by the agreement. In
addition to the annual fixed fee, AT&TBIS will be entitled to varying percentage
shares of the incremental growth in annual cash flow from advertising sales
above specified targets. Management fees charged by the AT&TBIS subsidiary for
the three months ended March 31, 1999 amounted to $90. Receivable from
affiliates at March 31, 1999 and December 31, 1998 includes $7,477 and $6,904,
respectively, of receivables from AT&TBIS for advertising sales.
8. CABLE TELEVISION REGULATION
Cable television legislation 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 Partnership and the cable television
industry.
The cable industry is currently regulated at the federal and local levels
under the Cable Act of 1984, the Cable Act of 1992 (the "1992 Act"), the
Telecommunications Act of 1996 (the "1996 Act") and regulations issued by the
Federal Communications Commission ("FCC") in response to the 1992 Act. FCC
regulations govern the determination of rates charged for basic, expanded basic
and certain ancillary services, and cover a number of other areas including
customer service and technical performance standards, the required transmission
of certain local broadcast stations and the requirement to negotiate
retransmission consent from major network and certain local television stations.
Among other provisions, the 1996 Act eliminated rate regulation on the expanded
basic tier effective March 31, 1999.
F-16
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
8. CABLE TELEVISION REGULATION--(CONTINUED)
Current regulations issued in connection with the 1992 Act empower the FCC
and/or local franchise authorities to order reductions of existing rates which
exceed the maximum permitted levels and require refunds measured from the date a
complaint is filed in some circumstances or retroactively for up to one year in
other circumstances. Management believes it has made a fair interpretation of
the 1992 Act and related FCC regulations in determining regulated cable
television rates and other fees based on the information currently available.
Many aspects of regulations at the federal and local levels are currently
the subject of judicial review and administrative proceedings. In addition, the
FCC continues to conduct rulemaking proceedings to implement various provisions
of the 1996 Act. It is not possible at this time to predict the ultimate outcome
of these reviews or proceedings or their effect on the Partnership.
9. COMMITMENTS AND CONTINGENCIES
The Partnership is committed to provide cable television services under
franchise agreements with remaining terms of up to eighteen years. Franchise
fees of up to 5% of gross revenues are payable under these agreements.
Current FCC regulations require that cable television operators obtain
permission to retransmit major network and certain local television station
signals. The Partnership has entered into long-term retransmission agreements
with all applicable stations in exchange for in-kind and/or other consideration.
On April 30, 1999 the Partnership was named as an additional defendant in a
purported class action which was originally filed in January 1998 against
AT&TBIS and certain of its affiliates in the State of Kentucky concerning late
fee charges and practices. Certain cable systems owned by the Partnership charge
late fees to customers who do not pay their cable bills on time. These late fee
cases challenge the amount of the late fees and the practices under which they
are imposed. The Plaintiffs raise claims under state consumer protection
statues, other state statues, and common law. Plaintiffs generally allege that
the late fees charged by the Partnership's cable systems in the State of
Kentucky are not reasonably related to the costs incurred by the cable systems
as a result of late payment. Plaintiffs seek to require cable systems to reduce
their late fees on a prospective basis and to provide compensation for alleged
excessive late fee charges for past periods. Based on the facts available,
management believes that, although no assurances can be given as to the outcome
of these actions, the ultimate disposition of these matters should not have a
material adverse effect upon the financial position, results of operations or
cash flows of the Partnership.
The Partnership is subject to litigation and other claims in the ordinary
course of business. In the opinion of management, the ultimate outcome of any
existing litigation or other claims will not have a material adverse effect on
the Partnership's financial position, results of operations or cash flows.
10. SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENT OF CASH FLOWS
During the three months ended March 31, 1999, the Partnership paid interest
of $13,595.
In connection with the exchange of certain cable television assets in and
around Henderson, Kentucky on February 1, 1999, as described in Note 3 --
Exchange of Cable Properties, the Partnership received cash of $3,820.
F-17
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
11. SUBSEQUENT EVENTS
On April 18, 1999, the Partnership's general and limited partners, other
than AT&TBIS, entered into an agreement with Insight Communications Company,
L.P. to sell their partner interests in ICP-VI. The sale is expected to close
during the third or fourth quarter of 1999. Upon the sale, Insight
Communications Company, L.P. is expected to manage the Partnership.
On February 17 and March 11, 1999, the Partnership entered into agreements
with FrontierVision Operating Partnership, L.P. ("FrontierVision") to exchange
its cable television assets located in central Kentucky for cable television
assets located in northern Kentucky. On June 1, 1999 the Partnership completed
the exchange with respect to certain of the systems and received cash of
$13,260. Effective June 1, 1999, under the terms of related management
agreements, the Partnership will manage and operate the remaining systems of
FrontierVision in northern Kentucky, and FrontierVision will manage and operate
the Partnership's remaining systems in central Kentucky. The management
agreements will terminate upon completion of the exchanges which are expected to
close during the third or fourth quarter of 1999. The exchanges are expected to
result in a gain.
F-18
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENT OF OPERATIONS AND PARENT'S INVESTMENT
(AMOUNTS IN THOUSANDS)
THREE-MONTH PERIOD ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<S> <C>
Revenue............................................................................................... $ 48,410
Operating costs and expenses:
Operating (note 2).................................................................................. 17,202
Selling, general and administrative................................................................. 10,147
Management fees (note 2)............................................................................ 1,948
Depreciation........................................................................................ 7,182
Amortization........................................................................................ 4,482
--------
40,961
--------
Operating income................................................................................. 7,449
Interest expense...................................................................................... (5,002)
Other income.......................................................................................... 1,866
--------
Earnings before income taxes..................................................................... 4,313
Income tax expense.................................................................................... (1,479)
--------
Net earnings..................................................................................... 2,834
Parent's investment:
Beginning of period................................................................................. 260,222
Change in due to Tele-Communications, Inc. ("TCI") (note 2)......................................... 39,294
--------
End of period....................................................................................... $302,350
--------
--------
</TABLE>
See accompanying notes to combined financial statements.
F-19
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
THREE-MONTH PERIOD ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net earnings........................................................................................ $ 2,834
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization.................................................................. 11,664
Deferred income tax benefit.................................................................... (1,102)
Other non cash charges......................................................................... 109
Changes in operating assets and liabilities:
Change in receivables.......................................................................... 2,372
Change in other assets......................................................................... (209)
Change in accounts payable and accrued expenses................................................ (5,379)
--------
Net cash provided by operating activities............................................................. 10,289
--------
Cash flows from investing activities:
Capital expended for property and equipment......................................................... (6,584)
Other investing activities.......................................................................... 7
--------
Net cash used in investing activities................................................................. (6,577)
--------
Cash flows used in financing activities -- change in due to TCI....................................... (3,712)
--------
Net change in cash.................................................................................... --
Cash:
Beginning of period................................................................................. --
--------
End of period....................................................................................... $ --
--------
--------
</TABLE>
See accompanying notes to combined financial statements.
F-20
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
(1) BASIS OF PRESENTATION
The combined financial statements include the accounts of eight of TCI's
cable television systems and five related advertising sales offices serving
certain subscribers within Kentucky (collectively, the "TCI IPVI Systems"). This
combination was created in connection with the Partnership formation discussed
below. Through February 1998, the TCI IPVI Systems were either 100%-owned or
majority-owned by TCI. In March 1998, through a series of transactions, TCI
acquired the remaining interest in the majority-owned entities from a third
party. As a result of these transactions, the TCI IPVI Systems' combined
financial statements include a March 1998 allocation of TCI's cost to acquire
such interest. Such allocation resulted in $69,646,000 of franchise costs and
$26,640,000 of deferred tax liabilities. All significant inter-entity accounts
and transactions have been eliminated in combination. The combined net assets of
TCI IPVI Systems are referred to as "Parent's Investment."
The accompanying interim combined financial statements are unaudited but,
in the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the results for such
period. The results of operations for any interim period are not necessarily
indicative of results for the full year. These combined financial statements
should be read in conjunction with the audited combined financial statements and
notes thereto contained in the Insight Communications Company, Inc. Form S-1
registration statement as of April 30, 1998 and December 31, 1997, and for the
four-month period ended April 30, 1998 and for each of the years in the two-year
period ended December 31, 1997.
TCI's ownership interest in the IPVI Systems, as described above, were
acquired through transactions whereby TCI acquired various larger cable entities
(the "Original Systems"). The TCI IPVI System's combined financial statements
include an allocation of certain purchase accounting adjustments, including the
related deferred tax effects, from TCI's acquisition of the Original Systems.
Such allocation and the related franchise cost amortization was based on the
relative fair market value of the systems involved. In addition, certain costs
of TCI are charged to the TCI IPVI Systems based on their number of customers
(see note 2). Although such allocations are not necessarily indicative of the
costs that would have been incurred by the TCI IPVI Systems on a stand alone
basis, management believes that the resulting allocated amounts are reasonable.
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 revenue and expenses during the
reporting period. Actual results could differ from those estimates.
(2) PARENT'S INVESTMENT
Parent's investment in the TCI IPVI Systems at March 31, 1998 is summarized
as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
AMOUNTS IN
THOUSANDS
<S> <C>
Due to TCI.................................................................... $299,715
Retained earnings............................................................. 2,635
--------
$302,350
--------
--------
</TABLE>
The amount due to TCI includes non-interest bearing advances for
operations, acquisitions and construction costs, as well as, the non-interest
bearing amounts owed as a result of the allocation of certain costs from TCI.
F-21
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1998
(UNAUDITED)
(2) PARENT'S INVESTMENT--(CONTINUED)
As a result of TCI's controlling ownership of the TCI IPVI Systems, the
non-interest bearing amounts due to TCI have been classified as a component of
Parent's investment in the accompanying combined financial statements.
The TCI IPVI Systems purchase, at TCI's cost, substantially all of their
pay television and other programming from affiliates of TCI. Charges for such
programming was $10,967,000 for the three-month period ended March 31, 1998 and
are included in operating expenses in the accompanying combined financial
statements.
Certain subsidiaries of TCI provide administrative services to the TCI IPVI
Systems and have assumed managerial responsibility of the TCI IPVI Systems'
cable television system operations and construction. As compensation for these
services, the TCI IPVI Systems pay a monthly fee calculated on a per-subscriber
basis.
The intercompany advances and expense allocation activity in amounts due to
TCI consists of the following:
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
AMOUNTS IN
THOUSANDS
<S> <C>
Beginning of period........................................................... $260,421
Programming charges......................................................... 10,967
Management fees............................................................. 1,948
Tax allocations............................................................. 2,581
Cash transfer............................................................... 23,798
--------
End of period................................................................. $299,715
--------
--------
</TABLE>
(3) COMMITMENTS AND CONTINGENCIES
The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") imposed certain rate regulations on the cable television
industry. Under the 1992 Cable Act, all cable systems are subject to rate
regulation, unless they face "effective competition," as defined by the 1992
Cable Act and expanded in the Telecommunications Act of 1996 (the "1996 Act"),
in their local franchise area.
Although the Federal Communications Commission (the "FCC") has established
regulations required by the 1992 Cable Act, local government units (commonly
referred to as local franchising authorities) are primarily responsible for
administering the regulation of a cable system's basic service tier ("BST"). The
FCC itself directly administered rate regulation of any cable programming
service tier ("CPST"). The FCC's authority to regulate CPST rates expired on
March 31, 1999. The FCC has taken the position that it will still adjudicate
CPST complaints filed after this sunset date (but no later than 180 days after
the last CPST rate increase imposed prior to March 31, 1999), and will strictly
limit its review (and possible refund orders) to the time period predating the
sunset date.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price structure that allows for the recovery
of inflation and certain increased costs, as well as providing some incentive
for expanding channel carriage. Operators also have the opportunity to bypass
this "benchmark" regulatory structure in favor of the traditional
"cost-of-service" regulation in cases where the latter methodology appears
favorable. Premium cable services offered on a per-channel or per-program basis
remain unregulated, as do affirmatively marketed packages consisting entirely of
new programming product.
F-22
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1998
(UNAUDITED)
(3) COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The management of the TCI IPVI Systems believe that it has complied in all
material respects with the provisions of the 1992 Cable Act and the 1996 Act,
including its rate setting provisions. However, certain franchising authorities
have filed Local Rate Orders challenging the rates of certain of the TCI IPVI
Systems. If, as a result of the review process, a system cannot substantiate its
rates, it could be required to retroactively reduce its rates to the appropriate
benchmark and refund the excess portion of rates received. Any refunds of the
excess portion of CPST rates would be retroactive to the date of complaint. Any
refunds of the excess portion of BST or equipment rates would be retroactive to
one year prior to the implementation of the rate reductions. TCI has indemnified
the Partnership (as defined in note 4) for certain rate refund liabilities of
the TCI IPVI Systems through March 31, 1999.
Certain plaintiffs have filed or threatened separate class action
complaints against certain of the systems of TCI IPVI Systems, alleging that the
systems' practice of assessing an administrative fee to subscribers whose
payments are delinquent constitutes an invalid liquidated damage provision, a
breach of contract, and violates local consumer protection statutes. Plaintiffs
seek recovery of all late fees paid to the subject systems as a class purporting
to consist of all subscribers who were assessed such fees during the applicable
limitation period, plus attorney fees and costs.
The TCI IPVI Systems have contingent liabilities related to legal
proceedings and other matters arising in the ordinary course of business.
Although it is possible the TCI IPVI Systems may incur losses upon conclusion of
the matters referred to above, an estimate of any loss or range of loss cannot
presently be made. Based upon the facts available, management believes that,
although no assurance can be given as to the outcome of these actions, the
ultimate disposition should not have a material adverse effect upon the combined
financial condition of the TCI IPVI Systems.
TCI formed a Year 2000 Program Management Office (the "PMO") to organize
and manage its Year 2000 remediation efforts. The PMO is responsible for
overseeing, coordinating and reporting on TCI's Year 2000 remediation efforts,
including the Year 2000 remediation efforts of the TCI IPVI Systems prior to the
Contribution (as defined in note 4). Subsequent to the date of the Contribution,
the Year 2000 remediation efforts of the TCI IPVI Systems are no longer the
responsibility of TCI or the PMO.
The failure to correct a material Year 2000 problem could result in an
interruption or failure of certain important business operations. There can be
no assurance that the TCI IPVI Systems or the systems of other companies on
which the TCI IPVI Systems relies will be converted in time or that any such
failure to convert by the TCI IPVI Systems or other companies will not have a
material adverse effect on its results of operations or cash flows.
(4) SUBSEQUENT EVENT
Effective April 30, 1998, TCI and InterMedia Capital Management VI, L.P.
("InterMedia") executed a transaction under a Contribution Agreement ("the
Contribution"), whereby TCI contributed certain cable television systems and
advertising sales offices, the TCI IPVI Systems, to a newly formed partnership
between TCI, Blackstone Cable Acquisition Company, LLC, and InterMedia Capital
Management VI, LLC (the "Partnership") in exchange for an approximate 49.5%
ownership interest in the Partnership. TCI's 49.5% interest consists of a
49.005% direct ownership interest issued in exchange for its contribution and an
indirect ownership of .495% through its 49.55% limited partner interest in
InterMedia. In connection with the contribution, the Partnership assumed
$322.5 million of bank debt and $489.5 million of intercompany interest bearing
notes owed by the TCI IPVI Systems to TCI and its affiliates. These amounts were
subsequently paid by the Partnership, net of certain post close adjustments. The
accompanying combined financial statements reflect
F-23
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1998
(UNAUDITED)
(4) SUBSEQUENT EVENT--(CONTINUED)
the results of operations and cash flows of the TCI IPVI Systems immediately
prior to the contribution transaction, and, therefore, do not include the
effects of such transactions.
On April 30, 1998, in connection with Partnership formation described
above, TCI caused the TCI IPVI Systems to effect a dividend to TCI aggregating
$489,488,000 ("the Dividend"). The Dividend resulted in an increase to the
interest bearing intercompany notes owed to TCI and a corresponding increase to
accumulated deficit.
F-24
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
(UNAUDITED)
<S> <C>
ASSETS
Current Assets:
Cash............................................................................................ $ 2,271
Subscriber receivables, net..................................................................... 915
Other accounts receivable, net.................................................................. 1,401
Prepaid expenses and other current assets....................................................... 160
----------
Total current assets.............................................................................. 4,747
Property and equipment, net....................................................................... 36,432
Intangible assets, net............................................................................ 353
Due from related parties.......................................................................... 149
----------
Total assets...................................................................................... $ 41,681
----------
----------
LIABILITIES AND MEMBERS' DEFICIT
Current Liabilities:
Current portion of capital lease obligations.................................................... $ 94
Accounts payable................................................................................ 4,722
Accrued liabilities............................................................................. 6,639
Series Preferred A Dividend Payable............................................................. 1,750
----------
Total Current Liabilities......................................................................... 13,205
Series Preferred B Dividend Payable............................................................... 2,350
Capital lease obligations......................................................................... 105
Other Deferred Credits............................................................................ 1,077
Due to related parties............................................................................ 398
Preferred A Interest.............................................................................. 140,000
Preferred B Interest.............................................................................. 30,000
----------
Total liabilities and preferred interests......................................................... 187,135
Members' deficit.................................................................................. (145,454)
----------
Total liabilities and members' deficit............................................................ $ 41,681
----------
----------
</TABLE>
See notes to unaudited condensed financial statements.
F-25
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
1998 1999
------- -------
<S> <C> <C>
Revenue.................................................................................. $11,472 $11,696
Operating Expenses:
Service and administrative............................................................. 7,470 6,681
Depreciation and amortization.......................................................... 1,458 1,599
------- -------
Total operating expenses................................................................. 8,288 8,280
------- -------
Operating Income......................................................................... 2,544 3,416
Other Expense
Interest Expense....................................................................... -- (7)
Interest Income........................................................................ 23 77
------- -------
Interest Income, net..................................................................... 23 70
------- -------
Net Income............................................................................... 2,567 3,486
Accrual of preferred interests........................................................... -- (4,222)
------- -------
Income (loss) attributable to common interests........................................... $ 2,567 (736)
------- -------
------- -------
</TABLE>
See notes to unaudited condensed financial statements.
F-26
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------
1998 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................................... $ 2,567 $ 3,486
Adjustments to reconcile net income to net cash provided by operating activities Depreciation
and amortization........................................................................... 1,458 1,599
Changes in certain assets and liabilities
Subscriber receivables..................................................................... 700 271
Other accounts receivable, prepaid expenses and other current assets....................... 223 126
Accounts payable, accrued liabilities and other............................................ (881) 3,655
Due to affiliated companies................................................................ (1,351) (631)
------- -------
Net cash provided by operating activities.................................................... 2,716 8,506
------- -------
Cash flows from investing activities:
Capital expenditures for property and equipment.............................................. (1,194) (6,122)
Increase in other intangible assets.......................................................... -- (26)
------- -------
Net cash used in investing activities........................................................ (1,194) (6,148)
------- -------
Cash flows from financing activities:
Principal payments on capital lease obligations.............................................. (70) (29)
Capital distributions........................................................................ (1,143) --
Preferred interest distributions............................................................. -- (6,767)
------- -------
Net cash used in financing activities........................................................ (1,213) (6,796)
------- -------
Net increase in cash......................................................................... 309 (4,438)
Cash, beginning of period.................................................................... 574 6,709
------- -------
Cash, end of period.......................................................................... $ 883 $ 2,271
------- -------
------- -------
</TABLE>
See notes to unaudited condensed financial statements.
F-27
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
1. BUSINESS ORGANIZATION AND PURPOSE
Insight Communications of Central Ohio, LLC ("Insight Ohio" or the
"Company") was formed on July 23, 1998 in order to acquire substantially all of
the assets and liabilities comprising the cable television system of Coaxial
Communications of Central Ohio, Inc. ("Coaxial"). On August 21, 1998, Coaxial
contributed to Insight Ohio all of the assets and liabilities comprising
Coaxial's cable television 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 of Insight Ohio ("Series A and Series B Preferred
Interests"). In conjunction therewith, 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 accompanying
financial statements for the three month period ended March 31, 1998, include
the operations of the cable television system contributed by Coaxial to Insight
Ohio, as if the aforementioned contribution had occurred as of January 1, 1998
(the beginning of the period), and represent the operations of the cable system
operating unit (the "Operating Unit" and predecessor to Insight Ohio), which,
prior to such date, was an operating unit within Coaxial. The amounts included
in the accompanying March 31, 1998 financial statements for the Operating Unit
include only those assets, liabilities, revenues, and expenses directly related
to the cable television system contributed to Insight Ohio. Prior to the
contribution of the Operating Unit to Insight Ohio, the Company had nominal
assets and no operations. Insight Ohio provides basic and expanded cable
services to homes in Columbus, Ohio and surrounding areas.
On August 21, 1998, Coaxial and Phoenix Associates, a related entity,
issued $140 million of 10% Senior Notes ("Senior Notes") due in 2006. The Senior
Notes are non-recourse and are secured by all issued and outstanding Series A
Preferred Interest in Insight Ohio and are conditionally guaranteed by 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.
2. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month period ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999.
For further information, refer to the Company's financial statements and
footnotes thereto for the year ended December 31, 1998, included elsewhere in
this registration statement.
3. CONTINGENCIES
Insight Ohio is a 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 Insight Ohio's future results of
operations or financial position.
F-28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
Insight Communications Company, L.P.
We have audited the accompanying consolidated balance sheets of Insight
Communications Company, L.P. (A Limited Partnership) as of December 31, 1997 and
1998, and the related consolidated statements of operations, changes in
partners' deficiency, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our 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 consolidated financial position of Insight
Communications Company, L.P. (A Limited Partnership) at December 31, 1997 and
1998, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
As discussed in Note C to the consolidated financial statements, in 1998 the
Partnership changed its method of accounting for cable system exchanges.
/s/ ERNST & YOUNG LLP
New York, New York
March 31, 1999
F-29
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
(RESTATED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................................ $ 1,082 $ 19,902
Cash on deposit with qualified intermediary.............................................. 12,646 --
Trade accounts receivable, net of allowance for doubtful accounts of $130 in 1997 and
$409 in 1998........................................................................... 1,330 7,988
Due from affiliated companies............................................................ 57 --
Due from Insight Communications of Central Ohio, LLC..................................... -- 1,039
Prepaid expenses......................................................................... 926 500
Other assets............................................................................. 2,273 1,098
Fixed assets, net........................................................................ 63,842 155,412
Intangible assets, net................................................................... 72,499 462,355
Deferred financing costs, net of amortization of $0 in 1997 and $143 in 1998............. 3,448 4,794
Investment in Insight Communications of Central Ohio, LLC................................ -- 6,749
--------- ---------
$ 158,103 $ 659,837
--------- ---------
--------- ---------
LIABILITIES AND PARTNERS' DEFICIENCY
Accounts payable......................................................................... $ 6,478 $ 24,290
Accrued expenses and other liabilities................................................... 7,183 4,068
Due to affiliates........................................................................ -- 88
Interest payable......................................................................... 1,389 7,661
Debt..................................................................................... 207,488 573,663
--------- ---------
222,538 609,770
Minority interest........................................................................ -- 6,676
Warrants................................................................................. 3,547 --
Redeemable preferred limited units, 26,525,042 and 0 units outstanding in 1997 and 1998,
respectively........................................................................... 60,000 --
Redeemable Class B units, 0 and 47,215,859 units outstanding in 1997 and 1998,
respectively, net of issuance costs of $4,410.......................................... -- 51,319
Partners' deficiency:
General partner........................................................................ (1,728) (527)
Limited partners, 52,634,399 and 41,974,421 units issued and outstanding in 1997 and
1998, respectively.................................................................. (126,254) (7,401)
--------- ---------
(127,982) (7,928)
--------- ---------
$ 158,103 $ 659,837
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-30
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1997
----------------------- -----------------------
(RESTATED)
<S> <C> <C>
Revenue....................................................................... $ 61,839 $ 67,698
Costs and expenses:
Programming and other operating costs....................................... 16,774 18,397
Selling, general and administrative......................................... 14,062 15,020
Depreciation and amortization............................................... 15,694 18,125
--------- ---------
46,530 51,542
--------- ---------
Operating income.............................................................. 15,309 16,156
Other income (expense):
Gain on cable systems exchange.............................................. -- 78,931
Gain on contribution of cable systems to Joint Venture...................... -- --
Interest expense............................................................ (17,644) (15,962)
Other expense............................................................... -- --
--------- ---------
(17,644) 62,969
--------- ---------
Income (loss) before minority interest and equity in losses of Insight
Communications of Central Ohio, LLC......................................... (2,335) 79,125
--------- ---------
Minority interest............................................................. -- --
Equity in losses of Insight Communications of Central Ohio, LLC............... -- --
--------- ---------
Income (loss) before extraordinary item....................................... (2,335) 79,125
Extraordinary loss from early extinguishment of debt.......................... (480) (5,243)
--------- ---------
Net income (loss)............................................................. (2,815) 73,882
Accretion of redeemable Class B units......................................... -- --
Accretion to redemption value of preferred limited units...................... (5,421) (15,275)
--------- ---------
Net income (loss) applicable to partnership units............................. $ (8,236) $ 58,607
--------- ---------
--------- ---------
<CAPTION>
1998
-----------------------
<S> <C>
Revenue....................................................................... $ 112,902
Costs and expenses:
Programming and other operating costs....................................... 30,376
Selling, general and administrative......................................... 24,471
Depreciation and amortization............................................... 43,849
---------
98,696
---------
Operating income.............................................................. 14,206
Other income (expense):
Gain on cable systems exchange.............................................. 111,746
Gain on contribution of cable systems to Joint Venture...................... 44,312
Interest expense............................................................ (28,106)
Other expense............................................................... (444)
---------
127,508
---------
Income (loss) before minority interest and equity in losses of Insight
Communications of Central Ohio, LLC......................................... 141,714
---------
Minority interest............................................................. 3,410
Equity in losses of Insight Communications of Central Ohio, LLC............... (3,251)
---------
Income (loss) before extraordinary item....................................... 141,873
Extraordinary loss from early extinguishment of debt.......................... (3,267)
---------
Net income (loss)............................................................. 138,606
Accretion of redeemable Class B units......................................... (5,729)
Accretion to redemption value of preferred limited units...................... --
---------
Net income (loss) applicable to partnership units............................. $ 132,877
---------
---------
</TABLE>
See accompanying notes.
F-31
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIENCY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIMITED PARTNERS
GENERAL -------------------------
PARTNER AMOUNT UNITS TOTAL
------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1995................................. $(2,232) $(167,369) 80,259,565 $(169,601)
Net loss for year.......................................... (28) (2,787) -- (2,815)
Accretion of preferred limited units....................... (54) (5,367) -- (5,421)
------- --------- ------------ ---------
Balance at December 31, 1996................................. (2,314) (175,523) 80,259,565 (177,837)
Net income for year (Restated)............................. 739 73,143 -- 73,882
Purchase of limited partner's interest....................... -- (10,250) (27,625,166) (10,250)
Purchase of warrants....................................... -- 366 -- 366
Accretion of preferred limited units....................... (153) (15,122) -- (15,275)
Depreciation of warrants................................... -- 1,132 -- 1,132
------- --------- ------------ ---------
Balance at December 31, 1997 (Restated)...................... (1,728) (126,254) 52,634,399 (127,982)
Net income for year........................................ 1,386 137,220 -- 138,606
Accretion of redeemable Class B units...................... (57) (5,672) -- (5,729)
Purchase of limited partners' units........................ (165) (16,321) (13,189,066) (16,486)
Warrants exercised......................................... 24 2,363 2,529,088 2,387
Warrants expired........................................... 9 900 -- 909
Purchase of warrants....................................... 4 363 -- 367
------- --------- ------------ ---------
Balance at December 31, 1998................................. $ (527) $ (7,401) 41,974,421 $ (7,928)
------- --------- ------------ ---------
------- --------- ------------ ---------
</TABLE>
See accompanying notes.
F-32
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1996 1997
------------------------ ------------------------
(RESTATED)
<S> <C> <C>
Operating activities:
Net income (loss)......................................................... $ (2,815) $ 73,882
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.......................................... 15,694 18,125
Amortization of debt discount and deferred interest.................... 1,546 259
Equity in losses of Insight Communications of Central Ohio, LLC........ -- --
Gain on cable systems exchange......................................... -- (78,931)
Gain on contribution of cable systems to joint venture................. -- --
Extraordinary loss from early extinguishment of debt................... 480 2,002
Minority interest...................................................... -- --
Provision for losses on trade accounts receivable...................... 670 695
Changes in operating assets and liabilities:
Trade accounts receivable............................................ (647) (1,058)
Due from and to affiliates........................................... (4) 12
Prepaid expenses and other assets.................................... (474) (1,663)
Accounts payable..................................................... (623) 2,046
Accrued expenses and other liabilities............................... 943 (1,782)
Interest payable..................................................... 1,206 (3,151)
-------- ----------
Net cash provided by operating activities................................. 15,976 10,436
-------- ----------
Investing activities:
Purchases of fixed assets................................................. (16,414) (27,981)
Purchase of cable television system, net of working capital acquired...... -- --
Investment in Insight Communications of Central Ohio, LLC................. -- --
Increase in intangible assets............................................. (175) --
-------- ----------
Net cash used in investing activities..................................... (16,589) (27,981)
-------- ----------
Financing activities:
Proceeds from bank credit facility........................................ 11,000 140,252
Repayment of amounts due to Tele-Communications, Inc...................... -- --
Principal payments on bank credit facility................................ (6,800) (108,044)
Purchase of warrants...................................................... -- (320)
Issuance of Class B common units.......................................... -- --
Class B common unit issuance costs........................................ -- --
Purchase of redeemable preferred limited units............................ -- --
Purchase of limited partners' interest.................................... -- (10,250)
Debt issuance costs....................................................... (3,330) (3,747)
-------- ----------
Net cash provided by financing activities................................. 870 17,891
-------- ----------
Net increase in cash and cash equivalents................................. 257 346
Cash and cash equivalents, beginning of year.............................. 479 736
-------- ----------
Cash and cash equivalents, end of year.................................... $ 736 $ 1,082
-------- ----------
-------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amount capitalized.................................... $ 15,639 $ 19,103
-------- ----------
-------- ----------
<CAPTION>
1998
------------------------
(RESTATED)
<S> <C>
Operating activities:
Net income (loss)......................................................... $ 138,606
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.......................................... 43,849
Amortization of debt discount and deferred interest.................... --
Equity in losses of Insight Communications of Central Ohio, LLC........ 3,251
Gain on cable systems exchange......................................... (111,746)
Gain on contribution of cable systems to joint venture................. (44,312)
Extraordinary loss from early extinguishment of debt................... 3,267
Minority interest...................................................... (3,410)
Provision for losses on trade accounts receivable...................... 1,288
Changes in operating assets and liabilities:
Trade accounts receivable............................................ (7,545)
Due from and to affiliates........................................... (894)
Prepaid expenses and other assets.................................... 1,707
Accounts payable..................................................... 17,774
Accrued expenses and other liabilities............................... (3,347)
Interest payable..................................................... 6,272
----------
Net cash provided by operating activities................................. 44,760
----------
Investing activities:
Purchases of fixed assets................................................. (44,794)
Purchase of cable television system, net of working capital acquired...... (84,101)
Investment in Insight Communications of Central Ohio, LLC................. (10,000)
Increase in intangible assets............................................. (3,295)
----------
Net cash used in investing activities..................................... (142,190)
----------
Financing activities:
Proceeds from bank credit facility........................................ 753,900
Repayment of amounts due to Tele-Communications, Inc...................... (214,532)
Principal payments on bank credit facility................................ (387,725)
Purchase of warrants...................................................... 116
Issuance of Class B common units.......................................... 50,000
Class B common unit issuance costs........................................ (4,410)
Purchase of redeemable preferred limited units............................ (60,000)
Purchase of limited partners' interest.................................... (16,486)
Debt issuance costs....................................................... (4,613)
----------
Net cash provided by financing activities................................. 116,250
----------
Net increase in cash and cash equivalents................................. 18,820
Cash and cash equivalents, beginning of year.............................. 1,082
----------
Cash and cash equivalents, end of year.................................... $ 19,902
----------
----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amount capitalized.................................... $ 21,834
----------
----------
</TABLE>
See accompanying notes.
F-33
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
A. ORGANIZATION
Insight Communications Company, L.P., (the "Partnership"), is a Delaware
limited partnership, that owns, operates, and manages cable television systems.
Pursuant to the partnership agreement, the Partnership will terminate by
December 31, 2020 unless further extended. As of December 31, 1998, the
Partnership operates cable television systems in Illinois, California, Georgia,
Indiana, Kentucky and Virginia. As the Partnership is a limited partnership, the
liability of its limited partners is limited to their respective investment in
the Partnership.
The general partner of the Partnership is ICC Associates, L.P. ("ICC" or
the "General Partner"), a limited partnership whose general partner is ICI
Communications Inc. ("ICI"). ICC also holds an interest of approximately
4,554,000 common limited partnership units ("Common Units") in the Partnership.
B. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the
Partnership and Insight Communications of Indiana, LLC, ("Insight Indiana") a
50% owned joint venture in which the Partnership has effective control through
majority representation on its management committee (see Note D). The minority
interest liability represents Tele-Communications, Inc.'s ("TCI") 50% ownership
interest in Insight Indiana. All significant intercompany balances and
transactions have been eliminated in consolidation. The Partnership's 75% non-
voting common interest in Insight Communications of Central Ohio, LLC ("Insight
Ohio") is accounted for under the equity method (see Note E).
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Revenues include service fees, connection fees, and launch fees. Service
fees are recorded in the month the cable television and pay television services
are provided to subscribers. Connection fees are charged for the hook-up of new
customers and are recognized as current revenues to the extent of direct selling
costs incurred. Where material, any fees in excess of such costs are deferred
and amortized into income over the period that subscribers are expected to
remain connected to the system. Launch fees are deferred and amortized over the
period of the underlying contract.
Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Fixed Assets
Fixed assets include amounts capitalized for labor and overhead expended in
connection with the installation of cable television systems and are stated at
cost. Depreciation for furniture, fixtures, office equipment, buildings, and
equipment is computed using the straight-line method over estimated useful lives
ranging from 3 to 19 years.
F-34
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
B. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Leasehold improvements are being amortized using the straight-line method over
the remaining terms of the leases or the estimated lives of the improvements,
whichever period is shorter. Management does not believe that any events or
changes in circumstances indicate that the carrying amount of these long-lived
assets may not be recovered. The carrying value of fixed assets will be reviewed
if facts and circumstances suggest that they may be impaired. If this review
indicates that the fixed assets will not be recovered from the undiscounted
future cash flows of the Partnership, an impairment loss would be recorded by
the amount that the carrying value exceeds fair value. Based on its most recent
analysis, the Partnership believes that no material impairment of fixed assets
exists as of December 31, 1998.
Intangible Assets
Intangible assets consist of franchise costs and goodwill. Costs incurred
in negotiating and renewing franchise agreements are capitalized and amortized
over the life of the franchise. Franchise rights acquired through the purchase
of cable television systems are amortized using the straight-line method over a
period of up to 15 years. Goodwill is amortized using the straight-line method
over a period of 40 years. The carrying value of intangible assets will be
reviewed if facts and circumstances suggest that they may be impaired. If this
review indicates that the intangible assets will not be recovered from the
undiscounted future cash flows of the Partnership, an impairment loss would be
recorded by the amount that the carrying value exceeds fair value. Based on its
most recent analysis, the Partnership believes that no material impairment of
intangible assets exists as of December 31, 1998.
Deferred Financing Costs
Deferred financing costs relate to costs, primarily legal fees and bank
facility fees, incurred to negotiate and secure bank loans (see Note H). These
costs are being amortized on a straight line basis over the life of the
applicable loan.
Income Taxes
No provision has been made in the accompanying financial statements for
Federal, State or Local income taxes since income or losses of the Partnership
is reportable by the individual partners in their respective tax returns. At
December 31, 1998, had the Partnership converted to a corporation, the
Partnership would have recognized a one-time non-recurring charge to earnings of
approximately $45 million to record a net deferred tax liability associated with
the change from a limited partnership to a corporation.
Allocation of Profits and Losses
Profits and losses are allocated between the partners for financial
reporting purposes based on cash distribution and liquidating distribution
preferences per the partnership agreement. For the years ended December 31,
1996, 1997 and 1998, losses were allocated 1% to the General Partner for its
interest and 99% to the limited partners.
The partnership agreement, as amended, provides for, among other matters,
the allocation of all items of profit and loss and the priority and allocation
of cash distributions. The General Partner also owns Common Units in the
Partnership.
F-35
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
B. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Advertising Costs
The cost of advertising is expensed as incurred. For the years ended
December 31, 1996, 1997, and 1998 advertising expense approximated $274,000,
$369,000, and $702,000, respectively.
Impact of Recently Issued Accounting Standards
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (the "Statement"). The Partnership expects
to adopt the Statement effective January 1, 2000. The Statement will require the
Partnership to recognize all derivatives on the balance sheet at fair value.
Although management has not completed its assessment of the impact of the
Statement on its results of operations and financial position, management does
not anticipate that the adoption of this Statement will be material.
C. ACQUISITIONS AND GAIN ON CABLE SYSTEM EXCHANGES
Effective December 16, 1997, the Partnership exchanged their Phoenix,
Arizona system ("Phoenix") servicing 36,250 subscribers for Cox Communications,
Inc.'s Lafayette, Indiana system ("Lafayette") servicing 38,100 subscribers.
Pursuant to Section 1031 of the Internal Revenue Code, such transaction was
treated as a tax free like-kind exchange. In addition to the Lafayette system
received, the Partnership received $12.6 million in cash. In its 1997 financial
statements, the Partnership accounted for the aforementioned system exchange at
book value as the Partnership did not consider the exchange as an exchange of
businesses, but rather as an exchange of like-kind productive assets. In
addition, the Partnership recognized a gain of approximately $10.9 million to
the extent that the aforementioned proceeds received exceeded the proportionate
share of the carrying value of the Phoenix system surrendered. In connection
with the Partnership exploring various sources of financing, including a
potential initial public offering, the Partnership changed its accounting policy
related to this exchange and has accounted for the aforementioned exchange as a
sale and purchase of assets. This change in accounting was made as a result of
the Securities and Exchange Commission ("SEC") viewpoint that swapping of
businesses, even if in the same line of business, should be accounted for at
fair value under the guidance of APB opinion No. 16, "Business Combinations."
Accordingly, the accompanying 1997 financial statements include a gain of
$79.0 million on the sale of the Phoenix system, which amount represents the
difference between the fair value of the Phoenix System ($92.6 million) and its
carrying value. The Lafayette purchase price ($80.0 million) was allocated to
the cable television assets acquired in relation to their fair values as
increases in property and equipment of $22.4 million and franchise costs of
$56.6 million. Purchase price adjustments for differences in working capital
between the Phoenix and Lafayette systems were not significant. Effective
November 1, 1998, the Partnership contributed the Lafayette system into Insight
Indiana (see Note D).
On January 22, 1998, the Partnership acquired a cable television system
located in Rockford, Illinois ("Rockford") for $97 million. This acquisition has
been accounted for as a purchase. The Partnership paid for the acquisition with
borrowings under its credit facility and with the $12.6 million of cash received
in the aforementioned Phoenix/Lafayette swap and held on deposit with a
qualified intermediary. The purchase price was allocated to the cable television
assets acquired in relation to their fair values as increases in property and
equipment of $11.5 million and franchise costs of $85.5 million. Purchase-price
adjustments for working capital acquired were not significant. Franchise costs,
arising from the acquisition, are being amortized over a period of 15 years. The
results of operations of Rockford have been included in the accompanying
statements of operations since its acquisition date.
Effective October 31, 1998, the Partnership exchanged its Sandy, Brigham
City and Vernal, Utah systems (the "Utah Systems") servicing approximately
56,200 subscribers with TCI for their Jasper and Evansville, Indiana systems
servicing approximately 63,000 subscribers. This transaction has been accounted
for by the Partnership as a sale of the Utah Systems and purchase of the Jasper
and Evansville systems. Accordingly, the
F-36
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
C. ACQUISITIONS AND GAIN ON CABLE SYSTEM EXCHANGES--(CONTINUED)
Evansville and Jasper systems have been included in the accompanying
consolidated balance sheets at $125.0 million (fair value of Utah Systems) and
the Partnership recognized a gain on the sale of the Utah Systems of
approximately $112.0 million which amount represents the difference between the
carrying value of the Utah Systems and their fair value. The Evansville and
Jasper systems purchase price was allocated to the cable television assets
acquired as increases in property and equipment of $24 million and franchise
costs of $101 million. Purchase price adjustments recorded for differences in
working capital between the Utah systems and the Evansville and Jasper systems
were not material. Franchise costs arising from the acquisition of the
Evansville and Jasper systems are being amortized on the straight-line method
over a period of 15 years. In a simultaneous transaction, the Jasper and
Evansville systems were contributed by the Partnership into Insight Indiana (See
Note D).
D. INSIGHT INDIANA
Effective October 31, 1998, the Partnership and TCI entered into a
contribution agreement ("Contribution Agreement"). Pursuant to the terms of the
Contribution Agreement, the Partnership and TCI contributed certain of their
cable television systems located in Indiana and Northern Kentucky to Insight
Indiana (a newly formed limited liability corporation) in exchange for 50%
equity interests therein. The cable television systems contributed to Insight
Indiana by the Partnership included the Jasper and Evansville systems that were
acquired by the Partnership from TCI. Pursuant to the terms of the Insight
Indiana Operating Agreement, Insight Indiana has a twelve year life, unless
extended by TCI and the Partnership. In addition, the Operating Agreement states
that the Partnership is the manager of Insight Indiana and effectively controls
its board, including all of the operating and financial decisions pertaining to
Insight Indiana. Accordingly, the accompanying consolidated financial statements
include the accounts of Insight Indiana since its inception on October 31, 1998.
The Partnership has accounted for the TCI contributed systems as a purchase.
Accordingly, the historical carrying value of the TCI contributed systems have
been increased by an amount equivalent to 50% of the difference between the fair
value of the systems and their respective carrying values ($89.1 million). In
addition, in accordance with EITF 90-13, "Accounting for Simultaneous Common
Control Mergers", the Partnership recognized a gain of $44.3 million on the
contribution of its remaining systems (exclusive of Evansville and Jasper) to
Insight Indiana, equivalent to 50% of the difference between the carrying value
of such systems and their fair value. The aforementioned fair value was
allocated to the cable television assets contributed by TCI in relation to their
fair values as increases in property and equipment of $58.0 million and
franchise costs of $181.6 million. Other assets and liabilities contributed by
TCI were not significant ($1.5 million). In connection with the contribution of
TCI's cable television systems, TCI contributed $214.6 million of intercompany
debt owed by such systems to Insight Indiana. Similarly, the Partnership
contributed $237.4 million of debt pertaining to the systems that it contributed
to Insight Indiana. During November 1998, Insight Indiana repaid such amounts to
TCI and the Partnership, which payments were funded by borrowings under its
credit facility.
The pro forma unaudited results of operations of the Partnership for the
years ended December 31 assuming the contribution of the TCI systems occurred on
January 1, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Revenues.............................................................. $141,991 $175,667
Income before extraordinary item...................................... 108,689 116,900
Net income............................................................ 75,343 113,633
</TABLE>
The Partnership earns a management fee for managing Insight Indiana
equivalent to 3% of Insight Indiana's revenues. For the two months ended
December 31, 1998, the Partnership earned approximately $.7 million of
management fees from Insight Indiana.
F-37
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
E. INSIGHT OHIO
On August 21, 1998, the Partnership and Coaxial Communications of Central
Ohio, Inc. ("Coaxial") entered into a contribution agreement (the "Coaxial
Contribution Agreement") pursuant to which Coaxial contributed to Insight Ohio
(a newly formed limited liability company) substantially all of the assets and
liabilities of its cable television systems located in Columbus, Ohio and the
Partnership contributed to Insight Ohio $10 million in cash. As a result of the
Coaxial Contribution Agreement, Coaxial owns 25% of the non-voting common equity
and the Partnership owns 75% of the non-voting common equity of Insight Ohio. In
addition, Coaxial also received two separate series of voting preferred equity
(Series A Preferred Interest--$140 million and Series B Preferred
Interest--$30 million) of Insight Ohio (collectively the "Voting Preferred").
The Voting Preferred provides for cash distributions to Coaxial and certain of
its affiliates as follows; Series A--10% and Series B--12 7/8%. Insight Ohio
cannot redeem the Series A Preferred interest or the Series B Preferred Interest
without the permission of the Principals of Coaxial; however, Insight Ohio is
required to redeem the Series B Preferred Interest on August 21, 2008. Coaxial
has pledged the Series A Preferred Interest and Series B Preferred Interest as
security for $140 million of 10% senior notes due in 2006 issued by Coaxial and
affiliate and $55.9 million of aggregate principal amount at maturity of 12 7/8%
senior discount notes due in 2008 issued by Coaxial's majority shareholder and
an affiliate, respectively. The Discount Notes and Senior Notes are
conditionally guaranteed by Insight Ohio.
Insight Ohio was formed solely for the purpose of completing the
aforementioned transaction. The Partnership, as manager of Insight Ohio, earns a
management fee from Insight Ohio equal to 3% of Insight Ohio's revenues. For the
period from August 21, 1998 through December 31, 1998, the Partnership earned
approximately $.5 million in management fees from Insight Ohio.
Although the Partnership manages and controls the day to day operations of
Insight Ohio, the shareholders of Coaxial have significant participating rights
(their approval is required for disposition of assets). Accordingly, by analogy
to EITF 96-16 "Investors Accounting for an Investee When the Investor has a
Majority of the Voting Interests, but the Minority Shareholders Have Certain
Approval or Veto Rights," the Partnership is accounting for its investment in
Insight Ohio under the equity method of accounting. The Partnership is
amortizing the difference between its initial $10 million investment and its 75%
interest in Insight Ohio's deficiency in assets over a period of 12 1/2 years,
which period represents the average life of Insight Ohio's tangible and
intangible assets. Accordingly, the accompanying statement of operations for the
year ended December 31, 1998 includes the Partnership's share of Insight Ohio's
operating income (approximately $.1 million) and the amortization of the
aforementioned deficiency in assets (approximately $3.3 million) from
August 21, 1998 (the effective date of the Coaxial Contribution Agreement)
through December 31, 1998.
At December 31, 1998, Insight Ohio has a $25 million revolving line of
credit. At December 31, 1998, no amounts were outstanding under this line of
credit.
F-38
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
F. FIXED ASSETS
Fixed assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land, buildings and improvements...................................... $ 3,595 $ 4,903
Cable television equipment............................................ 80,621 181,635
Furniture, fixtures and office equipment.............................. 3,384 8,941
-------- --------
87,600 195,479
Less accumulated depreciation and amortization........................ (23,758) (40,067)
-------- --------
$ 63,842 $155,412
-------- --------
-------- --------
</TABLE>
G. INTANGIBLE ASSETS
Intangible assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
TYPE 1997 1998
- ---------------------------------------------------------------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Franchise rights...................................................... $ 86,969 $493,302
Goodwill.............................................................. 7,450 6,943
-------- --------
94,419 500,245
Less accumulated amortization......................................... (21,920) (37,890)
-------- --------
$ 72,499 $462,355
-------- --------
-------- --------
</TABLE>
H. DEBT
Debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit facility............................................. $ 89,800 $111,100
Insight Indiana credit facility....................................... -- 460,000
Term loan............................................................. 110,000 --
Note payable to Media One............................................. 7,688 2,563
-------- --------
$207,488 $573,663
-------- --------
-------- --------
</TABLE>
In November, 1996, the Partnership entered into a second amended and
restated credit facility ("Amended Credit Facility"), which superseded the
Partnership's prior credit facility. The Amended Credit Facility provided for
loans totaling $220 million. On January 22, 1998, the Partnership entered into a
third amended and restated credit facility which increased the maximum amount of
borrowings under the amended and restated credit facility to $340 million. As a
result of the contribution of certain of the Partnership's cable television
systems to Insight Indiana and the execution by Insight Indiana of its own
credit facility, the Partnership entered into a fourth amended and restated
credit agreement which expires in December 2005 and reduced the maximum amount
of borrowings to $140 million. Borrowings under the fourth amended and restated
credit facility bear interest at either the Alternative Base Rate (ABR) or
reserve-adjusted London Interbank Offered Rate (LIBOR), plus the Applicable
Margin as defined. The Applicable Margin varies based upon levels of total
leverage ranging from
F-39
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
H. DEBT--(CONTINUED)
0.0% to 0.625% under the ABR option and 1.0% to 1.875% under the LIBOR option.
The second and third amended and restated credit facilities contained similar
rates for interest. At December 31, 1998, approximately $111 million was
outstanding under this facility.
The fourth amended and restated credit facility is subject to numerous
restrictive covenants, including but not limited to, restrictions on incurrence
of indebtedness, mergers, acquisitions, asset sales, distributions, and capital
expenditures. In addition, there are a series of financial tests including those
measuring the Partnership's coverage ratios and leverage. For the years ended
December 31, 1996, 1997, and 1998 average interest rates were 10.7%, 8.4% and
8.2%, respectively. Such amended credit facility is secured by substantially all
the present and future assets of the Partnership other than those of Insight
Indiana.
In March 1993, the Partnership issued $108 million aggregate principal
amount of 11 1/4% Notes due in full on March 1, 2000. Effective March 1, 1997,
the Partnership repurchased such notes for $111.2 million which resulted in an
extraordinary loss of $5.2 million.
On November 24, 1997, the Partnership purchased the limited partnership
interest held by Media One for $10.3 million. The Partnership paid $2.6 million
in cash and issued a two-year senior subordinated note payable for
$7.7 million. The note bears interest at a rate of 9% payable annually.
Remaining principal payments approximate $2.6 million at December 31, 1998 and
are due on November 24, 1999. Should the Partnership default on any portion of
the aforementioned senior subordinated note, Media One would be entitled to a
pro-rata share of the limited partnership units purchased by the Partnership.
At December 31, 1998, Insight Indiana has a credit facility that provides
for long term loans of $300 million and for revolving credit loans of up to $250
million. The Insight Indiana credit facility matures in December 2006, and
contains quarterly reductions in the amount of outstanding loans and commitments
commencing in March 2001. Obligations under this credit facility are secured by
substantially all of the assets of Insight Indiana. Loans under the Insight
Indiana credit facility bear interest at an ABR or LIBOR plus an additional
margin tied to certain debt ratios of Insight Indiana. The credit facility
requires Insight Indiana to meet certain debt financial covenants. At
December 31, 1998 approximately $460 million was outstanding under the facility.
At December 31, 1998 required annual principal payments under the
aforementioned credit facilities and the Media One note are as follows (in
thousands):
<TABLE>
<S> <C>
1999.......................................................... $ 2,563
2000.......................................................... --
2001.......................................................... 65,000
2002.......................................................... 90,250
2003.......................................................... 114,750
Thereafter.................................................... 301,100
--------
$573,663
--------
--------
</TABLE>
I. REDEEMABLE CLASS B UNITS, WARRANTS AND REDEEMABLE PREFERRED LIMITED UNITS
On January 29, 1998, the Partnership issued 47,215,859 Class B partnership
Units ("Class B Units") to Vestar Capital Partners III, LP ("Vestar") and
Sandler Capital Partners, collectively the "Class B Partners", in exchange for
$50 million in cash, resulting in the Class B Partners holding a 45% of the
outstanding partnership units on a fully diluted basis in the Partnership. In
connection with the issuance of the Class B Units, the Partnership paid
placement fees and expenses of $1.7 million to Vestar and $2.7 million to an
investment banking institution which amounts have been netted against the
aforementioned proceeds. The Class B Partners have additional rights from those
of the Class A Partners including veto rights, debt incurrance above certain
levels
F-40
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
I. REDEEMABLE CLASS B UNITS, WARRANTS AND REDEEMABLE PREFERRED LIMITED
UNITS--(CONTINUED)
and certain rights in insolvency. The amendment to the Partnership Agreement
admitting the Class B Partners included a put/call arrangement whereby the
Partnership or the Class B partners may call or put, respectively, the Class B
units during a 60 day period commencing in July 2004 at their fair market value.
The counterparties to the put/call arrangement, are limited to the Partnership
and the Class B partners. Distributions between the Class A Units and Class B
Units are made on a per unit basis until the Class B Units earn a 25% annual
internal rate of return at which time distributions are amended to approximately
29.4% to the Class B Unit holders and 70.6% to the Class A Unit holders. In
addition, the general partner is entitled to receive a percentage of the Class B
units upon the achievement of certain performance criteria. Although no event
has arisen which would result in the application of such performance criteria,
at December 31, 1998, the Partnership has accreted the Class B Units in an
amount equivalent to the aforementioned 25% internal rate of return. The Class B
Units agreement provides for demand and piggyback registration rights after an
initial public offering of common equity of the Partnership or its corporate
successor.
In connection with a debt issuance in 1988, the Partnership issued
1,378,830 detachable warrants which were valued at $5.6 million at the date of
issuance. Each warrant entitles the holder thereof to purchase 4.22 Class A
Units in the Partnership at an exercise price of $1.61 per warrant. For
accounting purposes, the value of the warrants was determined by management
assuming that a sale of the Partnership had occurred as of each year-end and
without regard to the illiquid nature of the warrants. During 1997 and 1998, the
Partnership acquired 176,490 and 512,200 warrants for approximately $.3 million
and $.8 million, respectively. The value of the warrants at December 31, 1997
was approximately $3.5 million, which was estimated based on a valuation of the
Partnership prepared by management. During 1998, 599,310 warrants were converted
into 2,529,088 Class A Units and 383,303 warrants expired. Accordingly, at
December 31, 1998, no warrants were outstanding.
In 1993, the Partnership issued redeemable preferred limited units to a
group of investors for a gross purchase price of $27 million. During January
1998, all of the remaining units were redeemed for $60 million pursuant to a
negotiated agreement. Prior to such redemption, the units had a liquidation
preference equal to the capital contribution plus a cumulative return on such
capital at an annual rate of 12 1/2%. In addition, the units shared in the
increase in the equity value of the Partnership. At December 31, 1997 the
preferred limited units have been accreted to $60 million in the accompanying
consolidated balance sheet. At December 31, 1996 and 1997, the accreted
redemption value of the preferred limited units was derived by the Partnership
in the same manner as the value of the warrants.
J. FINANCIAL INSTRUMENTS
Concentrations of Credit Risk
Financial instruments that potentially subject the Partnership to
significant concentrations of credit risk consist principally of cash
investments and accounts receivable.
The Partnership maintains cash and cash equivalents, with various financial
institutions. These financial institutions are located throughout the country
and the Partnership's policy is designed to limit exposure to any one
institution.
Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of customers comprising the Partnership's
customer base.
The following methods and assumptions were used by the Partnership in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates fair value.
F-41
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
J. FINANCIAL INSTRUMENTS--(CONTINUED)
Debt: The carrying amounts of the Partnership's borrowings under its
revolving credit arrangements approximate fair value as they bear interest
at floating rates.
The carrying amounts and fair values of the Partnership's financial
instruments at December 31 approximate fair value.
As required by its credit facilities, the Partnership enters into
interest-rate swap agreements to modify the interest characteristics of its
outstanding debt from a floating rate to a fixed rate basis. These agreements
involve the payment of fixed rate amounts in exchange for floating rate interest
receipts over the life of the agreement without an exchange of the underlying
principal amount. The differential to be paid or received is accrued as interest
rates change and is recognized as an adjustment to interest expense related to
the debt. The related amount payable to or receivable from counterparties is
included in other liabilities or assets. At December 31, 1998 the Partnership
has entered into various interest rate swap and collar agreements effectively
fixing interest rates between 5.35% and 6.16% on $301 million notional value of
debt. The fair values of the swap agreements are not recognized in the financial
statements and approximated $1.2 million at December 31, 1998.
K. RELATED PARTY TRANSACTIONS
The Partnership has an agreement with Media One which enables the
Partnership to obtain certain services (principally pay and basic cable
programming services) and equipment at rates lower than those which would be
available from independent parties. Management believes that the loss of such
favorable rates could have a material adverse effect on the financial condition
and results of operations of the Partnership. In each of the years ended
December 31, 1996, 1997, and 1998, programming and other operating costs include
approximately $.2 million of expenses related to programming services paid to
Media One.
In addition, in connection with the Contribution Agreement (see note D),
Insight Indiana purchases substantially all of its pay television and other
programming from affiliates of TCI. Charges for such programming were
$1.4 million for the period from November 1, 1998 through December 31, 1998.
Management believes that the programming rates charged by TCI affiliates are
lower than those which would be available for independent parties.
During the years ended December 31, 1996, 1997 and 1998 the Partnership
reimbursed ICI for officers' salaries paid on its behalf of approximately
$1.7 million, $1.6 million and $1.8 million, respectively.
The General Partner leases, from an unaffiliated third party, office space
in New York City for the Partnership's principal executive offices, and the
Partnership reimburses the General Partner for the rent for such offices. For
the years ended December 31, 1996, 1997 and 1998, the Partnership paid
$.4 million, $.4 million, and $.5 million for rent to the General Partner.
L. 401(K) PLAN
The Partnership sponsors a savings and investment 401(k) Plan (the "Plan")
for the benefit of its employees. ICI is also a sponsor of the Plan. All
employees who have completed six months of employment and have attained age 21
are eligible to participate in the Plan. The Partnership makes matching
contributions equal to 25% of the employee's contribution which is not in excess
of 5% of the employee's wages. During 1996, 1997 and 1998 the Partnership
matched contributions of approximately $49,000, $51,000 and $188,000,
respectively.
F-42
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
M. COMMITMENTS AND CONTINGENCIES
The Partnership leases and subleases equipment and office space under
operating lease arrangements expiring through December 31, 2015. Future minimum
rental payments required under operating leases are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999....................................................... $1,571
2000....................................................... 1,220
2001....................................................... 1,165
2002....................................................... 433
2003....................................................... 218
Thereafter................................................. 381
------
$4,988
------
------
</TABLE>
Rental expense for the years ended December 31, 1996, 1997 and 1998
approximated $.7 million, $.7 million and $1 million, respectively.
Certain of the Partnership's individual systems have been named in
purported class actions in various jurisdictions concerning late fee charges and
practices. Certain of the Partnership's cable television systems charge late
fees to subscribers who do not pay their cable bills on time. Plaintiffs
generally allege that the late fees charged by such cable television systems are
not reasonably related to the costs incurred by the cable television systems as
a result of the late payment. Plaintiffs seek to require cable television
systems to provide compensation for alleged excessive late fee charges for past
periods. These cases are at various stages of the litigation process. Based upon
the facts available, management believes that, although no assurances can be
given as to the outcome of these actions, the ultimate disposition of these
matters should not have a material adverse effect upon the financial condition
or results of operations of the Partnership.
The Partnership is subject to other various legal proceedings that arise in
the ordinary course of business. While it is impossible to determine with
certainty the ultimate outcome of these matters, it is management's opinion that
the resolution of these matters will not have a material adverse affect on the
consolidated financial condition of the Partnership.
N. SUBSEQUENT EVENTS
On March 22, 1999, the Partnership exchanged its Franklin, Virginia cable
system ("Franklin") servicing 9,182 subscribers for Falcon Cablevision's
Scottsburg Indiana ("Scottsburg") cable system servicing 4,785 subscribers. In
addition, the Partnership received $8 million in cash. In addition, on
March 31, 1999, the Partnership acquired Michigan and Indiana Cable Associates,
Ltd's Portland, Indiana and Americable International--Michigan Inc.'s Fort
Recovery, Ohio cable systems ("Portland") servicing approximately 6,100
subscribers for approximately $10.9 million. The preliminary purchase price was
allocated to the cable television assets acquired in relation to their fair
values as increases in property and equipment of $2.3 million and franchise
costs of $8.6 million. The Partnership will account for the acquisition of the
Scottsburg and Portland systems as purchases.
Subsequent to December 31, 1998, the Partnership entered into an agreement
with Blackstone Capital Partners III Merchant Fund L.P. ("Blackstone") and a
subsidiary of TCI to acquire their combined 50% interests in InterMedia Capital
Partners VI, L.P. (the "InterMedia VI Partnership"), respectively, for
approximately $335.0 million (inclusive of expenses) subject to adjustment. The
InterMedia VI Partnership was formed in October 1997 by TCI, Blackstone and
Intermedia Partners to acquire and operate contributed cable television systems
servicing approximately 430,000 subscribers in four major markets in Kentucky,
including Louisville, Lexington and Covington. Upon completion of the
acquisition of its 50% interest in the InterMedia VI
F-43
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
N. SUBSEQUENT EVENTS--(CONTINUED)
Partnership, the Partnership will have effective control of the InterMedia VI
Partnership. Accordingly, the Partnership intends to account for the acquisition
of its 50% interest in the InterMedia VI Partnership as a purchase and to
consolidate its operations with those of the Partnership.
The pro forma unaudited results of operations for the year ended
December 31, 1998 assuming the acquisition of the InterMedia VI Partnership had
been consummated on January 1, 1998, follows (in thousands):
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Revenues...................................................... $308,409
Income before extraordinary item.............................. 59,474
Net income.................................................... 59,617
</TABLE>
Subject to consummation of the acquisition, the Partnership will be
appointed the manager of the IPVI Partnership and will earn a management fee
equivalent to 3% of the InterMedia VI Partnership's revenues.
The Partnership is in the process of filing a registration statement with
the SEC for an initial public offering ("IPO") of its common stock. In
connection therewith, upon completion of the IPO, the Partnership will be
reconstituted as a corporation and its Limited Partnership and General
Partnership units will be exchanged for common stock.
F-44
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
InterMedia Capital Partners VI, L.P.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of partners' capital and of cash flows
present fairly, in all material respects, the financial position of InterMedia
Capital Partners VI, L.P. (the Partnership) and its subsidiaries at
December 31, 1998, and the results of their operations and their cash flows for
the period from April 30, 1998 (commencement of operations) to December 31, 1998
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
San Francisco, California
March 26, 1999
F-45
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
ASSETS
Cash and cash equivalents........................................................................... $ 2,602
Accounts receivable, net of allowance for doubtful accounts of $2,692............................... 15,160
Receivable from affiliates.......................................................................... 7,532
Prepaids and other current assets................................................................... 1,049
--------
Total current assets................................................................................ 26,343
Intangible assets, net.............................................................................. 632,002
Property and equipment, net......................................................................... 243,100
Other non-current assets............................................................................ 3,045
--------
Total assets........................................................................................ $904,490
--------
--------
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities............................................................ $ 23,541
Payable to affiliates............................................................................... 2,913
Deferred revenue.................................................................................... 11,429
Accrued interest.................................................................................... 5,529
--------
Total current liabilities........................................................................... 43,412
Deferred channel launch revenue..................................................................... 7,767
Long-term debt...................................................................................... 726,000
Other long-term liabilities......................................................................... 411
--------
Total liabilities................................................................................... 777,590
--------
Commitments and contingencies
Total partners' capital............................................................................. 126,900
--------
Total liabilities and partners' capital............................................................. $904,490
--------
--------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-46
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1998
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1998
----------------------------
<S> <C>
Revenues:
Basic and cable services.......................................................... $ 91,970
Pay service....................................................................... 18,500
Other service..................................................................... 20,995
--------
131,465
--------
Costs and expenses:
Program fees...................................................................... 30,106
Other direct expenses............................................................. 11,794
Selling, general and administrative expenses...................................... 27,884
Management and consulting fees.................................................... 1,350
Depreciation and amortization expenses............................................ 88,135
--------
159,269
--------
Loss from operations................................................................ (27,804)
--------
Other income (expense):
Interest and other income......................................................... 323
Interest expense.................................................................. (38,561)
Other expense..................................................................... (640)
--------
(38,878)
--------
Net loss............................................................................ $(66,682)
--------
--------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-47
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS CAPITAL
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1998
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1998
-------------------------------
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------- -------- --------
<S> <C> <C> <C>
Cash contributions.............................................................. $ 2 $102,032 $102,034
In-kind contributions........................................................... -- 100,000 100,000
Syndication costs............................................................... -- (8,452) (8,452)
Net loss........................................................................ -- (66,682) (66,682)
--- -------- --------
Balance at December 31, 1998.................................................... $ 2 $126,898 $126,900
--- -------- --------
--- -------- --------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-48
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1998
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1998
----------------------------
<S> <C>
Cash flows from operating activities:
Net loss........................................................................... $ (66,682)
Depreciation and amortization................................................... 88,528
Changes in assets and liabilities:
Accounts receivable........................................................... (3,455)
Receivable from affiliate..................................................... (7,532)
Prepaids and other current assets............................................. (739)
Other non-current assets...................................................... (3,035)
Accounts payable and accrued liabilities...................................... 10,557
Payable to affiliates......................................................... 2,913
Deferred revenue.............................................................. 2,962
Deferred channel launch revenue............................................... 5,314
Other long-term liabilities................................................... 226
Accrued interest.............................................................. 5,529
----------
Cash flows from operating activities................................................. 34,586
----------
Cash flows from investing activities:
Costs incurred in connection with contributed systems.............................. (3,629)
Property and equipment............................................................. (36,745)
Intangible assets.................................................................. (66)
----------
Cash flows from investing activities................................................. (40,440)
----------
Cash flows from financing activities:
Debt issue costs................................................................... (7,395)
Proceeds from long-term debt....................................................... 726,000
Repayment of debt assumed, net of cash acquired.................................... (803,731)
Contributed capital................................................................ 102,034
Syndication costs.................................................................. (8,452)
----------
Cash flows from financing activities................................................. 8,456
----------
Net change in cash and cash equivalents.............................................. 2,602
Cash and cash equivalents, beginning of period....................................... --
----------
Cash and cash equivalents, end of period............................................. $ 2,602
----------
----------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-49
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. THE PARTNERSHIP AND BASIS OF PRESENTATION
InterMedia Capital Partners VI, L.P. ("ICP-VI"), a Delaware limited
partnership, was formed in October 1997 for the purpose of acquiring and
operating cable television systems located in the state of Kentucky. The
Partnership commenced business on April 30, 1998 upon contribution of cable
television systems serving subscribers throughout western and central Kentucky
(the "Systems") with significant concentrations in the state's four largest
cities: Lexington, Louisville, Covington and Bowling Green. ICP-VI and its
directly and indirectly majority-owned subsidiaries, InterMedia Partners Group
VI, L.P. ("IPG-VI"), InterMedia Partners VI, L.P. ("IP-VI"), and InterMedia
Partners of Kentucky, L.P. ("IP-KY") are collectively referred to as the
"Partnership." Prior to April 30, 1998, the Partnership had no operations.
On April 30, 1998, the Partnership obtained capital contributions from its
limited and general partners of $202,034, including an in-kind contribution of
the Systems. InterMedia Capital Management VI, LLC ("ICM-VI LLC"), a Delaware
limited liability company, is the 0.001% general partner of ICP-VI. The Systems
were contributed by affiliates of Tele-Communications, Inc. ("TCI"), a 49.5%
limited partner of ICP-VI. TCI's 49.5% interest consists of a 49.005% direct
ownership interest issued in exchange for its in-kind contribution (see
Note 3--Contribution of Cable Properties) and an indirect ownership of 0.495%
through its 49.55% limited partner interest in InterMedia Capital Management VI,
L.P. ("ICM-VI LP"), a California limited partnership, which owns a 0.999%
limited partner interest in ICP-VI. Blackstone Cable Acquisition Company, LLC
("Blackstone"), a 49.5% limited partner of ICP-VI, contributed $100,000 in cash.
As of December 31, 1998, the Partnership served approximately 426,400
subscribers (unaudited) and encompassed approximately 655,200 homes passed
(unaudited).
The Partnership's contributed cable television systems were structured as
leveraged transactions and a significant portion of the assets contributed are
intangible assets which are being amortized over one to fourteen years.
Therefore, as was planned, the Partnership has incurred substantial book losses.
Of the total net losses of $66,682, non-cash charges have aggregated $88,528.
These charges consist of $35,036 of depreciation of property and equipment and
$53,492 of amortization of intangible assets predominately related to franchise
rights.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of ICP-VI and
its directly and indirectly majority-owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.
Cash equivalents
The Partnership considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Revenue recognition
Cable television service revenue is recognized in the period in which the
services are provided to customers. Deferred revenue represents revenue billed
in advance and deferred until cable service is provided. Installation fees are
recognized immediately into revenue to the extent of direct selling costs
incurred. Any fees in excess of such costs are deferred and amortized into
income over the period that customers are expected to remain connected to the
cable television system.
F-50
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Property and equipment
Additions to property and equipment, including new customer installations,
are recorded at cost. Self-constructed fixed assets include materials, labor and
overhead. Costs of disconnecting and reconnecting cable service are expensed.
Expenditures for maintenance and repairs are charged to expense as incurred.
Expenditures for major renewals and improvements are capitalized. Capitalized
plant is written down to recoverable values whenever recoverability through
operations or sale of the systems becomes doubtful.
Depreciation is computed using the double-declining balance method over the
following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Cable television plant............................................. 5-10
Buildings and improvements......................................... 10
Furniture and fixtures............................................. 3-7
Equipment and other................................................ 3-10
</TABLE>
Intangible assets
The Partnership has franchise rights to operate cable television systems in
various towns and political subdivisions. Franchise rights are being amortized
over the lesser of the remaining lives of the franchises or the base
fourteen-year term of ICP-VI which expires on April 30, 2012. Remaining
franchise lives range from one to eighteen years.
The Partnership acquired a long term programming agreement (the
"Programming Agreement"), as described in Note 3--"Contribution of Cable
Properties." The Programming Agreement is valued at $150,000 and is being
amortized on a straight line basis over the fourteen year term of ICP-VI.
Debt issue costs are included in intangible assets and are being amortized
over the terms of the related debt.
Costs associated with potential acquisitions are initially deferred. For
acquisitions which are completed, related costs are capitalized as part of the
purchase price of assets acquired. For those acquisitions not completed, related
costs are expensed in the period the acquisition is abandoned.
Capitalized intangibles are written down to recoverable values whenever
recoverability through operations or sale of the systems becomes doubtful. Each
year, the Partnership evaluates the recoverability of the carrying value of its
intangible assets by assessing whether the projected cash flows, including
projected cash flows from sale of the systems, is sufficient to recover the
unamortized costs of these assets.
Interest rate swaps
Under an interest rate swap, the Partnership agrees with another party to
exchange interest payments at specified intervals over a defined term. Interest
payments are calculated by reference to the notional amount based on the
difference between the fixed and variable rates pursuant to the swap agreement.
The net interest received or paid as part of the interest rate swap is accounted
for as an adjustment to interest expense.
Income taxes
No provision or benefit for income taxes is reported by the Partnership
because, as partnerships, the tax effects of ICP-VI and its majority-owned
subsidiaries' results of operations accrue to the partners.
F-51
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Partners' capital
Syndication costs incurred to raise capital have been charged to partners'
capital.
Allocation of profits and losses
Profits and losses are allocated in accordance with the provisions of
ICP-VI's partnership agreement, dated October 30, 1997, generally as follows:
Losses are allocated first to the partners to the extent of and in
accordance with relative capital contributions; second, to the partners
which loaned money to the Partnership to the extent of and in accordance
with relative loan amounts; and third, to the partners in accordance with
relative capital contributions.
Profits are allocated first to the partners which loaned money to the
Partnership and to the extent of and proportionate to previously allocated
losses relating to such loans; second, among the partners in accordance
with relative capital contributions, in an amount sufficient to yield a
pre-tax return of 10% per annum on their capital contributions; and third,
5.3% to the general partner and 14.7% to ICM-VI LP, and 80% to the limited
and general partners in accordance with relative capital contributions.
Use of estimates in the preparation of financial statements
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 these estimates.
Disclosures about fair value of financial instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate
the fair value:
Current assets and current liabilities: The carrying value of
receivables, payables, deferred revenue, and accrued liabilities
approximates fair value due to their short maturity.
Long-term debt: The fair value of the Partnership's borrowings under
the bank term loans and revolving credit facility are estimated based on
the borrowing rates currently available to the Partnership for obligations
with similar terms.
Interest rate swaps: The estimated fair value of the interest rate
swaps is based on the current value in the market for agreements with
similar terms and adjusted for the holding period.
New accounting pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income (FAS 130), which establishes standards for reporting and disclosure of
comprehensive income and its components. FAS 130 is effective for fiscal years
beginning after December 15, 1997 and requires reclassification of financial
statements for earlier periods to be provided for comparative purposes. The
Partnership's total comprehensive loss for all periods presented herein did not
differ from those amounts reported as net loss in the consolidated statement of
operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133).
FAS 133 is effective for all quarters of all fiscal years
F-52
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
beginning after June 15, 1999 (January 1, 2000 for the Partnership). FAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Management of the Partnership anticipates that, due to its
limited use of derivative instruments, the adoption of FAS 133 will not have a
significant effect on the Partnership's results of operation, financial position
or cash flows.
3. CONTRIBUTION OF CABLE PROPERTIES
On April 30, 1998, the Partnership borrowed $730,000 under new bank term
loans and a revolving credit facility and received equity contributions from its
partners of $202,034, consisting of $102,034 in cash and $100,000 of in-kind
contributions from TCI and another limited partner of ICP-VI. ICP-VI assumed
debt from TCI of $803,743 and issued a combined 49.5% limited partner interest
to TCI and another limited partner, in exchange for the contributed systems with
a fair market value of $753,743 and a long-term programming fee discount
agreement valued at $150,000. The TCI debt assumed was repaid with proceeds from
the borrowings under the bank loans and the cash contributions received from
ICP-VI's partners.
The total cost of the Systems contributed was as follows:
<TABLE>
<S> <C>
Value of debt assumed from TCI................................ $803,743
Costs incurred in connection with the contributed systems..... 3,629
Value of equity exchanged..................................... 100,000
--------
$907,372
--------
--------
</TABLE>
The Partnership's allocation of costs related to the contributed systems is
as follows:
<TABLE>
<S> <C>
Tangible assets............................................... $234,143
Intangible assets............................................. 528,033
Programming agreement......................................... 150,000
Current assets................................................ 12,037
Current liabilities........................................... (12,389)
Non-current liabilities....................................... (4,452)
--------
Net assets contributed........................................ $907,372
--------
--------
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets as of December 31, 1998 consist of the following:
<TABLE>
<S> <C>
Franchise rights.............................................. $528,073
Programming agreement......................................... 150,000
Debt issue costs.............................................. 7,395
Other......................................................... 26
--------
685,494
Accumulated amortization...................................... (53,492)
--------
$632,002
--------
--------
</TABLE>
F-53
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1998 consist of the following:
<TABLE>
<S> <C>
Land.......................................................... $ 6,028
Cable television plant........................................ 213,826
Buildings and improvements.................................... 2,470
Furniture and fixtures........................................ 2,958
Equipment and other........................................... 20,279
Construction in progress...................................... 30,246
--------
275,807
Accumulated depreciation...................................... (32,707)
--------
$243,100
--------
--------
</TABLE>
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities as of December 31, 1998 consist of
the following:
<TABLE>
<S> <C>
Accounts payable.............................................. $ 1,387
Accrued program costs......................................... 2,974
Accrued franchise fees........................................ 2,050
Accrued copyright fees........................................ 346
Accrued capital expenditures.................................. 7,248
Accrued property and other taxes.............................. 4,523
Other accrued liabilities..................................... 5,013
--------
$ 23,541
--------
--------
</TABLE>
7. CHANNEL LAUNCH REVENUE
During the period ended December 31, 1998, the Partnership received
payments of $1,776 from certain programmers to launch and promote their new
channels. Also, during 1998 the Partnership recorded receivables from two
programmers, of which $5,855 remains outstanding at December 31, 1998. In
connection with the contribution of the Systems, the Partnership assumed
deferred launch support revenue and obligations of $4,452. Of the total amount
recorded, the Partnership recognized advertising revenue of $911 for
advertisements provided by the Partnership to promote the new channels. The
remainder is being amortized over the remaining terms of the program agreements
which range between eight and ten years, of which $1,406 was amortized and
recorded as other service revenue for the period ended December 31, 1998.
F-54
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
8. LONG-TERM DEBT
Long-term debt as of December 31, 1998 consists of the following:
<TABLE>
<S> <C>
Senior Debt:
Bank revolving credit facility, $325,000 commitment as of December 31, 1998, interest
currently at LIBOR plus 1.625% (6.817%) or ABR plus .625% (8.625%) payable quarterly,
matures October 31, 2006............................................................... $199,000
Bank Term Loan A; interest at LIBOR plus 2.000% (7.188%) payable quarterly, matures
September 30, 2007..................................................................... 100,000
Bank Term Loan B; interest at LIBOR plus 2.125% (7.313%) payable quarterly, matures
December 31, 2007...................................................................... 250,000
--------
Total senior debt...................................................................... 549,000
--------
Subordinated Debt:
Bank Term Loan A; interest at LIBOR plus 2.750% (7.935%) payable quarterly, matures
April 30, 2008......................................................................... 125,000
Bank Term Loan B; $60,000 commitment as of December 31, 1998, interest at LIBOR plus
0.300% (5.5500%) payable quarterly, matures May 31, 1999............................... 52,000
--------
Total subordinated debt................................................................ 177,000
--------
Total debt............................................................................. $726,000
--------
--------
</TABLE>
The Partnership's bank debt is outstanding under a revolving credit
facility and term loan agreements executed by the Partnership on April 30, 1998
(the "Bank Facility"). The revolving credit facility currently provides for
$325,000 of available credit. Starting June 30, 2001, revolving credit facility
commitments will be permanently reduced quarterly by increments ranging from
$7,500 to $40,000 through maturity on October 31, 2006. The senior Term Loan A
requires quarterly principal payments of $250 starting June 30, 2001 with final
payments in two equal installments of $47,125 on March 31 and September 30,
2007. The senior Term Loan B requires quarterly principal payments of $625
starting June 30, 2001 with final payments in two equal installments of $117,188
on September 30 and December 31, 2007. The subordinated Term Loan A requires
quarterly principal payments of $313 starting June 30, 2001 with final payments
in two equal installments of $58,281 on January 31 and April 30, 2008.
Total borrowings outstanding under the subordinated Term Loan B are due and
payable on May 31, 1999. The Partnership plans to extend the maturity date to
early 2000 and renegotiate the terms of the subordinated Term Loan B. The
renegotiations are expected to result in higher interest rates on the loan.
Under the ICP-VI Partnership agreement, if the Partnership is not able to
successfully extend the maturity date or refinance the debt, TCI and Blackstone
are obligated to make additional capital contributions in an amount equal to the
borrowings under the subordinated Term Loan B. Accordingly, the subordinated
Term Loan B has been classified as a long-term debt.
Advances under the Bank Facility are available under interest rate options
related to the base rate of the administrative agent for the Bank Facility
("ABR") or LIBOR. Interest rates vary on borrowings under the revolving credit
facility from LIBOR plus 0.500% to LIBOR plus 1.875% or ABR to ABR plus 0.875%
based on the Partnership's ratio of senior debt to annualized semi-annual cash
flow, as defined ("Senior Leverage Ratio"). Interest rates vary on borrowings
under the senior Term Loan A from LIBOR plus 1.500% to LIBOR plus 2.125% or ABR
plus 0.500% to ABR plus 1.125%, and under the senior Term Loan B from LIBOR plus
1.750% to LIBOR plus 2.250% or ABR plus 0.750% to ABR plus 1.250% based on the
Partnership's Senior Leverage Ratio. Interest rates on borrowings under the
subordinated Term Loan A are at LIBOR plus 2.75% or ABR plus 2.75%, and under
the subordinated Term Loan B are at LIBOR plus 0.300% or ABR plus 0.300%. The
Bank Facility requires quarterly interest payments, or more frequent interest
payments if a shorter period is selected
F-55
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
8. LONG-TERM DEBT--(CONTINUED)
under the LIBOR option, and quarterly payment of fees on the unused portion of
the revolving credit facility and the subordinated Term Loan B at 0.375% per
annum when the Senior Leverage Ratio is greater than 5.0:1.0 and at 0.250% when
the Senior Leverage Ratio is less than or equal to 5.0:1.0.
The Partnership has entered into interest rate swap agreements in the
aggregate notional principal amount of $500,000 to establish long-term fixed
interest rates on its variable rate debt. Under the swap agreements, the
Partnership pays quarterly interest at fixed rates ranging from 5.850% to 5.865%
and receives quarterly interest payments equal to LIBOR. The agreements expire
July 2003. At December 31, 1998, the fair market value of the interest rate
swaps was approximately $(14,493).
Borrowings under the Bank Facility, excluding the subordinated Term Loan B,
("Permanent Debt") are secured by the partnership interests of IPG-VI and
IP-VI's subsidiaries and negative pledges of the stock and assets of certain TCI
subsidiaries that are parties to an agreement ("Keepwell Agreement") to support
the Permanent Debt. Under the Keepwell Agreement, the TCI subsidiaries are
required to make loans to IPG-VI and IP-VI in an amount not to exceed $489,500
if (i) IPG-VI or IP-VI fails to make payment of principal in accordance with the
respective debt agreements, or (ii) amounts due under the respective debt
agreements have been accelerated for non-payment or bankruptcy. The subordinated
Bank Term Loan B is secured by guarantees of TCI and Blackstone.
The debt agreements contain certain covenants which restrict the
Partnership's ability to encumber assets, make investments or distributions,
retire partnership interests, pay management fees currently, incur or guarantee
additional indebtedness and purchase or sell assets. The debt agreements also
include financial covenants which require minimum interest and debt coverage
ratios and specify maximum debt to cash flows ratios.
Annual maturities of long-term debt at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999.......................................................... $ --
2000.......................................................... 52,000
2001.......................................................... 3,562
2002.......................................................... 4,750
2003.......................................................... 4,750
Thereafter.................................................... 660,938
--------
$726,000
--------
--------
</TABLE>
Borrowings under the Bank Facility are at rates that would be otherwise
currently available to the Partnership. Accordingly, the carrying amounts of
bank borrowings outstanding as of December 31, 1998, approximate their fair
value.
9. RELATED PARTY TRANSACTIONS
ICM-VI LP provides certain management and administrative services to the
Partnership for a per annum fee of 1% of ICP-VI's total non-preferred partner
contributions ("ICM Management Fee") offset by certain expenses of the
Partnership, as defined, up to an amount equal to $500. In order to support the
Partnership's debt, 50% of the net ICM Management Fee is deferred until the
Partnership's Senior Leverage Ratio is less than five times. The remaining 50%
of the net ICM Management Fee is payable quarterly in advance. Any deferred ICM
Management Fee bears interest at 10%, compounded annually, payable upon payment
of the deferred management fee.
Based on current capital contributions, the management fee per annum is
$2,020 less partnership expenses of $500.
F-56
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
9. RELATED PARTY TRANSACTIONS--(CONTINUED)
Pursuant to ICP-VI's partnership agreement, on April 30, 1998 the
Partnership prepaid $1,000 of the ICM Management Fee. ICM Management Fee expense
for the period ended December 31, 1998 amounted to $1,013. At December 31, 1998,
the Partnership has a non-current payable to ICM-VI LP of $13.
In connection with raising its capital, the Partnership paid transaction
fees of $4,942 to both TCI and Blackstone on April 30, 1998. The amount has been
recorded as syndication costs.
InterMedia Management, Inc. ("IMI") is the sole member of ICM-VI LLC. IMI
has entered into an agreement with the Partnership to provide accounting and
administrative services at cost. IMI also provides such services to other cable
systems which are affiliates of the Partnership. Administrative fees charged by
IMI for the period ended December 31, 1998 were $2,495. Receivable from
affiliate includes $628 of advances to IMI, net of administrative fees charged
by IMI, and operating expenses paid by IMI on behalf of the Partnership.
The Partnership pays monitoring fees of $250 per annum to each of TCI and
Blackstone. 50% of the monitoring fees are deferred until the Partnership's
Senior Leverage Ratio is less than five times in order to support the
Partnership's debt. The remaining 50% is payable quarterly in advance. Any
deferred monitoring fees bear interest at 10%, compounded annually, payable upon
payment of the deferred monitoring fees.
Pursuant to ICP-VI's partnership agreement, on April 30, 1998, the
Partnership prepaid its monitoring fees for the period from April 30, 1999
through April 29, 2000. The Partnership recorded monitoring fee expense of $333
for the period from April 30, 1998 through December 31, 1998 and has a
non-current payable of $83 each to TCI and Blackstone at December 31, 1998.
As an affiliate of TCI, the Partnership is able to purchase programming
services from a subsidiary of TCI. Management believes that the overall
programming rates made available through this relationship are lower than the
Partnership could obtain separately. Such volume rates may not continue to be
available in the future should TCI's ownership in the Partnership significantly
decrease. Programming fees charged by the TCI subsidiary for the period ended
December 31, 1998 amounted to $22,183. Payable to affiliates includes
programming fees payable to the TCI subsidiary of $2,913 at December 31, 1998.
The Partnership entered into an agreement with an affiliate of TCI to
manage the Partnership's advertising business and related services for an annual
fixed fee per advertising sales subscriber, as defined by the agreement. In
addition to the annual fixed fee, TCI will be entitled to varying percentage
shares of the incremental growth in annual cash flow from advertising sales
above specified targets. Management fees charged by the TCI subsidiary for the
period ended December 31, 1998 amounted to $563. Receivable from affiliates at
December 31, 1998 includes $6,904 of receivables from TCI for advertising sales.
10. CABLE TELEVISION REGULATION
Cable television legislation 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 Partnership and the cable television
industry.
The cable industry is currently regulated at the federal and local levels
under the Cable Act of 1984, the Cable Act of 1992 (the "1992 Act"), the
Telecommunications Act of 1996 (the "1996 Act") and regulations issued by the
Federal Communications Commission ("FCC") in response to the 1992 Act. FCC
regulations govern the determination of rates charged for basic, expanded basic
and certain ancillary services, and cover a number of other areas including
customer service and technical performance standards, the required transmission
of certain local broadcast stations and the requirement to negotiate
retransmission consent from major network and certain local television stations.
Among other provisions, the 1996 Act will eliminate rate regulation on the
expanded basic tier effective March 31, 1999.
F-57
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
10. CABLE TELEVISION REGULATION--(CONTINUED)
Current regulations issued in connection with the 1992 Act empower the FCC
and/or local franchise authorities to order reductions of existing rates which
exceed the maximum permitted levels and require refunds measured from the date a
complaint is filed in some circumstances or retroactively for up to one year in
other circumstances. Management believes it has made a fair interpretation of
the 1992 Act and related FCC regulations in determining regulated cable
television rates and other fees based on the information currently available.
Many aspects of regulations at the federal and local levels are currently
the subject of judicial review and administrative proceedings. In addition, the
FCC continues to conduct rulemaking proceedings to implement various provisions
of the 1996 Act. It is not possible at this time to predict the ultimate outcome
of these reviews or proceedings or their effect on the Partnership.
11. COMMITMENTS AND CONTINGENCIES
The Partnership is committed to provide cable television services under
franchise agreements with remaining terms of up to eighteen years. Franchise
fees of up to 5% of gross revenues are payable under these agreements.
Current FCC regulations require that cable television operators obtain
permission to retransmit major network and certain local television station
signals. The Partnership has entered into long-term retransmission agreements
with all applicable stations in exchange for in-kind and/or other consideration.
The Partnership is subject to litigation and other claims in the ordinary
course of business. In the opinion of management, the ultimate outcome of any
existing litigation or other claims will not have a material adverse effect on
the Partnership's financial position, results of operations or cash flows.
The Partnership has entered into pole rental agreements and leases certain
of its facilities and equipment under non-cancelable operating leases. Minimum
rental commitments at December 31, 1998 for the next five years and thereafter
under these leases are as follows:
<TABLE>
<S> <C>
1999............................................................. $ 641
2000............................................................. 558
2001............................................................. 274
2002............................................................. 129
2003............................................................. 100
Thereafter....................................................... 156
------
$1,858
------
------
</TABLE>
Rent expense, including pole rental agreements was $1,003, for the period
ended December 31, 1998.
12. SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENT OF CASH FLOWS
During the period from April 30, 1998 through December 31, 1998, the
Partnership paid interest of $32,465.
As described in Note 3 (Contribution of Cable Properties), on April 30,
1998 the Partnership received, from TCI and another limited partner, in-kind
contributions of cable television systems located in Kentucky. In connection
with the contribution, the Partnership repaid debt assumed of $803,743 and
incurred fees of $3,629.
13. EMPLOYEE BENEFIT PLAN
The Partnership participates in the InterMedia Partners Tax Deferred
Savings Plan, which covers all full-time employees who have completed at least
six months of employment. Such Plan provides for a base employee contribution of
1% and a maximum of 15% of compensation. The Partnership's matching
contributions under such Plan are at the rate of 50% of the employee's
contributions, up to a maximum of 5% of compensation.
F-58
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
14. SUBSEQUENT EVENTS
On February 1, 1999, the Partnership exchanged with Insight Communications
of Indiana, LLC its cable television assets located in and around Henderson,
Kentucky for cable television assets located in and around Oldham County,
Kentucky plus $4,000, subject to adjustments. The exchange is expected to result
in a gain.
On February 17, 1999 and March 11, 1999, the Partnership entered into
agreements with FrontierVision to exchange its cable television assets located
in and around Danville, Kentucky for cable television assets located in and
around Boone County, Kentucky plus $11,689, subject to adjustments. The
exchanges are expected to result in a gain.
On March 8, 1999, the Partnership's general and limited partners, except
for TCI, entered into a letter of intent with Insight Communications Company,
L.P. to sell their partnership interests in ICP-VI. The sale is expected to
close during the third quarter of 1999. Upon the sale, Insight Communications
Company L.P. is expected to manage the Partnership.
15. EVENTS SUBSEQUENT TO THE REPORT OF INDEPENDENT ACCOUNTANTS (UNAUDITED)
On April 18, 1999, the Partnership's general and limited partners, except
for TCI, entered into an agreement with Insight Communications Company, L.P. for
the sale of their partnership interests in ICP-VI.
On April 30, 1999 the Partnership was named as an additional defendant in a
purported class action which was originally filed in January 1998 against TCI
and certain of its affiliates in the State of Kentucky concerning late fee
charges and practices. Certain cable systems owned by the Partnership charge
late fees to customers who do not pay their cable bills on time. These late fee
cases challenge the amount of the late fees and the practices under which they
are imposed. The Plaintiffs raise claims under state consumer protection
statutes, other state statutes, and common law. Plaintiffs generally allege that
the late fees charged by the Partnership's cable systems in the State of
Kentucky are not reasonably related to the costs incurred by the cable systems
as a result of late payment. Plaintiffs seek to require cable systems to reduce
their late fees on a prospective basis and to provide compensation for alleged
excessive late fee charges for past periods. Based upon the facts available
management believes that, although no assurances can be given as to the outcome
of these actions, the ultimate disposition of these matters should not have a
material adverse effect upon the financial condition of the Partnership.
F-59
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors:
Tele-Communications, Inc.:
We have audited the accompanying combined balance sheets of the TCI IPVI
Systems (as defined in Note 1 to the combined financial statements) as of
April 30, 1998 and December 31, 1997, and the related combined statements of
operations and parent's investment (deficit), and cash flows for the four-month
period ended April 30, 1998 and for each of the years in the two-year period
ended December 31, 1997. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of the TCI IPVI Systems
as of April 30, 1998 and December 31, 1997, and the results of their operations
and their cash flows for the four-month period ended April 30, 1998 and for each
of the years in the two-year period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Denver, Colorado
May 7, 1999
F-60
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 30,
1997 1998
------------ ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
Trade and other receivables, net..................................................... $ 12,916 $ 11,944
Property and equipment, at cost:
Land............................................................................ 1,956 1,956
Distribution systems............................................................ 343,989 354,042
Support equipment and buildings................................................. 31,110 31,718
-------- ----------
377,055 387,716
Less accumulated depreciation................................................... 150,056 158,616
-------- ----------
226,999 229,100
-------- ----------
Intangible assets.................................................................... 715,670 784,316
Less accumulated amortization................................................... 127,592 133,443
-------- ----------
588,078 650,873
-------- ----------
Other assets......................................................................... 2,943 2,919
-------- ----------
$830,936 $ 894,836
-------- ----------
-------- ----------
LIABILITIES AND PARENT'S INVESTMENT (DEFICIT)
Accounts payable and accrued expenses................................................ $ 18,624 $ 13,049
Debt to banks (note 3)............................................................... 322,500 322,500
Intercompany notes owed to TCI (notes 1 and 5)....................................... -- 489,488
Deferred income taxes (note 4)....................................................... 229,590 254,698
-------- ----------
Total liabilities............................................................... 570,714 1,079,735
Parent's investment (deficit) (note 5)............................................... 260,222 (184,899)
-------- ----------
Commitments and contingencies (note 6)............................................... $830,936 $ 894,836
-------- ----------
-------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-61
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF OPERATIONS AND PARENT'S INVESTMENT (DEFICIT)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 1, 1998
DECEMBER 31, THROUGH
---------------------------- APRIL 30,
1996 1997 1998
------------ ------------ ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Revenue.................................................................. $170,682 $185,496 $ 64,042
Operating costs and expenses:
Operating (note 5)..................................................... 57,420 62,788 23,428
Selling, general and administrative.................................... 30,430 37,711 13,147
Management fees (note 5)............................................... 6,627 6,195 2,035
Depreciation........................................................... 27,751 27,996 9,528
Amortization........................................................... 17,234 17,868 5,851
-------- -------- ---------
139,462 152,558 53,989
-------- -------- ---------
Operating income............................................... 31,220 32,938 10,053
Interest expense......................................................... (20,414) (19,627) (6,661)
Other income (expense)................................................... 570 (65) 1,871
-------- -------- ---------
Earnings before income taxes................................... 11,376 13,246 5,263
Income tax expense (note 4).............................................. (4,663) (5,565) (1,971)
-------- -------- ---------
Net earnings................................................... 6,713 7,681 3,292
Parent's investment (deficit):
Beginning of period.................................................... 271,268 261,348 260,222
Change in due to Tele-Communications, Inc. ("TCI"), (notes 1 and 5).... (16,633) (8,807) 41,075
Intercompany notes owed to TCI (notes 1 and 5)......................... -- -- (489,488)
-------- -------- ---------
End of period.......................................................... $261,348 $260,222 $(184,899)
-------- -------- ---------
-------- -------- ---------
</TABLE>
See accompanying notes to combined financial statements.
F-62
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 1, 1998
DECEMBER 31, THROUGH
---------------------------- APRIL 30,
1996 1997 1998
------------ ------------ ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.......................................................... $ 6,713 $ 7,681 $ 3,292
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization...................................... 44,985 45,864 15,379
Deferred income tax expense (benefit).............................. (1,142) 1,690 (1,532)
Other non cash charges............................................. 270 438 146
Changes in operating assets and liabilities:
Change in receivables............................................ (1,837) (2,753) 972
Change in other assets........................................... (299) (42) (122)
Change in accounts payable and accrued expenses.................. 8,048 (28,587) (5,575)
---------- -------- ---------
Net cash provided by operating activities..................... 56,738 24,291 12,560
---------- -------- ---------
Cash flows from investing activities:
Capital expended for property and equipment........................... (84,061) (12,859) (10,636)
Other investing activities............................................ (44) (125) 7
---------- -------- ---------
Net cash used in investing activities......................... (84,105) (12,984) (10,629)
---------- -------- ---------
Cash flows from financing activities:
Change in due to TCI.................................................. (16,633) (8,807) (1,931)
Borrowing of debt..................................................... 60,000 103,500 --
Repayment of debt..................................................... (16,000) (106,000) --
---------- -------- ---------
Net cash provided by (used) in financing activities........... 27,367 (11,307) (1,931)
---------- -------- ---------
Net increase (decrease) in cash............................... -- -- --
Cash:
Beginning of period......................................... -- -- --
---------- -------- ---------
End of period............................................... $ -- $ -- $ --
---------- -------- ---------
---------- -------- ---------
</TABLE>
See accompanying notes to combined financial statements.
F-63
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1998 TO APRIL 30, 1998, AND
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. BASIS OF PRESENTATION
The combined financial statements include the accounts of eight of TCI's
cable television systems and five related advertising sales offices serving
certain subscribers within Kentucky (collectively, the "TCI IPVI Systems"). This
combination was created in connection with the Partnership formation discussed
below. Through February 1998, the TCI IPVI Systems were either 100%-owned or
majority-owned by TCI. In March 1998, through a series of transactions, TCI
acquired the remaining interest in the majority-owned entities from a third
party. As a result of these transactions, the TCI IPVI Systems' combined
financial statements include a March 1998 allocation of TCI's cost to acquire
such interest. Such allocation resulted in $69,646,000 of franchise costs and
$26,640,000 of deferred tax liabilities. All significant inter-entity accounts
and transactions have been eliminated in combination. The combined net assets of
TCI IPVI Systems are referred to as "Parent's Investment (Deficit)."
TCI's ownership interest in the IPVI Systems, as described above, were
acquired through transactions whereby TCI acquired various larger cable entities
(the "Original Systems"). The TCI IPVI System's combined financial statements
include an allocation of certain purchase accounting adjustments, including the
related deferred tax effects, from TCI's acquisition of the Original Systems.
Such allocation and the related franchise cost amortization was based on the
relative fair market value of the systems involved. In addition, certain costs
of TCI are charged to the TCI IPVI Systems based on their number of customers
(see note 5). Although such allocations are not necessarily indicative of the
costs that would have been incurred by the TCI IPVI Systems on a stand alone
basis, management believes that the resulting allocated amounts are reasonable.
Partnership Formation
Effective April 30, 1998, TCI and InterMedia Capital Management VI, L.P.
("InterMedia") executed a transaction under a Contribution Agreement, whereby
TCI contributed certain cable television systems and advertising sales offices,
the TCI IPVI Systems, to a newly formed partnership between TCI, Blackstone
Cable Acquisition Company, LLC, and InterMedia Capital Management VI, LLC (the
"Partnership") in exchange for an approximate 49.5% ownership interest in the
Partnership. TCI's 49.5% interest consists of a 49.005% direct ownership
interest issued in exchange for its contribution and an indirect ownership of
.495% through its 49.55% limited partner interest in InterMedia. In connection
with the contribution, the Partnership assumed $322.5 million of bank debt and
$489.5 million of intercompany interest bearing notes owed by the TCI IPVI
Systems to TCI and its affiliates. These amounts were subsequently paid by the
Partnership, net of certain post close adjustments. The accompanying combined
financial statements reflect the financial position, results of operations and
cash flows of the TCI IPVI Systems immediately prior to the contribution
transaction, and, therefore, do not include the effects of such transactions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Receivables
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at April 30, 1998 and December 31, 1997 was not significant.
Property and Equipment
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs, labor and applicable
overhead related to installations, and interest during construction are
capitalized. During the four-month period ended April 30, 1998 and for the years
ended December 31, 1997 and 1996, interest capitalized was not significant.
F-64
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1998 TO APRIL 30, 1998, AND
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Depreciation is computed on a straight-line basis using estimated useful
lives of 3 to 15 years for distribution systems and 3 to 40 years for support
equipment and buildings.
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales or other
dispositions of property, the original cost and cost of removal of such property
are charged to accumulated depreciation, and salvage, if any, is credited
thereto. Gains or losses are only recognized in connection with the sales of
properties in their entirety.
Intangible Assets
Intangible assets are comprised of franchise costs that represent the
difference between the cost of acquiring cable television systems and amounts
assigned to their tangible assets. Such amounts are generally amortized on a
straight-line basis over 40 years. Costs incurred by the TCI IPVI Systems in
negotiating and renewing franchise agreements are amortized on a straight-line
basis over the life of the franchise, generally 10 to 20 years.
Impairment of Long-Lived Assets
Management periodically reviews the carrying amounts of property, plant and
equipment and its intangible assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. If an impairment
adjustment is deemed necessary, such loss is measured by the amount that the
carrying value of such assets exceeds their fair value. Considerable management
judgment is necessary to estimate the fair value of assets, accordingly, actual
results could vary significantly from such estimates. Assets to be disposed of
are carried at the lower of their financial statement carrying amount or fair
value less costs to sell.
Revenue Recognition
Cable revenue for customer fees, equipment rental, advertising,
pay-per-view programming and revenue sharing agreements is recognized in the
period that services are delivered. Installation revenue is recognized in the
period the installation services are provided to the extent of direct selling
costs. Any remaining amount is deferred and recognized over the estimated
average period that customers are expected to remain connected to the cable
television system.
Combined Statements of Cash Flows
Transactions effected through the intercompany account with TCI (except for
the Dividend discussed in Note 5) have been considered constructive cash
receipts and payments for purposes of the combined statements of cash flows.
During 1998, TCI completed a series of transactions to acquire the
remaining interest of the group of entities that own the TCI IPVI Systems. This
transaction resulted in a non cash increase in franchise costs, parent's
investment (deficit), and deferred income tax liability of $69,646,000,
$43,006,000 and $26,640,000, respectively.
Estimates
The preparation of combined 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 at
the date of the combined financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
F-65
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1998 TO APRIL 30, 1998, AND
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
3. DEBT TO BANKS
As described in note 1, the bank debt of the TCI IPVI Systems was paid by
the Partnership subsequent to the contribution of the TCI IPVI Systems to the
Partnership.
Debt to banks consisted of borrowings under a $340,000,000 unsecured
revolving credit facility. The revolving credit facility's maximum commitment
were scheduled to be gradually reduced in increasing quarterly increments
commencing March 31, 1997 in amounts ranging from 2.50% to 5.75% of the
commitment level at that date through the December 31, 2002 expiration date. The
TCI IPVI Systems were permitted to make prepayments in multiples of $5,000,000
prior to the expiration date.
This facility provided for interest rates based on either the agent bank's
base rate (the higher of the prime rate or 1/2% above the Federal funds rate),
certificate of deposit-based rate, Eurodollar rate or some combination of the
above, plus an applicable margin, subject to selection by the TCI IPVI Systems.
The applicable margin was determined based on the maintenance of certain
leverage ratios. The interest rate, including the applicable margin, was 6.219%,
at April 30, 1998 and averaged approximately 6.06% during 1998.
The revolving line of credit facility required an annual commitment fee,
payable quarterly, at the rate of .375% of the average daily amount of the
available commitment.
The most significant debt covenants of this agreement stipulated that the
TCI IPVI Systems was not to pay cash dividends, may not fall below predetermined
annualized cash flow levels relative to existing debt levels, nor to obtain
additional borrowings or make principal payments on subordinated debt if certain
predetermined cash flow levels relative to debt service were not maintained.
Additionally, the TCI IPVI Systems had agreed to maintain certain defined debt
to cash flow and leverage ratios.
The minimum mandatory principal repayments required as of April 30, 1998
based upon the current level of indebtedness under the aforementioned facility
were as follows:
<TABLE>
<S> <C>
1998.......................................................... $ 74,980
1999.......................................................... 47,175
2000.......................................................... 59,755
2001.......................................................... 59,755
2002.......................................................... 72,335
Thereafter.................................................... 8,500
--------
$322,500
--------
--------
</TABLE>
4. INCOME TAXES
The TCI IPVI Systems were included in the consolidated federal income tax
return of TCI. Income tax expense for the TCI IPVI Systems is based on those
items in the consolidated calculation applicable to the TCI IPVI Systems.
Intercompany tax allocation represents an apportionment of tax expense or
benefit (other than deferred taxes) among subsidiaries of TCI in relation to
their respective amounts of taxable earnings or losses. The payable or
receivable arising from the intercompany tax allocation is recorded as an
increase or decrease in amounts due to TCI. Deferred income taxes are based on
the book and tax basis differences of the assets and liabilities within the TCI
IPVI Systems. The income tax amounts included in the accompanying combined
financial statements approximate the amounts that would have been reported if
the TCI IPVI Systems would have filed a separate income tax return.
F-66
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1998 TO APRIL 30, 1998, AND
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
4. INCOME TAXES--(CONTINUED)
Income tax expense for the four-month period ended April 30, 1998 and for
the years ended December 31, 1997 and 1996 consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -------
AMOUNTS IN THOUSANDS
<S> <C> <C> <C>
Four-month period ended April 30, 1998:
Intercompany allocation............................................... $(3,503) $ -- $(3,503)
Federal............................................................... -- 1,332 1,332
State and local....................................................... -- 200 200
------- -------- -------
$(3,503) $ 1,532 $(1,971)
------- -------- -------
------- -------- -------
Year ended December 31, 1997:
Intercompany allocation............................................... $(3,875) $ -- $(3,875)
Federal............................................................... -- (1,470) (1,470)
State and local....................................................... -- (220) (220)
------- -------- -------
$(3,875) $ (1,690) $(5,565)
------- -------- -------
------- -------- -------
Year ended December 31, 1996:
Intercompany allocation............................................... $(5,805) $ -- $(5,805)
Federal............................................................... -- 993 993
State and local....................................................... -- 149 149
------- -------- -------
$(5,805) $ 1,142 $(4,663)
------- -------- -------
------- -------- -------
</TABLE>
Income tax expense differs from the amounts computed by applying the
federal income tax rate of 35% as a result of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, JANUARY 1, 1998
------------------ THROUGH
1996 1997 APRIL 30, 1998
------- ------- ---------------
AMOUNTS IN THOUSANDS
<S> <C> <C> <C>
Computed "expected" tax expense................................... $(3,981) $(4,636) $(1,842)
State and local income taxes, net of federal income tax benefit... 96 (144) 130
Amortization not deductible for tax purposes...................... (778) (785) (259)
------- ------- -------
$(4,663) $(5,565) $(1,971)
------- ------- -------
------- ------- -------
</TABLE>
F-67
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1998 TO APRIL 30, 1998, AND
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
4. INCOME TAXES--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liabilities at October 31,
1998 and December 31, 1997 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 30,
1997 1998
------------ ---------
AMOUNTS IN THOUSANDS
<S> <C> <C>
Deferred tax asset--principally due to non-deductible
accruals............................................... $ 357 $ 328
-------- ---------
Deferred tax liabilities:
Property and equipment, principally due to differences
in depreciation..................................... 43,477 43,802
Franchise costs, principally due to differences in
amortization and initial basis...................... 186,470 211,224
-------- ---------
Total gross deferred tax liabilities................ 229,947 255,026
-------- ---------
Net deferred tax liability.......................... $229,590 $ 254,698
-------- ---------
-------- ---------
</TABLE>
5. PARENT'S INVESTMENT (DEFICIT)
Parent's investment (deficit) in the TCI IPVI Systems at April 30, 1998 and
December 31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 30,
1997 1998
------------ ---------
AMOUNTS IN THOUSANDS
<S> <C> <C>
Due to TCI.............................................. $260,421 $ 301,496
Accumulated deficit..................................... (199) (486,395)
-------- ---------
$260,222 $(184,899)
-------- ---------
-------- ---------
</TABLE>
The amount due to TCI includes non-interest bearing advances for
operations, acquisitions and construction costs, as well as, the non-interest
bearing amounts owed as a result of the allocation of certain costs from TCI.
On April 30, 1998, in connection with Partnership formation described
above, TCI caused the TCI IPVI Systems to effect a dividend to TCI aggregating
$489,488,000 (the "Dividend"). The Dividend resulted in an increase to the
interest bearing intercompany notes owed to TCI and a corresponding increase to
accumulated deficit.
As a result of TCI's controlling ownership of the TCI IPVI Systems, the
non-interest bearing amounts due to TCI have been classified as a component of
Parent's investment (deficit) in the accompanying combined balance sheets.
The TCI IPVI Systems purchase, at TCI's cost, substantially all of their
pay television and other programming from affiliates of TCI. Charges for such
programming were $14,787,000, $39,288,000, and $37,006,000 for the four-months
ended April 30, 1998 and the years ended December 31, 1997 and 1996,
respectively, and are included in operating expenses in the accompanying
combined financial statements.
Certain subsidiaries of TCI provide administrative services to the TCI IPVI
Systems and have assumed managerial responsibility of the TCI IPVI Systems'
cable television system operations and construction. As compensation for these
services, the TCI IPVI Systems pay a monthly fee calculated on a per-subscriber
basis.
F-68
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1998 TO APRIL 30, 1998, AND
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
5. PARENT'S INVESTMENT (DEFICIT)--(CONTINUED)
Prior to February 1, 1997 certain of the TCI IVPI systems were managed by
TKR Cable Company ("TKR"). In accordance with the management agreement, the
systems paid a management fee equal to 3.5% of revenue. Management fees
resulting from this agreement aggregated $4,102,000 in 1996.
The intercompany advances and expense allocation activity in amounts due to
TCI consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, JANUARY 1, 1998
-------------------- THROUGH
1996 1997 APRIL 30, 1998
-------- -------- ---------------
AMOUNTS IN THOUSANDS
<S> <C> <C> <C>
Beginning of period............................................ $285,861 $269,228 $ 260,421
Programming charges............................................ 37,006 39,288 14,787
Management fees................................................ 6,627 6,195 2,035
Tax allocations................................................ 5,805 3,875 3,503
Cash transfer.................................................. (66,071) (58,165) 20,750
-------- -------- ---------
End of period.................................................. $269,228 $260,421 $ 301,496
-------- -------- ---------
-------- -------- ---------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") imposed certain rate regulations on the cable television
industry. Under that 1992 Cable Act, all cable systems are subject to rate
regulation, unless they face "effective competition," as defined by the 1992
Cable Act and expanded in the Telecommunications Act of 1996 (the "1996 Act"),
in their local franchise area.
Although the Federal Communications Commission (the "FCC") has established
regulations required by the 1992 Cable Act, local government units (commonly
referred to as local franchising authorities) are primarily responsible for
administering the regulation of a cable system's basic service tier ("BST"). The
FCC itself directly administered rate regulation of any cable programming
service tier ("CPST"). The FCC's authority to regulate CPST rates expired on
March 31, 1999. The FCC has taken the position that it will still adjudicate
CPST complaints filed after this sunset date (but not later than 180 days after
the last CPST rate increase imposed prior to March 31, 1999), and will strictly
limit its review (and possible refund orders) to the time period predating the
sunset date.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price structure that allows for the recovery
of inflation and certain increased costs, as well as providing some incentive
for expanding channel carriage. Operators also have the opportunity to bypass
this "benchmark" regulatory structure in favor of the traditional
"cost-of-service" regulation in cases where the latter methodology appears
favorable. Premium cable services offered on a per-channel or per-program basis
remain unregulated, as do affirmatively marketed packages consisting entirely of
new programming product.
The management of the TCI IPVI Systems believes that it has complied in all
material respects with the provisions of the 1992 Cable Act and the 1996 Act,
including its rate setting provisions. However, certain franchising authorities
have filed Local Rate Orders challenging the rates of certain of the TCI IPVI
Systems. If, as a result of the review process, a system cannot substantiate its
rates, it could be required to retroactively reduce its rates to the appropriate
benchmark and refund the excess portion of rates received. Any refunds of the
excess portion of CPST rates would be retroactive to the date of complaint. Any
refunds of the excess portion of BST or
F-69
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1998 TO APRIL 30, 1998, AND
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
6. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
equipment rates would be retroactive to one year prior to the implementation of
the rate reductions. TCI has indemnified the Partnership for certain rate refund
liabilities of the TCI IPVI Systems through March 31, 1999.
Certain plaintiffs have filed or threatened separate class action
complaints against certain of the systems of TCI IPVI Systems, alleging that the
systems' practice of assessing an administrative fee to subscribers whose
payments are delinquent constitutes an invalid liquidated damage provision, a
breach of contract, and violates local consumer protection statutes. Plaintiffs
seek recovery of all late fees paid to the subject systems as a class purporting
to consist of all subscribers who were assessed such fees during the applicable
limitation period, plus attorney fees and costs.
The TCI IPVI Systems have contingent liabilities related to legal
proceedings and other matters arising in the ordinary course of business.
Although it is possible the TCI IPVI Systems may incur losses upon conclusion of
the matters referred to above, an estimate of any loss or range of loss cannot
presently be made. Based upon the facts available, management believes that,
although no assurance can be given as to the outcome of these actions, the
ultimate disposition should not have a material adverse effect upon the combined
financial condition of the TCI IPVI Systems.
The TCI IPVI Systems lease business offices, have entered into pole rental
agreements and use certain equipment under lease arrangements. Rental expense
under such arrangements amounted to $711,000, $2,441,000 and $1,865,000 in for
the four-month period ended April 30, 1998, and the years ended December 31,
1997 and 1996, respectively.
Future minimum lease payments under noncancellable operating leases for
each of the next five years are summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEARS ENDING APRIL 30,
- ----------------------
<S> <C>
1999............................................................ $ 752
2000............................................................ 619
2001............................................................ 461
2002............................................................ 376
2003............................................................ 308
Thereafter...................................................... 1,590
------
$4,106
------
------
</TABLE>
TCI formed a year 2000 Program Management Office (the "PMO") to organize
and manage its year 2000 remediation efforts. The PMO is responsible for
overseeing, coordinating and reporting on TCI's year 2000 remediation efforts,
including the year 2000 remediation efforts of the TCI IPVI Systems prior to the
Contribution. Subsequent to the date of the Contribution, the year 2000
remediation efforts of the TCI IPVI Systems are no longer the responsibility of
TCI or the PMO.
The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. There can be
no assurance that the TCI IPVI Systems or the systems of other companies on
which the TCI IPVI Systems relies will be converted in time or that any such
failure to convert by the TCI IPVI Systems or other companies will not have a
material adverse effect on it financial position, results of operations or cash
flows.
F-70
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors:
TCI Communications, Inc.:
We have audited the accompanying combined balance sheets of the TCI Insight
Systems (as defined in Note 1 to the combined financial statements) as of
October 31, 1998 and December 31, 1997, and the related combined statements of
operations and parent's investment (deficit), and cash flows for the ten-month
period ended October 31, 1998 and for each of the years in the two-year period
ended December 31, 1997. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of the TCI Insight
Systems as of October 31, 1998 and December 31, 1997, and the results of their
operations and their cash flows for the ten-month period ended October 31, 1998
and for each of the years in the two-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Denver, Colorado
March 5, 1999
F-71
<PAGE>
TCI INSIGHT SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER OCTOBER 31,
31, 1997 1998
----------- ------------
<S> <C> <C>
ASSETS
Cash.................................................................................. $ -- $ 896
Trade and other receivables, net...................................................... 5,153 5,113
Property and equipment, at cost:
Land................................................................................ 217 217
Distribution systems................................................................ 107,216 117,346
Support equipment and buildings..................................................... 11,782 12,716
--------- --------
119,215 130,279
Less accumulated depreciation....................................................... 62,283 69,679
--------- --------
56,932 60,600
--------- --------
Franchise costs....................................................................... 187,858 187,768
Less accumulated amortization....................................................... 38,386 42,303
--------- --------
149,472 145,465
--------- --------
Other assets.......................................................................... 166 108
--------- --------
$ 211,723 $212,182
--------- --------
--------- --------
LIABILITIES AND PARENT'S INVESTMENT (DEFICIT)
Cash overdraft........................................................................ $ 599 $ --
Accounts payable and accrued expenses................................................. 4,411 3,728
Deferred income taxes (note 3)........................................................ 65,625 63,966
Intercompany notes owed to TCI (notes 1 and 4)........................................ -- 230,000
--------- --------
Total liabilities................................................................... 70,635 297,694
Parent's investment (deficit) (note 4)................................................ 141,088 (85,512)
--------- --------
Commitments and contingencies (note 5)................................................ $ 211,723 $212,182
--------- --------
--------- --------
</TABLE>
See accompanying notes to combined financial statements.
F-72
<PAGE>
TCI INSIGHT SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF OPERATIONS AND PARENT'S INVESTMENT (DEFICIT)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, JANUARY 1, 1998
---------------------------- THROUGH
1996 1997 OCTOBER 31, 1998
------------ ------------ ----------------
<S> <C> <C> <C>
Revenue................................................................. $ 88,191 $ 93,543 $ 80,357
Operating costs and expenses:
Operating (note 4).................................................... 27,243 28,012 24,375
Selling, general and administrative................................... 13,899 11,583 11,835
Management fees (note 4).............................................. 4,199 3,732 3,057
Depreciation.......................................................... 9,205 8,545 8,222
Amortization.......................................................... 4,858 4,916 4,001
-------- -------- --------
59,404 56,788 51,490
-------- -------- --------
Operating income................................................... 28,787 36,755 28,867
Other income (expense).................................................. (3) 96 (159)
-------- -------- --------
Earnings before income taxes....................................... 28,784 36,851 28,708
Income tax expense (note 3)............................................. (10,022) (12,828) (9,969)
-------- -------- --------
Net earnings....................................................... 18,762 24,023 18,739
Parent's investment (deficit):
Beginning of period................................................... 153,216 147,614 141,088
Change in due to TCI Communications, Inc. ("TCIC").................... (24,364) (30,549) (15,339)
Intercompany notes owed to TCI (notes 1 and 4)........................ -- -- (230,000)
-------- -------- --------
End of period........................................................... $147,614 $141,088 $(85,512)
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to combined financial statements.
F-73
<PAGE>
TCI INSIGHT SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 1, 1998
DECEMBER 31, THROUGH
-------------------- OCTOBER 31,
1996 1997 1998
-------- -------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings............................................................ $ 18,762 $ 24,023 $ 18,739
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization........................................ 14,063 13,461 12,223
Deferred income tax expense.......................................... (1,229) (1,366) (1,659)
Changes in operating assets and liabilities:
Change in receivables.............................................. (273) (2,471) 40
Change in other assets............................................. 57 200 58
Change in accounts payable and accrued expenses.................... (321) 23 (683)
-------- -------- ---------
Net cash provided by operating activities.......................... 31,059 33,870 28,718
-------- -------- ---------
Cash flows from investing activities:
Capital expended for property and equipment............................. (6,623) (5,068) (11,927)
Other investing activities.............................................. 755 102 43
-------- -------- ---------
Net cash used in investing activities.............................. (5,868) (4,966) (11,884)
-------- -------- ---------
Cash flows from financing activities:
Change in due to TCIC................................................... (24,364) (30,549) (15,339)
Change in cash overdraft................................................ -- 599 (599)
-------- -------- ---------
Net cash used in financing activities.............................. (24,364) (29,950) (15,938)
-------- -------- ---------
Net increase (decrease) in cash.................................... 827 (1,046) 896
Cash:
Beginning of period............................................. 219 1,046 --
-------- -------- ---------
End of period................................................... $ 1,046 $ -- $ 896
-------- -------- ---------
-------- -------- ---------
</TABLE>
See accompanying notes to combined financial statements.
F-74
<PAGE>
TCI INSIGHT SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 31, 1998,
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. BASIS OF PRESENTATION
The combined financial statements include the accounts of twelve of TCIC's
cable television systems and three related advertising sales offices serving
certain subscribers within Indiana (collectively, the "TCI Insight Systems").
The TCI Insight Systems are wholly-owned by various subsidiaries of TCIC. TCIC
is a subsidiary of Tele-Communications, Inc. ("TCI"). All significant
inter-entity accounts and transactions have been eliminated in combination. The
combined net assets of TCI Insight Systems are referred to as "Parent's
Investment."
The TCI Insight Systems were acquired through a series of transactions
whereby TCIC acquired various larger cable entities (the "Original Systems").
The TCI Insight System's combined financial statements include an allocation of
certain purchase accounting adjustments, including the related deferred tax
effects, from TCIC's acquisition of the Original Systems. Such allocation and
the related franchise cost amortization is based on the relative fair market
value of systems acquired. In addition, certain costs of TCI are charged to the
TCI Insight Systems based on their number of subscribers (see note 4). Although
such allocations are not necessarily indicative of the costs that would have
been incurred by the TCI Insight Systems on a stand alone basis, management
believes that the resulting allocated amounts are reasonable.
Limited Liability Company Formation
Effective October 31, 1998, TCIC and Insight Communications L.P.
("Insight") executed a transaction under a Contribution and Purchase Agreement,
whereby TCIC contributed and exchanged certain cable television systems and
advertising sales offices to a newly formed Limited Liability Company between
TCIC and Insight (the "LLC") in exchange for an approximate 50% ownership
interest in the LLC and certain cable systems. In connection with the
contribution, the LLC assumed $214.6 million of the intercompany interest
bearing notes owed by the TCI Insight Systems to TCIC and its affiliates. These
amounts were subsequently paid by the LLC. The accompanying combined financial
statements reflect the financial position, results of operations and cash flows
of the TCI Insight Systems immediately prior to the contribution and exchange
transactions, and, therefore, do not include the effects of such transactions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Receivables
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at October 31, 1998 and December 31, 1997 was not significant.
Property and Equipment
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs, labor and applicable
overhead related to installations, and interest during construction are
capitalized. During the ten-month period ended October 31, 1998 and for the
years ended December 31, 1997 and 1996, interest capitalized was not
significant.
Depreciation is computed on a straight-line basis using estimated useful
lives of 3 to 15 years for distribution systems and 3 to 40 years for support
equipment and buildings.
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales or other
dispositions of property, the original cost and cost of removal of such property
are charged to accumulated depreciation, and salvage, if any, is credited
thereto. Gains or losses are only recognized in connection with the sales of
properties in their entirety.
F-75
<PAGE>
TCI INSIGHT SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 31, 1998,
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Franchise Costs
Franchise costs include the difference between the cost of acquiring cable
television systems and amounts assigned to their tangible assets. Such amounts
are generally amortized on a straight-line basis over 40 years. Costs incurred
by the TCI Insight Systems in negotiating and renewing franchise agreements are
amortized on a straight-line basis over the life of the franchise, generally 10
to 20 years.
Impairment of Long-Lived Assets
Management periodically reviews the carrying amounts of property, plant and
equipment and its intangible assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. If an impairment
adjustment is deemed necessary, such loss is measured by the amount that the
carrying value of such assets exceeds their fair value. Considerable management
judgment is necessary to estimate the fair value of assets, accordingly, actual
results could vary significantly from such estimates. Assets to be disposed of
are carried at the lower of their financial statement carrying amount or fair
value less costs to sell.
Revenue Recognition
Cable revenue for customer fees, equipment rental, advertising,
pay-per-view programming and revenue sharing agreements is recognized in the
period that services are delivered. Installation revenue is recognized in the
period the installation services are provided to the extent of direct selling
costs. Any remaining amount is deferred and recognized over the estimated
average period that customers are expected to remain connected to the cable
television system.
Combined Statements of Cash Flows
Transactions effected through the intercompany account (except for the
dividend discussed in Note 4) with TCIC have been considered constructive cash
receipts and payments for purposes of the combined statements of cash flows.
Estimates
The preparation of combined 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 at
the date of the combined financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
3. INCOME TAXES
The TCI Insight Systems were included in the consolidated federal income
tax return of TCI. Income tax expense for the TCI Insight Systems is based on
those items in the consolidated calculation applicable to the TCI Insight
Systems. Intercompany tax allocation represents an apportionment of tax expense
or benefit (other than deferred taxes) among subsidiaries of TCI in relation to
their respective amounts of taxable earnings or losses. The payable or
receivable arising from the intercompany tax allocation is recorded as an
increase or decrease in amounts due to TCIC. Deferred income taxes are based on
the book and tax basis differences of the assets and liabilities within the TCI
Insight Systems. The income tax amounts included in the accompanying combined
financial statements approximate the amounts that would have been reported if
the TCI Insight Systems would have filed a separate income tax return.
F-76
<PAGE>
TCI INSIGHT SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 31, 1998,
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
3. INCOME TAXES--(CONTINUED)
Income tax expense for the ten-month period ended October 31, 1998 and for
the years ended December 31, 1997 and 1996 consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Ten-month period ended October 31, 1998:
Intercompany allocation............................................. $(11,628) $ -- $(11,628)
Federal............................................................. -- 1,507 1,507
State and local..................................................... -- 152 152
-------- ------ --------
$(11,628) $1,659 $ (9,969)
-------- ------ --------
-------- ------ --------
Year ended December 31, 1997:
Intercompany allocation............................................. $(14,194) $ -- $(14,194)
Federal............................................................. -- 1,241 1,241
State and local..................................................... -- 125 125
-------- ------ --------
$(14,194) $1,366 $(12,828)
-------- ------ --------
-------- ------ --------
Year ended December 31, 1996:
Intercompany allocation............................................. $(11,251) $ -- $(11,251)
Federal............................................................. -- 1,117 1,117
State and local..................................................... -- 112 112
-------- ------ --------
$(11,251) $1,229 $(10,022)
-------- ------ --------
-------- ------ --------
</TABLE>
Income tax expense differs from the amounts computed by applying the
federal income tax rate of 35% as a result of the following:
<TABLE>
<CAPTION>
JANUARY 1, 1998
YEARS ENDED DECEMBER 31, THROUGH
---------------------------------------------------- OCTOBER 31,
1996 1997 1998
------------------------ ------------------------ ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense........................... $(10,074) $(12,897) $ (10,048)
State and local income taxes, net of federal income tax
benefit................................................. 73 81 98
Other..................................................... (21) (12) (19)
-------- -------- ---------
$(10,022) $(12,828) $ (9,969)
-------- -------- ---------
-------- -------- ---------
</TABLE>
F-77
<PAGE>
TCI INSIGHT SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 31, 1998,
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
3. INCOME TAXES--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liabilities at October 31,
1998 and December 31, 1997 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1997 1998
------------ -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Deferred tax asset--principally due to non-deductible accruals.... $ 80 $ 79
-------- -------
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation................................................. 13,124 12,822
Franchise costs, principally due to differences in amortization
and initial basis............................................ 52,581 51,223
-------- -------
Total gross deferred tax liabilities......................... 65,705 64,045
-------- -------
Net deferred tax liability...................................... $ 65,625 $63,966
-------- -------
-------- -------
</TABLE>
4. PARENT'S INVESTMENT (DEFICIT)
Parent's investment (deficit) in the TCI Insight Systems at October 31,
1998 and December 31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1997 1998
------------ -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Due to TCIC....................................................... $ 93,231 $ 77,892
Retained earnings (deficit)....................................... 47,857 (163,404)
-------- ---------
$141,088 $ (85,512)
-------- ---------
-------- ---------
</TABLE>
The amount due to TCIC includes advances for operations, acquisitions and
construction costs, as well as, the non-interest bearing amounts owed as a
result of the allocation of certain costs from TCIC.
On September 30, 1998, TCIC caused the TCI Insight Systems to effect a
dividend from the TCI Insight Systems to TCIC aggregating $230,000,000 (the
"Dividend"). The Dividend resulted in an increase to the intercompany notes owed
to TCIC and a corresponding decrease to retained earnings.
As a result of TCIC's 100% ownership of the TCI Insight Systems, the
non-interest bearing amounts due to TCIC have been classified as a component of
Parent's investment (deficit) in the accompanying combined balance sheets.
The TCI Insight Systems purchase, at TCIC's cost, substantially all of
their pay television and other programming from affiliates of TCIC. Charges for
such programming were $18,037,000, $18,269,000, and $16,986,000 for the
ten-months ended October 31, 1998 and the years ended December 31, 1997 and
1996, respectively, and are included in operating expenses in the accompanying
combined financial statements.
Certain subsidiaries of TCIC provide administrative services to the TCI
Insight Systems and have assumed managerial responsibility of the TCI Insight
Systems' cable television system operations and construction. As compensation
for these services, the TCI Insight Systems pay a monthly fee calculated on a
per-subscriber basis.
F-78
<PAGE>
TCI INSIGHT SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 31, 1998,
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
4. PARENT'S INVESTMENT (DEFICIT)--(CONTINUED)
The intercompany advances and expense allocation activity in amounts due to
TCIC consists of the following:
<TABLE>
<CAPTION>
JANUARY 1, 1998
YEARS ENDED DECEMBER 31, THROUGH
---------------------------------------------------- OCTOBER 31,
1996 1997 1998
------------------------ ------------------------ ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Beginning of period....................................... $148,144 $123,780 $ 93,231
Programming charges....................................... 16,986 18,269 18,037
Management fees........................................... 4,199 3,732 3,057
Tax allocations........................................... 11,251 14,194 11,628
Cash transfer............................................. (56,800) (66,744) (48,061)
-------- -------- ---------
End of period............................................. $123,780 $ 93,231 $ 77,892
-------- -------- ---------
-------- -------- ---------
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") imposed certain rate regulations on the cable television
industry. Under the 1992 Cable Act, all cable systems are subject to rate
regulation, unless they face "effective competition," as defined by the 1992
Cable Act and expanded in the Telecommunications Act of 1996 (the "1996 Act"),
in their local franchise area.
Although the Federal Communications Commission (the "FCC") has established
regulations required by the 1992 Cable Act, local government units (commonly
referred to as local franchising authorities) are primarily responsible for
administering the regulation of a cable system's basic service tier ("BST"). The
FCC itself directly administered rate regulation of any cable programming
service tier ("CPST"). The FCC's authority to regulate CPST rates expired on
March 31, 1999. The FCC has taken the position that it will still adjudicate
CPST complaints filed after this sunset date (but not later than 180 days after
the last CPST rate increase imposed prior to March 31, 1999), and will strictly
limit its review (and possible refund orders) to the time period predating the
sunset date.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price structure that allows for the recovery
of inflation and certain increased costs, as well as providing some incentive
for expanding channel carriage. Operators also have the opportunity to bypass
this "benchmark" regulatory structure in favor of the traditional
"cost-of-service" regulation in cases where the latter methodology appears
favorable. Premium cable services offered on a per-channel or per-program basis
remain unregulated, as do affirmatively marketed packages consisting entirely of
new programming product.
The management of the TCI Insight Systems believes that it has complied in
all material respects with the provisions of the 1992 Cable Act and the 1996
Act, including its rate setting provisions. If, as a result of the review
process, a system cannot substantiate its rates, it could be required to
retroactively reduce its rates to the appropriate benchmark and refund the
excess portion of rates received. Any refunds of the excess portion of CPST
rates would be retroactive to the date of complaint. Any refunds of the excess
portion of BST or equipment rates would be retroactive to one year prior to the
implementation of the rate reductions.
Certain plaintiffs have filed or threatened separate class action
complaints against certain of the systems of TCI Insight Systems, alleging that
the systems' practice of assessing an administrative fee to subscribers whose
F-79
<PAGE>
TCI INSIGHT SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 31, 1998,
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
5. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
payments are delinquent constitutes an invalid liquidated damage provision, a
breach of contract, and violates local consumer protection statutes. Plaintiffs
seek recovery of all late fees paid to the subject systems as a class purporting
to consist of all subscribers who were assessed such fees during the applicable
limitation period, plus attorney fees and costs.
The TCI Insight Systems have contingent liabilities related to legal
proceedings and other matters arising in the ordinary course of business.
Although it is possible the TCI Insight Systems may incur losses upon conclusion
of the matters referred to above, an estimate of any loss or range of loss
cannot presently be made. Based upon the facts available, management believes
that, although no assurance can be given as to the outcome of these actions, the
ultimate disposition should not have a material adverse effect upon the combined
financial condition of the TCI Insight Systems.
The TCI Insight Systems lease business offices, have entered into pole
rental agreements and use certain equipment under lease arrangements. Rental
expense under such arrangements amounted to $1,142,000, $1,557,000 and
$1,231,000 in for the ten-month period ended October 31, 1998, and the years
ended December 31, 1997 and 1996, respectively.
Future minimum lease payments under noncancellable operating leases for
each of the next five years are summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEARS ENDING
OCTOBER 31,
- ------------
<S> <C>
1999......................................................... $ 413
2000......................................................... 325
2001......................................................... 302
2002......................................................... 202
2003......................................................... 161
Thereafter................................................... 367
-------
$ 1,770
-------
-------
</TABLE>
TCI formed a year 2000 Program Management Office (the "PMO") to organize
and manage its year 2000 remediation efforts. The PMO is responsible for
overseeing, coordinating and reporting on TCIC's year 2000 remediation efforts,
including the year 2000 remediation efforts of the TCI Insight Systems prior to
the Contribution. Subsequent to the date of the Contribution, the year 2000
remediation efforts of the TCI Insight Systems are no longer the responsibility
of TCI, TCIC or the PMO.
The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. There can be
no assurance that the TCI Insight Systems or the systems of other companies on
which the TCI Insight Systems relies will be converted in time or that any such
failure to convert by the TCI Insight Systems or other companies will not have a
material adverse effect on it financial position, results of operations or cash
flows.
F-80
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Members
Insight Communications of Central Ohio, LLC
We have audited the accompanying balance sheet of Insight Communications of
Central Ohio, LLC as of December 31, 1998, and the related statements of
operations and changes in members' deficit and cash flows for the year then
ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Insight Communications of
Central Ohio, LLC at December 31, 1998, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
April 5, 1999
F-81
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
ASSETS
Current assets:
Cash.............................................................................................. $ 6,709
Subscriber receivables, less allowance for doubtful accounts of $306.............................. 1,186
Other accounts receivable, less allowance for doubtful accounts of $145........................... 1,520
Prepaid expenses and other current assets......................................................... 166
----------
Total current assets................................................................................ 9,581
Property and equipment, at cost:
Land and Land Improvements........................................................................ 260
CATV systems...................................................................................... 71,032
Equipment......................................................................................... 7,102
Furniture......................................................................................... 333
Leasehold improvements............................................................................ 71
----------
78,798
Less--Accumulated depreciation and amortization..................................................... (46,898)
----------
Total property and equipment, net................................................................... 31,900
Intangible assets, at cost:
Franchise costs................................................................................... 7,385
Other Intangible Assets........................................................................... 300
Less--Accumulated amortization.................................................................... (7,348)
----------
Total intangible assets, net........................................................................ 337
Due from related parties............................................................................ 149
----------
Total assets........................................................................................ $ 41,967
----------
----------
LIABILITIES, PREFERRED INTERESTS, AND MEMBERS' DEFICIT
Current liabilities:
Current portion of capital lease obligations...................................................... $ 123
Accounts payable.................................................................................. 3,230
Accrued Liabilities............................................................................... 4,404
Preferred A Dividend Payable...................................................................... 5,211
----------
Total Current Liabilities........................................................................... 12,968
Preferred B Dividend Payable........................................................................ 1,438
Capital Lease Obligations........................................................................... 105
Other Deferred Credits.............................................................................. 1,146
Due to related parties.............................................................................. 1,029
Preferred A Interest................................................................................ 140,000
Preferred B Interest................................................................................ 30,000
----------
Total liabilities and preferred interests........................................................... 186,686
Members' deficit.................................................................................... (144,719)
----------
Total liabilities and members' deficit.............................................................. $ 41,967
----------
----------
</TABLE>
See accompanying notes.
F-82
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
STATEMENT OF OPERATIONS AND CHANGES IN MEMBERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
Revenues............................................................................................ $ 47,956
Operating expenses:
Service and administrative........................................................................ 29,695
Severance and transaction structure costs......................................................... 4,822
Depreciation and amortization..................................................................... 5,311
----------
Total operating expenses............................................................................ 39,828
----------
Operating income.................................................................................... 8,128
Other expenses...................................................................................... (422)
Interest income..................................................................................... 59
----------
Net income.......................................................................................... $ 7,765
Accrual of preferred interests...................................................................... (6,649)
----------
Net income attributable to common interests......................................................... 1,116
Net assets contributed.............................................................................. $ 25,571
Capital contributions............................................................................... 10,000
Preferred membership interests...................................................................... (170,000)
Capital distributions............................................................................... (11,406)
----------
Members' deficit, end of year....................................................................... $ (144,719)
----------
----------
</TABLE>
See accompanying notes.
F-83
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
Cash flows from operating activities:
Net income........................................................................................ $ 7,765
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................................. 5,311
Changes in certain assets and liabilities:
Subscriber receivables......................................................................... (524)
Other accounts receivable, prepaid expenses and other current assets........................... (423)
Accounts payable and accrued expenses.......................................................... 2,270
--------
Net cash provided by operating activities........................................................... $ 14,399
--------
Cash flows from investing activities:
Capital expenditures for property and equipment................................................... (7,369)
Proceeds from disposal of property and equipment.................................................. 11
Increase in other intangible assets............................................................... (300)
Increase in amounts due to/from related parties................................................... 979
--------
Net cash used in investing activities............................................................... $ (6,679)
--------
Cash flows from financing activities:
Principal payments on capital lease obligations................................................... (179)
Capital contributions............................................................................. 10,000
Capital distributions............................................................................. (11,406)
--------
Net cash used in financing activities............................................................... $ (1,585)
--------
Net increase in cash................................................................................ 6,135
Cash, beginning of year............................................................................. 574
--------
Cash, end of year................................................................................... $ 6,709
--------
--------
</TABLE>
See accompanying notes.
F-84
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. BUSINESS ORGANIZATION AND PURPOSE
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 of Coaxial Communications of
Central Ohio, Inc. ("Coaxial"). On August 21, 1998, Coaxial contributed to
Insight Ohio all of the assets and liabilities comprising Coaxial's cable
television systems for which Coaxial received a 25% non-voting common membership
interest in Insight Ohio as well as 100% of the voting preferred membership
interests of Insight Ohio ("Series A and Series B Preferred Interests"). In
conjunction therewith, 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 accompanying financial
statements include the operations of the cable television systems contributed by
Coaxial to Insight Ohio, as if the aforementioned contribution had occurred as
of January 1, 1998 (the beginning of the year). The amounts included in the
accompanying financial statements for periods prior to August 21, 1998 represent
the operations of the cable system operating unit (the "Operating Unit" and
predecessor to Insight Ohio), which, prior to such date, was an operating unit
within Coaxial. The amounts included in the accompanying financial statements
for the Operating Unit include only those assets, liabilities, revenues, and
expenses related to the cable television system contributed to Insight Ohio.
Prior to the Contribution of the Operating unit to Insight Ohio, the company had
nominal assets and no operations. Since the aforementioned contribution of the
Operating Unit to Insight Ohio did not result in a change in voting control,
pursuant to interpretation No. 39 to APB opinion No. 16, Insight Ohio has
accounted for the contributed assets and liabilites at historical cost. Insight
Ohio provides basic and expanded cable services to homes in Columbus, Ohio and
surrounding areas.
On August 21, 1998, Coaxial and Phoenix Associates, a related entity,
issued $140 million of 10% Senior Notes ("Senior Notes") due in 2006. The Senior
Notes are non-recourse and are secured by all of the issued and outstanding
Series A Preferred Interest in Insight Ohio and are conditionally guaranteed by
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 Series A
Preferred interest and Series B Preferred interest have face values of
$140 million and $30 million and pay dividends at rates of 10% and 12 7/8% of
their face value, respectively. The Discount Notes are non-recourse, secured by
100% of the common stock of Coaxial, and conditionally guaranteed by Insight
Ohio. At December 31, 1998, the accompanying financial statements include an
accrual of $6,649,000 of earned, but unpaid dividends on the Series A and
Series B Preferred interests.
As a result of the transaction described above, Insight Ohio incurred
severance costs and transaction structure costs of approximately $4,822,000
which have been reflected in the accompanying statements of operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
Insight Ohio considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents.
Use of 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-85
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(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.
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. Subscriber advance billings are
netted within accounts receivable in the accompanying financial statements.
Collections on subscriber advance billings at December 31, 1998 were not
significant.
Concentration of Credit Risk
Financial instruments that potentially subject Insight Ohio to
concentrations of credit risk consist principally of trade accounts receivable.
Insight Ohio's customer base consists of a number of homes concentrated in the
central Ohio area. Insight Ohio continually monitors the exposure for credit
losses and maintains allowances for anticipated losses. As of December 31, 1998,
Insight Ohio had no significant concentrations of credit risk.
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>
<S> <C>
10 to
CATV systems............................................. 15 years
Equipment................................................ 5 years
Furniture................................................ 5 years
Leasehold improvements................................... Life of lease
</TABLE>
Assets held under capital leases at December 31, 1998 were approximately
$228,000.
Insight Ohio internally constructs certain CATV systems. Construction costs
capitalized include payroll, fringe benefits and other overhead costs associated
with construction activity.
Insight Ohio 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. Insight Ohio does not believe that there is an impairment of such
assets.
F-86
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Franchise Costs
Franchise costs are amortized using the straight-line method over the lives
of the related franchises which range from 7 to 15 years.
Home Office Expenses
Home office expenses of approximately $1,373,000 in 1998 (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. Effective August 21, 1998, IHO provides such
services for which it earns a fee (see note 6).
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense, primarily
for campaign and telemarketing-related efforts, was approximately $2,152,000 in
1998.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivatives Instruments and Hedging Activities" ("SFAS
No. 133"). 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 years
beginning after June 15, 1999. Insight Ohio does not anticipate the adoption of
this Statement to have a material impact on its financial statements.
3. INCOME TAXES
Effective August 21, 1998, Insight Ohio is a limited liability corporation.
Therefore, each member reports his distributive share of income or loss on his
respective income tax returns. Prior to August 21, 1998, the Operating Unit was
an operating unit within Coaxial, which in turn was a Subchapter S Corporation.
Therefore, each shareholder reported his distributive share of income or loss on
his respective income tax return. As a result, Insight Ohio 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. As a limited liability company, the liability of Insight Ohio's
members are limited to their respective investments.
4. 401(k) PLAN
Insight Ohio sponsors a 401(k) Plan (the "Plan") for the benefit of its
employees. All employees who have completed six months of employment and have
attained the age of 21 are eligible to participate in the Plan. Insight Ohio
makes matching contributions equal to a portion of the employee's wages. Insight
Ohio contributions to the Plan approximated $145,000 in 1998.
5. CREDIT FACILITY
Insight Ohio has a Senior Credit Facility ("Senior Credit Facility") with a
group of banks and other financial institutions. 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
F-87
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
5. CREDIT FACILITY--(CONTINUED)
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 the 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.
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 Senior
Notes and the Discount 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. As of
December 31, 1998, no amounts were outstanding under the Senior Credit Facility.
6. RELATED PARTY TRANSACTIONS
Effective August 21, 1998, the Company entered into a management agreement
with IHO, which allows IHO to manage the operations of Insight Ohio. IHO earns a
management fee equivalent to 3% of Insight Ohio's gross operating revenues. Fees
under this management agreement aggregated $493,000 for the period from
August 21 through December 31, 1998.
Insight Ohio has a receivable from and payable to related parties as of
December 31, 1998 of approximately $149,000 and $1,029,000, respectively,
relating to working capital requirements.
Insight Ohio pays rent to a partnership owned by Coaxial's shareholders for
two facilities. Total charges for rent were approximately $63,000 in 1998.
7. OPERATING LEASE AGREEMENTS
Insight Ohio 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 $106,000
in 1998. These amounts exclude year-to-year utility pole leases of $191,000
which provide for payments based on the number of poles used.
Minimum rental commitments required under non-cancelable operating leases
are as follows:
<TABLE>
<S> <C>
1999........................................................... $38,400
2000........................................................... 26,400
2001 and thereafter............................................ 200
-------
$65,000
-------
-------
</TABLE>
F-88
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
8. CAPITAL LEASE AGREEMENTS
Insight Ohio leases vehicles, computer and other equipment under capital
leases. These leases have terms ranging from four to five years. Future minimum
payments under these leases are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDING DECEMBER 31,
- ---------------------------------
<S> <C>
1999....................................................... $ 139,000
2000....................................................... 81,000
2001....................................................... 30,000
2002....................................................... 3,000
---------
253,000
Less: Amount representing interest......................... (25,000)
Less: Current portion of capital lease obligations......... (123,000)
---------
Long-term capital lease obligations........................ $ 105,000
---------
---------
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
Insight Ohio 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 Insight Ohio's future results of
operations or financial position.
F-89
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Coaxial Communications of Central Ohio, Inc.:
We have audited the accompanying statement of net assets to be contributed of
Central Ohio Cable System Operating Unit as of December 31, 1997 and the related
statements of operations and cash flows relating to the net assets to be
contributed for each of the two 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 the
results of its operations and cash flows for each of the two years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
/S/ ARTHUR ANDERSEN LLP
Columbus, Ohio,
July 17, 1998
F-90
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
STATEMENT OF NET ASSETS TO BE CONTRIBUTED
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------
<S> <C>
ASSETS
Current assets:
Cash...................................................................................... $ 573,989
Subscriber receivables, less allowance for doubtful accounts of $202,000.................. 661,183
Other accounts receivable, less allowance for doubtful accounts of $172,000............... 1,037,145
Prepaid expenses and other current assets................................................. 201,429
------------
Total current assets........................................................................ 2,473,746
------------
Property and equipment, at cost:
CATV systems.............................................................................. 64,949,357
Equipment................................................................................. 6,941,263
Furniture................................................................................. 211,232
Leasehold improvements.................................................................... 70,409
------------
72,172,261
Less--Accumulated depreciation and amortization........................................... (42,433,809)
------------
Total property and equipment, net........................................................... 29,738,452
------------
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................................................................................ $ 32,379,756
------------
------------
LIABILITIES AND NET ASSETS
Current liabilities:
Current portion of capital lease obligations.............................................. $ 213,103
Accounts payable.......................................................................... 2,804,766
Accrued liabilities....................................................................... 3,596,922
------------
Total current liabilities................................................................... 6,614,791
------------
Capital lease obligations................................................................... 194,194
------------
Total liabilities........................................................................... 6,808,985
Commitments and contingencies
Net assets to be contributed.............................................................. 25,570,771
------------
Total liabilities and net assets............................................................ $ 32,379,756
------------
------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-91
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
STATEMENTS OF OPERATIONS RELATED TO NET ASSETS TO BE CONTRIBUTED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Operating revenues:
Service fees..................................................................... $44,763,413 $42,544,417
Advertising...................................................................... 3,072,567 3,373,064
Connection fees.................................................................. 395,673 282,374
Other............................................................................ 2,186,172 2,029,632
----------- -----------
Total operating revenues...................................................... 50,417,825 48,229,487
----------- -----------
Operating expenses:
Service and administrative....................................................... 26,932,679 28,889,394
Depreciation..................................................................... 4,812,346 4,755,017
Amortization..................................................................... 522,216 482,675
----------- -----------
Total operating expenses...................................................... 32,267,241 34,127,086
----------- -----------
Operating income................................................................... 18,150,584 14,102,401
Other expenses..................................................................... (320,456) (321,732)
Other income....................................................................... 72,072 50,276
Interest income.................................................................... 29,449 69,990
----------- -----------
Net income from net assets to be contributed
(Note 3)......................................................................... $17,931,649 $13,900,935
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-92
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income...................................................................... $ 17,931,649 $ 13,900,935
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................... 5,334,562 5,237,692
Loss on disposals of property and equipment..................................... 69,187 77,452
Changes in certain assets and liabilities:
(Increase) decrease in assets--
Subscriber receivables..................................................... (252,414) 182,395
Other accounts receivable, prepaid expenses and other current assets....... 580,700 325,215
Increase (decrease) in liabilities--
Accounts payable........................................................... (361,633) 421,658
Accrued liabilities........................................................ (1,317,378) (691,513)
Deferred income............................................................ (9,613) --
------------ ------------
Net cash provided by operating activities.................................. 21,975,060 19,453,834
------------ ------------
Cash flows from investing activities:
Capital expenditures for property and equipment................................. (5,992,164) (5,528,669)
Proceeds from disposal of property and equipment................................ 17,667 25,753
(Increase) decrease in amounts due from related parties......................... 263,559 (50,981)
------------ ------------
Net cash used in investing activities...................................... (5,710,938) (5,553,897)
------------ ------------
Cash flows from financing activities:
Principal payments on capital lease obligations................................... $ (234,630) $ (264,649)
Cash used for activities not included in net assets to be contributed............. (15,793,342) (13,967,020)
------------ ------------
Net cash used in financing activities...................................... (16,027,972) (14,231,669)
------------ ------------
Net increase (decrease) in cash................................................... 236,150 (331,732)
Cash, beginning of year......................................................... 669,571 905,721
------------ ------------
Cash, end of year............................................................... $ 905,721 $ 573,989
------------ ------------
------------ ------------
</TABLE>
Supplemental Disclosure of Investing and Financing Noncash Transactions:
During 1996 and 1997, the Operating Unit entered into capital leases to
acquire vehicles and equipment totaling $198,985 and $56,707, respectively.
The accompanying notes to financial statements are an integral part of these
statements.
F-93
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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. Subscriber advance billings are
netted within accounts receivable in the accompanying financial statements.
Collections on subscriber advance billings at December 31, 1997 were not
significant.
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.
F-94
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(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 $1,697,000 and $1,498,000 in 1996 and
1997 (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 $1,060,000 and
$1,025,000 in 1996 and 1997, respectively.
Change in Net Assets
The components of the change in net assets are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Beginning Balance........................................................ $23,498,549 $25,636,856
Net income............................................................. 17,931,649 13,900,935
Advances, loans and repayments by Coaxial.............................. (15,793,342) (13,967,020)
----------- -----------
Ending Balance........................................................... $25,636,856 $25,570,771
----------- -----------
----------- -----------
</TABLE>
F-95
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(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>
1996 1997
------------ ------------
<S> <C> <C>
Advances................................................................ $(11,446,090) $(10,519,748)
Loans................................................................... 9,914,315 2,938,723
Repayments.............................................................. (14,261,567) (6,385,995)
------------ ------------
$(15,793,342) $(13,967,020)
------------ ------------
------------ ------------
</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 $111,000 and $133,000 to the Plan in 1996 and 1997,
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 $110,200 and $89,200 for 1996 and 1997, respectively, and were
based on actual and estimated claims incurred. The liability for workers'
compensation obligations, as of December 31, 1996 and 1997, is approximately
$131,000 and $78,000, 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
$72,000 in 1996 and $99,500 in 1997.
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
$160,500 in 1996 and $218,500 in 1997. These amounts exclude year-to-year
utility pole leases of $186,400 and $182,700, 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-96
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
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-97
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[LOGO]
20,500,000 SHARES OF CLASS A COMMON STOCK
--------------------
PROSPECTUS
--------------------
DONALDSON, LUFKIN & JENRETTE
MORGAN STANLEY DEAN WITTER
CIBC WORLD MARKETS
DEUTSCHE BANC ALEX. BROWN
--------------------
DLJdirect INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Insight have
not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all
dealers, whether or not participating in this offering, that effect transactions
in these securities may be required to deliver a prospectus. This is in addition
to the dealer's obligation to deliver a prospectus when acting as an underwriter
in this offering and when selling previously unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth various expenses, other than underwriting
discounts, which will be incurred in connection with this offering:
<TABLE>
<S> <C>
SEC registration fee............................ $ 143,865
NASDAQ listing fee.............................. 10,000
NASD filing fee................................. 30,500
Blue sky fees and expenses...................... 7,500
Printing and engraving expenses................. *
Legal fees and expenses......................... *
Accounting fees and expenses.................... *
Transfer Agent fees............................. *
Miscellaneous expenses.......................... *
----------
Total...................................... *
</TABLE>
- ------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee of or agent to the Registrant. The
statute provides that it is not exclusive of other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise. The Registrant's by-laws
provides for indemnification by the Registrant of any director or officer (as
such term is defined in the by-laws) of the Registrant who is or was a director
of any of its subsidiaries, or, at the request of the Registrant, is or was
serving as a director or officer of, or in any other capacity for, any other
enterprise, to the fullest extent permitted by law. The by-laws also provide
that the Registrant shall advance expenses to a director or officer and, if
reimbursement of such expenses is demanded in advance of the final disposition
of the matter with respect to which such demand is being made, upon receipt of
an undertaking by or on behalf of such director or officer to repay such amount
if it is ultimately determined that the director or officer is not entitled to
be indemnified by the Registrant. To the extent authorized from time to time by
the board of directors of the Registrant, the Registrant may provide to any one
or more employees of the Registrant, one or more officers, employees and other
agents of any subsidiary or one or more directors, officers, employees and other
agents of any other enterprise, rights of indemnification and to receive payment
or reimbursement of expenses, including attorneys' fees, that are similar to the
rights conferred in the by-laws of the Registrant on directors and officers of
the Registrant or any subsidiary or other enterprise. The by-laws do not limit
the power of the Registrant or its board of directors to provide other
indemnification and expense reimbursement rights to directors, officers,
employees, agents and other persons otherwise than pursuant to the by-laws. The
Registrant intends to enter into agreements with certain directors, officers and
employees who are asked to serve in specified capacities at subsidiaries and
other entities.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
payments of unlawful dividends or unlawful stock repurchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit. The Registrant's certificate of incorporation provides for such
limitation of liability.
The Registrant intends to maintain policies of insurance under which its
directors and officers will be insured, within the limits and subject to the
limitations of the policies, against certain expenses in connection with
II-1
<PAGE>
the defense of, and certain liabilities which might be imposed as a result of,
actions, suits or proceedings to which they are parties by reason of being or
having been such directors or officers.
Reference is also made to Section of the underwriting agreement filed
as Exhibit 1.1 to the registration statement for information concerning the
underwriters' obligation to indemnify the Registrant and its officers and
directors in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has not issued any common stock since its formation on
March 9, 1999. Concurrently with the consummation of the offering to which this
registration statement relates, the holders of the general and limited
partnership interests of Insight Communications Company, L.P. will exchange all
of their partnership interests for the Registrant's Class A and Class B common
stock in accordance with a formula based on the initial public offering price of
the Class A common stock being issued pursuant to the offering. The offering and
sale of the shares of common stock will not be registered under the Securities
Act of 1933 because the offering and sale will be made in reliance on the
exemption provided by Section 4(2) of the Securities Act of 1933 and Rule 506
thereunder for transactions by an issuer not involving a public offering (with
the recipients representing their intentions to acquire the securities for their
own accounts and not with a view to the distribution thereof and acknowledging
that the securities will be issued in a transaction not registered under the
Securities Act of 1933).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a list of Exhibits filed herewith as part of the
registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
<S> <C>
1.1* -- Form of Underwriting Agreement between Registrant and the
underwriters
2.1 -- Asset Contribution Agreement by and among Insight Communications of
Indiana, LLC, Insight Communications Company, L.P. UACC Midwest,
Inc., TCI of Kokomo, Inc., TCI of Indiana, Inc., Heritage
Cablevision Associates, A Limited Partnership and TCI of Indiana
Holdings, LLC dated as of May 14, 1998(1)
2.2 -- Contribution Agreement by and between Coaxial Communications of
Central Ohio, Inc. and Insight Communications Company, L.P., dated
as of June 30, 1998(1)
2.3 -- Amendment to Contribution Agreement by and between Coaxial
Communications and Insight Communications Company, L.P., dated as
of July 15, 1998(1)
2.4 -- Second Amendment to Contribution Agreement by and among Coaxial
Communications, Insight Communications Company, L.P. and Insight
Holdings of Ohio, LLC, dated as of August 21, 1998(1)
2.5 -- Asset Exchange Agreement by and among Insight Communications
Company, L.P., TCI of Indiana, Inc. and UACC Midwest, Inc., dated
May 14, 1998(1)
2.6 -- Asset Exchange Agreement by and between Insight Communications
Company, L.P. and CoxCom, Inc., dated as of November 26, 1997(1)
2.7 -- Asset Purchase Agreement by and between A-R Cable Services, Inc.
and Insight Communications Company, L.P., dated as of August 12,
1997(1)
2.8 -- Purchase Agreement, dated as of April 18, 1999, among InterMedia
Capital Management VI, LLC, InterMedia Management Inc., Robert J.
Lewis, TCI ICM VI, Inc., InterMedia Capital Management VI, L.P.,
Blackstone KC Capital Partners, L.P., Blackstone KC Offshore
Capital Partners, L.P., Blackstone Family Investment
Partnership III L.P., Leo J. Hindery, Jr., TCI IP-VI, LLC and
Insight Communications Company, L.P.(1)
2.9 -- Contribution and Formation Agreement, dated April 18, 1999, between
TCI of Indiana Holdings, LLC and Insight Communications Company,
L.P.(1)
3.1* -- Form of Restated Certificate of Incorporation of Registrant
3.2* -- By-laws of Registrant
4.1* -- Form of certificate evidencing shares of Class A common stock
5.1* -- Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C.
10.1* -- 1999 Stock Option Plan
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
<S> <C>
10.2 -- Fourth Amended and Restated Credit Agreement, dated as of
December 21, 1998, among Insight Communications Company, L.P.,
several lenders and The Bank of New York with Waiver No. 1 and
Amendment No. 1 dated as of December 21, 1998 and Waiver No. 2 and
Amendment No. 2 dated as of December 31, 1998
10.3 -- Credit Agreement, dated as of October 30, 1998, among Insight
Indiana, several lenders and The Bank of New York
10.4 -- Revolving Credit Agreement, dated as of October 7, 1998, among
Insight Communications of Central Ohio, LLC, several lenders and
Canadian Imperial Bank of Commerce
10.5 -- Operating Agreement of Insight Indiana by and between Insight
Communications Company, L.P. and TCI of Indiana Holdings, LLC,
dated as of May 14, 1998 and the First Amendment to the Operating
Agreement dated April 28, 1999
10.6 -- Management Agreement by and between Insight Indiana and Insight
Communications Company, L.P., dated as of October 30, 1998(1)
10.7 -- Operating Agreement of Insight Ohio by and among Coaxial
Communications, Insight Holdings, Barry Silverstein, Dennis
McGillicuddy and D. Stevens McVoy, dated as of August 21, 1998(1)
10.8 -- Management Agreement of Coaxial LLC by and among Coaxial LLC,
Insight Holdings and Barry Silverstein, dated as of August 21,
1998(1)
10.9 -- Management Agreement of Coaxial DJM LLC by and between Coaxial DJM
LLC, Insight Holdings and Dennis McGillicuddy, dated as of
August 21, 1998(1)
10.10 -- Management Agreement of Coaxial DSM LLC by and between Coaxial DSM
LLC, Insight Holdings and D. Stevens McVoy, dated as of August 21,
1998(1)
10.11 -- Parent Undertaking given by Insight Communications Company, L.P.
for and in favor of Coaxial Communications, Phoenix Associates,
Coaxial LLC, Coaxial DJM LLC, Coaxial DSM LLC, Barry Silverstein,
Dennis McGillicuddy and D. Stevens McVoy, dated as of August 21,
1998(1)
10.12 -- Management Agreement by and between Coaxial Communications and
Insight Ohio, dated as of August 21, 1998
10.13 -- Operating Agreement of Insight Holdings by and between Insight
Communications Company, L.P. and Insight Holdings, dated as of
August 21, 1998(1)
10.14 -- Securityholders Agreement by and among Registrant, Vestar Capital
Partners III, L.P., Sandler Capital Partners IV, L.P., Sandler
Capital Partners IV FTE, L.P., Sidney R. Knafel, Michael S.
Willner, Kim D. Kelly and Senior Management Securityholders, dated
as of May 11, 1999, with Side Letter Agreement by and among Insight
Communications Company, L.P., Vestar Capital Partners III, L.P.,
Sidney R. Knafel, Michael S. Willner, Kim D. Kelly, Sandler Capital
Partners IV, L.P. and Sandler Capital Partners IV FTE, L.P., dated
May 11, 1999.
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consents of KPMG LLP
23.3 -- Consent of PricewaterhouseCoopers LLP
23.4 -- Consent of Arthur Andersen LLP
23.5* -- Consent of Cooperman Levitt Winikoff Lester & Newman, P.C.
(included in Exhibit 5.1)
23.6* -- Consent of Thomas L. Kempner
23.7* -- Consent of James S. Marcus
23.8* -- Consent of Daniel S. O'Connell
23.9* -- Consent of Prakash A. Melwani
24.1 -- Power of Attorney(1)
27.1 -- Financial Data Schedule of Insight Communications Company, L.P.
</TABLE>
- ------------------
* To be filed by Amendment
(1) Previously filed as an exhibit to this Registration Statement.
II-3
<PAGE>
(b) Financial Statement Schedule.
S-1 Report of Independent Auditors on Financial Statement Schedule.
S-2 Schedule II--Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(2) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of Registrant pursuant to Item 14 of this Part II to the
registration statement, or otherwise, Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a director, officer or controlling person of Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, 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 THE 24TH DAY OF JUNE, 1999.
INSIGHT COMMUNICATIONS COMPANY, INC.
By: /s/ MICHAEL S. WILLNER
----------------------
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:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------ ------------------------------------- -------------
<S> <C> <C>
/s/ Sidney R. Knafel Chairman of the Board June 24, 1999
- ------------------------
Sidney R. Knafel
/s/ Michael S. Willner President, Chief Executive Officer June 24, 1999
- ------------------------ and Director (Principal Executive
Michael S. Willner Officer)
/s/ Kim D. Kelly Executive Vice President, Chief June 24, 1999
- ------------------------ Financial and Operating Officer and
Kim D. Kelly Director (Principal Financial and
Accounting Officer)
</TABLE>
II-5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners of
Insight Communications Company, L.P.
We have audited the consolidated financial statements of Insight Communications
Company, L.P. as of December 31, 1998 and 1997 and for each of the three years
in the period ended December 31, 1998, and have issued our report thereon dated
April 5, 1999 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedule listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Partnership's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
New York, New York
March 31, 1999
S-1
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
CHARGED TO CHARGED TO
BEGINNING COSTS & OTHER DEDUCTIONS ENDING
DESCRIPTION BALANCE EXPENSE ACCOUNTS (1) BALANCE
- ------------------------------------------------------- --------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts...................... $ 146 $ 670 $ -- $ (710) $ 106
Year ended December 31, 1997
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts...................... 106 695 -- (671) 130
Year ended December 31, 1998
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts...................... 130 1,288 -- (1,009) 409
</TABLE>
- ------------------------
(1) Uncollectible accounts written off, net of recoveries.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- --------------------------------------------------------- ----------
<S> <C> <C>
1.1* -- Form of Underwriting Agreement between Registrant and
the underwriters
2.1 -- Asset Contribution Agreement by and among Insight
Communications of Indiana, LLC, Insight Communications
Company, L.P., UACC Midwest, Inc., TCI of Kokomo,
Inc., TCI of Indiana, Inc., Heritage Cablevision
Associates, A Limited Partnership and TCI of Indiana
Holdings, LLC dated as of May 14, 1998(1)
2.2 -- Contribution Agreement by and between Coaxial
Communications of Central Ohio, Inc. and Insight
Communications Company, L.P. dated as of June 30,
1998(1)
2.3 -- Amendment to Contribution Agreement by and between
Coaxial Communications and Insight Communications
Company, L.P., dated as of July 15, 1998(1)
2.4 -- Second Amendment to Contribution Agreement by and
among Coaxial Communications, Insight Communications
Company, L.P. and Insight Holdings of Ohio, LLC, dated
as of August 21, 1998(1)
2.5 -- Asset Exchange Agreement by and among Insight
Communications Company, L.P., TCI of Indiana, Inc. and
UACC Midwest, Inc., dated May 14, 1998(1)
2.6 -- Asset Exchange Agreement by and between Insight
Communications Company, L.P. and CoxCom, Inc., dated
as of November 26, 1997(1)
2.7 -- Asset Purchase Agreement by and between A-R Cable
Services, Inc. and Insight LP, dated as of August 12,
1997(1)
2.8 -- Purchase Agreement, dated as of April 18, 1999, among
InterMedia Capital Management VI, LLC, InterMedia
Management Inc., Robert J. Lewis, TCI ICM VI, Inc.,
InterMedia Capital Management VI, L.P., Blackstone KC
Capital Partners, L.P., Blackstone KC Offshore Capital
Partners, L.P., Blackstone Family Investment
Partnership III L.P., Leo J. Hindery, Jr., TCI IP-VI,
LLC and Insight Communications Company L.P.(1)
2.9 -- Contribution and Formation Agreement, dated April 18,
1999, between TCI of Indiana Holdings, LLC and Insight
Communications Company, L.P.(1)
3.1* -- Form of Restated Certificate of Incorporation of
Registrant
3.2* -- By-laws of Registrant
4.1* -- Form of certificate evidencing shares of Class A
common stock
5.1* -- Opinion of Cooperman Levitt Winikoff Lester & Newman,
P.C.
10.1* -- 1999 Stock Option Plan
10.2 -- Fourth Amended and Restated Credit Agreement, dated as
of December 21, 1998, among Insight Communications
Company, L.P., several lenders and The Bank of New
York with Waiver No. 1 and Amendment No. 1 dated as of
December 21, 1998 and Waiver No. 2 and Amendment
No. 2 dated as of December 31, 1998.
10.3 -- Credit Agreement, dated as of October 30, 1998, among
Insight Indiana, several lenders and The Bank of New
York
10.4 -- Revolving Credit Agreement, dated as of October 7,
1998, among Insight Communications of Central Ohio,
LLC, several lenders and Canadian Imperial Bank of
Commerce
10.5 -- Operating Agreement of Insight Indiana by and between
Insight Communications Company, L.P. and TCI of
Indiana Holdings, LLC, dated as of May 14, 1998 and
the First Amendment to the Operating Agreement dated
April 28, 1999
10.6 -- Management Agreement by and between Insight Indiana
and Insight Communications Company, L.P., dated as of
October 30, 1998(1)
10.7 -- Operating Agreement of Insight Ohio by and among
Coaxial Communications, Insight Holdings, Barry
Silverstein, Dennis McGillicuddy and D. Stevens McVoy,
dated as of August 21, 1998(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- --------------------------------------------------------- ----------
<S> <C> <C>
10.8 -- Management Agreement of Coaxial LLC by and among
Coaxial LLC, Insight Holdings and Barry Silverstein,
dated as of August 21, 1998(1)
10.9 -- Management Agreement of Coaxial DJM LLC by and between
Coaxial DJM LLC, Insight Holdings and Dennis
McGillicuddy, dated as of August 21, 1998(1)
10.10 -- Management Agreement of Coaxial DSM LLC by and between
Coaxial DSM LLC, Insight Holdings and D. Stevens
McVoy, dated as of August 21, 1998(1)
10.11 -- Parent Undertaking given by Insight Communications
Company, L.P. for and in favor of Coaxial
Communications, Phoenix Associates, Coaxial LLC,
Coaxial DJM LLC, Coaxial DSM LLC, Barry Silverstein,
Dennis McGillicuddy and D. Stevens McVoy, dated as of
August 21, 1998(1)
10.12 -- Management Agreement by and between Coaxial
Communications and Insight Ohio, dated as of
August 21, 1998
10.13 -- Operating Agreement of Insight Holdings by and between
Insight Communications Company, L.P. and Insight
Holdings, dated as of August 21, 1998(1)
10.14 -- Securityholders Agreement by and among Registrant,
Vestar Capital Partners III, L.P., Sandler Capital
Partners IV, L.P., Sandler Capital Partners IV FTE,
L.P., Sidney R. Knafel, Michael S. Willner, Kim D.
Kelly and Senior Management Securityholders, dated as
of May 11, 1999, with Side Letter Agreement by and
among Insight Communications Company, L.P., Vestar
Capital Partners III, L.P., Sidney R. Knafel, Michael
S. Willner, Kim D. Kelly, Sandler Capital
Partners IV, L.P. and Sandler Capital Partners IV
FTE, L.P., dated May 11, 1999.
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consents of KPMG LLP
23.3 -- Consent of PricewaterhouseCoopers LLP
23.4 -- Consent of Arthur Andersen LLP
23.5* -- Consent of Cooperman Levitt Winikoff Lester & Newman,
P.C. (included in Exhibit 5.1)
23.6* -- Consent of Thomas L. Kempner
23.7* -- Consent of James S. Marcus
23.8* -- Consent of Daniel S. O'Connell
23.9* -- Consent of Prakash A. Melwani
24.1 -- Power of Attorney (included on the signature page of
Part II of this registration statement)
27.1 -- Financial Data Schedule of Insight Communications
Company, L.P.
</TABLE>
- ------------------
* To be filed by Amendment
(1) Previously filed as an exhibit to this Registration Statement.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
by and among
INSIGHT COMMUNICATIONS COMPANY, L.P.,
THE LENDERS PARTY HERETO,
CIBC INC.,
AND
FLEET BANK, N.A.,
AS CO-AGENTS,
AND
THE BANK OF NEW YORK, AS ISSUING BANK
AND AS ADMINISTRATIVE AGENT
Dated as of December 21, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BNY CAPITAL MARKETS, INC. ACTED AS LEAD ARRANGER AND AS LEAD BOOK
MANAGER OF THIS TRANSACTION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION....................................3
SECTION 1.1 DEFINITIONS.......................................................3
SECTION 1.2 PRINCIPLES OF CONSTRUCTION.......................................26
2. AMOUNT AND TERMS OF LOANS AND LETTERS OF CREDIT..............................27
SECTION 2.1 LOANS............................................................27
SECTION 2.2 NOTES............................................................27
SECTION 2.3 PROCEDURE FOR BORROWING..........................................28
SECTION 2.4 INCREASE, TERMINATION OR REDUCTION OF COMMITMENTS................29
SECTION 2.5 PREPAYMENTS OF THE LOANS.........................................33
SECTION 2.6 USE OF PROCEEDS..................................................33
SECTION 2.7 LETTER OF CREDIT SUB-FACILITY....................................34
SECTION 2.8 LETTER OF CREDIT PARTICIPATION AND FUNDING COMMITMENTS...........35
SECTION 2.9 ABSOLUTE OBLIGATION WITH RESPECT TO LETTERS OF CREDIT PAYMENTS...36
SECTION 2.10 PAYMENTS........................................................37
SECTION 2.11 RECORDS.........................................................37
3. INTEREST, FEES, YIELD PROTECTIONS, ETC.......................................38
SECTION 3.1 INTEREST RATE AND PAYMENT DATES..................................38
SECTION 3.2 FEES.............................................................40
SECTION 3.3 CONVERSIONS......................................................41
SECTION 3.4 CONCERNING INTEREST PERIODS......................................41
SECTION 3.5 INDEMNIFICATION FOR LOSS.........................................42
SECTION 3.6 CAPITAL ADEQUACY.................................................43
SECTION 3.7 REIMBURSEMENT FOR INCREASED COSTS................................43
SECTION 3.8 ILLEGALITY OF FUNDING............................................44
SECTION 3.9 SUBSTITUTED INTEREST RATE........................................44
SECTION 3.10 TAXES...........................................................45
SECTION 3.11 OPTION TO FUND..................................................48
4. REPRESENTATIONS AND WARRANTIES...............................................48
SECTION 4.1 SUBSIDIARIES; CAPITALIZATION.....................................48
SECTION 4.2 EXISTENCE AND POWER..............................................49
SECTION 4.3 AUTHORITY AND EXECUTION..........................................49
SECTION 4.4 BINDING AGREEMENT................................................49
SECTION 4.5 LITIGATION.......................................................50
SECTION 4.6 REQUIRED CONSENTS................................................50
SECTION 4.7 ABSENCE OF DEFAULTS; NO CONFLICTING AGREEMENTS...................50
SECTION 4.8 COMPLIANCE WITH APPLICABLE LAWS..................................51
SECTION 4.9 TAXES............................................................51
SECTION 4.10 GOVERNMENTAL REGULATIONS........................................51
SECTION 4.11 FEDERAL RESERVE REGULATIONS; USE OF LOAN PROCEEDS...............51
SECTION 4.12 PLANS...........................................................52
SECTION 4.13 FINANCIAL STATEMENTS............................................52
SECTION 4.14 PROPERTY........................................................53
SECTION 4.15 AUTHORIZATIONS..................................................53
SECTION 4.16 ENVIRONMENTAL MATTERS...........................................53
SECTION 4.17 ABSENCE OF CERTAIN RESTRICTIONS.................................54
SECTION 4.18 NO MISREPRESENTATION............................................54
SECTION 4.19 YEAR 2000 ISSUE.................................................55
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5. CONDITIONS TO LOANS OR THE ISSUANCE OF NEW LETTERS OF CREDIT.................55
SECTION 5.1 EVIDENCE OF ACTION...............................................55
SECTION 5.2 THIS AGREEMENT...................................................56
SECTION 5.3 MASTER ASSIGNMENT................................................56
SECTION 5.4 NOTES............................................................56
SECTION 5.5 SECOND AMENDMENT TO COLLATERAL DOCUMENTS.........................56
SECTION 5.6 ABSENCE OF LITIGATION............................................56
SECTION 5.7 APPROVALS AND CONSENTS...........................................56
SECTION 5.8 FINANCIAL OFFICER'S CERTIFICATE..................................57
SECTION 5.9 OPINION OF COUNSEL TO THE BORROWER AND THE GUARANTORS............57
SECTION 5.10 PROPERTY, PUBLIC LIABILITY AND OTHER INSURANCE..................57
SECTION 5.11 FEES............................................................57
SECTION 5.12 OTHER DOCUMENTS.................................................57
6. CONDITIONS OF LENDING - ALL LOANS AND NEW LETTERS OF CREDIT..................58
SECTION 6.1 COMPLIANCE.......................................................58
SECTION 6.2 BORROWING REQUEST; LETTER OF CREDIT REQUEST......................58
SECTION 6.3 LOAN CLOSINGS....................................................58
SECTION 6.4 OTHER DOCUMENTS..................................................58
7. AFFIRMATIVE COVENANTS........................................................59
SECTION 7.1 FINANCIAL STATEMENTS AND INFORMATION.............................59
SECTION 7.2 CERTIFICATES; OTHER INFORMATION..................................60
SECTION 7.3 LEGAL EXISTENCE..................................................62
SECTION 7.4 TAXES............................................................62
SECTION 7.5 INSURANCE........................................................62
SECTION 7.6 PERFORMANCE OF OBLIGATIONS.......................................64
SECTION 7.7 CONDITION OF PROPERTY............................................64
SECTION 7.8 OBSERVANCE OF LEGAL REQUIREMENTS.................................64
SECTION 7.9 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS...........64
SECTION 7.10 AUTHORIZATIONS..................................................65
SECTION 7.11 FINANCIAL COVENANTS.............................................65
SECTION 7.12 INTEREST RATE PROTECTION ARRANGEMENTS...........................66
8. NEGATIVE COVENANTS...........................................................66
SECTION 8.1 INDEBTEDNESS.....................................................66
SECTION 8.2 LIENS............................................................66
SECTION 8.3 MERGER, CONSOLIDATIONS AND ACQUISITIONS..........................67
SECTION 8.4 DISPOSITIONS AND EXCHANGES.......................................68
SECTION 8.5 INVESTMENTS, LOANS, ETC..........................................70
SECTION 8.6 RESTRICTED PAYMENTS..............................................71
SECTION 8.7 CAPITAL EXPENDITURES.............................................71
SECTION 8.8 BUSINESS AND NAME CHANGES........................................72
SECTION 8.9 SUBSIDIARIES.....................................................72
SECTION 8.10 ERISA...........................................................72
SECTION 8.11 PREPAYMENTS OF INDEBTEDNESS.....................................72
SECTION 8.12 AMENDMENTS, ETC. OF ORGANIZATIONAL DOCUMENTS....................72
SECTION 8.13 TRANSACTIONS WITH AFFILIATES....................................73
SECTION 8.14 ISSUANCE OF ADDITIONAL CAPITAL STOCK............................73
SECTION 8.15 LIMITATION ON CERTAIN RESTRICTIONS ON RESTRICTED SUBSIDIARIES...74
9. DEFAULT......................................................................74
SECTION 9.1 EVENTS OF DEFAULT................................................74
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 9.2 CONTRACT REMEDIES................................................77
10. THE AGENT AND THE COAGENTS..................................................79
SECTION 10.1 APPOINTMENT.....................................................79
SECTION 10.2 DELEGATION OF DUTIES............................................79
SECTION 10.3 EXCULPATORY PROVISIONS..........................................79
SECTION 10.4 RELIANCE BY AGENT...............................................80
SECTION 10.5 NOTICE OF DEFAULT...............................................81
SECTION 10.6 NONRELIANCE ON AGENT AND OTHER LENDERS..........................81
SECTION 10.7 INDEMNIFICATION.................................................82
SECTION 10.8 AGENT IN ITS INDIVIDUAL CAPACITY................................82
SECTION 10.9 SUCCESSOR AGENT.................................................83
SECTION 10.10 CO-AGENTS......................................................83
11. OTHER PROVISIONS............................................................83
SECTION 11.1 AMENDMENTS AND WAIVERS..........................................83
SECTION 11.2 NOTICES.........................................................85
SECTION 11.3 NO WAIVER; CUMULATIVE REMEDIES..................................86
SECTION 11.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
CERTAIN OBLIGATIONS...........................................86
SECTION 11.5 PAYMENT OF EXPENSES AND TAXES...................................87
SECTION 11.6 LENDING OFFICES.................................................88
SECTION 11.7 ASSIGNMENTS AND PARTICIPATIONS..................................88
SECTION 11.8 INDEMNITY.......................................................90
SECTION 11.9 LIMITATION OF LIABILITY.........................................91
SECTION 11.10 COUNTERPARTS...................................................91
SECTION 11.11 ADJUSTMENTS; SET-OFF...........................................92
SECTION 11.12 CONSTRUCTION...................................................93
SECTION 11.13 GOVERNING LAW..................................................93
SECTION 11.14 HEADINGS DESCRIPTIVE...........................................93
SECTION 11.15 SEVERABILITY...................................................94
SECTION 11.16 INTEGRATION....................................................94
SECTION 11.17 CONSENT TO JURISDICTION........................................94
SECTION 11.18 SERVICE OF PROCESS.............................................94
SECTION 11.19 NO LIMITATION ON SERVICE OR SUIT...............................95
SECTION 11.20 WAIVER OF TRIAL BY JURY........................................95
SECTION 11.21 TREATMENT OF CERTAIN INFORMATION...............................95
SECTION 11.22 EFFECTIVE DATE.................................................96
</TABLE>
iii
<PAGE>
FOURTH AMENDED AND RESTATED CREDITAGREEMENT, dated as of December 21,
1998, by and among INSIGHT COMMUNICATIONS COMPANY, L.P., a Delaware limited
partnership (the "Borrower"), the lenders party hereto (together with their
respective assigns, the "Lenders", each a "Lender"), CIBC INC., and FLEET BANK,
N.A., as Co-Agents (collectively, the "Co-Agents"), and THE BANK OF NEW YORK,
as administrative agent for the Lenders (in such capacity, the "Agent") and as
Issuing Bank (as such term is defined below), amending and restating in its
entirety the Third Amended and Restated Credit Agreement (as the same may be
amended, supplemented or otherwise modified from time to time up to, but
excluding, the Effective Date (as such term is defined below), the "Third
Amended Credit Agreement"), dated as of January 22, 1998, by and among the
Borrower, the lenders party thereto, the Co-Agents and the Agent.
1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION
SECTION 1.1 DEFINITIONS
As used in this Agreement, terms defined in the preamble have
the meanings therein indicated, and the following terms have the following
meanings:
"ABR Advances": the Loans (or any portions thereof) at such
time as they (or such portions) are made and/or being maintained at a rate of
interest based upon the Alternate Base Rate.
"Accountants": Ernst & Young, LLP (or any successor thereto),
or such other firm of certified public accountants of recognized national
standing selected by the Borrower and reasonably satisfactory to the Agent.
"Accumulated Funding Deficiency": as defined in Section 302
of ERISA.
"Acquisition": with respect to any Person, the purchase or
other acquisition by such Person, by any means whatsoever (including through a
merger, dividend or otherwise and whether in a single transaction or in a
series of related transactions), of (i) any Capital Stock of, or other equity
securities of, any other Person if, immediately thereafter, such other Person
would be either a Subsidiary of such Person or otherwise under the control of
such Person, (ii) any Operating Entity, or (iii) any Property of (a) any other
Person or (b) any Operating Entity, in either case other than in the ordinary
course of business, provided, however, that no acquisition of all or
substantially all of the assets of such other Person or Operating Entity shall
be deemed to be in the ordinary course of business.
"Acquisition Cost": with respect to any Acquisition by any
Person, the sum of (i) all cash consideration paid or agreed to be paid by such
Person to make such Acquisition (inclusive of payments by such Person of the
seller's professional fees and
<PAGE>
expenses and other outofpocket expenses in connection therewith), plus (ii) the
fair market value of all noncash consideration paid by such Person in
connection therewith, plus (iii) an amount equal to the principal or stated
amount of all liabilities assumed or incurred by such Person in connection
therewith. The principal or stated amount of any liability assumed or incurred
by a Person in connection with an Acquisition which is a contingent liability
shall be an amount equal to the stated amount of such liability or, if the same
is not stated, the maximum reasonably anticipated amount payable by such Person
in respect thereof as determined by such Person in good faith.
"Adjusted Consolidated Annualized Cash Flow": for any fiscal
quarter, Consolidated Annualized Cash Flow for such fiscal quarter (excluding
all management fees to the extent included therein), plus the lesser of (1)
management fees received in cash during such fiscal quarter multiplied by four,
and (2) 20% of the sum of (a) home office expenses of a type satisfactory to
the Agent during such fiscal quarter multiplied by four, plus (b) Consolidated
Annualized Cash Flow for such fiscal quarter (excluding management fees to the
extent included therein). Notwithstanding anything to the contrary contained in
this definition, for purposes of determining "Adjusted Consolidated Annualized
Cash Flow" only, with respect to any fiscal quarter, all Acquisitions,
Dispositions and Exchanges occurring during the quarter shall be deemed to have
occurred on the first day of such quarter.
"Advance": an ABR Advance or a Eurodollar Advance, as the
case may be.
"Affected Advance": as defined in Section 3.9.
"Affiliate": as to any Person, any other Person which,
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
shall mean the power, direct or indirect, to direct or cause the direction of
the management or policies of such Person, whether through the ability to
exercise voting power, by contract or otherwise. With respect to any Lender
that is a fund that invests in commercial loans, "Affiliate" shall include (i)
any other fund that invests in commercial loans and is managed or advised by
the same investment advisor as such Lender or by an Affiliate of such
investment advisor, and (ii) any bank or Affiliate thereof that manages or
controls such Lender.
"Aggregate Commitment Amount": at any time, the sum at such
time of the Commitment Amounts of all Lenders at such time.
"Aggregate Commitments": the Commitments of all Lenders.
"Aggregate Exposure": at any time, the sum at such time of
(i) the outstanding principal balance of the Loans of all Lenders, plus (ii) an
amount equal to the Letter of Credit Exposure of all Lenders.
3
<PAGE>
"Agreement": this Fourth Amended and Restated Credit
Agreement, as the same may be amended, supplemented or otherwise modified from
time to time.
"Agreement of Assignment": the Agreement of Assignment of
Limited Partnership Interest, dated as of November 14, 1997, by and between
Continental and the Borrower, as amended, supplemented or otherwise modified
from time to time.
"Allowable Amount": as defined in Section 8.7.
"Alternate Base Rate": on any date, a rate of interest per
annum equal to the higher of (i) the Federal Funds Rate in effect on such date
plus 1/2 of 1% or (ii) the BNY Rate in effect on such date.
"Amendment to Collateral Documents": the Amendment to
Collateral Documents, dated as of November 25, 1996, by and among the Borrower,
BNY, CIBC Inc., Bankers Trust Company, Fleet Bank, N.A., SunTrust Bank, Central
Florida, N.A., Van Kampen American Capital Prime Rate Income Trust, the Issuing
Bank, the Agent, Canadian Imperial Bank of Commerce, as Documentation Agent,
Finance, the General Partner, Insight Communications, Inc., and Sidney R.
Knafel, as amended, supplemented or otherwise modified from time to time.
"Americable Acquisition" as defined in Section 8.3(f).
"Applicable Lending Office": in respect of any Lender, (i) in
the case of such Lender's ABR Advances, its Domestic Lending Office and (ii) in
the case of such Lender's Eurodollar Advances, its Eurodollar Lending Office.
"Applicable Percentage": with respect to the Commitment Fee
and the unpaid principal balance of ABR Advances and Eurodollar Advances, in
each case at all times during which the applicable Pricing Level set forth
below is in effect, the percentage set forth below next to such Pricing Level
and under the applicable column, subject to the provisos set forth below:
Applicable Percentage
Pricing Level ABR Eurodollar Commitment Fee
------------- --- ---------- --------------
Pricing Level I 0.750% 2.000% 0.375%
Pricing Level II 0.375% 1.625% 0.375%
Pricing Level III 0.125% 1.375% 0.250%
Pricing Level IV 0.000% 1.250% 0.250%
Pricing Level V 0.000% 1.125% 0.250%
Pricing Level VI 0.000% 1.000% 0.250%
4
<PAGE>
Changes in the Applicable Percentage resulting from a change
in a Pricing Level, in each case, shall be based upon the Compliance
Certificate most recently delivered pursuant to Section 7.1(c) and shall become
effective, in the event that such delivery shall occur on the first day of a
calendar month, on such day, and, in all other cases, on the first day of the
calendar month immediately following such delivery. Notwithstanding anything to
the contrary contained in this definition, (a) if at any time and from time to
time the Borrower shall be in Default of its obligations under Section 7.1(c),
Pricing Level I shall apply until such Default is cured, and (b) subject to
clause (a) immediately above, during the period commencing on the Effective
Date and ending on the date of delivery thereafter of the first Compliance
Certificate pursuant to Section 7.1(c), the Applicable Percentage shall be
based upon the Financial Officer's certificate referred to in Section 5.8.
"Approved Bank": any bank whose (or whose parent company's)
unsecured non-credit supported short-term commercial paper rating from (i)
Standard & Poor's is at least A1 or the equivalent thereof or (ii) Moody's is
at least P1 or the equivalent thereof.
"Assignment and Acceptance Agreement": an assignment and
acceptance agreement executed by an assignor and an assignee pursuant to which
such assignor assigns to such assignee all or any portion of such assignor's
Notes and Commitments, substantially in the form of Exhibit J.
"Authorized Signatory": as to (i) any Person which is a
corporation, the chairman of the board, the president, any vice president, the
chief financial officer or any other officer (acceptable to the Agent) of such
Person and (ii) any Person which is not a corporation, the general partner or
other managing Person thereof.
"Available Commitment Amount": at any time, an amount equal
to the Aggregate Commitment Amount at such time minus the Aggregate Exposure at
such time.
"Benefited Lender": as defined in Section 11.11.
"BNY": The Bank of New York.
"BNY Rate": a rate of interest per annum equal to the rate of
interest publicly announced in New York City by BNY from time to time as its
prime commercial lending rate, such rate to be adjusted automatically (without
notice) on the effective date of any change in such publicly announced rate.
"BNYCMI": BNY Capital Markets, Inc.
5
<PAGE>
"Borrower Security Agreement": the Amended and Restated
Security Agreement, dated as of March 4, 1993, by and among the Borrower, the
Lenders party thereto, the Documentation Agent and the Agent, as the same may
be amended, supplemented or otherwise modified from time to time.
"Borrowing Date": any Business Day specified in (i) a
Borrowing Request as a date on which the Borrower requests the Lenders to make
Loans or (ii) a Letter of Credit Request as a date on which the Borrower
requests the Issuing Bank to issue a Letter of Credit.
"Borrowing Request": a request for Loans in the form of
Exhibit C.
"Business Day": for all purposes other than as set forth in
clause (ii) below, (i) any day other than a Saturday, a Sunday or a day on
which commercial banks located in New York City are authorized or required by
law or other governmental action to close, and (ii) with respect to all notices
and determinations in connection with, and payments of principal and interest
on, Eurodollar Advances, any day which is a Business Day described in clause
(i) above and which is also a day on which eurodollar funding between banks may
be carried on in London, England.
"Capital Expenditures": with respect to any Person for any
period, the aggregate of all expenditures incurred by such Person during such
period which, in accordance with GAAP, are required to be included in
"Additions to Property, Plant or Equipment" or similar items reflected on the
balance sheet of such Person.
"Capital Lease Obligations": with respect to any Person,
obligations of such Person with respect to leases which are required to be
capitalized for financial reporting purposes in accordance with GAAP.
"Capital Stock": as to any Person, all shares, interests,
partnership interests, limited liability company interests, participations,
rights in or other equivalents (however designated) of such Person's equity
(however designated) and any rights, warrants or options exchangeable for or
convertible into such shares, interests, participations, rights or other
equity.
"Cash Equivalents": (i) securities issued or directly and
fully guaranteed or insured by the United States or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in full support thereof) having maturities of not more than
six months from the date of acquisition, (ii) Dollar denominated time deposits,
certificates of deposit and bankers acceptances of (a) any Lender or (b) any
Approved Bank, in any such case with maturities of not more than six months
from the date of acquisition, (iii) commercial paper issued by any Approved
Bank or by the parent company of any Approved Bank and commercial paper issued
by, or guaranteed by, any industrial or financial company with an unsecured
non-credit supported short-term commercial paper rating of at least A1 or the
equivalent by Standard & Poor's or at least P1 or the equivalent by Moody's, or
guaranteed by any industrial or financial company with a long term unsecured
non-credit
6
<PAGE>
supported senior debt rating of at least A or A 2, or the equivalent, by
Standard & Poor's or Moody's, as the case may be, and in each case maturing
within six months after the date of acquisition, (iv) marketable direct
obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
within six months 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 or Moody's and (v) investments in money market funds
substantially all the assets of which are comprised of securities of the types
described in clauses (i) through (iv) above.
"Code": the Internal Revenue Code of 1986, as the same may be
amended from time to time, or any successor thereto, and the rules and
regulations issued thereunder, as from time to time in effect.
"Collateral": the Property in which a security interest is
granted under the Collateral Documents.
"Collateral Documents": collectively, the Borrower Security
Agreement, the Subsidiary Guaranty, the Pledge Agreement, the Negative Pledge
Agreement, the Affiliate Subordination Agreement, and all documents executed or
delivered in connection with any of the foregoing.
"Commitment": in respect of any Lender, such Lender's
undertaking during the Commitment Period to make Loans and to participate in
the Letters of Credit, subject to the terms and conditions hereof, in an
aggregate outstanding principal amount not exceeding the Commitment Amount of
such Lender.
"Commitment Amount": as of any date and with respect to any
Lender, the amount set forth adjacent to its name under the heading "Commitment
Amount" in Exhibit A on such date or, in the event that such Lender is not
listed in Exhibit A, the "Commitment Amount" which such Lender shall have
assumed from another Lender in accordance with Section 11.7 on or prior to such
date, as each of the same may be reduced from time to time pursuant to Section
2.4, and as each may be affected by assignments pursuant to Section 11.7.
"Commitment Fee": as defined in Section 3.2(a).
"Commitment Percentage": as to any Lender at any time, the
percentage, at such time, equal to such Lender's Commitment Amount, if any,
divided by the Aggregate Commitment Amount (or, if no Commitments exist at such
time, the percentage equal to such Lender's Commitment Amount, if any, on the
last day upon
7
<PAGE>
which Commitments did exist divided by the Aggregate
Commitment Amount on such day).
"Commitment Period": the period from the Effective Date until
the Commitment Termination Date.
"Commitment Termination Date": the earlier of the Business
Day immediately preceding the Maturity Date or such other date upon which the
Commitments shall have been terminated in accordance with Section 2.4 or
Section 9.2.
"Compensatory Interest Payment": as defined in Section
3.1(c).
"Compliance Certificate": a certificate substantially in the
form of Exhibit F.
"Consolidated": the Borrower and its Restricted Subsidiaries
on a consolidated basis in accordance with GAAP.
"Consolidated Annualized Cash Flow": for any fiscal quarter,
an amount equal to Consolidated Cash Flow for such fiscal quarter, multiplied
by four.
"Consolidated Cash Flow": for any period, net income of the
Borrower and its Restricted Subsidiaries for such period, determined on a
Consolidated basis in accordance with GAAP plus (i) the sum of, without
duplication, each of the following with respect to the Borrower and its
Restricted Subsidiaries, to the extent utilized in determining such net income:
(a) all interest expense, (b) all Restricted Payments made by the Borrower
pursuant to Section 8.6(ii), and (c) depreciation, amortization and other
non-cash charges, minus (ii) the sum of, without duplication, each of the
following with respect to the Borrower and its Restricted Subsidiaries, to the
extent utilized in determining such net income: (a) extraordinary gains and
losses from sales, exchanges and other dispositions of Property not in the
ordinary course of business, (b) other non-recurring items, and (c) accrued and
unpaid management fees.
"Consolidated Debt Service": for any period, the sum of (i)
Consolidated Interest Expense for such period and (ii) with respect to all
Indebtedness under revolving credit facilities (including, without limitation,
the facility evidenced hereby) of the Borrower and its Restricted Subsidiaries,
determined on a Consolidated basis in accordance with GAAP, an amount equal to
the excess, if any, of (a) the aggregate outstanding principal balance of all
such Indebtedness at the beginning of such period, minus (b) the aggregate
amount of all commitments under such revolving credit facilities at the end of
such period, plus (iii) with respect to all other Indebtedness of the Borrower
and its Restricted Subsidiaries, determined on a Consolidated basis in
accordance with GAAP, all repayments of such Indebtedness which were required
to be made during such period.
8
<PAGE>
"Consolidated Fixed Charges": for any period, the sum of,
without duplication, (i) Consolidated Debt Service for such period, (ii)
Capital Expenditures made during such period by the Borrower and its Restricted
Subsidiaries, determined on a Consolidated basis in accordance with GAAP, and
(iii) Restricted Payments made pursuant to Section 8.6(ii) during such period
by the Borrower and its Restricted Subsidiaries, determined on a Consolidated
basis in accordance with GAAP.
"Consolidated Interest Expense": for any period, the sum of
all interest expense during such period of the Borrower and its Restricted
Subsidiaries, determined on a Consolidated basis in accordance with GAAP.
"Consolidated Pro-forma Debt Service": as of any fiscal
quarter end, the sum of (i) Consolidated Proforma Interest Expense as of such
fiscal quarter end, plus (ii) with respect to all Indebtedness under revolving
credit facilities (including, without limitation, the facility evidenced
hereby) of the Borrower and its Restricted Subsidiaries, determined on a
Consolidated basis in accordance with GAAP, an amount equal to the excess, if
any, of (a) the aggregate outstanding principal balance of all such
Indebtedness at such fiscal quarter end, minus (b) the aggregate amount of all
commitments under such revolving credit facilities which, at such fiscal
quarter end, are scheduled to remain in effect at the end of the four fiscal
quarter period immediately succeeding such fiscal quarter end, plus (iii) with
respect to all other Indebtedness of the Borrower and the Restricted
Subsidiaries, determined on a Consolidated basis in accordance with GAAP, all
repayments of such Indebtedness which, as of such fiscal quarter end, are
scheduled to be made during the immediately succeeding four fiscal quarter
period.
"Consolidated Proforma Interest Expense": as of any fiscal
quarter end, the sum of all scheduled interest payments due on the Indebtedness
of the Borrower and its Restricted Subsidiaries, determined on a Consolidated
basis in accordance with GAAP, as of such fiscal quarter end for the four
fiscal quarter period immediately succeeding such fiscal quarter end. For
purposes of calculating "Proforma Interest Expense", (i) to the extent that the
interest rate applicable to any such Indebtedness is a variable rate, then the
rate in effect, adjusted for any Interest Rate Protection Arrangements, at such
fiscal quarter end shall be deemed to be the rate thereof in effect for such
four fiscal quarter period, (ii) the principal amount of such Indebtedness
outstanding under any revolving or line of credit facility at such fiscal
quarter end shall be deemed to be the outstanding amount thereof throughout
such four fiscal quarter period, adjusted to give effect to all scheduled
reductions of the commitments or availability thereunder during such four
fiscal quarter period, and (iii) any other such Indebtedness outstanding at
such fiscal quarter end shall be deemed to be the outstanding amount thereof
throughout such four fiscal quarter period, adjusted to give effect to all
scheduled repayments thereof during such four fiscal quarter period, to the
extent that the amount of such repayment is known at such fiscal quarter end.
9
<PAGE>
"Consolidated Total Debt": at any date of determination, the
aggregate Indebtedness on such date of the Borrower and its Restricted
Subsidiaries, determined on a Consolidated basis in accordance with GAAP.
"Continental": MediaOne Investments, Inc., a Delaware
corporation.
"Continental Subordinated Note": the subordinated promissory
note of the Borrower payable to Continental, dated November 24, 1997, in the
original principal amount of $7,687,500.
"Contingent Obligation": as to any Person (a "secondary
obligor"), any obligation of such secondary obligor (i) guaranteeing or in
effect guaranteeing any return on any investment made by another Person, or
(ii) guaranteeing or in effect guaranteeing any Indebtedness, lease, dividend
or other obligation (a "primary obligation") of any other Person (a "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of such secondary obligor, whether contingent, (a)
to purchase any primary obligation or any Property constituting direct or
indirect security therefor, (b) to advance or supply funds (A) for the purchase
or payment of any primary obligation or (B) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of a primary obligor, (c) to purchase Property, securities or services
primarily for the purpose of assuring the beneficiary of any primary obligation
of the ability of a primary obligor to make payment of a primary obligation,
(d) otherwise to assure or hold harmless the beneficiary of a primary
obligation against loss in respect thereof, and (e) in respect of the
liabilities of any partnership in which a secondary obligor is a general
partner, except to the extent that such liabilities of such partnership are
nonrecourse to such secondary obligor and its separate Property, provided,
however, that the term "Contingent Obligation" shall not include (x) the
indorsement of instruments for deposit or collection in the ordinary course of
business, and (y) with respect to the Borrower, any Restricted Payment made or
to be made by the Borrower pursuant to its Organizational Documents as in
effect on the date hereof. The amount of any Contingent Obligation of a Person
shall be deemed to be an amount equal to the stated or determinable amount of a
primary obligation in respect of which such Contingent Obligation is made or,
if not stated or determinable, the maximum reasonably anticipated liability in
respect thereof as determined by such Person in good faith.
"Control Person": as defined in Section 3.6.
"Conversion Date": the date on which: (i) a Eurodollar
Advance is converted to an ABR Advance, (ii) an ABR Advance is converted to a
Eurodollar Advance, or (iii) a Eurodollar Advance is converted to a new
Eurodollar Advance.
10
<PAGE>
"Credit Party": with respect to any Loan Document, any Person
(other than the Agent, the Issuing Bank and each Lender) which, in accordance
with the terms of such Loan Document, is or is to be a party thereto.
"Default": any event or condition which constitutes an Event
of Default or which, with the giving of notice, the lapse of time, or any other
condition, would, unless cured or waived, become an Event of Default.
"Disposition": with respect to any Person, any sale,
assignment, transfer or other disposition by such Person, by any means, of (i)
the Capital Stock of, or other equity interests of, any other Person, (ii) any
Operating Entity, or (iii) any other Property of such Person other than in the
ordinary course of business, provided, however, that no such sale, assignment,
transfer or other disposition of Property (other than inventory, except to the
extent subject to a bulk sale) shall be deemed to be in the ordinary course of
business (a) if the fair market value thereof is in excess of $500,000, or (b)
to the extent that the fair market value thereof, when aggregated with all
other sales, assignments, transfers and other dispositions made by such Person
within the same fiscal year, exceeds $1,000,000, and then only to the extent of
such excess, if any, or (c) it is the sale, assignment, transfer or disposition
of (A) all or substantially all of the Property of such Person or (B) any
Operating Entity.
"Dollars" and "$": lawful currency of the United States.
"Domestic Lending Office": in respect of (i) any Lender
listed on the signature pages hereof, initially, the office or offices of such
Lender designated as such on Schedule 1.1B; thereafter, such other office of
such Lender, through which it shall be making or maintaining ABR Advances, as
reported by such Lender to the Agent and the Borrower, and (ii) in the case of
any other Lender, initially, the office or offices of such Lender designated as
such on Schedule 1.1B of the Assignment and Acceptance Agreement or other
document pursuant to which it became a Lender; thereafter, such other office of
such Lender, through which it shall be making or maintaining ABR Advances, as
reported by such Lender to the Agent and the Borrower.
"Effective Date": as defined in Section 11.22.
"Eligible Assignee": a Lender, any affiliate of a Lender and
any other bank, insurance company, pension fund, mutual fund or other financial
institution.
"Employee Benefit Plan": an employee benefit plan within the
meaning of Section 3(3) of ERISA maintained, sponsored or contributed to by the
Borrower, any of its Subsidiaries or any ERISA Affiliate.
"Environmental Laws": any and all federal, state and local
laws relating to the environment, the use, storage, transporting,
manufacturing, handling, discharge,
11
<PAGE>
disposal or recycling of hazardous substances, materials or pollutants or
industrial hygiene, and including, without limitation, (i) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 USCA
ss.9601 et seq.; (ii) the Resource Conservation and Recovery Act of 1976, as
amended, 42 USCA ss.6901 et seq.; (iii) the Toxic Substance Control Act, as
amended, 15 USCA ss.2601 et seq.; (iv) the Water Pollution Control Act, as
amended, 33 USCA ss.1251 et seq.; (v) the Clean Air Act, as amended, 42 USCA
ss.7401 et seq.; (vi) the Hazardous Materials Transportation Authorization Act
of 1994, as amended, 49 USCA ss.5101 et seq. and (viii) all rules, regulations,
judgments, decrees, injunctions and restrictions thereunder and any analogous
state law.
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the rules and regulations issued thereunder,
as from time to time in effect.
"ERISA Affiliate": when used with respect to an Employee
Benefit Plan, ERISA, the PBGC or a provision of the Code pertaining to employee
benefit plans, any Person which is a member of any group of organizations
within the meaning of Sections 414(b) or (c) of the Code (or, solely for
purposes of potential liability under Section 302(c)(11) of ERISA and Section
412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and
Section 412(n) of the Code, Sections 414(m) or (o) of the Code) of which the
Borrower or any of its Subsidiaries is a member.
"Eurodollar Advances": the Loans (or any portions thereof) at
such time as they (or such portions) are made and/or being maintained at a rate
of interest based upon the Eurodollar Rate.
"Eurodollar Lending Office": in respect of (i) any Lender
listed on the signature pages hereof, initially, the office or offices of such
Lender designated as such on Schedule 1.1B; thereafter, such other office of
such Lender, through which it shall be making or maintaining Eurodollar
Advances, as reported by such Lender to the Agent and the Borrower and (ii) in
the case of any other Lender, initially, the office or offices of such Lender
designated as such on Schedule 2 of the Assignment and Acceptance Agreement or
other document pursuant to which it became a Lender; thereafter, such other
office of such Lender, through which it shall be making or maintaining
Eurodollar Advances, as reported by such Lender to the Agent and the Borrower.
"Eurodollar Rate": with respect to the Interest Period
applicable to any Eurodollar Advance, a rate of interest per annum, as
determined by the Agent, obtained by dividing (and then rounding to the nearest
1/16 of 1% or, if there is no nearest 1/16 of 1%, then to the next higher 1/16
of 1%):
(a) the rate, as reported by BNY to the Agent, quoted by BNY to leading banks
in the interbank eurodollar market as the rate at which BNY is offering
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Dollar deposits in an amount equal approximately to the Eurodollar Advance of
BNY to which such Interest Period shall apply for a period equal to such
Interest Period, as quoted at approximately 11:00 a.m. two Business Days prior
to the first day of such Interest Period, by
(b) a number equal to 1.00 minus the aggregate of the then stated maximum rates
during such Interest Period of all reserve requirements (including, without
limitation, marginal, emergency, supplemental and special reserves), expressed
as a decimal, established by the Board of Governors of the Federal Reserve
System and any other banking authority to which BNY and other major United
States money center banks are subject, in respect of eurocurrency funding
(currently referred to as "Eurocurrency liabilities" in Regulation D of the
Board of Governors of the Federal Reserve System) or in respect of any other
category of liabilities including deposits by reference to which the interest
rate on Eurodollar Advances is determined or any category of extensions of
credit or other assets which includes loans by non-domestic offices of any
Lender to United States residents. Such reserve requirements shall include,
without limitation, those imposed under such Regulation D. Eurodollar Advances
shall be deemed to constitute Eurocurrency liabilities and as such shall be
deemed to be subject to such reserve requirements without benefit of credits
for proration, exceptions or offsets which may be available from time to time
to any Lender under such Regulation D. The Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in any such reserve
requirement.
"Event of Default": as defined in Section 9.1.
"Excess Cash Flow": for each fiscal year, Consolidated Cash
Flow in respect of such fiscal year minus, without duplication, the sum of each
of the following with respect to the Borrower and its Restricted Subsidiaries,
determined on a Consolidated basis in accordance with GAAP: (i) Capital
Expenditures made during such fiscal year (net of the aggregate principal
amount of all Indebtedness assumed by the Borrower and its Restricted
Subsidiaries, determined on a Consolidated basis in accordance with GAAP,
during such fiscal year in connection with the financing of such Capital
Expenditures), to the extent such Capital Expenditures were permitted by
Section 8.7, (ii) interest expense to the extent paid during such fiscal year,
(iii) with respect to all Indebtedness under revolving credit facilities, an
amount equal to the excess, if any, of (a) the aggregate outstanding principal
balance of all such Indebtedness at the beginning of such fiscal year, minus
(b) the aggregate amount of all commitments under such revolving credit
facilities at the end of such fiscal year, (iv) with respect to all other
Indebtedness, all repayments of such Indebtedness which were made during such
fiscal year, (v) income taxes to the extent paid during such fiscal year, and
(vi) Capital Lease Obligations to the extent paid during such fiscal year.
"Excess Cash Flow Prepayment Date": as defined in Section
2.4(c).
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"Exchange": with respect to any Person, a simultaneous or
substantially simultaneous Acquisition and Disposition by such Person.
"Excluded Transactions": the Americable Acquisition and the
Falcon Swap.
"Existing Letter of Credit": each letter of credit set forth
on Schedule 1.1C.
"Existing Reimbursement Agreement": each reimbursement
agreement set forth on Schedule 1.1C.
"Exposure": with respect to any Lender as of any date, the
sum as of such date of (i) the outstanding principal balance of such Lender's
Loans, plus (ii) an amount equal to such Lender's Letter of Credit Exposure.
"Falcon Swap": the exchange by the Borrower of its Franklin,
Virginia cable television systems for cable television systems located in and
around Scottsburg, Indiana and owned by Falcon Cablevision and $8,000,000
(subject to normal course adjustments) in cash.
"Family Group": with respect to any individual, that
individual's estate, spouse, descendants, and any trust for the benefit of such
individual or such individual's spouse and/or descendants.
"Federal Funds Rate": for any day, a rate per annum
(expressed as a decimal, rounded upwards, if necessary, to the next higher
1/100 of 1%) equal to the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System arranged by
federal funds brokers on such day, as published by the Federal Reserve Bank of
New York on the Business Day next succeeding such day, provided that (i) if the
day for which such rate is to be determined is not a Business Day, the Federal
Funds Rate for such day shall be such rate on such transactions on the next
preceding Business Day as so published on the next succeeding Business Day, and
(ii) if such rate is not so published for any day, the Federal Funds Rate for
such day shall be the average of the quotations for such day on such
transactions received by BNY as determined by BNY and reported to the Agent.
"Fees": as defined in Section 2.10.
"Finance": Insight Finance Corporation, a whollyowned
Subsidiary of the Borrower.
"Financial Officer": as to any Person, the chief financial
officer of such Person or such other officer as shall be satisfactory to the
Agent.
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"Financial Statements": as defined in Section 4.13.
"Fixed Charge Coverage Ratio": as of any fiscal quarter end,
the ratio of (i) Consolidated Cash Flow to (ii) Consolidated Fixed Charges, in
each case for the period comprised of the four consecutive fiscal quarters then
ended as reflected in the financial statements in respect thereof delivered
pursuant to Section 7.1(a) or 7.1(b), as the case may be.
"Funded Current Liability Percentage": as defined in Section
401(a)(29) of the Code.
"GAAP": at any time, generally accepted accounting principles
as in effect at such time in the United States of America.
"General Partner": ICC Associates, L.P., a Delaware limited
partnership.
"Governmental Authority": any foreign, federal, state,
municipal or other government, or any department, commission, board, bureau,
agency, public authority or instrumentality thereof, or any court or
arbitrator.
"Guarantors": as defined in the Subsidiary Guaranty.
"Hazardous Substance": any hazardous or toxic substance,
material or waste, including, but not limited to, (i) those substances,
materials, and wastes listed in the United States Department of Transportation
Hazardous Materials Table (49 CFR 172.101) or by the Environmental Protection
Agency as hazardous substances (40 CFR Part 302) and amendments thereto and
replacements thereof and (ii) any substance, pollutant or material defined as,
or designated in, any Environmental Law as a "hazardous substance," "toxic
substance," "hazardous material," "hazardous waste," "restricted hazardous
waste," "pollutant," "toxic pollutant" or words of similar import.
"Highest Lawful Rate": as to any Lender or the Issuing Bank,
the maximum rate of interest, if any, that at any time or from time to time may
be contracted for, taken, charged or received by such Lender on the Notes held
by it or by the Issuing Bank on the Reimbursement Agreements, as the case may
be, or which may be owing to such Lender or the Issuing Bank pursuant the Loan
Documents under the laws applicable to such Lender or the Issuing Bank and this
transaction.
"ICCO Operating": Insight Communications of Central Ohio,
LLC, a Delaware limited liability company.
"Increase Supplement": as defined in Section 2.4(a).
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"Indebtedness": as to any Person, at a particular time, all
items which constitute, without duplication, (i) indebtedness for borrowed
money, (ii) indebtedness in respect of the deferred purchase price of Property
(other than trade payables incurred in the ordinary course of business), (iii)
indebtedness evidenced by notes, bonds, debentures or similar instruments, (iv)
obligations with respect to any conditional sale or title retention agreement,
(v) indebtedness arising under acceptance facilities and the amount available
to be drawn under all letters of credit issued for the account of such Person
and, without duplication, all drafts drawn thereunder to the extent such Person
shall not have reimbursed the issuer in respect of the issuer's payment
thereof, (vi) all liabilities secured by any Lien on any Property owned by such
Person even though such Person has not assumed or otherwise become liable for
the payment thereof (other than (1) carriers', warehousemen's, mechanics',
repairmen's or other like non-consensual statutory Liens arising in the
ordinary course of business and (2) Liens on the Capital Stock of Unrestricted
Subsidiaries), (vii) Capital Lease Obligations, and (viii) Contingent
Obligations.
"Indemnified Liabilities": as defined in Section 11.5.
"Indemnified Person": as defined in Section 11.8.
"Indemnified Tax": as to any Person, any Tax, except (i) a
Tax on the Income imposed on such Person and (ii) any interest, fees or
penalties for late payment imposed on such Person, in each case under clauses
(i) and (ii) to the extent not attributable to the failure of the Borrower or
any of its Subsidiaries to obtain any necessary approvals or consents of, or
file or cause to be filed any reports, applications, documents, instruments or
information required to be filed pursuant to any applicable law, rule,
regulation or request of, any Governmental Authority.
"Indemnified Tax Person": the Agent, the Issuing Bank or any
Lender.
"Indiana": Insight Communications of Indiana, LLC.
"Indiana Transactions": the transactions contemplated by the
Indiana Transaction Documents.
"Indiana Transaction Documents": (a) the Operating Agreement,
dated as of May 14, 1998, of Indiana, (b) the Asset Contribution Agreement,
dated as of May 14, 1998, among the Borrower, Indiana and certain affiliates of
Tele-Communications, Inc., and (c) the Asset Exchange Agreement, dated as of
May 14, 1998, among certain affiliates of Tele-Communications, Inc. and the
Borrower.
"Interest Coverage Ratio": as of any fiscal quarter end, the
ratio of (i) Consolidated Cash Flow to (ii) Consolidated Interest Expense, in
each case for the period comprised of the four consecutive fiscal quarters then
ended as reflected in the financial
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statements in respect thereof delivered pursuant to Section 7.1(a) or 7.1(b),
as the case may be.
"Interest Payment Date": (i) as to any ABR Advance, the last
day of each March, June, September and December commencing on the first of such
days to occur after such ABR Advance is made or any Eurodollar Advance is
converted to an ABR Advance, (ii) as to any Eurodollar Advance as to which the
Borrower has selected an Interest Period of one, two or three months, the last
day of such Interest Period, (iii) as to any Eurodollar Advance as to which the
Borrower has selected an Interest Period greater than three months, the last
day of each three month interval occurring during such Interest Period and the
last day of such Interest Period; (iv) as to all Eurodollar Advances comprising
all or a portion of the Loans, the Maturity Date.
"Interest Period": with respect to any Eurodollar Advance
requested by the Borrower, the period commencing on, as the case may be, the
Borrowing Date or Conversion Date with respect to such Eurodollar Advance and
ending one, two, three or six months thereafter, as selected by the Borrower in
its irrevocable Borrowing Request or its irrevocable Notice of Conversion,
provided, however, that (i) if any Interest Period would otherwise end on a day
which 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, and (ii) any
Interest Period which 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. Interest Periods shall be subject to the provisions of
Section 3.4.
"Interest Rate Protection Arrangement": any interest rate
swap, cap or collar arrangement or any other derivative product customarily
offered by banks to their customers in order to reduce the exposure of such
customers to interest rate fluctuations, as the same may be amended,
supplemented or otherwise modified from time to time.
"Investments": as defined in Section 8.5.
"Issuing Bank": BNY.
"Letter of Credit": each Existing Letter of Credit and each
New Letter of Credit.
"Letter of Credit Commissions": as defined in Section 3.2(b).
"Letter of Credit Commitment": the commitment of the Issuing
Bank to issue New Letters of Credit under and in accordance with the terms of
this Agreement.
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"Letter of Credit Commitment Amount": $5,000,000.
"Letter of Credit Exposure": at any time, (i) in respect of
all the Lenders, the sum at such time, without duplication, of (a) the
aggregate undrawn face amount of the outstanding Letters of Credit, (b) the
aggregate amount of unpaid drafts drawn on all Letters of Credit, and (c) the
aggregate unpaid Reimbursement Obligations (after giving effect to any Loans
made at such time to pay any such Reimbursement Obligations), and (ii) in
respect of any Lender, an amount equal to (x) the amount determined under
clause (i) of this definition multiplied by (y) such Lender's Commitment
Percentage.
"Letter of Credit Request": a request in the form of Exhibit
D.
"Leverage Ratio": at any date of determination, the ratio of
(i) Consolidated Total Debt on such date to (ii) Adjusted Consolidated
Annualized Cash Flow for the most recent fiscal quarter in respect of which the
financial statements required by paragraphs (a) or (b) of Section 7.1 have been
delivered.
"Lien": any mortgage, pledge, hypothecation, assignment,
deposit or preferential arrangement, encumbrance, lien (statutory or other), or
other security agreement or security interest of any kind or nature whatsoever,
including, without limitation, any conditional sale or other title retention
agreement and any capital or financing lease having substantially the same
economic effect as any of the foregoing.
"Loan" and "Loans": as defined in Section 2.1.
"Loan Documents": collectively, this Agreement, the Notes,
the Reimbursement Agreements, the Collateral Documents, the Master Assignment,
the Amendment to Collateral Documents, and the Second Amendment to Collateral
Documents .
"Managing Person": with respect to any Person that is a (i)
corporation, its board of directors, (ii) a limited liability company, its
board of control, managing member or members, (iii) a limited partnership, its
general partner, (iv) a general partnership, its managing partner or executive
committee or (v) such other managing body or Person analogous to the foregoing.
"Margin Stock": any "margin stock", as defined in Regulation
U of the Board of Governors of the Federal Reserve System, as amended,
supplemented or otherwise modified from time to time.
"Master Assignment": as defined in Section 5.3.
"Material Adverse Change": a material adverse change in (i)
the financial condition, operations, business, prospects or Property of (a) the
Borrower or (b) the
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Borrower and its Restricted Subsidiaries taken as a whole, (ii) the ability of
the Borrower or any of its Restricted Subsidiaries to perform its obligations
under the Loan Documents to which it is a party or (iii) the ability of the
Agent and the Lenders to enforce the Loan Documents.
"Material Adverse Effect": a material adverse effect on (i)
the financial condition, operations, business, prospects or Property of (a) the
Borrower or (b) the Borrower and its Restricted Subsidiaries taken as a whole,
(ii) the ability of the Borrower or any of its Restricted Subsidiaries to
perform its obligations under the Loan Documents to which it is a party or
(iii) the ability of the Agent and the Lenders to enforce the Loan Documents.
"Maturity Date": December 31, 2005, or such earlier date on
which the Notes shall become due and payable, whether by acceleration or
otherwise.
"Moody's": Moody's Investors Service, Inc., or any successor
thereto.
"Multiemployer Plan": a Pension Plan which is a multiemployer
plan as defined in Section 4001(a)(3) of ERISA.
"Negative Pledge Agreement": the Negative Pledge Agreement,
dated as of March 4, 1993, by and among the General Partner, the Borrower, the
Lenders party thereto, the Documentation Agent and the Agent, as the same may
be amended, supplemented or otherwise modified from time to time.
"Net Cash Proceeds": with respect to any Disposition or
Exchange by the Borrower or any of its Restricted Subsidiaries, the aggregate
gross sales proceeds or consideration received by the Borrower or such
Restricted Subsidiary (or any qualified intermediary acting on their behalf in
connection with an exchange qualifying under Section 1031 of the Code) in cash
in connection with such Disposition or Exchange, as the case may be, minus the
sum of (i) sales and other commissions and legal and other expenses incurred in
connection with such Disposition or Exchange, as the case may be, (ii) any
taxes paid or payable by the Borrower or such Restricted Subsidiary in
connection therewith (determined on a Consolidated basis after giving effect to
net operating loss and other deductions and applicable tax credits), and (iii)
the amount of Indebtedness (other than the Loans) secured by the Property
subject to such Disposition or Exchange, as the case may be, which, in
accordance with the terms governing such Indebtedness, is required to be repaid
upon such Disposition.
"New Letter of Credit: as defined in Section 2.7(a)
"New Reimbursement Agreement": as defined in Section 2.7(b).
"New Subsidiary": as defined in Section 8.14.
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"Note" and "Notes": as defined in Section 2.2.
"Notice of Conversion": a notice substantially in the form of
Exhibit E.
"Operating Entity": any Person or any business or operating
unit of a Person which is, or could be, operated separate and apart from (i)
the other businesses and operations of such Person, or (ii) any other line of
business or business segment.
"Organizational Documents": as to any Person which is (i) a
corporation, the certificate or articles of incorporation and bylaws of such
Person, (ii) a limited liability company, the limited liability company
agreement or similar agreement of such Person, (iii) a partnership, the
partnership agreement or similar agreement of such Person, or (iv) any other
form of entity or organization, the organizational documents analogous to the
foregoing.
"Outstandings": with respect to the Issuing Bank and each
Lender, as the case may be, as of any date, an amount equal to (i) the
outstanding principal balance on such date of all the Loans of the Issuing Bank
or such Lender, as the case may be, plus (ii) with respect to the Issuing Bank
only, the excess of (a) the aggregate sum of all drafts honored under all
Letters of Credit after the Effective Date, over (b) all payments made after
the Effective Date to the Issuing Bank by the Borrower and the Lenders in
reimbursement thereof or participation therein, as the case may be, plus (iii)
with respect to each Lender, the excess of (a) the aggregate sum of all
payments by such Lender in participation of the Reimbursement Obligations, over
(b) all reimbursements of such Lender in respect thereof.
"Outstanding Percentage": as of any date and with respect to
each Lender or the Issuing Bank, as the case may be, a fraction the numerator
of which is the Outstandings of such Lender or the Issuing Bank, as applicable,
on such date, and the denominator of which is the aggregate Outstandings of the
Issuing Bank and all Lenders on such date.
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA, or any Governmental Authority
succeeding to the functions thereof.
"Pension Plan": at any date of determination, any Employee
Benefit Plan (including a Multiemployer Plan), the funding requirements of
which (under Section 302 of ERISA or Section 412 of the Code) are, or at any
time within the six years immediately preceding such date, were in whole or in
part, the responsibility of the Borrower, any of its Subsidiaries or any ERISA
Affiliate.
"Permitted Acquisition": an Acquisition permitted by Section
8.3.
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"Permitted Lien": a Lien permitted to exist under Section 8.2.
"Person": any individual, firm, partnership, limited
liability company, joint venture, corporation, association, business
enterprise, joint stock company, unincorporated association, trust,
Governmental Authority or any other entity, whether acting in an individual,
fiduciary, or other capacity, and for the purpose of the definition of "ERISA
Affiliate", a trade or business.
"Pledge Agreement": the Pledge Agreement, dated as of March
4, 1993, by and among the Borrower, the Lenders party thereto, the
Documentation Agent and the Agent, as the same may be amended, supplemented or
otherwise modified from time to time.
"Pricing Level": Pricing Level I, Pricing Level II, Pricing
Level III, Pricing Level IV, Pricing Level V or Pricing Level VI, as
applicable.
"Pricing Level I": any time when the Leverage Ratio is
greater than 5.50:1.00.
"Pricing Level II": any time when the Leverage Ratio is
greater than 5.00:1.00 but less than or equal to 5.50:1.00.
"Pricing Level III": any time when the Leverage Ratio is
greater than 4.50:1.00 but less than or equal to 5.00:1.00.
"Pricing Level IV": any time when the Leverage Ratio is
greater than 4.00:1.00 but less than or equal to 4.50:1.00.
"Pricing Level V": any time when the Leverage Ratio is
greater than 3.50:1.00 but less than or equal to 4.00:1.00.
"Pricing Level VI": any time when the Leverage Ratio is less
than or equal to 3.50:1.00.
"Pro-forma Debt Service Coverage Ratio": as of any fiscal
quarter end, the ratio of (i) Adjusted Consolidated Annualized Cash Flow for
such fiscal quarter, to (ii) Consolidated Pro-forma Debt Service as of such
fiscal quarter end.
"Prohibited Transaction": a transaction which is prohibited
under Section 4975 of the Code or Section 406 of ERISA and not exempt under
Section 4975 of the Code or Section 408 of ERISA.
"Property": all types of real, personal, tangible, intangible
or mixed property.
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"Real Property": all real property owned or leased by the
Borrower or any of its Subsidiaries.
"Regulatory Change": (i) the introduction or phasing in of
any law, rule or regulation after the Relevant Date, (ii) the issuance or
promulgation after the Relevant Date of any directive, guideline or request
from any central bank or United States or foreign Governmental Authority
(whether or not having the force of law), or (iii) any change after the
Relevant Date in the interpretation of any existing law, rule, regulation,
directive, guideline or request by any central bank or United States or foreign
Governmental Authority charged with the administration thereof. For purposes of
this definition, the term "Relevant Date" shall mean (a) in the case of each
Lender listed on the signature pages hereof, the Effective Date, or (b) in the
case of each other Lender, the effective date of the Assignment and Acceptance
Agreement or other document pursuant to which it became a Lender.
"Reimbursement Agreement": each Existing Reimbursement
Agreement and each New Reimbursement Agreement.
"Reimbursement Obligation": the obligation of the Borrower to
reimburse the Issuing Bank for amounts drawn under a Letter of Credit.
"Related Parties": with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents,
advisors and trustees of such Person and such Person's Affiliates.
"Replacement Lender": as defined in Section 3.10(f).
"Reportable Event": with respect to any Pension Plan, (i) any
event set forth in Sections 4043(b) (other than a Reportable Event as to which
the 30 day notice requirement is waived by the PBGC under applicable
regulations), 4062(c) or 4063(a) of ERISA or the regulations thereunder, (ii)
an event requiring the Borrower, any of its Subsidiaries or any ERISA Affiliate
to provide security to a Pension Plan under Section 401(a)(29) of the Code, or
(iii) any failure to make any payment required by Section 412(m) of the Code.
"Required Lenders": (i) at any time when Commitments are
outstanding, one or more Lenders having Commitment Amounts greater than or
equal to 51% of the sum of the Aggregate Commitment Amount, and (ii) at all
other times, parties having Outstandings equal to or more than 51% of the
aggregate Outstandings of all parties.
"Required Payment": as defined in Section 3.10.
"Restricted Payment": as to any Person (i) any dividend or
other distribution, direct or indirect, on account of any shares of Capital
Stock of such Person
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now or hereafter outstanding (other than a dividend
payable solely in shares of such Capital Stock to the holders of such shares)
and (ii) any redemption, retirement, sinking fund or similar payment, purchase
or other acquisition, direct or indirect, of any shares of any class of Capital
Stock of such Person now or hereafter outstanding.
"Restricted Subsidiaries": as of any date, Subsidiaries of
the Borrower which are not Unrestricted Subsidiaries as of such date.
"SEC": the Securities and Exchange Commission or any
Governmental Authority succeeding to the functions thereof.
"Second Amendment to Collateral Documents": as defined in
Section 5.5.
"Special Counsel": Emmet, Marvin & Martin, LLP, special
counsel to the Agent.
"Standard & Poor's": Standard & Poor's Rating Services, a
division of The McGrawHill Companies, Inc., or any successor thereto.
"Subsequent Borrowing Date": the Borrowing Date occurring on,
or, if no Borrowing Date shall occur on, then the first Borrowing Date
subsequent to, the Effective Date.
"Subsidiary": as to any Person, any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which such Person or any Subsidiary of such Person, directly or indirectly,
either (i) in respect of a corporation, owns or controls more than 50% of the
outstanding Capital Stock having ordinary voting power to elect a majority of
the Managing Person, irrespective of whether a class or classes shall or might
have voting power by reason of the happening of any contingency, or (ii) in
respect of an association, partnership, limited liability company, joint
venture or other business entity, is entitled to share in more than 50% of the
profits and losses, however determined; provided that, in the case of the
Borrower, Indiana shall be deemed a Subsidiary.
"Subsidiary Guaranty": the Guaranty, dated as of November 25,
1996, by and among Finance, such other Persons which from time to time may
become party thereto, and the Agent, as amended, supplemented or otherwise
modified from time to time.
"Super-majority Lenders": (i) at any time when Commitments
are outstanding, one or more Lenders having Commitment Amounts greater than or
equal to 66-2/3% of the Aggregate Commitment Amount and (ii) at all other
times, parties having Outstandings equal to or more than 66-2/3% of the
aggregate Outstandings of all parties.
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"Tax": any present or future tax, levy, impost, duty, charge,
fee, deduction or withholding of any nature and whatever called, by a
Governmental Authority, on whomsoever and wherever imposed, levied, collected,
withheld or assessed.
"Tax on the Income": as to any Person, a Tax imposed by one
of the following jurisdictions or by any political subdivision or taxing
authority thereof: (i) the United States, (ii) the jurisdiction in which such
Person is organized, (iii) the jurisdiction in which such Person's principal
office is located, or (iv) in the case of each Lender, the Agent or the Issuing
Bank, any jurisdiction in which such Person is deemed to be doing business;
which Tax is an income tax or franchise tax imposed on all or part of the net
income or net profits of such Person or which Tax represents interest, fees, or
penalties for late payment of such an income tax or franchise tax.
"Termination Event": with respect to any Pension Plan, (i) a
Reportable Event, (ii) the termination of a Pension Plan, or the filing of a
notice of intent to terminate a Pension Plan, or the treatment of a Pension
Plan amendment as a termination under Section 4041(c) of ERISA, (iii) the
institution of proceedings to terminate a Pension Plan under Section 4042 of
ERISA, or (iv) the appointment of a trustee to administer any Pension Plan
under Section 4042 of ERISA.
"Type": with respect to any Loan, the character of such Loan
as an ABR Advance or a Eurodollar Advance, each of which constitutes a type of
loan.
"Unfunded Pension Liabilities": with respect to any Pension
Plan, at any date of determination, the amount determined by taking the
accumulated benefit obligation, as disclosed in accordance with Statement of
Accounting Standards No. 87, "Employers' Accounting for Pensions", over the
fair market value of Pension Plan assets.
"United States": the United States of America (including the
States thereof and the District of Columbia).
"Unqualified Amount": as defined in Section 3.1(c).
"Unrecognized Retiree Welfare Liability": with respect to any
Employee Benefit Plan that provides postretirement benefits other than pension
benefits, the amount of the transition obligation, as determined in accordance
with Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," as of the most
recent valuation date, that has not been recognized as an expense in an income
statement of the Borrower and its Restricted Subsidiaries, provided that prior
to the date such Statement is applicable to the Borrower, such amount shall be
based on an estimate made in good faith of such transition obligation.
"Unrestricted Subsidiary": Indiana, ICCO Operating, and each
Subsidiary of either of them.
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"Unrestricted Subsidiary Equity": any interest of the
Borrower or any Subsidiary thereof in any Capital Stock issued by an
Unrestricted Subsidiary, including any certificate or other instrument
representing the same.
"U.S. Person": a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under any
laws of the United States, or any estate or trust that is subject to United
States federal income taxation regardless of the source of its income.
"Year 2000 Issue": the failure of computer software, hardware
and firmware systems and equipment containing embedded computer chips to
properly receive, transmit, process, manipulate, store, retrieve, re-transmit
or in any other way utilize data and information due to the occurrence of the
year 2000 or the inclusion of dates on or after January 1, 2000.
SECTION 1.2 PRINCIPLES OF CONSTRUCTION
(a) All terms defined in a Loan Document shall have the
meanings given such terms therein when used in the other Loan Documents or any
certificate, opinion or other document made or delivered pursuant thereto,
unless otherwise defined therein.
(b) As used in the Loan Documents and in any certificate,
opinion or other document made or delivered pursuant thereto, accounting terms
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 them
under GAAP.
(c) The words "hereof", "herein", "hereto" and "hereunder"
and similar words when used in a Loan Document shall refer to such Loan
Document as a whole and not to any particular provision thereof, and Section,
schedule and exhibit references contained therein shall refer to Sections
thereof or schedules or exhibits thereto, unless otherwise expressly provided
therein.
(d) The phrase "may not" is prohibitive and not permissive.
(e) Unless the context otherwise requires, words in the
singular number include the plural, and words in the plural include the
singular.
(f) Unless specifically provided in a Loan Document to the
contrary, any reference to a time shall refer to such time in New York.
(g) Unless specifically provided in a Loan Document to the
contrary, in the computation of periods of time from a specified date to a
later specified date, the
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word "from" means "from and including" and the words "to" and "until" each
means "to but excluding".
(h) References in any Loan Document to a fiscal period shall
refer to that fiscal period of the Borrower.
2. AMOUNT AND TERMS OF LOANS AND LETTERS OF CREDIT
SECTION 2.1 LOANS
Subject to the terms and conditions hereof, each Lender
severally (and not jointly) agrees to make revolving credit loans (each a
"Loan" and, as the context may require, collectively with all other Loans of
such Lender and with the Loans of all other Lenders, the "Loans") to the
Borrower from time to time during the Commitment Period, provided that
immediately after giving effect thereto, (i) such Lender's Exposure would not
exceed such Lender's Commitment Amount, and (ii) the Aggregate Exposure would
not exceed the Aggregate Commitment Amount. During the Commitment Period, the
Borrower may borrow, prepay in whole or in part and reborrow under the
Commitments, all in accordance with the terms and conditions of this Agreement.
Subject to the provisions of Sections 2.3 and 3.3, at the option of the
Borrower, Loans may be made as one or more (i) ABR Advances, (ii) Eurodollar
Advances, or (iii) any combination thereof.
SECTION 2.2 NOTES
The Loans made by each Lender shall be evidenced by a
promissory note of the Borrower, substantially in the form of Exhibit B, with
appropriate insertions therein as to date and principal amount (each, as
indorsed or modified from time to time, a "Note" and, collectively with the
Notes of all other Lenders, the "Notes"), payable to the order of such Lender
for the account of its Applicable Lending Office, dated the first Borrowing
Date, and in the stated principal amount equal to such Lender's Commitment
Amount. The outstanding principal balance of the Loans shall be due and payable
on the Maturity Date.
SECTION 2.3 PROCEDURE FOR BORROWING
(a) The Borrower may on any Business Day, borrow under the Aggregate
Commitments during the Commitment Period, provided that the Borrower shall
notify the Agent by the delivery of a Borrowing Request, which shall be sent by
telecopy and shall be irrevocable (confirmed promptly, and in any event within
five Business Days, by the delivery to the Agent of a Borrowing Request
manually signed by the Borrower), no later than: 11:00 a.m., three Business
Days prior to the requested Borrowing Date, in the case of Eurodollar Advances,
or one Business Day prior to the requested Borrowing Date, in the case of ABR
Advances, specifying (A) the aggregate
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principal amount to be borrowed under the Aggregate Commitments, (B) the
requested Borrowing Date, (C) whether such borrowing is to consist of one or
more Eurodollar Advances, ABR Advances, or a combination thereof, and (D) if
such borrowing is to consist of one or more Eurodollar Advances, the length of
the Interest Period for each such Eurodollar Advance. Each (i) Eurodollar
Advance to be made on a Borrowing Date, when aggregated with all amounts to be
converted to a Eurodollar Advance on such date and having the same Interest
Period as such first Eurodollar Advance, shall equal no less than $2,000,000 or
such amount plus a whole multiple of $100,000 in excess thereof, and (ii) ABR
Advance made on each Borrowing Date shall equal no less than $500,000 or such
amount plus a whole multiple of $100,000 in excess thereof or, if less, the
Available Commitment Amount.
(b) Upon receipt of each Borrowing Request, the Agent shall
promptly notify each Lender thereof. Subject to its receipt of the notice
referred to in the preceding sentence, each Lender will make the amount of its
Commitment Percentage of the requested Loans available to the Agent for the
account of the Borrower at the office of the Agent set forth in Section 11.2
not later than 12:00 noon on the relevant Borrowing Date requested by the
Borrower, in funds immediately available to the Agent at such office. The
amounts so made available to the Agent on such Borrowing Date will then,
subject to the satisfaction of the terms and conditions of this Agreement, as
determined by the Agent, be made available on such date to the Borrower by the
Agent at the office of the Agent specified in Section 11.2 by crediting the
account of the Borrower on the books of such office with the aggregate of said
amounts received by the Agent.
(c) Unless the Agent shall have received prior notice from a
Lender (by telephone or otherwise, such notice to be promptly confirmed by
telecopy or other writing) that such Lender will not make available to the
Agent such Lender's Commitment Percentage of the Loans requested by the
Borrower, the Agent may assume that such Lender has made such share available
to the Agent on the Borrowing Date in accordance with this Section, provided
that such Lender received notice of the requested Loans from the Agent, and the
Agent may, in reliance upon such assumption, make available to the Borrower on
the Borrowing Date a corresponding amount. If and to the extent such Lender
shall not have so made its Commitment Percentage of such Loans available to the
Agent, such Lender and the Borrower severally agree to pay to the Agent
forthwith on demand such corresponding amount (to the extent not previously
paid by the other), together with interest thereon for each day from the date
such amount is made available to the Borrower to the date such amount is paid
to the Agent, at a rate per annum equal to, in the case of the Borrower, the
applicable interest rate set forth in Section 3.1 for ABR Advances, and, in the
case of such Lender, at a rate of interest per annum equal to the Federal Funds
Rate for the first three days after the due date of such payment until the date
such payment is received by the Agent and the Federal Funds Rate plus 2%
thereafter. Such payment by the Borrower, however, shall be without prejudice
to its rights against such Lender. If such Lender shall pay to the Agent such
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corresponding amount, such amount so paid shall constitute such Lender's Loan
as part of the Loans for purposes of this Agreement, which Loan shall be deemed
to have been made by such Lender on the Borrowing Date applicable to such
Loans.
(d) If a Lender makes a new Loan on a Borrowing Date on which
the Borrower is to repay a Loan from such Lender, such Lender shall apply the
proceeds of such new Loan to make such repayment, and only the excess of the
proceeds of such new Loan over the Loan being repaid need be made available to
the Agent.
SECTION 2.4 INCREASE, TERMINATION OR REDUCTION OF COMMITMENTS.
(a) Increases of Commitments. The Borrower may at any time
and from time to time prior to December 31, 2000, at its sole cost and expense,
request any one or more of the Lenders to increase (such decision to increase
the Commitment of a Lender to be within the sole and absolute discretion of
such Lender) its Commitment, or any other Person reasonably satisfactory to the
Agent and the Issuing Bank to provide a new Commitment, by submitting an
increase supplement, in the form of Exhibit K, duly executed by the Borrower
and each such Lender or other Person, as the case may be (each an "Increase
Supplement"). If such Increase Supplement is in all respects reasonably
satisfactory to the Agent, the Agent shall execute such Increase Supplement and
deliver a copy thereof to the Borrower and each such Lender or other Person, as
the case may be. Upon execution and delivery of such Increase Supplement, (i)
in the case of each such Lender, such Lender's Commitment shall be increased to
the amount set forth in such Increase Supplement, (ii) in the case of each such
other Person, such other Person shall become a party hereto and shall for all
purposes of the Loan Documents be deemed a "Lender" having a Commitment Amount
as set forth in such Increase Supplement, (iii) in each case, the Commitment of
such Lender or such other Person, as the case may be, shall be as set forth in
the applicable Increase Supplement, (iv) with respect to each remaining
scheduled mandatory reduction of the Aggregate Commitment Amount set forth in
Section 2.4(f), the percentage thereof shall be increased (if necessary), on a
pro-rata basis, so that such remaining reductions would cause the Aggregate
Commitment Amount to be reduced to zero ($0.00) on the Maturity Date; provided,
however, that:
(1) immediately after giving effect thereto, the Aggregate
Commitment Amount shall not have been increased
pursuant to this Section 2.4 in an aggregate amount
greater than $60,000,000;
(2) each such increase shall be in an amount not less than
$10,000,000 or such amount plus an integral multiple
of $5,000,000;
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(3) the Aggregate Commitments shall not be increased on
more than two occasions;
(4) if Loans would be outstanding immediately after giving
effect to each such increase, then simultaneously with
such increase (1) each such Lender, each such other
Person and each other Lender shall be deemed to have
entered into a master assignment and acceptance
agreement, in form and substance substantially similar
to Exhibit H, pursuant to which each such other Lender
shall have assigned to each such Lender and each such
other Person a portion of its Loans necessary to
reflect proportionately the Aggregate Commitments as
adjusted in accordance with this subsection (a), and
(2) in connection with such assignment, each such
Lender and each such other Person shall pay to the
Agent, for the account of the other Lenders, such
amount as shall be necessary to appropriately reflect
the assignment to it of Loans, and in connection with
such master assignment each such other Lender may
treat the assignment of Eurodollar Advances as a
prepayment of such Eurodollar Advances for purposes of
Section 3.5;
(5) each such other Person shall have delivered to the
Agent and the Borrower all forms, if any, that are
required to be delivered by such other Person pursuant
to Section 3.10; and
(6) the Borrower shall have delivered to the
Administrative Agent and each Lender a certificate of
a Financial Officer thereof demonstrating pro-forma
compliance with the terms of this Agreement through
the Maturity Date and the Agent shall have received
such certificates, legal opinions and other items as
it shall reasonably request in connection with such
increase.
(b) Voluntary Commitment Reductions. The Borrower shall have
the right, upon at least three Business Days' prior written notice to the
Agent, to (i) terminate the Aggregate Commitments, provided that after giving
effect thereto (and any contemporaneous prepayment of the Loans), the Aggregate
Exposure shall equal zero or (ii) from time to time permanently reduce the
Aggregate Commitments, provided that (A) any such reduction shall be in the
amount of $5,000,000 or such amount plus a whole multiple of $1,000,000 in
excess thereof and (B) the Borrower shall prepay the Loans as required by
Section 2.5(b) so that immediately after giving effect thereto (and any
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contemporaneous prepayment of the Loans), the Aggregate Exposure shall be less
than or equal to the Aggregate Commitment Amount.
(c) Mandatory Commitment Reductions Relating to the Leverage
Ratio. By no later than March 31 of each year commencing on March 31, 2000
(each an "Excess Cash Flow Prepayment Date"), the Aggregate Commitment Amount
shall, in the event the Leverage Ratio is greater than or equal to 4.50:1:00 as
of the last day of the immediately preceding fiscal year, be permanently
reduced by an amount equal to 50% of Excess Cash Flow for the fiscal year ended
immediately prior to such Excess Cash Flow Prepayment Date.
(d) Mandatory Commitment Reductions Relating to Dispositions
and Exchanges. Upon (i) the occurrence of the 270th day after each Disposition
(other than pursuant to an Exchange) pursuant to Section 8.4(c) pursuant to
which the Net Cash Proceeds thereof shall exceed $250,000, and (ii) the
occurrence of the 270th day after each Exchange (other than the Falcon Swap)
pursuant to Section 8.4(c) pursuant to which the Net Cash Proceeds thereof
shall exceed 10% of the fair market value of the total consideration received
by the Borrower and its Restricted Subsidiaries in connection with such
Exchange, the Aggregate Commitment Amount shall be reduced in an amount equal
to (A) 100% of such Net Cash Proceeds minus (B) the Acquisition Cost of all
Acquisitions (excluding, without duplication, the non-cash portion and assumed
liabilities portion of all Exchanges and the Excluded Transactions) made by the
Borrower and its Restricted Subsidiaries during the period commencing on the
date of such Disposition or Exchange, as the case may be, to such 270th day.
(e) Mandatory Commitment Reductions Relating to Insurance.
The Aggregate Commitment Amount shall be permanently reduced by the amounts, at
the times and to the extent required by Section 7.5(b).
(f) Scheduled Mandatory Reductions. On each of the dates set
forth below, the Aggregate Commitment Amount shall be automatically reduced by
the amount set forth below adjacent to such date:
Date Amount
March 31, 2001 $ 2,500,000
June 30, 2001 $ 2,500,000
September 30, 2001 $ 2,500,000
December 31, 2001 $ 2,500,000
March 31, 2002 $ 4,000,000
June 30, 2002 $ 4,000,000
September 30, 2002 $ 4,000,000
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December 31, 2002 $ 4,000,000
March 31, 2003 $ 6,000,000
June 30, 2003 $ 6,000,000
September 30, 2003 $ 6,000,000
December 31, 2003 $ 6,000,000
March 31, 2004 $ 9,000,000
June 30, 2004 $ 9,000,000
September 30, 2004 $ 9,000,000
December 31, 2004 $ 9,000,000
March 31, 2005 $13,500,000
June 30, 2005 $13,500,000
September 30, 2005 $13,500,000
December 31, 2005 $13,500,000
(g) Reductions in General. Simultaneously with each reduction
of the Aggregate Commitment Amount pursuant to Section 2.4(b), 2.4(c), 2.4(d)
or 2.4(e), as the case may be, the remaining reductions required to be made
pursuant to Section 2.4(f) shall be reduced, (i) in the case of a reduction
pursuant to Section 2.4(c), in inverse order based on the amount of such
reduction, and (ii) in all other cases, pro rata based on the amount of such
reduction. Each reduction of the Aggregate Commitment Amount shall be made by
reducing each Lender's Commitment Amount by an amount equal to such Lender's
Commitment Percentage of such reduction. Simultaneously with each reduction of
the Aggregate Commitment Amount under this Section 2.4, the Borrower shall pay
the Fee accrued on the amount by which the Aggregate Commitment Amount shall
have been reduced.
SECTION 2.5 PREPAYMENTS OF THE LOANS
(a) Voluntary Prepayments. The Borrower may, at its option, prepay the Loans
without premium or penalty (but subject to Section 3.5), in full at any time or
in part from time to time by notifying the Agent in writing at least one
Business Day prior to the proposed prepayment date, in the case of Loans
consisting of ABR Advances and at least three Business Days prior to the
proposed prepayment date, in the case of Loans consisting of Eurodollar
Advances, specifying the aggregate amount of the Loans to be prepaid, whether
such Loans consist of ABR Advances, Eurodollar Advances, or a combination
thereof and the date of prepayment. Each such notice shall be irrevocable and
the amount specified in each such notice shall be due and payable on the date
specified, together with accrued interest to the date of such payment on the
amount prepaid. Upon receipt of such notice, the Agent shall promptly notify
each Lender thereof. Each partial prepayment of Loans pursuant to this
subsection shall be in an
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aggregate principal amount of $2,000,000 or such amount plus a whole multiple
of $1,000,000 in excess thereof, or, if less, the aggregate outstanding
principal balance of the Loans. After giving effect to any partial prepayment
with respect to Eurodollar Advances which were made (whether as the result of a
borrowing or a conversion) on the same date and which had the same Interest
Period, the outstanding principal balance of such Eurodollar Advances shall
exceed (subject to Section 3.3) $500,000 or such amount plus a whole multiple
of $100,000 in excess thereof.
(b) Mandatory Prepayments Relating to Termination of
Commitments and Reductions of Commitment Amounts. Simultaneously with the
termination of the Aggregate Commitments and each reduction of the Aggregate
Commitment Amount, the Borrower shall prepay the Loans in full, in the case of
the termination of the Aggregate Commitments, and prepay the Loans by the
amount, if any, by which the Aggregate Exposure exceeds the Aggregate
Commitment Amount as so reduced, in the case of a reduction of the Aggregate
Commitment Amount.
SECTION 2.6 USE OF PROCEEDS
The Borrower agrees that the proceeds of the Loans shall be used
solely for working capital, Capital Expenditure and other partnership purposes,
including Permitted Acquisitions. Notwithstanding anything to the contrary
contained in any Loan Document, the Borrower further agrees that no part of the
proceeds of any Loan, nor any Letter of Credit, will be used, directly or
indirectly, for a purpose which violates any law, rule or regulation of any
Governmental Authority, including, without limitation, the provisions of
Regulations U or X of the Board of Governors of the Federal Reserve System, as
amended.
SECTION 2.7 LETTER OF CREDIT SUB-FACILITY
(a) Subject to the terms and conditions of this Agreement,
the Issuing Bank agrees, in reliance on the agreement of the other Lenders set
forth in Section 2.8, to issue standby letters of credit on a sight basis
denominated in Dollars (the "New Letters of Credit"; each, individually, a "New
Letter of Credit") during the Commitment Period for the account of the
Borrower, provided that immediately after the issuance of each New Letter of
Credit (i) the Letter of Credit Exposure of all Lenders (whether or not the
conditions for drawing thereunder have or may be satisfied) would not exceed
the Letter of Credit Commitment Amount and (ii) the Aggregate Exposure would
not exceed the Aggregate Commitment Amount. Each New Letter of Credit issued
pursuant to this Agreement shall have an expiration date which shall be not
later than the earlier of (i) twelve months after the date of issuance thereof
or (ii) the thirtieth (30th) Business Day before the Maturity Date. No New
Letter of Credit shall be issued if the Agent, or any Lender by notice to the
Agent no later than 1:00 p.m. one Business Day prior to the
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requested date of issuance of such New Letter of Credit, shall have determined
that any condition set forth in Section 5 or 6 has not been satisfied.
(b) Each New Letter of Credit shall be issued for the account
of the Borrower in support of an obligation of the Borrower in favor of a
beneficiary who has requested the issuance of such New Letter of Credit as a
condition to a transaction entered into in connection with the Borrower's
ordinary course of business. The Borrower shall give the Agent a Letter of
Credit Request for the issuance of each New Letter of Credit by 11:00 a.m.,
three Business Days prior to the requested date of issuance. Each Letter of
Credit Request shall be accompanied by the Issuing Bank's standard Application
and Agreement for Standby Letter of Credit (each, a "New Reimbursement
Agreement") executed by an Authorized Signatory of the Borrower, and shall
specify (i) the beneficiary of such New Letter of Credit and the obligations of
the Borrower in respect of which such New Letter of Credit is to be issued,
(ii) the Borrower's proposal as to the conditions under which a drawing may be
made under such New Letter of Credit and the documentation to be required in
respect thereof, (iii) the maximum amount to be available under such New Letter
of Credit, and (iv) the requested dates of issuance and expiration. Upon
receipt of such Letter of Credit Request from the Borrower, the Agent shall
promptly notify the Issuing Bank and each other Lender thereof. Each New Letter
of Credit shall be in form and substance reasonably satisfactory to the Issuing
Bank, with such provisions with respect to the conditions under which a drawing
may be made thereunder and the documentation required in respect of such
drawing as the Issuing Bank shall reasonably require. Upon issuance of such
Letter of Credit, the Agent shall promptly notify each Lender thereof. Each New
Letter of Credit shall be used solely for the purposes described therein. The
Issuing Bank shall, on the proposed date of issuance and subject to the terms
and conditions of the New Reimbursement Agreement and to the other terms and
conditions of this Agreement, issue the requested New Letter of Credit.
(c) Each payment by the Issuing Bank of a draft drawn under a
Letter of Credit shall give rise to an obligation on the part of the Borrower
to reimburse the Issuing Bank immediately for the amount thereof.
(d) Notwithstanding anything to the contrary contained herein
or in any Reimbursement Agreement, to the extent that the terms of this
Agreement shall be inconsistent with the terms of such Reimbursement Agreement,
the terms of this Agreement shall govern.
Section 2.8 LETTER OF CREDIT PARTICIPATION AND FUNDING COMMITMENTS
(a) Each Lender hereby unconditionally, irrevocably and severally (and not
jointly) for itself only and without any notice to or the taking of any action
by such Lender, takes an undivided participating interest in respect of each
Letter of Credit
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in an amount equal to such Lender's Commitment Percentage of the amount of such
Letter of Credit. Each Lender shall be liable to the Issuing Bank for its
Commitment Percentage of the unreimbursed amount of any draft drawn and honored
under each Letter of Credit. Each Lender shall also be liable for an amount
equal to the product of its Commitment Percentage and any amounts paid by the
Borrower pursuant to Section 2.7(c) and 2.9 that are subsequently rescinded or
avoided, or must otherwise be restored or returned. Such liabilities shall be
unconditional and without regard to the occurrence of any Default or the
compliance by the Borrower with any of its obligations under the Loan
Documents.
(b) The Issuing Bank will promptly notify the Agent, and the Agent will
promptly notify each Lender (which notice shall be promptly confirmed in
writing) of the date and the amount of any draft presented under any Letter of
Credit with respect to which full reimbursement of payment is not made by the
Borrower as provided in Section 2.7(c), and forthwith upon receipt of such
notice, such Lender (other than the Issuing Bank in its capacity as a Lender)
shall make available to the Agent for the account of the Issuing Bank its
Commitment Percentage of the amount of such unreimbursed draft at the office of
the Agent specified in Section 11.2, in lawful money of the United States and
in immediately available funds, before 4:00 p.m., on the day such notice was
given by the Agent, if the relevant notice was given by the Agent at or prior
to 12:00 noon, on such day, and before 12:00 noon, on the next Business Day, if
the relevant notice was given by the Agent after 12:00 noon, on such day. The
Agent shall distribute the payments made by each Lender (other than the Issuing
Bank in its capacity as a Lender) pursuant to the immediately preceding
sentence to the Issuing Bank promptly upon receipt thereof in like funds as
received. Each Lender shall indemnify and hold harmless the Agent and the
Issuing Bank from and against any and all losses, liabilities (including,
without limitation, liabilities for penalties), actions, suits, judgments,
demands, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses and an administration fee of not less than $100
payable to the Issuing Bank as the issuer of the relevant Letter of Credit)
resulting from any failure on the part of such Lender to provide, or from any
delay in providing, the Agent with such Lender's Commitment Percentage of the
amount of any payment made by the Issuing Bank under a Letter of Credit in
accordance with this subsection (b) (except in respect of losses, liabilities
or other obligations suffered by the Issuing Bank resulting from the gross
negligence or willful misconduct of the Issuing Bank). If a Lender does not
make available to the Agent when due such Lender's Commitment Percentage of any
unreimbursed payment made by the Issuing Bank under a Letter of Credit (other
than payments made by the Issuing Bank by reason of its gross negligence or
willful misconduct), such Lender shall be required to pay interest to the Agent
for the account of the Issuing Bank on such Lender's Commitment Percentage of
such payment at a rate of interest per annum equal to the Federal Funds Rate
for the first three days after the due date of such payment until the date such
payment is received by the Agent and the Federal Funds Rate plus 2% thereafter.
The
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Agent shall distribute such interest payments to the Issuing Bank upon receipt
thereof in like funds as received.
(c) Whenever the Issuing Bank is reimbursed by the Borrower
or, the Agent is reimbursed by the Borrower for the account of the Issuing
Bank, for any payment under a Letter of Credit and such payment relates to an
amount previously paid by a Lender in respect of its Commitment Percentage of
the amount of such payment under such Letter of Credit, the Agent (or the
Issuing Bank, to the extent that it has received the same) will pay over such
payment to such Lender (i) before 4:00 p.m. on the day such payment from the
Borrower is received, if such payment is received at or prior to 12:00 noon on
such day, or (ii) before 12:00 noon on the next succeeding Business Day, if
such payment from the Borrower is received after 12:00 noon on such day.
Section 2.9 ABSOLUTE OBLIGATION WITH RESPECT TO LETTERS OF CREDIT
PAYMENTS
The Borrower's obligation to reimburse the Agent for the account of
the Issuing Bank in respect of a Letter of Credit for each payment under or in
respect of such Letter of Credit shall be absolute and unconditional under any
and all circumstances and irrespective of any setoff, counterclaim or defense
to payment which the Borrower may have or have had against the beneficiary of
such Letter of Credit, the Agent, the Issuing Bank, as issuer of such Letter of
Credit, any Lender or any other Person, including, without limitation, any
defense based on the failure of any drawing to conform to the terms of such
Letter of Credit, any drawing document proving to be forged, fraudulent or
invalid, or the legality, validity, regularity or enforceability of such Letter
of Credit; provided, that, with respect to any Letter of Credit, the foregoing
shall not relieve the Issuing Bank of any liability it may have to the Borrower
for any actual damages sustained by the Borrower arising from a wrongful
payment under such Letter of Credit made as a result of the Issuing Bank's
gross negligence or willful misconduct.
Section 2.10 PAYMENTS
(a) Each borrowing of Loans by the Borrower from the Lenders,
any conversion of Loans from one Type to another and any reduction in the
Commitments shall be made pro rata according to the Commitment Percentage of
such Lender. Each payment, including each prepayment, of principal and interest
on the Loans, of the Commitment Fee, the Letter of Credit Commissions and of
all of the other fees to be paid to the Agent and the Lenders in connection
with this Agreement (the Commitment Fee and the Letter of Credit Commissions,
together with all of such other fees, being sometimes hereinafter collectively
referred to as the "Fees") shall be made by the Borrower prior to 1:00 p.m. on
the date such payment is due to the Agent for the account of the applicable
Lenders at the Agent's office specified in Section 11.2, in each case in lawful
money of the United States, in immediately available funds and without set-off
or
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counterclaim. As between the Borrower and the Lenders, any payment by the
Borrower to the Agent for the account of the Lenders shall be deemed to be
payment by the Borrower to the Lenders. The failure of the Borrower to make any
such payment by such time shall not constitute a Default, provided that such
payment is made on such due date, but any such payment made after 1:00 p.m. on
such due date shall be deemed to have been made on the next Business Day for
the purpose of calculating interest on amounts outstanding on the Loans.
Promptly upon receipt thereof by the Agent, each payment of principal and
interest on the Loans shall be remitted by the Agent in like funds as received
to each Lender pro rata according to its Outstanding Percentage of the Loans.
Promptly upon receipt thereof by the Agent, each payment of the Commitment Fee
and the Letter of Credit Commissions shall be remitted by the Agent in like
funds as received to each Lender pro rata according to such Lender's Commitment
Percentage.
(b) If any payment hereunder, under the Notes or under any
Reimbursement Agreement shall be due and payable on a day which is not a
Business Day, the due date thereof (except as otherwise provided in the
definition of Interest Period) shall be extended to the next Business Day and
(except with respect to payments in respect of the Fees) interest shall be
payable at the applicable rate specified herein during such extension,
provided, however that if such next Business Day is after the Maturity Date,
any such payment shall be due on the immediately preceding Business Day.
Section 2.11 RECORDS
(a) Lender's Records. Each Lender will note on its internal
records with respect to each Loan made by it (i) the date and amount of such
Loan, (ii) the character of such Loan as an ABR Advance, a Eurodollar Advance
or a combination thereof, (iii) the interest rate (without regard to the
Applicable Percentage) and the Interest Period applicable to Eurodollar
Advances, and (iv) each payment and prepayment of the principal thereof.
(b) Agent's and Issuing Bank's Records. The Agent and the
Issuing Bank shall keep records regarding the Loans, the Letters of Credit and
the Loan Documents in accordance with their customary procedures for agented
credits and Letters of Credit, respectively.
(c) Prima Facie Evidence. The entries made in the records
maintained pursuant to subsections (a) and (b) above shall, to the extent not
prohibited by applicable law, be prima facie evidence of the existence and
amount of the obligations of the Borrower recorded therein; provided that the
failure of the Agent, the Issuing Bank or any Lender, as the case may be, to
make any notation on its records or its Notes shall not affect the Borrower's
or any other Credit Party's obligations in respect of the Loans, the Letters of
Credit or any other Loan Documents.
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3. INTEREST, FEES, YIELD PROTECTIONS, ETC.
Section 3.1 INTEREST RATE AND PAYMENT DATES
(a) Prior to Maturity. Except as otherwise provided in
Section 3.1(b) and 3.1(c), prior to maturity, the Loans shall bear interest on
the outstanding principal balance thereof at the applicable interest rate or
rates per annum set forth below:
ADVANCES RATE
-------- ----
Each ABR Advance Alternate Base Rate plus the
Applicable Percentage applicable to
ABR Advances.
Each Eurodollar Advance Eurodollar Rate for the applicable
Interest Period plus the Applicable
Percentage applicable to Eurodollar
Advances
(b) Default Rate. Upon the occurrence and during the
continuance of an Event of Default, the unpaid principal balance of the Loans
shall bear interest at a rate per annum (whether before or after the entry of a
judgment thereon) equal to the rate which would otherwise be applicable under
Section 3.1(a) plus 2%, and any overdue interest or other amount payable under
the Loan Documents (including any unpaid Reimbursement Obligations) shall bear
interest (whether before or after the entry of a judgment thereon) at a rate
per annum equal to the Alternate Base Rate plus the Applicable Percentage
applicable to ABR Advances plus 2%.
(c) Highest Lawful Rate. At no time shall the interest rate
payable on the Loans of any Lender, together with the Fees and all other
amounts payable under the Loan Documents to such Lender, to the extent the same
are construed to constitute interest, exceed the Highest Lawful Rate applicable
to such Lender. If with respect to any Lender for any period during the term of
this Agreement, any amount paid to such Lender under the Loan Documents, to the
extent the same shall (but for the provisions of this Section 3.1(c))
constitute or be deemed to constitute interest, would exceed the maximum amount
of interest permitted by the Highest Lawful Rate applicable to such Lender
during such period (such amount being hereinafter referred to as an
"Unqualified Amount"), then (i) such Unqualified Amount shall be applied or
shall be deemed to have been applied as a prepayment of the Loans of such
Lender, and (ii) if in any subsequent period during the term of this Agreement,
all amounts payable under the Loan Documents to such Lender in respect of such
period which constitute or shall be deemed to constitute interest shall be less
than the maximum amount of interest permitted by the Highest Lawful Rate
applicable to such Lender during such period, then the Borrower shall pay to
such Lender in respect of such period an amount (each a "Compensatory Interest
Payment") equal to
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the lesser of (A) a sum which, when added to all such amounts, would equal the
maximum amount of interest permitted by the Highest Lawful Rate applicable to
such Lender during such period, and (B) an amount equal to the Unqualified
Amount less all other Compensatory Interest Payments made in respect thereof.
(d) In General. Interest on (i) ABR Advances to the extent
based on the BNY Rate shall be calculated on the basis of a 365 or 366day year
(as the case may be), and (ii) ABR Advances to the extent based on the Federal
Funds Rate and on Eurodollar Advances shall be calculated on the basis of a
360day year, in each case, for the actual number of days elapsed. Except as
otherwise provided in Section 3.1(b), interest shall be payable in arrears on
each Interest Payment Date and upon each payment (including prepayment) of the
Loans. Any change in the interest rate on the Loans resulting from a change in
the Alternate Base Rate or reserve requirements shall become effective as of
the opening of business on the day on which change shall become effective. The
Agent shall, as soon as practicable, notify the Borrower and the Lenders of the
effective date and the amount of each such change in the BNY Rate, but any
failure to so notify shall not in any manner affect the obligation of the
Borrower to pay interest on the Loans in the amounts and on the dates required.
Each determination of the Alternate Base Rate or a Eurodollar Rate by the Agent
pursuant to this Agreement shall be conclusive and binding on all parties
hereto absent manifest error. The Borrower acknowledges that to the extent
interest payable on ABR Advances is based on the BNY Rate, such rate is only
one of the bases for computing interest on loans made by the Lenders, and by
basing interest payable on ABR Advances on the BNY Rate, the Lenders have not
committed to charge, and the Borrower has not in any way bargained for,
interest based on a lower or the lowest rate at which the Lenders may now or in
the future make loans to other borrowers.
Section 3.2 FEES
(a) Commitment Fees. The Borrower agrees to pay to the Agent,
for the account of the Lenders in accordance with each Lender's Commitment
Percentage, a fee (the "Commitment Fee"), equal to a rate per annum equal to
the Applicable Percentage (A) during the Commitment Period, on the average
daily Available Commitment Amount and (B) thereafter, on the average daily
aggregate outstanding principal balance of the Loans. The Commitment Fee shall
be payable quarterly in arrears on the last Business Day of each March, June,
September and December of each year, commencing on the first such Business Day
following the Effective Date, and ending on the date that the Aggregate
Commitments shall expire or otherwise terminate and after the Maturity Date,
the Commitment Fee shall be payable upon demand. The Commitment Fee shall be
calculated on the basis of a 365 or 366 day year, as the case may be, for the
actual number of days elapsed.
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(b) Letter of Credit Commissions. The Borrower agrees to pay
to the Agent, for the account of the Lenders in accordance with each Lender's
Commitment Percentage, commissions (the "Letter of Credit Commissions") with
respect to the Letters of Credit for the period from and including the date of
issuance of each thereof to and including the expiration date thereof, at a
rate per annum equal to the Applicable Percentage applicable to Eurodollar
Advances in effect on the date of issuance thereof (plus, upon the occurrence
and during the continuance of an Event of Default, if any, 2.00%) on the daily
maximum amount available under any contingency to be drawn under such Letter of
Credit. The Letter of Credit Commissions shall be (i) calculated on the basis
of a 360day year for the actual number of days elapsed, and (ii) payable
quarterly in arrears on the last Business Day of each March, June, September
and December of each year and on the date that the Aggregate Commitments shall
expire. In addition to the Letter of Credit Commissions, the Borrower agrees to
pay to the Issuing Bank, for its own account, its standard fees and charges
customarily charged to customers similar to the Borrower with respect to any
Letter of Credit.
(c) Agent's and Issuing Bank's Fees. The Borrower agrees to
pay to the Agent and the Issuing Bank, for their own respective accounts, such
other fees as have been agreed to in writing by the Borrower and the Agent or
the Issuing Bank, as the case may be.
Section 3.3 CONVERSIONS
(a) The Borrower may elect from time to time to convert one
or more Eurodollar Advances to ABR Advances by giving the Agent at least one
Business Day's prior irrevocable notice of such election, specifying the amount
to be converted, provided, that any such conversion of Eurodollar Advances
shall only be made on the last day of the Interest Period applicable thereto.
In addition, the Borrower may elect from time to time to convert (i) ABR
Advances to Eurodollar Advances and (ii) Eurodollar Advances to new Eurodollar
Advances by selecting a new Interest Period therefor, in each case by giving
the Agent at least three Business Days' prior irrevocable notice of such
election, in the case of a conversion to Eurodollar Advances, specifying the
amount to be so converted and the initial Interest Period relating thereto,
provided that any such conversion of ABR Advances to Eurodollar Advances shall
only be made on a Business Day and any such conversion of Eurodollar Advances
to new Eurodollar Advances shall only be made on the last day of the Interest
Period applicable to the Eurodollar Advances which are to be converted to such
new Eurodollar Advances. Each such notice shall be irrevocable and shall be
given by the delivery by telecopy of a Notice of Conversion (confirmed
promptly, and in any event within five Business Days, by the delivery to the
Agent of a Notice of Conversion manually signed by the Borrower). The Agent
shall promptly provide the Lenders with notice of each such election. Advances
may be converted pursuant to this Section 3.3 in whole or in part, provided
that the amount to be converted to each Eurodollar Advance, when aggregated
with any Eurodollar Advance to
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be made on such date in accordance with Section 2.3 and having the same
Interest Period as such first Eurodollar Advance, shall equal no less than
$500,000 or such amount plus a whole multiple of $100,000 in excess thereof.
(b) Notwithstanding anything in this Agreement to the
contrary, upon the occurrence and during the continuance of a Default, the
Borrower shall have no right to elect to convert any existing ABR Advance to a
new Eurodollar Advance or to convert any existing Eurodollar Advance to a new
Eurodollar Advance. In such event, all ABR Advances shall be automatically
continued as ABR Advances and all Eurodollar Advances shall be automatically
converted to ABR Advances on the last day of the Interest Period applicable to
such Eurodollar Advance.
(c) Each conversion shall be effected by each Lender by
applying the proceeds of its new ABR Advance or Eurodollar Advance, as the case
may be, to its Advances (or portion thereof) being converted (it being
understood that any such conversion shall not constitute a borrowing for
purposes of Sections 4, 5 or 6).
Section 3.4 CONCERNING INTEREST PERIODS
Notwithstanding any other provision of any Loan Document:
(a) If the Borrower shall have failed to elect a Eurodollar
Advance under Section 2.3 or 3.3, as the case may be, in connection with any
borrowing of new Loans or expiration of an Interest Period with respect to any
existing Eurodollar Advance, the amount of the Loans subject to such borrowing
or such existing Eurodollar Advance shall thereafter be an ABR Advance until
such time, if any, as the Borrower shall elect a new Eurodollar Advance
pursuant to Section 3.3.
(b) (i) No Interest Period selected in respect of the
conversion of any Eurodollar Advance comprising a Loan shall end after the
Maturity Date.
(c) The Borrower shall select Interest Periods such that, on
each date that a mandatory scheduled reduction in the Aggregate Commitment
Amount is required to be made pursuant to Section 2.4(f), the outstanding
principal balance of all ABR Advances comprising all or a portion of the Loans,
when added to the aggregate principal balance of each Eurodollar Advance
comprising all or a portion of the Loans, the applicable Interest Period of
which shall end on or before such date, shall equal or exceed the aggregate
amount of the reduction required to be made on such date.
(d) The Borrower shall not be permitted to have more than ten
Eurodollar Advances outstanding at any one time, it being agreed that each
borrowing of a Eurodollar Advance pursuant to a single Borrowing Request shall
constitute the making of one Eurodollar Advance for the purpose of calculating
such limitation.
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Section 3.5 INDEMNIFICATION FOR LOSS
Notwithstanding anything contained herein to the contrary, if
the Borrower shall fail for any reason to borrow or convert an Advance after it
shall have given notice to do so in which it shall have requested a Eurodollar
Advance pursuant to Section 2.3 or 3.3, or if a Eurodollar Advance shall be
terminated for any reason prior to the last day of the Interest Period
applicable thereto, or if any repayment or prepayment of the principal amount
of a Eurodollar Advance is made by the Borrower for any reason on a date which
is prior to the last day of the Interest Period applicable thereto, the
Borrower agrees to indemnify each Lender against, and to pay on demand directly
to such Lender the amount (calculated by such Lender using any method chosen by
such Lender which is customarily used by such Lender for such purpose) equal to
any loss or out-of-pocket expense suffered by such Lender as a result of such
failure to borrow or convert, or such termination, repayment or prepayment,
including any loss, cost or expense suffered by such Lender in liquidating or
employing deposits acquired to fund or maintain the funding of such Eurodollar
Advance, or redeploying funds prepaid or repaid, in amounts which correspond to
such Eurodollar Advance, and any internal processing charge customarily charged
by such Lender in connection therewith.
Section 3.6 CAPITAL ADEQUACY
If the amount of capital required or expected to be
maintained by any Lender or any Person directly or indirectly owning or
controlling such Lender or the Issuing Bank (each a "Control Person"), shall be
affected by the occurrence of a Regulatory Change and such Lender or the
Issuing Bank shall have determined that such Regulatory Change shall have had
or will thereafter have the effect of reducing (i) the rate of return on such
Lender's or such Control Person's capital, or (ii) the asset value to such
Lender or the Issuing Bank or such Control Person of the Loans or Commitments
made or maintained by such Lender, or of the Reimbursement Obligations or any
participation therein, in any case to a level below that which such Lender or
the Issuing Bank or such Control Person could have achieved or would thereafter
be able to achieve but for such Regulatory Change (after taking into account
such Lender's or the Issuing Bank's or such Control Person's policies regarding
capital adequacy) by an amount deemed by such Lender or the Issuing Bank to be
material to such Lender or the Issuing Bank or Control Person, then, within ten
days after demand by such Lender or the Issuing Bank, the Borrower shall pay to
such Lender or the Issuing Bank or such Control Person such additional amount
or amounts as shall be sufficient to compensate such Lender or the Issuing Bank
or such Control Person, as the case may be, for such reduction.
Section 3.7 REIMBURSEMENT FOR INCREASED COSTS
If any Lender, the Agent or the Issuing Bank shall determine
that a Regulatory Change:
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(a) does or shall subject it to any Taxes of any kind
whatsoever with respect to any Eurodollar Advances or its obligations under
this Agreement to make Eurodollar Advances, or change the basis of taxation of
payments to it of principal, interest or any other amount payable hereunder in
respect of its Eurodollar Advances, or impose on the Agent, the Issuing Bank or
such Lender any other condition regarding the Letters of Credit including any
Taxes required to be withheld from any amounts payable under the Loan Documents
(except for imposition of, or change in the rate of, Tax on the Income of such
Lender); or
(b) does or shall impose, modify or make applicable any
reserve, special deposit, compulsory loan, assessment, increased cost or
similar requirement against assets held by, or deposits of, or advances or
loans by, or other credit extended by, or any other acquisition of funds by,
any office of such Lender in respect of its Eurodollar Advances which is not
otherwise included in the determination of a Eurodollar Rate or against any
Letters of Credit issued by the Issuing Bank or participated in by any Lender;
and the result of any of the foregoing is to increase the cost to such Lender
of making, renewing, converting or maintaining its Eurodollar Advances or its
commitment to make such Eurodollar Advances, or to reduce any amount receivable
hereunder in respect of its Eurodollar Advances, or to increase the cost to the
Issuing Bank of issuing or maintaining the Letters of Credit or the cost to any
Lender of participating therein or the cost to the Agent or the Issuing Bank of
performing its respective functions hereunder with respect to the Letters of
Credit, then, in any such case, the Borrower shall pay such Lender, the Agent,
or the Issuing Bank, as the case may be, within ten days after demand therefor,
such additional amounts as is sufficient to compensate such Lender, the Issuing
Bank or the Agent, as the case may be, for such additional cost or reduction in
such amount receivable which such Lender deems to be material as determined by
such Lender, the Issuing Bank or the Agent, as the case may be; provided,
however, that nothing in this Section shall require the Borrower to indemnify
the Lenders, the Agent, or the Issuing Bank, as the case may be, with respect
to withholding Taxes for which the Borrower has no obligation under Section
3.10. No failure by any Lender or the Agent, or the Issuing Bank to demand, and
no delay in demanding, compensation for any increased cost shall constitute a
waiver of its right to demand such compensation at any time. A statement
setting forth the calculations of any additional amounts payable pursuant to
this Section submitted by a Lender, the Agent or the Issuing Bank, as the case
may be, to the Borrower shall be conclusive absent manifest error.
Section 3.8 ILLEGALITY OF FUNDING
Notwithstanding any other provision hereof, if any Lender
shall reasonably determine that any law, regulation, treaty or directive, or
any change therein or in the interpretation or application thereof, shall make
it unlawful for such Lender to make or maintain any Eurodollar Advance as
contemplated by this Agreement, such Lender shall
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promptly notify the Borrower and the Agent thereof, and (i) the commitment of
such Lender to make such Eurodollar Advances or convert ABR Advances to
Eurodollar Advances shall forthwith be suspended, (ii) such Lender shall fund
its portion of each requested Eurodollar Advance as an ABR Advance and (iii)
such Lender's Loans then outstanding as such Eurodollar Advances, if any, shall
be converted automatically to an ABR Advance on the last day of the then
current Interest Period applicable thereto or at such earlier time as may be
required. If the commitment of any Lender with respect to Eurodollar Advances
is suspended pursuant to this Section and such Lender shall have obtained
actual knowledge that it is once again legal for such Lender to make or
maintain Eurodollar Advances, such Lender shall promptly notify the Agent and
the Borrower thereof and, upon receipt of such notice by each of the Agent and
the Borrower, such Lender's commitment to make or maintain Eurodollar Advances
shall be reinstated.
Section 3.9 SUBSTITUTED INTEREST RATE
In the event that (i) the Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that by reason
of circumstances affecting the interbank eurodollar market either adequate or
reasonable means do not exist for ascertaining the Eurodollar Rate applicable
pursuant to Section 3.1 or (ii) the Required Lenders shall have notified the
Agent that they have determined (which determination shall be conclusive and
binding on the Borrower) that the applicable Eurodollar Rate will not
adequately and fairly reflect the cost to such Lenders of maintaining or
funding loans bearing interest based on such Eurodollar Rate, with respect to
any portion of the Loans that the Borrower has requested be made as Eurodollar
Advances or Eurodollar Advances that will result from the requested conversion
of any portion of the Advances into or of Eurodollar Advances (each, an
"Affected Advance"), the Agent shall promptly notify the Borrower and the
Lenders (by telephone or otherwise, to be promptly confirmed in writing) of
such determination, on or, to the extent practicable, prior to the requested
Borrowing Date or Conversion Date for such Affected Advances. If the Agent
shall give such notice, (a) any Affected Advances shall be made as ABR
Advances, (b) the Advances (or any portion thereof) that were to have been
converted to Affected Advances shall be converted to ABR Advances and (c) any
outstanding Affected Advances shall be converted, on the last day of the then
current Interest Period with respect thereto, to ABR Advances. Until any notice
under clauses (i) or (ii), as the case may be, of this Section has been
withdrawn by the Agent (by notice to the Borrower promptly upon either (A) the
Agent having determined that such circumstances affecting the interbank
eurodollar no longer exist and that adequate and reasonable means do exist for
determining the Eurodollar Rate pursuant to Section 3.1 or (B) the Agent having
been notified by such Required Lenders that circumstances no longer render the
Advances (or any portion thereof) Affected Advances, no further Eurodollar
Advances shall be required to be made by the Lenders, nor shall the Borrower
have the right to convert all or any portion of the Loans to or as Eurodollar
Advances.
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Section 3.10 TAXES
(a) Payments to Be Free and Clear. All payments by any Credit
Party under the Loan Documents shall be made free and clear of, and without any
deduction or withholding for, any Indemnified Tax. If any Credit Party or any
other Person is required by any law, rule, regulation, order, directive, treaty
or guideline to make any deduction or withholding (which deduction or
withholding would constitute an Indemnified Tax) from any amount required to be
paid by any Credit Party to or on behalf of any Indemnified Tax Person under
any Loan Document (each a "Required Payment"):
(b) such Credit Party shall notify the Agent and such
Indemnified Tax Person of any such requirement or any change in any such
requirement as soon as such Credit Party becomes aware of it;
(c) such Credit Party shall pay such Indemnified Tax before
the date on which penalties attach thereto, such payment to be made (if the
liability to pay is imposed on such Credit Party) for its own account or (if
the liability is imposed on such Indemnified Tax Person) on behalf of and in
the name of such Indemnified Tax Person;
(d) such Credit Party shall pay to such Indemnified Tax
Person an additional amount such that such Indemnified Tax Person shall receive
on the due date therefor an amount equal to the Required Payment had no such
deduction or withholding been required; and
(e) such Credit Party shall, within 30 days after paying such
Indemnified Tax, deliver to the Agent and the applicable Indemnified Tax Person
satisfactory evidence of such payment to the relevant Governmental Authority.
(f) Other Indemnified Taxes. If an Indemnified Tax Person or
any affiliate thereof is required by any law, rule, regulation, order,
directive, treaty or guideline to pay any Indemnified Tax (excluding an
Indemnified Tax which is subject to Section 3.10(a)) with respect to any sum
paid or payable by any Credit Party to such Indemnified Tax Person under the
Loan Documents:
(g) such Indemnified Tax Person shall notify such Credit
Party of any such payment of Indemnified Tax; and
(h) such Credit Party shall pay to such Indemnified Tax
Person the amount of such Indemnified Tax within 5 days of such notice.
(i) Tax on Indemnified Taxes. If any amounts are payable by a
Credit Party in respect of Indemnified Taxes pursuant to Sections 3.10(a) or
3.10(b), such Credit Party agrees to pay to the applicable Indemnified Tax
Person, within 5 Business Days of written request therefor, an amount equal to
all Taxes imposed with respect to such
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amounts as such Indemnified Tax Person shall determine in good faith are
payable by such Indemnified Tax Person or any affiliate thereof in respect of
such amounts and in respect of any amounts paid to or on behalf of such
Indemnified Tax Person pursuant to this subsection (c).
(j) U.S. Tax Certificates. Each Lender that is organized
under the laws of any jurisdiction other than the United States or any
political subdivision thereof shall deliver to the Agent for transmission to
the Borrower, on or prior to the first Borrowing Date (in the case of each
Lender listed on the signature pages hereof) or on the effective date of the
Assignment and Acceptance Agreement or master assignment and acceptance
agreement pursuant to which it becomes a Lender in accordance with Section 11.7
(in the case of each other Lender), and at such other times as may be necessary
in the determination of the Borrower, any Credit Party or the Agent (each in
the reasonable exercise of its discretion), such certificates, documents or
other evidence, properly completed and duly executed by such Lender (including,
without limitation, Internal Revenue Service Form 1001 or Form 4224) to
establish that such Lender is not subject to deduction or withholding of United
States federal income tax under Section 1441 or 1442 of the Code or otherwise
(or under any comparable provisions of any successor statute) with respect to
any payments to such Lender of principal, interest, fees or other amounts
payable under the Loan Documents. No Credit Party shall be required to pay any
additional amount to any such Lender under Section 3.10(a)(iii) if such Lender
shall have failed to satisfy the requirements of the immediately preceding
sentence; provided that if such Lender shall have satisfied such requirements
on the first Borrowing Date (in the case of each Lender listed on the signature
pages hereof) or on the effective date of the Assignment and Acceptance
Agreement or master assignment and acceptance agreement pursuant to which it
became a Lender (in the case of each other Lender), nothing in this subsection
shall relieve any Credit Party of its obligation to pay any additional amounts
pursuant to Section 3.10(a)(iii) in the event that, as a result of any change
in applicable law (including, without limitation, any change in the
interpretation thereof), such Lender is no longer properly entitled to deliver
certificates, documents or other evidence at a subsequent date establishing the
fact that such Lender is not subject to withholding as described in the
immediately preceding sentence.
(k) Other Tax Certificates. Each Indemnified Tax Person
agrees to use reasonable efforts to deliver to any Credit Party, promptly upon
any request therefor from time to time by such Credit Party, such forms,
documents and information as may be required by applicable law, regulation or
treaty from time to time and to file all appropriate forms to obtain a
certificate or other appropriate documents from the appropriate Governmental
Authorities to establish that payments made in respect of any Loan or
participation in any Letter of Credit can be made without (or at a reduced rate
of) withholding of Taxes, provided, however, that if such Indemnified Tax
Person is or becomes unable by virtue of any applicable law, regulation or
treaty, to establish such exemption or reduction, such Credit Party shall
nonetheless remain obligated under
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Subsection 3.10(a) to pay the amounts described therein, and provided further,
that no Indemnified Tax Person shall be required to take any action hereunder
which, in the sole discretion of such Indemnified Tax Person, would cause such
Indemnified Tax Person or any affiliate thereof to suffer a material economic,
legal or regulatory disadvantage.
(l) Replacement Lenders. Each Credit Party may be obligated
to make multiple payments to each Lender under this Section 3.10.
Notwithstanding the foregoing, if any Credit Party shall be obligated to make
any payment to any Lender under this Section 3.10, the Borrower may require
that such Lender transfer all of its right, title and interest (which transfer
shall be without recourse, representation or warranty (other than customary
representations and warranties)) under the Loan Documents to any Eligible
Assignee identified by the Borrower and reasonably acceptable to the Agent (a
"Replacement Lender") if such Replacement Lender agrees to assume all of the
obligations of such Lender for consideration equal to the outstanding principal
amount of such Lender's Loans, together with interest thereon to the date of
such transfer and all other amounts payable hereunder to such Lender on or
prior to the date of such transfer (including, to the extent not paid by the
Credit Parties, any fees accrued hereunder and any amounts which would be
payable under Sections 3.5, 3.6. 3.7. 3.10, 11.5 and 11.8 as if all of such
Lender's Loans were being prepaid in full on such date). Without prejudice to
the survival of any other agreement of the Borrower hereunder, the agreements
of the Borrower contained in Sections 3.5, 3.6, 3.7, 3.10, 11.5 and 11.8
(without duplication of any payments made to such Lender by the Credit Parties
or the Replacement Lender) shall survive for the benefit of any Lender replaced
under this Section 3.10 with respect to the time prior to such replacement.
Section 3.11 OPTION TO FUND
Each Lender may wish to purchase one or more deposits in
order to fund or maintain its funding of its Commitment Percentage of such
Eurodollar Advance during the Interest Period with respect thereto; it being
understood that the provisions of this Agreement relating to such funding are
included only for the purpose of determining the rate of interest to be paid in
respect of such Eurodollar Advance and any amounts owing under Sections 3.5 and
3.7. Each Lender shall be entitled to fund and maintain its funding of all or
any part of each Eurodollar Advance in any manner it sees fit, but all such
determinations hereunder shall be made as if each Lender had actually funded
and maintained its Commitment Percentage of each Eurodollar Advance during the
applicable Interest Period through the purchase of deposits in an amount equal
to its Commitment Percentage of such Eurodollar Advance having a maturity
corresponding to such Interest Period. Any Lender may fund its Commitment
Percentage of each Eurodollar Advance from or for the account of any branch or
office of such Lender as such Lender may choose from time to time.
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4. REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Lenders to enter into
this Agreement and to make the Loans and the Issuing Bank to issue the New
Letters of Credit and the Lenders to participate therein, the Borrower makes
the following representations and warranties to the Agent, the Issuing Bank and
each Lender:
Section 4.1 SUBSIDIARIES; CAPITALIZATION
As of the Effective Date, the Borrower has only the
Subsidiaries set forth on, and the authorized, issued and outstanding Capital
Stock of the Borrower and each such Subsidiary (or partnership or other
interests, as the case may be) is as set forth on, Schedule 4.1. As of the
Effective Date, except as set forth on Schedule 4.1, the shares of, or
partnership or other interests in, each Restricted Subsidiary of the Borrower
are owned beneficially and of record by the Borrower or another Restricted
Subsidiary of the Borrower, are free and clear of all Liens, and are duly
authorized, validly issued, fully paid and nonassessable. As of the Effective
Date, except as set forth on Schedule 4.1, (i) neither the Borrower nor any of
its Restricted Subsidiaries has issued any securities convertible into, or
options or warrants for, any common or preferred equity securities thereof,
(ii) there are no agreements, voting trusts or understandings binding upon the
Borrower or any Restricted Subsidiaries with respect to the voting securities
of the Borrower or any Restricted Subsidiaries or affecting in any manner the
sale, pledge, assignment or other disposition thereof, including any right of
first refusal, option, redemption, call or other right with respect thereto,
whether similar or dissimilar to any of the foregoing, and (iii) all of the
outstanding Capital Stock of each Restricted Subsidiary of the Borrower is
owned by the Borrower or another Restricted Subsidiary of the Borrower.
Section 4.2 EXISTENCE AND POWER
Each of the Borrower and each of its Restricted Subsidiaries
is duly organized or formed and validly existing in good standing under the
laws of the jurisdiction of its incorporation or formation, has all requisite
power and authority to own its Property and to carry on its business as now
conducted, and is in good standing and authorized to do business by it in each
jurisdiction in which the nature of the business conducted therein or the
Property owned by it therein makes such qualification necessary, except where
such failure to qualify could not reasonably be expected to have a Material
Adverse Effect.
Section 4.3 AUTHORITY AND EXECUTION
Each of the Borrower and each of its Restricted Subsidiaries
has full legal power and authority to own its Property, conduct its business,
and enter into, execute, deliver and perform the terms of the Loan Documents to
which it is a party all of which
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have been duly authorized by all proper and necessary corporate, partnership or
other applicable action and are in full compliance with its Organizational
Documents. The Borrower and each of its Restricted Subsidiaries has duly
executed and delivered the Loan Documents to which it is a party.
Section 4.4 BINDING AGREEMENT
The Loan Documents constitute the valid and legally binding
obligations of each Credit Party, in each case, to the extent it is a party
thereto, enforceable in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by equitable principles relating to the
availability of specific performance as a remedy.
Section 4.5 LITIGATION
Except as set forth on Schedule 4.5, there are no actions,
suits or proceedings at law or in equity or by or before any Governmental
Authority (whether purportedly on behalf of the Borrower, any of its
Subsidiaries or any other Credit Party) pending or, to the knowledge of the
Borrower, threatened against the Borrower, any of its Subsidiaries or any other
Credit Party or maintained by the Borrower, any of its Subsidiaries or any
other Credit Party or which may affect the Property of the Borrower, any of its
Subsidiaries or any other Credit Party or any of their respective Properties or
rights, which (i) could reasonably be expected to have a Material Adverse
Effect, (ii) call into question the validity or enforceability of, or otherwise
seek to invalidate, any Loan Document, or (iii) might, individually or in the
aggregate, materially and adversely affect any of the transactions contemplated
by any Loan Document.
Section 4.6 REQUIRED CONSENTS
Except as set forth on Schedule 4.6 and except for
information filings required to be made in the ordinary course of business
which are not a condition to the performance by the Borrower or any of its
Restricted Subsidiaries under the Loan Documents to which it is a party, no
consent, authorization or approval of, filing with, notice to, or exemption by,
stockholders or holders of any other equity interest, any Governmental
Authority or any other Person is required to authorize, or is required in
connection with the execution, delivery and performance of the Loan Documents
to which the Borrower or any of its Restricted Subsidiaries or any other Credit
Party is a party or is required as a condition to the validity or
enforceability of the Loan Documents to which any of the same is a party.
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Section 4.7 ABSENCE OF DEFAULTS; NO CONFLICTING AGREEMENTS
(a) None of the Borrower nor any of its Subsidiaries nor any
other Credit Party is in default under any mortgage, indenture, contract or
agreement to which it is a party or by which it or any of its Property is
bound, the effect of which default could reasonably be expected to have a
Material Adverse Effect. The execution, delivery or carrying out of the terms
of the Loan Documents will not constitute a default under, or result in the
creation or imposition of, or obligation to create, any Lien upon any Property
of the Borrower or any of its Restricted Subsidiaries or result in a breach of
or require the mandatory repayment of or other acceleration of payment under or
pursuant to the terms of any such mortgage, indenture, contract or agreement.
(b) None of the Borrower nor any of its Subsidiaries nor any
other Credit Party is in default with respect to any judgment, order, writ,
injunction, decree or decision of any Governmental Authority which default
could reasonably be expected to have a Material Adverse Effect.
Section 4.8 COMPLIANCE WITH APPLICABLE LAWS
The Borrower and each of its Subsidiaries is complying with
all statutes, regulations, rules and orders of all Governmental Authorities
which are applicable to the Borrower or such Subsidiary, a violation of which
could reasonably be expected to have a Material Adverse Effect.
Section 4.9 TAXES
Except as set forth on Schedule 4.9, the Borrower and each of
its Subsidiaries has filed or caused to be filed all tax returns required to be
filed and has paid, or has made adequate provision for the payment of, all
taxes shown to be due and payable on said returns or in any assessments made
against it (other than those being contested as required under Section 7.4)
which would be material to the Borrower or any of its Subsidiaries, and no tax
Liens have been filed with respect thereto. The charges, accruals and reserves
on the books of the Borrower and each of its Subsidiaries with respect to all
taxes are, to the best knowledge of the Borrower, adequate for the payment of
such taxes, and the Borrower knows of no unpaid assessment which is due and
payable against the Borrower or any of its Subsidiaries or any claims being
asserted which could reasonably be expected to have a Material Adverse Effect,
except such thereof as are being contested as required under Section 7.4, and
for which adequate reserves have been set aside in accordance with GAAP.
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Section 4.10 GOVERNMENTAL REGULATIONS
Neither the Borrower nor any of its Subsidiaries nor any
Person controlled by, controlling, or under common control with, the Borrower
or any of its Subsidiaries, is subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, as amended, or
the Investment Company Act of 1940, as amended, or is subject to any statute or
regulation which prohibits or restricts the incurrence of Indebtedness,
including, without limitation, statutes or regulations relative to common or
contract carriers or to the sale of electricity, gas, steam, water, telephone,
telegraph or other public utility services.
Section 4.11 FEDERAL RESERVE REGULATIONS; USE OF LOAN PROCEEDS
Neither the Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any Margin Stock.
After giving effect to the making of each Loan, Margin Stock will constitute
less than 25% of the assets (as determined by any reasonable method) of the
Borrower and its Restricted Subsidiaries.
Section 4.12 PLANS
The only Pension Plans in effect as of the Effective Date
(the "Existing Pension Plans") are listed on Schedule 4.12. Each Employee
Benefit Plan of the Borrower, its Subsidiaries and the ERISA Affiliates is in
compliance with ERISA and the Code, where applicable, in all material respects.
As of the Effective Date, (i) the amount of all Unfunded Pension Liabilities
under the Pension Plans, excluding any plan which is a Multiemployer Plan, does
not exceed $20,000, and (ii) the amount of the aggregate Unrecognized Retiree
Welfare Liability under all applicable Employee Benefit Plans does not exceed
$0. The Borrower and each of its Subsidiaries and ERISA Affiliates has complied
with the requirements of Section 515 of ERISA with respect to each Pension Plan
which is a Multiemployer Plan. As of the Effective Date, the aggregate
potential annual withdrawal liability payments, as determined in accordance
with Title IV of ERISA, of the Borrower and its Subsidiaries and ERISA
Affiliates with respect to all Pension Plans which are Multiemployer Plans is
not in excess of $20,000. The Borrower and its Subsidiaries and ERISA
Affiliates have, as of the Effective Date, made all contributions or payments
to or under each such Pension Plan required by law or the terms of such Pension
Plan or any contract or agreement with respect thereto. No material liability
to the PBGC has been, or is expected by the Borrower, any of its Subsidiaries
or any ERISA Affiliate to be, incurred by the Borrower, any such Subsidiary or
any ERISA Affiliate. Liability, as referred to in this Section includes any
joint and several liability. Each Employee Benefit Plan which is a group health
plan within the
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meaning of Section 5000(b)(1) of the Code is in material compliance with the
continuation of health care coverage requirements of Section 4980B of the Code.
Section 4.13 FINANCIAL STATEMENTS
The Borrower has heretofore delivered to the Agent and the
Lenders copies of the (i) audited Consolidated Balance Sheet of the Borrower as
of December 31, 1997, and the related Consolidated Statements of Income,
Changes in Partnership Deficiency and Cash Flows for the fiscal year then
ended, and (ii) the unaudited Consolidated Balance Sheet of the Borrower as of
September 30, 1998, and the related Consolidated Statements of Income, Changes
in Partnership Deficiency and Cash Flows for the fiscal quarter then ended
(with the related notes and schedules, the "Financial Statements"). The
Financial Statements fairly present in all material respects the Consolidated
financial condition and results of the operations of the Borrower and its
Restricted Subsidiaries as of the dates and for the periods indicated therein
(subject, in the case of such unaudited statements, to normal year-end
adjustments) and have been prepared in conformity with GAAP. Except as
reflected in the Financial Statements or in the notes thereto, neither the
Borrower nor any of its Restricted Subsidiaries has any obligation or liability
of any kind (whether fixed, accrued, contingent, unmatured or otherwise) which,
in accordance with GAAP, should have been shown on the Financial Statements and
was not. Other than with respect to the Indiana Transactions, since the date of
the Financial Statements, the Borrower and each of its Restricted Subsidiaries
has conducted its business only in the ordinary course, and there has been no
Material Adverse Change.
Section 4.14 PROPERTY
The Borrower and each of its Restricted Subsidiaries has (i)
good and marketable title to all of its Property, title to which is material to
the Borrower or such Restricted Subsidiary and (ii) a valid leasehold interest
in all Property, a leasehold interest in which is material to the Borrower or
such Restricted Subsidiary, in each case subject to no Liens, except Permitted
Liens.
Section 4.15 AUTHORIZATIONS
The Borrower and each of its Restricted Subsidiaries
possesses or has the right to use all franchises, licenses and other rights as
are material and necessary for the conduct of its business, and with respect to
which it is in compliance, with no known conflict with the valid rights of
others which could reasonably be expected to have a Material Adverse Effect. No
event has occurred which permits or, to the best knowledge of the Borrower,
after notice or the lapse of time or both, or any other condition, could
reasonably be expected to permit, the revocation or termination of any such
franchise, license or other right which revocation or termination could
reasonably be expected to have a Material Adverse Effect.
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Section 4.16 ENVIRONMENTAL MATTERS
(a) No Hazardous Substances have been generated or
manufactured on, transported to or from, treated at, stored at or discharged
from any Real Property, discharged into subsurface waters under any Real
Property or discharged from any Real Property on or into Property or waters
(including subsurface waters) adjacent to any Real Property, in each case
referred to above in violation of any Environmental Laws the violation of which
could reasonably be expected to have a Material Adverse Effect. There are not
now, nor ever have been, on any Real Property, any underground or above ground
storage tanks regulated under any Environmental Laws the violation of which
could reasonably be expected to have a Material Adverse Effect.
(b) Neither the Borrower nor any of its Subsidiaries (i) has
received notice (written or oral) or otherwise learned of any claim, demand,
suit, action, proceeding, event, condition, report, directive, Lien, violation,
non-compliance or investigation indicating or concerning any potential or
actual liability (including, without limitation, potential liability for
enforcement, investigatory costs, cleanup costs, government response costs,
removal costs, remedial costs, natural resources damages, Property damages,
personal injuries or penalties) arising in connection with: (A) any
noncompliance with or violation of the requirements of any applicable
Environmental Laws the violation of which could reasonably be expected to have
a Material Adverse Effect, or (B) the presence of any Hazardous Substance on
any Real Property (or any Real Property previously owned by the Borrower or any
of its Subsidiaries) or the release or threatened release of any Hazardous
Substance into the environment in either case which could reasonably be
expected to have a Material Adverse Effect, (ii) has any threatened or actual
liability in connection with the presence of any Hazardous Substance on any
Real Property (or any Real Property previously owned by the Borrower or any of
its Subsidiaries) or the release or threatened release of any Hazardous
Substance into the environment, (iii) has received notice of any federal or
state investigation evaluating whether any remedial action is needed to respond
to the presence of any Hazardous Substance on any Real Property (or any Real
Property previously owned by the Borrower or any of its Subsidiaries) or a
release or threatened release of any Hazardous Substance into the environment
for which the Borrower or any of its Subsidiaries is or may be liable, or (iv)
has received notice that the Borrower or any of its Subsidiaries is or may be
liable to any Person under any Environmental Law, in each case referred to in
clauses (ii), (iii) and (iv) above which could reasonably be expected to have a
Material Adverse Effect.
Section 4.17 ABSENCE OF CERTAIN RESTRICTIONS
No indenture, certificate of designation for preferred equity
securities, agreement or instrument to which the Borrower or any of its
Restricted Subsidiaries is a party (other than this Agreement), prohibits or
limits in any way, directly or indirectly, the ability of any Restricted
Subsidiary to make advances for the benefit of, to make loans
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or Restricted Payments to or to repay any Indebtedness to the Borrower or to
any other Restricted Subsidiary
Section 4.18 NO MISREPRESENTATION
No representation or warranty contained in any Loan Document,
and no certificate or report from time to time furnished by the Borrower or any
of its Restricted Subsidiaries in connection with the transactions contemplated
thereby, contains or will contain a misstatement of material fact or omits or
will omit to state a material fact required to be stated in order to make the
statements therein contained not misleading in the light of the circumstances
under which made, provided that any projections or proforma financial
information contained therein are based upon good faith estimates and
assumptions believed by the Borrower to be reasonable at the time made, it
being recognized by the Agent and the Lenders that such projections as to
future events are not to be viewed as facts, and that actual results during the
period or periods covered thereby may differ from the projected results.
Section 4.19 YEAR 2000 ISSUE
The Borrower is reviewing the effect of the Year 2000 Issue
on the computer software, hardware and firmware systems and equipment
containing embedded microchips owned or operated by or for the Borrower and
each Subsidiary or used or relied upon in the conduct of their business
(including systems and equipment supplied by others or with which such computer
systems of the Borrower and the Subsidiaries interface). To the Borrower's
knowledge, the costs to the Borrower and the Subsidiaries of any reprogramming
required as a result of the Year 2000 Issue to permit the proper functioning of
such systems and equipment and the proper processing of data, and the testing
of such reprogramming, and of the reasonably foreseeable consequences of the
Year 2000 Issue to the Borrower or any Subsidiary (including reprogramming
errors and the failure of systems or equipment supplied by others) are not
reasonably expected to result in a Default or to have a Material Adverse
Effect.
5. CONDITIONS TO LOANS OR THE ISSUANCE OF NEW LETTERS OF CREDIT
In addition to the conditions precedent set forth in Section 6, the
obligation of each Lender to make Loans or the Issuing Bank to issue New
Letters of Credit on the Subsequent Borrowing Date and the Lenders to
participate therein shall be subject to the fulfillment of the following
conditions precedent:
Section 5.1 EVIDENCE OF ACTION
The Agent shall have received a certificate, dated the
Effective Date, of the Secretary or Assistant Secretary or other analogous
counterpart of each Credit Party (i)
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attaching a true and complete copy of the resolutions of its Managing Person
and of all documents evidencing all necessary corporate, partnership or similar
action (in form and substance satisfactory to the Agent) taken by it to
authorize the Loan Documents to which it is a party and the transactions
contemplated thereby, (ii) attaching a true and complete copy of its
Organizational Documents, (iii) setting forth the incumbency of its officer or
officers or other analogous counterpart who may sign the Loan Documents,
including therein a signature specimen of such officer or officers and (iv)
attaching a certificate of good standing of the Secretary of State of the
jurisdiction of its formation and as to the Borrower, of each other
jurisdiction in which it maintains property and is qualified to do business.
Section 5.2 THIS AGREEMENT
The Agent shall have received counterparts of this Agreement
signed by each of the parties hereto (or receipt by the Agent from a party
hereto of a facsimile signature page signed by such party which shall have
agreed to promptly provide the Agent with originally executed counterparts
hereof).
Section 5.3 MASTER ASSIGNMENT
The Agent shall have received counterparts of a master
assignment and assumption agreement (the "Master Assignment"), in the form of
Exhibit G hereto, signed by each of the parties thereto (or receipt by the
Agent from a party thereto of a facsimile signature page signed by such party
which shall have agreed to promptly provide the Agent with originally executed
counterparts thereof).
Section 5.4 NOTES
The Agent shall have received a Note in respect of each
Lender.
Section 5.5 SECOND AMENDMENT TO COLLATERAL DOCUMENTS
The Agent shall have received the second amendment to
collateral documents, in the form of Exhibit H hereto, signed by each of the
parties thereto (the "Second Amendment to Collateral Documents").
Section 5.6 ABSENCE OF LITIGATION
There shall be no injunction, writ, preliminary restraining
order or other order of any nature issued by any Governmental Authority in any
respect affecting the transactions provided for in the Loan Documents and no
action or proceeding by or before any Governmental Authority has been commenced
and is pending or, to the knowledge of the Borrower, threatened, seeking to
prevent or delay the transactions
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contemplated by the Loan Documents or challenging any other terms and
provisions hereof or thereof or seeking any damages in connection therewith,
and the Agent shall have received a certificate, in all respects satisfactory
to the Agent, of an executive officer of the Borrower to the foregoing effects.
Section 5.7 APPROVALS AND CONSENTS
Except as set forth in Schedule 4.6, all approvals and
consents of all Persons required to be obtained in connection with the
consummation of the transactions contemplated by the Loan Documents shall have
been obtained and shall be in full force and effect, and all required notices
have been given and all required waiting periods shall have expired, and the
Agent shall have received a certificate, in all respects satisfactory to the
Agent, of an executive officer of the Borrower to the foregoing effects.
Section 5.8 FINANCIAL OFFICER'S CERTIFICATE
The Agent shall have received a certificate of a Financial
Officer of the Borrower in all respects satisfactory to the Agent certifying
(i) as to the Leverage Ratio (on a pro forma basis), and (ii) that, immediately
after giving effect to the Loans to be made and Letters of Credit to be issued
on the Subsequent Borrowing Date (and the use of such Loans and Letters of
Credit), to the best knowledge of such Financial Officer the Leverage Ratio (on
a pro forma basis) is not greater than 5.75:1.00.
Section 5.9 OPINION OF COUNSEL TO THE BORROWER AND THE GUARANTORS
The Agent shall have received an opinion of Cooperman Levitt
Winikoff Lester & Newman, P.C., counsel to the Borrower and the Guarantors,
addressed to the Agent, the Issuing Bank and the Lenders, dated the Effective
Date, substantially in the form of Exhibit I, together with such other legal
opinions as the Agent may reasonably require.
Section 5.10 PROPERTY, PUBLIC LIABILITY AND OTHER INSURANCE
The Agent shall have received a certificate of all insurance
maintained by the Borrower and its Restricted Subsidiaries in form and
substance reasonably satisfactory to the Agent, together with the endorsements
required by Section 7.5.
Section 5.11 FEES
All fees and expenses payable by the Borrower to the Agent,
the Issuing Bank and the Lenders on the Effective Date and the reasonable fees
and disbursements of
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Special Counsel in connection with the preparation, negotiation and closing of
the Loan Documents, shall have been paid.
Section 5.12 OTHER DOCUMENTS
The Agent shall have received such other documents, each in
form and substance reasonably satisfactory to the Agent, as the Agent shall
reasonably require in connection with the making of the Loans and/or the
issuance of the Letters of Credit on the Subsequent Borrowing Date.
6. CONDITIONS OF LENDING - ALL LOANS AND NEW LETTERS OF CREDIT
The obligation of each Lender to make any Loan or the Issuing
Bank to issue any New Letter of Credit on a Borrowing Date and each Lender to
participate therein is subject to the satisfaction of the following conditions
precedent as of the date of such Loan or the issuance of such New Letter of
Credit, as the case may be:
Section 6.1 COMPLIANCE
On each Borrowing Date and after giving effect to the Loans
to be made and the New Letters of Credit to be issued thereon (i) there shall
exist no Default, (ii) the representations and warranties contained in the Loan
Documents shall be true and correct with the same effect as though such
representations and warranties had been made on such Borrowing Date, except to
the extent such representations and warranties specifically relate to an
earlier date, in which case such representations and warranties shall have been
true and correct on and as of such earlier date, and (iii) each Credit Party
shall be in compliance with all of the terms, covenants and conditions of the
Loan Documents to which it is a party. Each borrowing by the Borrower and each
request by the Borrower for the issuance of a Letter of Credit shall constitute
a certification by the Borrower as of such Borrowing Date that each of the
foregoing matters is true and correct in all respects.
Section 6.2 BORROWING REQUEST; LETTER OF CREDIT REQUEST
With respect to the Loans to be made, and the New Letters of
Credit to be issued, on each Borrowing Date, the Agent shall have received, (i)
in the case of Loans, a Borrowing Request and (ii) in the case of New Letters
of Credit, a Letter of Credit Request, in each case duly executed by an
Authorized Signatory of the Borrower.
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Section 6.3 LOAN CLOSINGS
All documents required by the provisions of the Loan
Documents to be executed or delivered to the Agent on or before the applicable
Borrowing Date shall have been executed and shall have been delivered at the
office of the Agent set forth in Section 11.2 on or before such Borrowing Date.
Section 6.4 OTHER DOCUMENTS
The Agent shall have received such other documents as the
Agent or the Lenders shall reasonably request.
7. AFFIRMATIVE COVENANTS
The Borrower agrees that, so long as this Agreement is in
effect, any Loan or Reimbursement Obligation (contingent or otherwise) in
respect of any Letter of Credit remains outstanding and unpaid, any Letter of
Credit remains outstanding, or any other amount is owing under any Loan
Document to any Lender, the Issuing Bank or the Agent, the Borrower shall:
Section 7.1 FINANCIAL STATEMENTS AND INFORMATION
Maintain, and cause each of its Restricted Subsidiaries to
maintain, a standard system of accounting in accordance with GAAP, and furnish
or cause to be furnished to the Agent and each Lender:
(a) As soon as available, but in any event within 90 days
after the end of each fiscal year, a copy of its Consolidated Balance Sheet as
at the end of such fiscal year, together with the related Consolidated
Statements of Income, Changes in Partnership Deficiency and Cash Flows as of
and through the end of such fiscal year, setting forth in each case in
comparative form the figures for the preceding fiscal year. The Consolidated
Balance Sheets and Consolidated Statements of Income, Changes in Partnership
Deficiency and Cash Flows shall be audited and certified without qualification
by the Accountants, which certification shall (i) state that the examination by
such Accountants in connection with such Consolidated financial statements has
been made in accordance with generally accepted auditing standards and,
accordingly, included such tests of the accounting records and such other
auditing procedures as were considered necessary in the circumstances, and (ii)
include the opinion of such Accountants that such Consolidated financial
statements have been prepared in accordance with GAAP in a manner consistent
with prior fiscal periods, except as otherwise specified in such opinion.
(b) As soon as available, but in any event within 45 days
after the end of each of the first three fiscal quarters of each fiscal year, a
copy of the Consolidated
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Balance Sheet of the Borrower as at the end of each
such quarterly period, together with the related Consolidated Statements of
Income and Cash Flows for such period and for the elapsed portion of the fiscal
year through such date, setting forth in each case in comparative form the
figures for the corresponding periods of the preceding fiscal year, certified
by a Financial Officer of the Borrower, as presenting fairly in all material
respects the Consolidated financial condition and the Consolidated results of
operations of the Borrower and its Restricted Subsidiaries.
(c) Within 45 days after the end of each of the first three
fiscal quarters (90 days after the end of the last fiscal quarter), a
Compliance Certificate, certified by a Financial Officer of the Borrower.
(d) Such other information as the Agent or any Lender may
reasonably request from time to time.
Section 7.2 CERTIFICATES; OTHER INFORMATION
Furnish to the Agent and each Lender:
(a) Prompt written notice if: (i) any Indebtedness of the
Borrower or any of its Subsidiaries in an aggregate amount in excess of
$1,000,000 is declared or shall become due and payable prior to its stated
maturity, or is called and not paid when due, (ii) a default shall have
occurred under, or the holder or obligee of, any note (other than the Notes),
certificate, security or other evidence of Indebtedness, with respect to any
other Indebtedness of the Borrower or any of its Subsidiaries has the right to
declare Indebtedness in an aggregate amount in excess of $1,000,000 due and
payable prior to its stated maturity, or (iii) there shall occur and be
continuing a Default;
(b) Prompt written notice of: (i) any citation, summons,
subpoena, order to show cause or other document naming the Borrower or any of
its Subsidiaries a party to any proceeding before any Governmental Authority
which could reasonably be expected to have a Material Adverse Effect or which
calls into question the validity or enforceability of any of the Loan
Documents, and include with such notice a copy of such citation, summons,
subpoena, order to show cause or other document, (ii) any lapse or other
termination of any material license, permit, franchise or other authorization
issued to the Borrower or any of its Subsidiaries by any Person or Governmental
Authority, and (iii) any refusal by any Person or Governmental Authority to
renew or extend any such material license, permit, franchise or other
authorization, which lapse, termination, refusal or dispute could reasonably be
expected to have a Material Adverse Effect;
(c) Promptly upon becoming available, copies of all (i)
regular, periodic or special reports, schedules and other material which the
Borrower or any of its Subsidiaries may now or hereafter be required to file
with or deliver to any securities exchange or the SEC, or any other
Governmental Authority succeeding to the functions
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thereof and (ii) material news releases and annual reports relating to the
Borrower or any of its Subsidiaries;
(d) Prompt written notice in the event that the Borrower, any
of its Subsidiaries or any ERISA Affiliate knows, or has reason to know, that
(i) any Termination Event with respect to a Pension Plan has occurred or will
occur, (ii) any condition exists with respect to a Pension Plan which presents
a material risk of termination of the Pension Plan, imposition of an excise
tax, requirement to provide security to the Pension Plan or other liability on
the Borrower, any of its Subsidiaries or any ERISA Affiliate, (iii) the
Borrower, any of its Subsidiaries or any ERISA Affiliate has applied for a
waiver of the minimum funding standard under Section 412 of the Code with
respect to a Pension Plan, (iv) the aggregate amount of the Unfunded Pension
Liabilities under all Pension Plans is in excess of $50,000, (v) the aggregate
amount of Unrecognized Retiree Welfare Liability under all applicable Employee
Benefit Plans is in excess of $50,000, (vi) the Borrower, any of its
Subsidiaries or any ERISA Affiliate has engaged in a Prohibited Transaction
with respect to an Employee Benefit Plan, (vii) the imposition of any tax under
Section 4980B(a) of the Code or (viii) the assessment of a civil penalty under
Section 502(c) of ERISA, together with a certificate of the president or a
Financial Officer of the Borrower setting forth the details of such event and
the action which the Borrower, such Subsidiary or such ERISA Affiliate proposes
to take with respect thereto, together with a copy of all notices and filings
with respect thereto.
(e) Prompt written notice in the event that Borrower, any of
its Subsidiaries or any ERISA Affiliate shall receive a demand letter from the
PBGC notifying the Borrower, such Subsidiary or such ERISA Affiliate of any
final decision finding liability and the date by which such liability must be
paid, together with a copy of such letter and a certificate of the president or
a Financial Officer of the Borrower setting forth the action which the
Borrower, such Subsidiary or such ERISA Affiliate proposes to take with respect
thereto.
(f) Promptly upon the same becoming available, and in any
event by the date such amendment is adopted, a copy of any Pension Plan
amendment that the Borrower, any of its Subsidiaries or any ERISA Affiliate
proposes to adopt which would require the posting of security under Section
401(a)(29) of the Code, together with a certificate of the president or a
Financial Officer of the Borrower setting forth the reasons for the adoption of
such amendment and the action which the Borrower, such Subsidiary or such ERISA
Affiliate proposes to take with respect thereto.
(g) As soon as possible and in any event by the tenth day
after any required installment or other payment under Section 412 of the Code
owed to a Pension Plan shall have become due and owing and remain unpaid a copy
of the notice of failure to make required contributions provided to the PBGC by
the Borrower, any of its Subsidiaries or any ERISA Affiliate under Section
412(n) of the Code, together with a
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certificate of the president or a Financial Officer setting forth the action
which the Borrower, such Subsidiary or such ERISA Affiliate proposes to take
with respect thereto.
(h) If the termination of any Pension Plan would result in
the imposition of any tax under Section 4980 of the Code, then as soon as
possible, but in no event less than 60 days before the due date of the tax, a
certificate of the president or a Financial Officer of the Borrower setting
forth the estimated amount of such tax, any reversion, and the proposed use of
such reversion. This subsection shall apply to a transaction notwithstanding a
reduction or complete elimination of a tax because of the operation of either
Sections 4980(d) or 420(a)(3)(A) of the Code.
(i) Prompt written notice of any order, notice, claim or
proceeding received by, or brought against, the Borrower or any of its
Subsidiaries, or with respect to any of the Real Property, under any
Environmental Law.
(j) Such other information as the Agent or any Lender shall
reasonably request from time to time.
Section 7.3 LEGAL EXISTENCE
Except as may otherwise be permitted by Sections 8.3 and 8.4,
maintain, and cause each of its Restricted Subsidiaries (other than Finance) to
maintain, its corporate, partnership or analogous existence, as the case may
be, in good standing in the jurisdiction of its incorporation or formation and
in each other jurisdiction in which the failure so to do could reasonably be
expected to have a Material Adverse Effect.
Section 7.4 TAXES
Pay and discharge when due, and cause each of its
Subsidiaries so to do, all Taxes, upon or with respect to the Borrower or such
Subsidiary and all Taxes upon the income, profits and Property of the Borrower
and its Subsidiaries, which if unpaid, could reasonably be expected to have a
Material Adverse Effect or become a Lien on Property of the Borrower or any
Restricted Subsidiary (other than a Lien described in Section 8.2(i)), unless
and to the extent only that such Taxes, shall be contested in good faith and by
appropriate proceedings diligently conducted by the Borrower or such Restricted
Subsidiary and provided that any such contested Tax, shall not constitute, or
create, a Lien on any Property of the Borrower or such Restricted Subsidiary
senior to the Liens, if any, granted to the Agent and the Lenders by the
Collateral Documents on such Property, and, provided further, that the Borrower
shall give the Agent prompt notice of such contest and that such reserve or
other appropriate provision as shall be required by the Accountants in
accordance with GAAP shall have been made therefor.
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Section 7.5 INSURANCE
(a) Generally. Maintain, and cause each of its Restricted
Subsidiaries to maintain, insurance with financially sound insurance carriers
on such of its Property, against at least such risks, and in at least such
amounts, as are usually insured against by similar businesses, including,
without limitation, public liability (bodily injury and property damage),
fidelity, business interruption, and workers' compensation with deductibles
which are customary for companies engaged in similar businesses, and which, in
the case of property insurance, shall be (i) in amounts sufficient to prevent
the Borrower or such Restricted Subsidiary from becoming a coinsurer, and (ii)
against all risks; and file with the Agent within ten days after request
therefor a detailed list of such insurance then in effect, stating the names of
the carriers thereof, the policy numbers, the insureds thereunder, the amounts
of insurance, dates of expiration thereof, and the Property and risks covered
thereby, together with a certificate of the Financial Officer (or such other
officer as shall be acceptable to the Agent) of the Borrower certifying that in
the opinion of such officer such insurance is adequate in nature and amount,
complies with the obligations of the Borrower under this Section 7.5, and is in
full force and effect.
(b) Insurance Covering Collateral. Promptly upon request
therefor, deliver or cause to be delivered to the Agent originals or duplicate
originals of all such policies of insurance. All such insurance policies in
respect of property insurance and business interruption insurance shall contain
a standard loss payable clause and shall be endorsed to provide that, in
respect of the interests of the Agent, the Issuing Bank and the Lenders: (i)
the Agent, on behalf of the Lenders, shall be an additional insured, (ii) 30
days' prior written notice of any cancellation, reduction of amounts payable,
or any changes and amendments shall be given to the Agent, and (iii) the Agent
shall have the right, but not the obligation, to pay any premiums due or to
acquire other such insurance upon the failure of the Borrower or such
Restricted Subsidiary to pay the same or to so insure. All property insurance
policies shall name the Agent, on behalf of the Lenders, as sole loss payee in
respect of each claim relating to the Collateral and resulting in a payment
under any such insurance policy exceeding $100,000. Provided that no Default
shall exist, the Agent agrees, promptly upon its receipt thereof, to pay over
to the Borrower the proceeds of such payment to enable the Borrower to repair,
restore or replace the Property subject to such claim. If the Borrower elects
not to repair, restore or replace Property in respect of which it receives
insurance proceeds, upon the 270th day after such receipt the Aggregate
Commitment Amount shall be reduced automatically by an amount equal to such
proceeds. If a Default shall then exist, the Agent shall (i) hold the proceeds
of such payment as Collateral until such Default shall no longer exist and then
pay over the same to the Borrower to enable the Borrower to repair, restore or
replace or cause to be repaired, restored or replaced the Property subject to
the claim which resulted in such payment or (ii) hold such proceeds as
Collateral and apply the same to the obligations of the Borrower under the Loan
Documents in such order, in such
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amounts and at such times as the Agent, with the consent of Required Lenders,
shall decide.
(c) Concurrent Insurance. Neither the Borrower nor any of its
Restricted Subsidiaries shall take out separate insurance concurrent in form or
contributing in the event of loss with that required to be maintained pursuant
to subsection (b) above unless the Agent has approved the carrier and the form
and content of the insurance policy, including, without limitation, naming the
Agent as an additional insured and sole loss payee thereunder.
Section 7.6 PERFORMANCE OF OBLIGATIONS
Pay and discharge when due, and cause each of its
Subsidiaries so to do, all lawful Indebtedness, obligations and claims for
labor, materials and supplies or otherwise which, if unpaid, might (i) have a
Material Adverse Effect, or (ii) become a Lien upon Property of the Borrower or
any of its Restricted Subsidiaries other than a Permitted Lien, unless and to
the extent only that the validity of such Indebtedness, obligation or claim
shall be contested in good faith and by appropriate proceedings diligently
conducted, and provided that the Borrower shall give the Agent prompt notice of
any such contest and that such reserve or other appropriate provision as shall
be required by the Accountants in accordance with GAAP shall have been made
therefor.
Section 7.7 CONDITION OF PROPERTY
At all times, maintain, protect and keep in good repair,
working order and condition (ordinary wear and tear excepted), and cause each
of its Restricted Subsidiaries so to do, all Property necessary to the
operation of the Borrower's or such Restricted Subsidiary's business.
Section 7.8 OBSERVANCE OF LEGAL REQUIREMENTS
Observe and comply in all respects, and cause each of its
Subsidiaries so to do, with all laws, ordinances, orders, judgments, rules,
regulations, certifications, franchises, permits, licenses, directions and
requirements of all Governmental Authorities, which now or at any time
hereafter may be applicable to it, a violation of which could reasonably be
expected to have a Material Adverse Effect, except such thereof as shall be
contested in good faith and by appropriate proceedings diligently conducted by
it, provided that the Borrower shall give the Agent prompt notice of such
contest and that such reserve or other appropriate provision as shall be
required by the Accountants in accordance with GAAP shall have been made
therefor.
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Section 7.9 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS
At all reasonable times, upon reasonable prior notice, permit
representatives of the Agent and each Lender to visit the offices of the
Borrower and each of its Subsidiaries, to examine the books and records thereof
and Accountants' reports relating thereto, and to make copies or extracts
therefrom, to discuss the affairs of the Borrower and each such Subsidiary with
the respective officers thereof, and to examine and inspect the Property of the
Borrower and each such Subsidiary and to meet and discuss the affairs of the
Borrower and each such Subsidiary with the Accountants.
Section 7.10 AUTHORIZATIONS
Maintain, and cause each of its Restricted Subsidiaries to
maintain, in full force and effect, all material licenses, franchises, permits,
licenses, authorizations and other rights as are necessary for the conduct of
its business.
Section 7.11 FINANCIAL COVENANTS
(a) Interest Coverage Ratio. Maintain as of each fiscal
quarter end during the periods set forth below, an Interest Coverage Ratio of
not less than the ratios set forth below:
Period Ratio
--------------------------- -----------------
Effective Date through
December 31, 1999 2.00:1.00
January 1, 2000 through
December 31, 2000 2.25:1.00
January 1, 2001 and
Thereafter 2.50:1.00
(b) Fixed Charge Coverage Ratio. Maintain as of each fiscal
quarter end, commencing on June 30, 2001, a Fixed Charge Coverage Ratio of not
less than 1.00:1.00.
(c) Leverage Ratio. Maintain as of any day during the periods
set forth below, a Leverage Ratio of not more than the ratios set forth below:
Period Ratio
--------------------------- -----------------
Effective Date through
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June 30, 2000 6.00:1.00
July 1, 2000 through
December 31, 2000 5.50:1.00
January 1, 2001 through
December 31, 2001 5.00:1.00
January 1, 2002 through 4.50:1.00
December 31, 2002
January 1, 2003 and
Thereafter 4.00:1.00
(d) Proforma Debt Service Coverage Ratio. Maintain as of each
fiscal quarter end, a Proforma Debt Service Coverage Ratio of not less than
1.10:1.00.
Section 7.12 INTEREST RATE PROTECTION ARRANGEMENTS
Commencing no later than 120 days after the Effective Date,
and on each date thereafter, maintain Interest Rate Protection Arrangements,
each in form and substance satisfactory to the Agent, covering at least 40% of
Consolidated Total Debt as of such date, which agreements shall have an initial
term of at least 3 years.
8. NEGATIVE COVENANTS
The Borrower agrees that, so long as this Agreement is in
effect, any Loan or Reimbursement Obligation (contingent or otherwise) in
respect of any Letter of Credit remains outstanding and unpaid, any Letter of
Credit remains outstanding, or any other amount is owing under any Loan
Document to any Lender, the Issuing Bank or the Agent, the Borrower shall not:
Section 8.1 INDEBTEDNESS
Create, incur, assume or suffer to exist any liability for
Indebtedness, or permit any of its Restricted Subsidiaries so to do, except (i)
Indebtedness due under the Loan Documents, (ii) Indebtedness of the Borrower or
any of its Restricted Subsidiaries existing on the date hereof as set forth on
Schedule 8.1, excluding increases and refinancings thereof, (iii) purchase
money Indebtedness (other than any such Indebtedness described in clause (ii)
above) incurred in connection with the purchase, after the date hereof, of any
Property, in an aggregate principal amount not to exceed $5,000,000 at any time
outstanding, (iv) liabilities of the Borrower arising out of Interest Rate
Protection Arrangements covering a notional principal amount not in excess of
the Aggregate Commitment Amount, (v) the Continental Subordinated Note, (vi)
Indebtedness of the
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Borrower to any Guarantor or of any Guarantor to the Borrower or any other
Guarantor, and (vii) Indebtedness of the Borrower in an aggregate principal
amount not to exceed $10,000,000 at any one time outstanding.
Section 8.2 LIENS
Create, incur, assume or suffer to exist any Lien upon any of
its Property, whether now owned or hereafter acquired, or permit any of its
Restricted Subsidiaries so to do, except (i) Liens for Taxes in the ordinary
course of business which are not delinquent or which are being contested in
accordance with Section 7.4, provided that enforcement of such Liens is stayed
pending such contest, (ii) Liens in connection with workers' compensation,
unemployment insurance or other social security obligations (but not ERISA),
(iii) deposits or pledges to secure bids, tenders, contracts (other than
contracts for the payment of money), leases, statutory obligations, surety and
appeal bonds and other obligations of like nature arising in the ordinary
course of business, (iv) zoning ordinances, easements, rights of way, minor
defects, irregularities, and other similar restrictions affecting Real Property
which do not adversely affect the value of such Real Property or the financial
condition of the Borrower or such Restricted Subsidiary or impair its use for
the operation of the business of the Borrower or such Restricted Subsidiary,
(v) Liens arising by operation of law such as mechanics', materialmen's,
carriers', warehousemen's liens incurred in the ordinary course of business
which are not delinquent or which are being contested in accordance with
Section 7.6, provided that enforcement of such Liens is stayed pending such
contest, (vi) Liens arising out of judgments or decrees which are being
contested in accordance with Section 7.6, provided that enforcement of such
Liens is stayed pending such contest, (vii) Liens in favor of the Agent and the
Lenders under the Loan Documents, (viii) purchase money Liens on Property of
the Borrower or any of its Restricted Subsidiaries acquired after the date
hereof to secure Indebtedness of the Borrower permitted by Section 8.1(iii),
incurred in connection with the acquisition of such Property, provided that
each such Lien is limited to such Property so acquired, (ix) Liens on Property
of the Borrower and its Restricted Subsidiaries existing on the Effective Date
as set forth on Schedule 8.2 as renewed from time to time, but not any
increases in the amounts secured thereby, (x) the Lien, if any, of Continental
under the Agreement of Assignment as in effect on November 14, 1997, provided
that the same attaches only to the Common Limited Partnership Units of the
Borrower held by Continental and referred to therein and secures only the
Borrower's obligations under the Agreement of Assignment as in effect on
November 14, 1997, and the Continental Subordinated Note, and (xi) Liens on the
Capital Stock of any Unrestricted Subsidiary.
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Section 8.3 MERGER, CONSOLIDATIONS AND ACQUISITIONS
Consolidate with, be acquired by, merge into or with any
Person, or make any Acquisition, or permit any of its Restricted Subsidiaries
so to do, except:
(a) Capital Expenditures permitted by Section 8.7;
(b) provided that (i) the Agent shall have received ten days'
prior written notice thereof and (ii) immediately before and after giving
effect thereto no Default shall exist, any direct or indirect whollyowned
Restricted Subsidiary of the Borrower may merge or consolidate with the
Borrower or any other direct or indirect whollyowned Restricted Subsidiary of
the Borrower, provided that in the event of a merger of the Borrower and such
whollyowned Restricted Subsidiary, the Borrower shall be the survivor thereof;
(c) mergers involving Restricted Subsidiaries as part of an
Acquisition permitted by subsection (f) below, provided that no Capital Stock
is issued in connection therewith except to the extent permitted by Section
8.14;
(d) Investments permitted by Section 8.5;
(e) Acquisitions permitted under Section 8.4;
(f) provided that both immediately before and after giving
effect thereto, no Default shall or would exist (1) the Falcon Swap, and/or (2)
the Acquisition of certain cable television systems located in Indiana and
previously identified to the Lenders from Americable International - Michigan -
Inc. and certain affiliates thereof for total consideration not in excess of
$10,850,000 (exclusive of normal course adjustments) in cash (the "Americable
Acquisition"); and
(g) additional Acquisitions, provided, however, that the
Acquisition Cost in respect thereof shall not exceed $10,000,000 in the
aggregate during any fiscal year and $25,000,000 in the aggregate for the
period from the Effective Date to the termination of this Agreement and
provided further that with respect to any Acquisition whenever consummated,
that (i) no Default shall exist immediately before or after giving effect to
such Acquisition, the Borrower will be in compliance with each of the financial
covenants contained in Section 7.11 on a pro-forma basis after giving effect to
such Acquisition and any Indebtedness incurred or assumed in connection
therewith which is permitted by Section 8.1, and, immediately after giving
effect to each such Acquisition, all of the representations and warranties
contained in Section 4 shall be true and correct as if then made and the Agent
shall have received a certificate of a Financial Officer of the Borrower to
such effect, (ii) the Agent and the Lenders shall have been given five Business
Days' prior written notice thereof, (iii) the Agent shall have received a
certificate
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signed by a Financial Officer of the Borrower, identifying the Person or
Property to be acquired, the name of the Person making such Acquisition and
setting forth the total consideration to be paid in respect of such
Acquisition, (iv) the conditions of Section 8.14 shall have been satisfied and
(v) the Agent shall have received such other information or documents as the
Agent shall have reasonably requested.
Section 8.4 DISPOSITIONS AND EXCHANGES
Make any Disposition or consummate any Exchange, or permit
any of its Restricted Subsidiaries so to do, except:
(a) Dispositions of any Investments permitted under Section
8.5(a), (b) or (c);
(b) Dispositions of Property which, in the reasonable opinion
of the Borrower or such Restricted Subsidiary, is obsolete or no longer useful
in the conduct of its business;
(c) additional Dispositions, and one or more Exchanges,
provided that with respect to each such Disposition and each such Exchange
pursuant to this Section 8.4(c), the following conditions have been satisfied:
(i) no Default shall exist immediately before or after
giving effect thereto,
(ii) except with respect to the Excluded Transactions, the
sum of (A) a fraction, the numerator of which is the
Consolidated Cash Flow attributable to the Property
being disposed of or exchanged, as the case may be,
and the denominator of which is the Consolidated Cash
Flow, in each case for the four fiscal quarter period
ended immediately preceding the date of such
Disposition or Exchange, as the case may be, plus (B)
with respect to each other Property disposed of or
exchanged, as the case may be, in accordance with this
Section 8.4(c) during the one year period ending on
the date of such Disposition or such Exchange, as the
case may be, the fraction calculated with respect
thereto under Section 8.4(c)(ii)(A) at the time of the
Disposition or Exchange thereof, as the case may be,
shall not exceed 10%,
(iii) except with respect to the Excluded Transactions, the
sum of (A) the fraction calculated with respect to
such Property being disposed of or exchanged, as the
case may be, under Section 8.4(c)(ii)(A), plus (B)
with respect to each other Property disposed of or
exchanged, as the case may be, in accordance with this
Section 8.4(c) during the period commencing on the
Effective Date and ending on the date of such
Disposition or such Exchange, as the case may be, the
fraction calculated with respect thereto under Section
8.4(c)(ii)(A) at the time of the Disposition or
Exchange thereof, as the case may be, shall not exceed
25%,
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(iv) in the case of such Exchange, the Property disposed of
by the Borrower and its Restricted Subsidiaries shall
be substantially similar in nature to the Property
acquired by the Borrower and its Restricted
Subsidiaries, and
(v) within ten Business Days prior to each such
Disposition or Exchange, as the case may be, a
Financial Officer of the Borrower shall have delivered
to the Agent a certificate, in detail and dated as of
the date thereof, to the foregoing effects, and (A)
demonstrating proforma compliance with each of the
financial covenants contained in Section 7.11 (and
such other Sections as the Agent may reasonably
request) immediately after giving effect thereto based
on the financial statements as of the end of the most
recent fiscal period for which financial statements
have been provided to the Lenders under and in
accordance with Section 7.1(a) or 7.1(b), and (B) in
the case of such Exchange, attaching such financial
statements, projections and other information as the
Agent may reasonably request; and
(d) other Dispositions and Exchanges provided that the
Supermajority Lenders shall have consented to each such Disposition and
Exchange.
Section 8.5 INVESTMENTS, LOANS, ETC.
At any time, purchase or otherwise acquire, hold or invest in
any derivative product or the Capital Stock of, or any other interest in, any
Person, or make any loan or advance to, or enter into any arrangement for the
purpose of providing funds or credit to, or make any other investment, whether
by way of capital contribution, time deposit or otherwise, in or with any
Person, or permit any of its Restricted Subsidiaries so to do, (all of which
are sometimes referred to herein as "Investments") except:
(a) Investments in Cash Equivalents;
(b) Investments existing on the date hereof as set forth on
Schedule 8.5;
(c) normal business banking accounts and short-term
certificates of deposit and time deposits in, or issued by, federally insured
institutions in amounts not exceeding the limits of such insurance;
(d) expense advances on behalf of Affiliates, in an aggregate
outstanding principal amount not to exceed $5,000,000 at any one time;
(e) Permitted Acquisitions;
(f) demand debt investments by the Borrower in one or more of
the Guarantors, or by any one or more of the Guarantors in any one or more of
the other Guarantors;
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(g) additional Investments in ICCO Operating in an aggregate
amount not to exceed $8,000,000; and
(h) Interest Rate Protection Arrangements as provided in
Section 7.12.
Section 8.6 RESTRICTED PAYMENTS
Declare or pay any Restricted Payments payable in cash or
otherwise or apply any of its Property thereto or set apart any sum therefor,
or permit any of its Restricted Subsidiaries so to do, except that:
(i) a whollyowned Restricted Subsidiary of the Borrower
may declare and pay Restricted Payments to the
Borrower; and
(ii) the Borrower may from time to time pay cash dividends
and distributions to its partners for the sole purpose
of paying the ongoing estimated and actual Federal,
state and local income tax liabilities, if any, of
such partners, provided that (A) immediately before
giving effect thereto, no Event of Default under
Sections 9.1(a), 9.1(b), 9.1(h) or 9.1(i) shall exist,
and (B) such dividends and distributions shall not, in
the aggregate, exceed in any taxable year, an amount
not in excess of the aggregate amount of Federal,
state and local income tax liabilities due and payable
by such partners during such taxable year, solely as a
direct result of each partner being a partner of the
Borrower, assuming, for purposes of this Section
8.6(ii), that each such partner will be taxed on the
net amount set forth in his or her respective form(s)
K-1 in respect of such taxable year at the rate
(expressed as a percentage) equal to the sum of the
aggregate of the highest Federal, state and local
income tax rates (expressed as a percentage and taking
into account the provisions of Section 68 of the Code)
in effect for such taxable year and applicable to an
individual resident of New York City with respect to
the type of income (including ordinary, capital and
alternative minimum taxable income) set forth on such
partner's form K1.
Section 8.7 CAPITAL EXPENDITURES.
(a) During any fiscal year ending on or before December 31,
2000, make any Capital Expenditures, or incur any obligation to make Capital
Expenditures, or permit any of its Restricted Subsidiaries so to do, except any
one or more of the following: (i) Acquisitions permitted under Section 8.3, and
(ii) any Capital Expenditure made in any fiscal year set forth below which,
when added to all of the other Capital Expenditures of the Borrower and its
Restricted Subsidiaries on a Consolidated basis during such fiscal year
(excluding all of those permitted by Section 8.7(a)(i)), does not exceed the
amount (the "Allowable Amount") set forth below adjacent to such fiscal year:
Fiscal Year Amount
1998 $ 5,000,000
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1999 $35,000,000
2000 $15,000,000
(b) In the event that, in respect of any fiscal year referred
to in Section 8.7(a), the Allowable Amount shall exceed the actual amount of
Capital Expenditures of the Borrower and its Restricted Subsidiaries on a
Consolidated basis, the Borrower and its Restricted Subsidiaries may make
additional Capital Expenditures in the immediately succeeding fiscal year in an
aggregate amount not exceeding such excess.
Section 8.8 BUSINESS AND NAME CHANGES
Materially change the nature of the business of the Borrower
and its Restricted Subsidiaries as conducted on the Effective Date, or alter or
modify its name, structure or status, or change its fiscal year from that in
effect on the Effective Date, or permit any of its Restricted Subsidiaries so
to do.
Section 8.9 SUBSIDIARIES
Create or acquire any other Subsidiary, or permit any of its
Restricted Subsidiaries so to do, except as permitted pursuant to and in
accordance with Section 8.14.
Section 8.10 ERISA
Establish or contribute, or permit any of its Subsidiaries so
to do, to any Pension Plan (other than an Existing Pension Plan), except to the
extent that the same could not reasonably be expected to result in a Material
Adverse Effect, cause any Pension Plan to have a Funded Current Liability
Percentage of less than 60%, or increase benefits, or permit any of its
Subsidiaries so to do, under any Employee Benefit Plan or establish or
contribute to any new Employee Benefit Plan, except to the extent that the same
could not reasonably be expected to result in a Material Adverse Effect.
Section 8.11 PREPAYMENTS OF INDEBTEDNESS
Prepay or obligate itself to prepay, in whole or in part, any
Indebtedness (other than Indebtedness under the Loan Documents), or permit any
of its Restricted Subsidiaries so to do, except that the Borrower or any of its
Restricted Subsidiaries may voluntarily prepay any such Indebtedness provided
that immediately before and after giving effect thereto, no Default shall or
would exist.
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Section 8.12 AMENDMENTS, ETC. OF ORGANIZATIONAL DOCUMENTS
Enter into or agree to any amendment, modification or waiver
of any term or condition of its Organizational Documents or the Continental
Subordinated Note in any way which would adversely affect the interests of the
Agent and the Lenders under any of the Loan Documents, or permit any of its
Restricted Subsidiaries so to do.
Section 8.13 TRANSACTIONS WITH AFFILIATES
Become a party to any transaction with an Affiliate unless
the Borrower's Managing Person shall have determined that the terms and
conditions relating thereto are as favorable to the Borrower as those which
would be obtainable at the time in a comparable armslength transaction with a
Person other than an Affiliate, or permit any of its Restricted Subsidiaries so
to do.
Section 8.14 ISSUANCE OF ADDITIONAL CAPITAL STOCK
Create or acquire the Capital Stock in, or Property of, any
Person which shall thereupon become a direct or indirect Restricted Subsidiary
(each, a "New Subsidiary"), or issue any additional Capital Stock, or permit
any of its Restricted Subsidiaries so to do, except as follows:
(a) the Borrower may issue additional Capital Stock, provided
that (i) the same is not otherwise prohibited under the Loan Documents, and
(ii) there shall be no Lien upon such Capital Stock;
(b) a Restricted Subsidiary may issue additional Capital
Stock to its immediate parent provided that (i) the same is not otherwise
prohibited under the Loan Documents, (ii) simultaneously therewith (A) such
Capital Stock shall be pledged by the Borrower or any Guarantor owning such
Capital Stock to the Agent, for the ratable benefit of the Lenders, pursuant to
the Borrower Security Agreement or Subsidiary Guaranty, as the case may be, and
(B) appropriate stock powers, UCC Financing Statements, and such other
documentation as the Agent shall reasonably request shall be delivered to the
Agent, and (iii) there shall be no Lien upon such Capital Stock except for the
Lien created in favor of the Agent, for the ratable benefit of the Lenders,
under the Borrower Security Agreement or Subsidiary Guaranty, as the case may
be; and
(c) the Borrower or any of its Restricted Subsidiaries may
create or acquire a New Subsidiary provided that: (i) in the case of an
Acquisition, such Acquisition is a Permitted Acquisition; (ii) the Agent shall
have received 10 Business Days' advance written notice thereof; (iii) prior to
or simultaneously with the consummation of such Acquisition, (A) such New
Subsidiary shall execute and deliver to the Agent a supplement to the
Subsidiary Guaranty in accordance with the terms thereof
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together with (1) a certificate, dated the date such New Subsidiary shall have
become a party to the Subsidiary Guaranty, executed by such New Subsidiary and
substantially in the form of, and with substantially the same attachments as,
the certificate which would have been required under Section 5.1 if such New
Subsidiary had become a party to the Subsidiary Guaranty on the Effective Date
and (2) such certificates, stock powers, instruments, UCC Financing Statements,
UCC, tax and judgment lien searches and all other documents, instruments and
agreements which would have been required under the Loan Documents if such New
Subsidiary had become a party to the Subsidiary Guaranty on the Effective Date;
(B) each Credit Party owning Capital Stock of such New Subsidiary shall deliver
certificates evidencing such Capital Stock to the Agent as additional
Collateral, together with appropriate stock powers; (iv) the Agent shall have
received an opinion of counsel to the New Subsidiary, in all respects
satisfactory to the Agent and dated the date of such Supplement to the
Subsidiary Guaranty; and (v) the Agent shall have received such other documents
as the Agent shall have reasonably requested.
Section 8.15 LIMITATION ON CERTAIN RESTRICTIONS ON RESTRICTED
SUBSIDIARIES
Directly or indirectly create or otherwise cause or suffer to
exist or become effective, any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Borrower to (i) pay Restricted Payments or any
Indebtedness owed to the Borrower or any Restricted Subsidiary of the Borrower,
(ii) make loans or advances to the Borrower or any Restricted Subsidiary of the
Borrower or (iii) transfer any of its Property to the Borrower, or permit any
of its Restricted Subsidiaries so to do, except for such encumbrances or
restrictions existing under or by reason of (x) applicable law and (y) the Loan
Documents.
9. DEFAULT
Section 9.1 EVENTS OF DEFAULT
The following shall each constitute an "Event of Default"
hereunder:
(a) The failure of the Borrower to make any payment of
principal on any Note, or any reimbursement payment hereunder or under any
Reimbursement Agreement, when due and payable; or
(b) The failure of the Borrower to make any payment of
interest, Fees, expenses or other amounts payable under any Loan Document or
otherwise to the Agent with respect to the loan facilities established
hereunder within three Business Days of the date when due and payable; or
(c) The failure of the Borrower to observe or perform any
covenant or agreement contained in Sections 2.6, 7.3, 7.11 or Section 8; or
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(d) The failure of any Credit Party to observe or perform any
other term, covenant, or agreement contained in any Loan Document and such
failure shall have continued unremedied for a period of 30 days after such
Credit Party shall have obtained knowledge thereof; or
(e) Any representation or warranty made by any Credit Party
(or by an officer thereof on its behalf) in any Loan Document or in any
certificate, report, opinion (other than an opinion of counsel) or other
document delivered or to be delivered pursuant thereto, shall prove to have
been incorrect or misleading (whether because of misstatement or omission) in
any material respect when made; or
(f) Liabilities and/or other obligations of the Borrower
(other than its obligations under the Notes), any of its Restricted
Subsidiaries or any other Credit Party, whether as principal, guarantor, surety
or other obligor, for the payment of any Indebtedness or operating leases in an
aggregate amount in excess of $3,000,000 or in respect of the Continental
Subordinated Note (i) shall become or shall be declared to be due and payable
prior to the expressed maturity thereof (other than pursuant to Section 2.5(b)
of the Continental Subordinated Note), or (ii) shall not be paid when due or
within any grace period for the payment thereof, (iii) any holder of any such
obligation (other than a holder of any such obligation evidenced by the
Continental Subordinated Note) shall have the right to declare such obligation
due and payable prior to the expressed maturity thereof, or (iv) as a
consequence of the occurrence or continuation of any event or condition, the
Borrower, any of its Restricted Subsidiaries or such other Credit Party has
become obligated to purchase or repay any Indebtedness before its regularly
scheduled maturity date (other than pursuant to Section 2.5(b) of the
Continental Subordinated Note); or
(g) Any license, franchise, permit, right, approval or
agreement of the Borrower, any of its Restricted Subsidiaries or any other
Credit Party is not renewed, or is suspended, revoked or terminated and the
nonrenewal, suspension, revocation or termination thereof would have a Material
Adverse Effect; or
(h) Any Credit Party, the General Partner, or any
Unrestricted Subsidiary shall (i) suspend or discontinue its business, (ii)
make an assignment for the benefit of creditors, (iii) generally not be paying
its debts as such debts become due, (iv) admit in writing its inability to pay
its debts as they become due, (v) file a voluntary petition in bankruptcy, (vi)
become insolvent (however such insolvency shall be evidenced), (vii) file any
petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment of debt, liquidation or dissolution or similar relief
under any present or future statute, law or regulation of any jurisdiction,
(viii) petition or apply to any tribunal for any receiver, custodian or any
trustee for any substantial part of its Property, (ix) be the subject of any
such proceeding filed against it which remains undismissed for a period of 60
days, (x) file any answer admitting or not
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contesting the material allegations of any such petition filed against it or
any order, judgment or decree approving such petition in any such proceeding,
(xi) seek, approve, consent to, or acquiesce in any such proceeding, or in the
appointment of any trustee, receiver, sequestrator, custodian, liquidator, or
fiscal agent for it, or any substantial part of its Property, or an order is
entered appointing any such trustee, receiver, custodian, liquidator or fiscal
agent and such order remains in effect for 60 days, or (xii) take any formal
action for the purpose of effecting any of the foregoing or looking to the
liquidation or dissolution of such Credit Party, the General Partner, or any
Unrestricted Subsidiary, as the case may be; or
(i) An order for relief is entered under the United States
bankruptcy laws or any other decree or order is entered by a court having
jurisdiction (i) adjudging any Credit Party, the General Partner or any
Unrestricted Subsidiary bankrupt or insolvent, (ii) approving as properly filed
a petition seeking reorganization, liquidation, arrangement, adjustment or
composition of or in respect of any Credit Party, the General Partner or any
Unrestricted Subsidiary under the United States bankruptcy laws or any other
applicable Federal or state law, (iii) appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar official) of any
Credit Party, the General Partner or any Unrestricted Subsidiary or of any
substantial part of the Property of any thereof, or (iv) ordering the winding
up or liquidation of the affairs of any Credit Party, the General Partner or
any Unrestricted Subsidiary, and any such decree or order continues unstayed
and in effect for a period of 60 days; or
(j) Judgments or decrees against the Borrower, any of its
Restricted Subsidiaries or any other Credit Party aggregating in excess of
$2,000,000 shall remain unpaid, unstayed on appeal, undischarged, unbonded or
undismissed for a period of 30 days; or
(k) The occurrence of an Event of Default as defined in any
Collateral Document, or, except as otherwise permitted by the Loan Documents,
any security interest or lien in favor of the Agent, the Issuing Bank or any
Lender thereunder shall cease for any reason to be a first priority perfected
security interest or lien; or
(l) Any Loan Document shall cease, for any reason, to be in
full force and effect, or any Credit Party shall so assert in writing or shall
disavow any of its obligations thereunder; or
(m) (i) any Termination Event shall occur; (ii) any
Accumulated Funding Deficiency, whether waived, shall exist with respect to any
Pension Plan; (iii) any Person shall engage in any Prohibited Transaction
involving any Employee Benefit Plan; (iv) the Borrower, any of its Restricted
Subsidiaries or any ERISA Affiliate shall fail to pay when due an amount which
is payable by it to the PBGC or to a Pension Plan under Title IV of ERISA; (v)
the imposition of any tax under Section 4980B(a) of the
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Code; (vi) the assessment of a civil penalty with respect to any Employee
Benefit Plan under Section 502(c) of ERISA; or (vii) any other event or
condition shall occur or exist with respect to an Employee Benefit Plan which
would have a Material Adverse Effect; or
(n) any one or more of the following shall occur:
(1) the occurrence of a Change of Control as defined in,
or any other similar event with respect to the
Borrower defined or otherwise referred to in, the
partnership agreement of the Borrower as in effect
from time to time (the "Partnership Agreement");
(2) the occurrence of any event or the consummation of any
transaction if thereafter (a) none of Sidney Knafel
("Knafel"), Michael Willner ("Willner"), or Knafel and
Willner acting together, directly or indirectly
controls all aspects of the Borrower, including
without limitation the day to day management of the
Borrower, decisions regarding fundamental changes to
or in the Borrower and extraordinary transactions
relating to the Borrower, or (b) the aggregate direct
or indirect beneficial ownership interest of Knafel
and his Family Group and of Willner and his Family
Group (collectively, the "K-W Group") in the General
Partner or the general partner of the General Partner
does not exceed 50%; or
(3) the admission of any Person (other than a member of
the K-W Group) as a general partner of the Borrower
(or any successor to the Borrower), but not by reason
of being admitted as a co-general partner of the
Borrower, after which the General Partner must obtain
the consent of, or must act jointly with, such other
Person or any other Person (other than a member of the
K-W Group or any entity controlled by the K-W Group)
in order to take any action which the General Partner
is entitled or required to take pursuant to the
Partnership Agreement in its capacity as the General
Partner.
Section 9.2 CONTRACT REMEDIES
(a) Upon the occurrence of an Event of Default or at any time
thereafter during the continuance thereof, (i) if such event is an Event of
Default specified in clause (h) or (i) above, the Commitments of all of the
Lenders and the Letter of Credit
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Commitment shall immediately and automatically terminate and the Loans, all
accrued and unpaid interest thereon, any Reimbursement Obligations owing or
contingently owing in respect of all outstanding Letters of Credit and all
other amounts owing under the Loan Documents shall immediately become due and
payable, and the Borrower shall forthwith deposit an amount equal to the Letter
of Credit Exposure in a cash collateral account with and under the exclusive
control of the Agent, and the Agent may, and, upon the direction of the
Required Lenders shall, exercise any and all remedies and other rights provided
in the Loan Documents, and (ii) if such event is any other Event of Default,
any or all of the following actions may be taken: (A) with the consent of the
Required Lenders, the Agent may, and upon the direction of the Required Lenders
shall, by notice to the Borrower, declare the Commitments of all of the Lenders
and the Letter of Credit Commitment to be terminated forthwith, whereupon such
Commitments and the Letter of Credit Commitment shall immediately terminate,
and (B) with the consent of the Required Lenders, the Agent may, and upon the
direction of the Required Lenders shall, by notice of default to the Borrower,
declare the Loans, all accrued and unpaid interest thereon, any Reimbursement
Obligations owing or contingently owing in respect of all outstanding Letters
of Credit and all other amounts owing under the Loan Documents to be due and
payable forthwith, whereupon the same shall immediately become due and payable,
and the Borrower shall forthwith deposit an amount equal to the Letter of
Credit Exposure in a cash collateral account with and under the exclusive
control of the Agent, and the Agent may, and upon the direction of the Required
Lenders shall, exercise any and all remedies and other rights provided in the
Loan Documents. Except as otherwise provided in this Section 9.2(a),
presentment, demand, protest and all other notices of any kind are hereby
expressly waived. The Borrower hereby further expressly waives and covenants
not to assert any appraisement, valuation, stay, extension, redemption or
similar laws, now or at any time hereafter in force which might delay, prevent
or otherwise impede the performance or enforcement of any Loan Document.
(b) In the event that the Commitments of all the Lenders and
the Letter of Credit Commitment shall have been terminated or the Loans shall
have been declared due and payable pursuant to the provisions of this Section
9.2, any funds received by the Agent, the Issuing Bank and the Lenders from or
on behalf of the Borrower shall be applied by the Agent, the Issuing Bank and
the Lenders in liquidation of the Loans, the Reimbursement Obligations and the
other obligations of the Borrower under the Loan Documents in the following
manner and order: (i) first, to the payment of interest on, and then the
principal portion of, any Loans which the Agent may have advanced on behalf of
any Lender for which the Agent has not then been reimbursed by such Lender or
the Borrower; (ii) second, to the payment of any fees or expenses due the Agent
from the Borrower, (iii) third, to reimburse the Agent, the Issuing Bank and
the Lenders for any expenses (to the extent not paid pursuant to clause (ii)
above) due from the Borrower pursuant to the provisions of Section 11.5; (iv)
fourth, to the payment of accrued Fees and all other fees, expenses and amounts
due under the Loan Documents (other than principal and interest on the Loans
and the Reimbursement Obligations), (v) fifth, to the payment
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pro rata according to the Outstanding Percentage of each Lender, of interest
due on the Notes; (vi) sixth, to the payment of principal outstanding on the
Loans and under the Reimbursement Agreements, and to the payment of obligations
of the Borrower to the Lenders arising out of Interest Rate Protection
Arrangements to the extent such obligations arising out of such Interest Rate
Protection Arrangements are secured by the Collateral; and (vii) seventh, to
the payment of any other amounts owing to the Agent, the Issuing Bank and the
Lenders under any Loan Document.
10. THE AGENT AND THE COAGENTS
Section 10.1 APPOINTMENT
Each of the Issuing Bank and each Lender hereby irrevocably
designates and appoints BNY as the Agent of the Issuing Bank and such Lender
under the Loan Documents and each of the Issuing Bank and each Lender hereby
irrevocably authorizes the Agent to take such action on its behalf under the
provisions of the Loan Documents and to exercise such powers and perform such
duties as are expressly delegated to the Agent by the terms of the Loan
Documents, together with such other powers as are reasonably incidental
thereto. The duties of the Agent shall be mechanical and administrative in
nature, and, notwithstanding any provision to the contrary elsewhere in any
Loan Document, the Agent shall not have any duties or responsibilities other
than those expressly set forth therein, or any fiduciary relationship with, or
fiduciary duty to, the Issuing Bank or any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into the Loan Documents or otherwise exist against the Agent.
Section 10.2 DELEGATION OF DUTIES
The Agent may execute any of its duties under the Loan
Documents by or through agents or attorneysinfact and shall be entitled to rely
upon, and shall be fully protected in, and shall not be under any liability
for, relying upon, the advice of counsel concerning all matters pertaining to
such duties.
Section 10.3 EXCULPATORY PROVISIONS
Neither the Agent nor any of its officers, directors,
employees, agents, attorneysinfact 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 the Loan Documents (except the Agent for its own gross
negligence or willful misconduct), or (ii) responsible in any manner to the
Issuing Bank or any of the Lenders for any recitals, statements,
representations or warranties made by the Borrower or any other Credit Party or
any officer thereof contained in the Loan Documents or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Agent under or in connection with, the Loan Documents or for the value,
validity, effectiveness,
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genuineness, perfection, enforceability or sufficiency of any of the Loan
Documents or for any failure of the Borrower or any other Credit Party or any
other Person to perform its obligations thereunder. The Agent shall not be
under any obligation to the Issuing Bank or any Lender to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, the Loan Documents, or to inspect the Property, books or
records of the Borrower or any other Credit Party. The Issuing Bank and the
Lenders acknowledge that the Agent shall not be under any duty to take any
discretionary action permitted under the Loan Documents unless the Agent shall
be instructed in writing to do so by the Issuing Bank and Required Lenders and
such instructions shall be binding on the Issuing Bank and all Lenders and all
holders of the Notes; provided, however, that the Agent shall not be required
to take any action which exposes the Agent to personal liability or is contrary
to law or any provision of the Loan Documents. The Agent shall not be under any
liability or responsibility whatsoever, as Agent, to the Borrower or any other
Credit Party or any other Person as a consequence of any failure or delay in
performance, or any breach, by the Issuing Bank or any Lender of any of its
obligations under any of the Loan Documents.
Section 10.4 RELIANCE BY AGENT
The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, opinion, letter, cablegram, telegram, 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 a proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower or any other Credit
Party), independent accountants and other experts selected by the Agent. The
Agent may treat the Issuing Bank or each Lender, as the case may be, or the
Person designated in the last notice filed with it under this Section, as the
holder of all of the interests of the Issuing Bank or such Lender, as the case
may be, in its Loans, Notes, the Letters of Credit and the Reimbursement
Obligations, as applicable, until written notice of transfer, signed by the
Issuing Bank or such Lender (or the Person designated in the last notice filed
with the Agent) and by the Person designated in such written notice of
transfer, in form and substance satisfactory to the Agent, shall have been
filed with the Agent. The Agent shall not be under any duty to examine or pass
upon the validity, effectiveness, enforceability or genuineness of the Loan
Documents or any instrument, document or communication furnished pursuant
thereto or in connection therewith, and the Agent shall be entitled to assume
that the same are valid, effective and genuine, have been signed or sent by the
proper parties and are what they purport to be. The Agent shall be fully
justified in failing or refusing to take any action under the Loan Documents
unless it shall first receive such advice or concurrence of the Required
Lenders as it deems appropriate. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under the Loan Documents in
accordance with a request or direction of the Required Lenders, and such
request or direction and any action taken or failure to act pursuant thereto
shall be
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binding upon the Issuing Bank, all the Lenders and all future holders of the
Notes and the Reimbursement Obligations.
Section 10.5 NOTICE OF DEFAULT
The Agent shall not be deemed to have knowledge or notice of
the occurrence of any Default unless the Agent has received written notice
thereof from the Issuing Bank, a Lender or the Borrower. In the event that the
Agent receives such a notice, the Agent shall promptly give notice thereof to
the Issuing Bank, the Lenders and the Borrower. The Agent shall take such
action with respect to such Default as shall be directed by the Required
Lenders, provided, however, that unless and until the Agent shall have received
such directions, the Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such Default as it
shall deem to be in the best interests of the Lenders.
Each of the Issuing Bank and each Lender expressly
acknowledges that neither the Agent nor any of its respective officers,
directors, employees, agents, attorneys-infact or affiliates has made any
representations or warranties to it and that no act by the Agent hereinafter,
including any review of the affairs of the Borrower or any other Credit Party,
shall be deemed to constitute any representation or warranty by the Agent to
any Lender. Each of the Issuing Bank and each Lender represents to the Agent
that it has, independently and without reliance upon the Agent, the Issuing
Bank or any Lender, and based on such documents and information as it has
deemed appropriate made its own evaluation of and investigation into the
business, operations, Property, financial and other condition and
creditworthiness of the Borrower or any other Credit Party and the value and
Lien status of any collateral security and made its own decision to enter into
this Agreement. Each of the Issuing Bank and each Lender also represents that
it will, independently and without reliance upon the Agent, the Issuing Bank or
any Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, evaluations
and decisions in taking or not taking action under any Loan Document, 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 Borrower or any other Credit Party and the value and
Lien status of any collateral security. Except for notices, reports and other
documents expressly required to be furnished to the Issuing Bank and/or the
Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide the Issuing Bank or any Lender with any credit or
other information concerning the business, operations, Property, financial and
other condition or creditworthiness of the Borrower or any other Credit Party
which at any time may come into the possession of the Agent or any of its
officers, directors, employees, agents, attorneysinfact or affiliates.
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Section 10.7 INDEMNIFICATION
Each Lender agrees to indemnify and hold harmless the Agent
in its capacity as such (to the extent not promptly reimbursed by the Borrower
and without limiting the obligation of the Borrower to do so), pro rata
according to its Outstanding Percentage (or at any time when no Loans are
outstanding and there are no unpaid Reimbursement Obligations, according to its
Commitment Percentage), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever including, without limitation, any amounts
paid to the Lenders (through the Agent) by the Borrower or any other Credit
Party pursuant to the terms of the Loan Documents, that are subsequently
rescinded or avoided, or must otherwise be restored or returned) which may at
any time (including, without limitation, at any time following the payment of
the Loans, the Notes and the Reimbursement Obligations) be imposed on, incurred
by or asserted against the Agent in any way relating to or arising out of the
Loan Documents or any other documents contemplated by or referred to therein or
the transactions contemplated thereby or any action taken or omitted to be
taken by the Agent under or in connection with any of the foregoing; provided,
however, 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 to the extent resulting from the gross
negligence or willful misconduct of the Agent. Without limitation of the
foregoing, each Lender agrees to reimburse the Agent promptly upon demand for
its pro rata share of any costs and expenses (including, without limitation,
reasonable fees and expenses of counsel) payable by the Borrower under Section
11.5, to the extent that the Agent has not been reimbursed for such costs and
expenses, by the Borrower. The failure of any Lender to reimburse the Agent
promptly upon demand for its pro rata share of any amount required to be
reimbursed by the Lenders to the Agent as provided in this Section shall not
relieve any other Lender of its obligation hereunder to reimburse the Agent for
its pro rata share of such amount, but no Lender shall be responsible for the
failure of other Lender to reimburse the Agent for such other Lender's pro rata
share of such amount. The agreements in this Section shall survive the
termination of the Commitments of all of the Lenders, the Letter of Credit
Commitment, and the payment of all amounts payable under the Loan Documents.
Section 10.8 AGENT IN ITS INDIVIDUAL CAPACITY
BNY and its respective affiliates may make secured or
unsecured loans to, accept deposits from, issue letters of credit for the
account of, act as trustee under indentures of, and generally engage in any
kind of business with, the Borrower or any other Credit Party as though BNY
were not Agent hereunder. With respect to the Commitments made or renewed by
BNY and the Notes issued to, and the Reimbursement Obligations owing to, BNY,
BNY shall have the same rights and powers under the Loan
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Documents as any Lender and may exercise the same as though it were not the
Agent, and the terms "Lender" and "Lenders" shall in each case include BNY.
Section 10.9 SUCCESSOR AGENT
If at any time the Agent deems it advisable, in its sole discretion,
it may submit to the Issuing Bank and each of the Lenders a written notice of
its resignation as Agent under the Loan Documents, such resignation to be
effective upon the earlier of (i) the written acceptance of the duties of the
Agent under the Loan Documents by a successor Agent and (ii) on the 30th day
after the date of such notice. Upon any such resignation, the Required Lenders
shall have the right to appoint from among the Lenders a successor Agent. If no
successor Agent shall have been so appointed by the Required Lenders and
accepted such appointment in writing within 30 days after the retiring Agent's
giving of notice of resignation, then the retiring Agent, on behalf of the
Issuing Bank and the Lenders may (after consultation with the Borrower) appoint
a successor Agent, which successor Agent shall be a Lender. Upon the acceptance
of any appointment as Agent hereunder by a successor Agent, such successor
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent's rights,
powers, privileges and duties as Agent under the Loan Documents shall be
terminated. The Borrower, the other Credit Parties, the Issuing Bank and the
Lenders shall execute such documents as shall be necessary to effect such
appointment. After any retiring Agent's resignation as Agent, the provisions of
the Loan Documents shall inure to its benefit as to any actions taken or
omitted to be taken by it, and any amounts owing to it, while it was Agent
under the Loan Documents. If at any time there shall not be a duly appointed
and acting Agent, the Borrower agrees to make each payment due under the Loan
Documents directly to the Issuing Bank and the Lenders entitled thereto during
such time.
Section 10.10 CO-AGENTS
Neither Co-Agent shall have any duty or obligation under the Loan
Documents. All of the provisions of this Section 10 which are applicable to the
Agent shall apply, generally, to each Co-Agent, with any necessary changes in
points of detail.
11. OTHER PROVISIONS
Section 11.1 AMENDMENTS AND WAIVERS
(a) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Required Lenders or by the
Borrower and the Administrative Agent with the consent of the Required Lenders,
provided that no such agreement shall (i) increase the Commitment Amount of any
Lender without the written consent of such Lender, (ii) reduce the principal
amount of any Loan or reduce the rate of
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interest thereon, reduce the amount of any scheduled mandatory reduction of the
Aggregate Revolving Commitment Amount or reduce any fees, commissions or other
amounts payable under the Loan Documents, without the written consent of each
Lender affected thereby, (iii) postpone the scheduled date of payment of the
principal amount of any Loan, or any interest thereon, or any fees, commissions
or other amounts payable under the Loan Documents, or reduce the amount of,
waive or excuse any such payment, postpone any scheduled mandatory reduction of
the Aggregate Revolving Commitment Amount or postpone the Maturity Date, or
extend the expiration date of any Letter of Credit beyond the Maturity Date,
without the written consent of each Lender affected thereby, (iv) change any
provision hereof in a manner that would alter the pro rata sharing of payments
required by the Loan Documents, without the written consent of each Lender, (v)
change any of the provisions of this Section or the definition of "Required
Lenders" or any other provision hereof specifying the number or percentage of
Lenders required to waive, amend or modify any rights hereunder or make any
determination or grant any consent hereunder, without the written consent of
each Lender, (vi) release any Guarantor from its guarantee under the Subsidiary
Guaranty (except as expressly provided in the Subsidiary Guaranty or as a
result of the termination of the existence of such Subsidiary Guarantor in a
transaction permitted by Sections 8.3 or 8.4) or limit its liability in respect
of such guaranty, without the written consent of each Lender or (vii) release
all or substantially all of the Collateral from the Liens of the Loan
Documents, without the written consent of each Lender, provided further, that
no such agreement shall amend, modify or otherwise affect the rights or duties
of the Administrative Agent or the Issuer hereunder without the prior written
consent of the Administrative Agent or the Issuer, respectively.
(b) Notwithstanding anything to the contrary contained in any
Loan Document, the Administrative Agent may, at any time and from time to time
without the consent of any one or more of the Lenders or the Issuing Bank, (i)
release any or all of the obligations of any Credit Party under the Collateral
Documents in connection with (A) a Disposition of such Credit Party (other than
the Borrower) permitted by Section 8.4, (B) the dissolution of such Credit
Party (other than the Borrower) permitted by Section 7.3, or (C) any release
specifically provided for in the Collateral Documents, and (ii) release any
Collateral or any security interest therein in connection with (A) any
disposition of such Collateral permitted by Section 8.4, (B) any dissolution
permitted by Section 7.3, (C) any release specifically provided for in the
Collateral Documents, or (D) any release of Collateral (other than cash
Collateral) having a fair market value of $500,000 or less.
(c) No waiver of any provision of any Loan Document or
consent to any departure by the Borrower therefrom shall in any event be
effective unless the same shall be permitted by paragraph (a) or (b), as
applicable, of this Section, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given. Without
limiting the generality of the foregoing, neither the making of a Loan nor the
issuance of a Letter of Credit shall be construed as a waiver of any Default,
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regardless of whether the Administrative Agent, the Issuing Bank or any Lender
may have had notice or knowledge of such Default at the time.
Section 11.2 NOTICES
All notices, requests and demands to or upon the respective
parties to the Loan Documents to be effective shall be in writing and, unless
otherwise expressly provided therein, shall be deemed to have been duly given
or made when delivered by hand, one Business Day after having been sent by
overnight courier service, or when deposited in the mail, firstclass postage
prepaid, or, in the case of notice by telecopy, when sent, addressed as follows
in the case of the Borrower, the Agent or the Issuing Bank, addressed to the
Domestic Lending Office, in the case of each Lender, or addressed to such other
addresses as to which the Agent may be hereafter notified by the respective
parties thereto or any future holders of the Notes:
The Borrower:
Insight Communications Company, L.P.
126 East 56th Street
New York, New York 10022
Attention: Kim D. Kelly,
Executive Vice President
and Chief Operating Officer
Telephone: (212) 371-2266
Telecopy: (212) 371-1549
with a copy to:
Cooperman Levitt Winikoff
Lester & Newman, P.C.
800 Third Avenue
New York, New York 10022
Attention: Robert L. Winikoff, Esq.
Telephone: (212) 688-7000
Telecopy: (212) 755-2839
The Agent or the Issuing Bank:
The Bank of New York
One Wall Street
Agency Function Administration
18th Floor
New York, New York 10286
Attention: Patricia Hylton
Telephone: (212) 635-4975
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Telecopy: (212) 635-6365 or 6366 or 6367
with a copy to:
The Bank of New York
One Wall Street
New York, New York 10286
Attention: Benjamin B. Todres,
Vice President
Telephone: (212) 635-8745
Telecopy: (212) 635-8593
except that any notice, request or demand by the Borrower to or upon the Agent,
the Issuing Bank or the Lenders pursuant to Sections 2.3, 2.7 or 3.3 shall not
be effective until received. Any party to a Loan Document may rely on
signatures of the parties thereto which are transmitted by telecopy or other
electronic means as fully as if originally signed.
Section 11.3 NO WAIVER; CUMULATIVE REMEDIES
No failure to exercise and no delay in exercising, on the
part of the Agent, the Issuing Bank or any Lender, any right, remedy, power or
privilege under any Loan Document shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, remedy, power or privilege under
any Loan Document preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges under the Loan Documents are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.
Section 11.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
CERTAIN OBLIGATIONS
(a) All representations and warranties made under the Loan
Documents and in any document, certificate or statement delivered pursuant
thereto or in connection therewith shall survive the execution and delivery of
the Loan Documents.
(b) The obligations of the Borrower under Sections 3.5, 3.6,
3.7, 3.8, 3.9, 3.10, 3.11, 11.5 and 11.8 shall survive the termination of the
Commitments of all of the Lenders, the Letter of Credit Commitment and the
payment of the Loans, the Reimbursement Obligations and all other amounts
payable under the Loan Documents.
Section 11.5 PAYMENT OF EXPENSES AND TAXES
The Borrower agrees, promptly upon presentation of a
statement or invoice therefor, and whether any Loan is made or any New Letter
of Credit is issued (i)
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to pay or reimburse the Agent and BNYCMI for all their respective outofpocket
costs and expenses reasonably incurred in connection with the development,
preparation, execution and syndication of, the Loan Documents and any
amendment, supplement or modification thereto (whether or not executed or
effective), any documents prepared in connection therewith and the consummation
of the transactions contemplated thereby, including, without limitation, the
reasonable fees and disbursements of Special Counsel, (ii) to pay or reimburse
the Agent, the Issuing Bank and the Lenders for all of their respective costs
and expenses, including, without limitation, reasonable fees and disbursements
of counsel, incurred in connection with (c) any Default and any enforcement or
collection proceedings resulting from any Event of Default or in connection
with the negotiation of any restructuring or "work-out" (whether consummated or
not) of the obligations of any Credit Party under any of the Loan Documents and
(d) the enforcement of this Section, (i) to pay, indemnify, and hold each
Lender, the Issuing Bank and the Agent harmless from and against, 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 similar taxes, if
any, which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, the Loan Documents and any such other
documents, and (iv) to pay, indemnify and hold each Lender, the Issuing Bank
and the Agent and each of their respective affiliates, officers, directors and
employees harmless from and against any and all other liabilities, obligations,
claims, losses, damages, penalties, actions, judgments, suits, costs, expenses
or disbursements of any kind or nature whatsoever (including, without
limitation, reasonable counsel fees and disbursements) with respect to the
enforcement and performance of the Loan Documents, the use of the proceeds of
the Loans and the Letters of Credit and the enforcement and performance of the
provisions of any subordination agreement involving the Agent, the Issuing Bank
and the Lenders (all the foregoing, collectively, the "Indemnified
Liabilities") and, if and to the extent that the foregoing indemnity may be
unenforceable for any reason, the Borrower agrees to make the maximum payment
not prohibited under applicable law; provided, however, that the Borrower shall
have no obligation to pay Indemnified Liabilities to the Agent, the Issuing
Bank or any Lender arising from the finally adjudicated gross negligence or
willful misconduct of the Agent, the Issuing Bank or such Lender or claims
between one indemnified party and another indemnified party. The agreements in
this Section shall survive the termination of the Commitments of all of the
Lenders, the Letter of Credit Commitment and the payment of all amounts payable
under the Loan Documents.
Section 11.6 LENDING OFFICES
(a) Each Lender shall have the right at any time and from time to time to
transfer its Loans to a different office, provided that such Lender shall
promptly notify the Agent and the Borrower of any such change of office. Such
office shall thereupon become such Lender's Domestic Lending Office or
Eurodollar Lending Office, as the case
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may be, provided, however, that no Lender shall be entitled to receive any
greater amount under Sections 3.5, 3.7 and 3.10, as a result of a transfer of
any such Loans to a different office of such Lender than it would be entitled
to immediately prior thereto unless such claim would have arisen even if such
transfer had not occurred.
(b) Each Lender agrees that, upon the occurrence of any event
giving rise to any increased cost or indemnity under Sections 3.5, 3.7 and 3.10
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, provided
that such designation is made on such terms that such Lender and its lending
office suffer no economic, legal or regulatory disadvantage, with the object of
avoiding the consequence of the event giving rise to the operation of any such
Section. Nothing in this Section shall affect or postpone any of the
obligations of the Borrower or the right of any Lender provided in Sections
3.5, 3.6, 3.7 and 3.10.
Section 11.7 ASSIGNMENTS AND PARTICIPATIONS
(a) The provisions of this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns permitted hereby, except that the Borrower may not assign or
otherwise transfer any of its rights or obligations hereunder without the prior
written consent of the Administrative Agent, the Issuing Bank and each Lender
(and any attempted assignment or transfer by the Borrower without such consent
shall be null and void). Nothing in this Agreement, expressed or implied, shall
be construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby and, to the extent expressly
contemplated hereby, the Related Parties of each Credit Party) any legal or
equitable right, remedy or claim under or by reason of any Loan Document.
(b) Any Lender may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and Loans at the time owing to it), provided that (i)
except in the case of an assignment to a Lender or an Affiliate of a Lender,
each of the Agent and the Issuing Bank must give its prior written consent
(which consent shall not be unreasonably withheld or delayed), (ii) except in
the case of an assignment to a Lender or an Affiliate of a Lender or an
assignment upon or during the continuance of an Event of Default, the Borrower
must give its prior written consent to such assignment (which consent shall not
be unreasonably withheld or delayed), (iii) except in the case of an assignment
to a Lender or an Affiliate of a Lender or an assignment of the entire
remaining amount of the assigning Lender's Commitment or the aggregate unpaid
principal amount of the assigning Lender's Loans, the amount of the Commitment
and the aggregate unpaid principal amount of the Loans of the assigning Lender
subject to each such assignment (determined as of the date the Assignment and
Acceptance Agreement with respect to such assignment is delivered to the Agent)
shall not be less than $5,000,000, unless the
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Borrower and the Agent otherwise consent, (iv) the parties to each assignment
shall execute and deliver to the Agent an Assignment and Acceptance Agreement,
together with a processing and recordation fee of $3,500, and (v) the assignee,
if it shall not be a Lender, shall deliver to the Agent an administrative
questionnaire in form and substance satisfactory to the Agent. Subject to
acceptance and recording thereof pursuant to paragraph (d) of this Section,
from and after the effective date specified in each Assignment and Acceptance
Agreement, the assignee thereunder shall be a party hereto and, to the extent
of the interest assigned by such Assignment and Acceptance Agreement, have the
rights and obligations of a Lender under the Loan Documents, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance Agreement, be released from its obligations under the
Loan Documents (and, in the case of an Assignment and Acceptance Agreement
covering all of the assigning Lender's rights and obligations under the Loan
Documents, such Lender shall cease to be a party hereto but shall continue to
be entitled to the benefits of Sections 3.5, 3.6, 3.7, 3.10, 11.5 and 11.8).
Any assignment or transfer by a Lender of rights or obligations under the Loan
Documents that does not comply with this paragraph shall be treated for
purposes of the Loan Documents as a sale by such Lender of a participation in
such rights and obligations in accordance with paragraph (e) of this Section.
(c) The Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices in New York City a copy of each
Assignment and Acceptance Agreement delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
conclusive absent clearly demonstrable error, and the Borrower, the Agent, the
Issuing Bank and the Lenders may treat each Person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all
purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Borrower, the Issuing Bank
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.
(d) Upon its receipt of a duly completed Assignment and
Acceptance Agreement executed by an assigning Lender and an assignee, the
assignee's completed administrative questionnaire (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in paragraph (b) of this Section and any written consent to such assignment
required by paragraph (b) of this Section, the Agent shall accept such
Assignment and Acceptance Agreement and record the information contained
therein in the Register. No assignment shall be effective for purposes of this
Agreement unless it has been recorded in the Register as provided in this
paragraph.
(e) Any Lender may, without the consent of the Borrower, the
Issuing Bank or the Agent, sell participations to one or more banks or other
entities (each such bank or other entity being called a "Participant") in all
or a portion of such Lender's rights
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and obligations under the Loan Documents (including all or a portion of its
Commitment and the Loans owing to it), provided that (i) such Lender's
obligations under the Loan Documents shall remain unchanged, (ii) such Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations and (iii) the Agent, the Issuing Bank, each other Lender
and the Credit Parties shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under the Loan
Documents. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce the Loan Documents and to approve any amendment, modification or waiver
of any provision of any Loan Documents, provided that such agreement or
instrument may provide that such Lender will not, without the consent of the
Participant, agree to any amendment, modification or waiver described in the
first proviso to Section 11.1(a) that affects such Participant.
(f) Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under the Loan Documents to secure
obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest, provided that no such pledge
or assignment of a security interest shall release a Lender from any of its
obligations under the Loan Documents or substitute any such pledgee or assignee
for such Lender as a party hereto.
Section 11.8 INDEMNITY
The Borrower agrees to defend, protect, indemnify, and hold
harmless the Agent, BNYCMI, the Issuing Bank and each and all of the Lenders,
each of their respective Affiliates and each of the respective officers,
directors, employees and agents of each of the foregoing (each an "Indemnified
Person" and, collectively, the "Indemnified Persons") from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, the fees and disbursements of
counsel to such Indemnified Persons in connection with any investigative,
administrative or judicial proceeding, whether direct, indirect or
consequential and whether based on any federal or state laws or other statutory
regulations, including, without limitation, securities and commercial laws and
regulations, under common law or at equitable cause, or on contract or
otherwise, including any liabilities and costs under Environmental Laws,
Federal, state or local health or safety laws, regulations, or common law
principles, arising from or in connection with the past, present or future
operations of the Borrower, any other Credit Party, or their respective
predecessors in interest, or the past, present or future environmental
condition of the Property of the Borrower or any of its Subsidiaries, the
presence of asbestos-containing materials at any such Property, or the release
or threatened release of any Hazardous Substance into the environment from any
such
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Property) in any manner relating to or arising out of the Loan Documents, any
commitment letter or fee letter executed and delivered by the Borrower or any
of its Subsidiaries, the Issuing Bank and/or the Agent, the capitalization of
the Borrower or any of its Subsidiaries, the Commitments, the Letter of Credit
Commitment, the making of, issuance of, management of and participation in the
Loans or the Letters of Credit, or the use or intended use of the Letters of
Credit and the proceeds of the Loans hereunder, provided that the Borrower
shall have no obligation under this Section to an Indemnified Person with
respect to any of the foregoing to the extent found in a final judgment of a
court having jurisdiction to have resulted primarily out of the gross
negligence or willful misconduct of such Indemnified Person or arising solely
from claims between one such Indemnified Person and another such Indemnified
Person. The indemnity set forth herein shall be in addition to any other
obligations or liabilities of the Borrower to each Indemnified Person under the
Loan Documents or at common law or otherwise, and shall survive any termination
of the Loan Documents, the expiration of the Commitments of all of the Lenders,
the Letter of Credit Commitment and the payment of all Indebtedness of the
Credit Parties under the Loan Documents.
Section 11.9 LIMITATION OF LIABILITY
No claim may be made by the Borrower, any of its
Subsidiaries, any other Credit Party, any Lender or other Person against the
Agent, any Lender, or any directors, officers, employees, or agents of any of
them for any special, indirect, consequential or punitive damages in respect of
any claim for breach of contract or any other theory of liability arising out
of or related to the transactions contemplated by any Loan Document, or any
act, omission or event occurring in connection therewith, and each of the
Borrower, its Subsidiaries, such other Credit Party, any such Lender or other
Person hereby waives, releases and agrees not to sue upon any claim for any
such damages, whether or not accrued and whether or not known or suspected to
exist in its favor.
Section 11.10 COUNTERPARTS
Each Loan Document (other than the Notes) may be executed by
one or more of the parties thereto on any number of separate counterparts and
all of said counterparts taken together shall be deemed to constitute one and
the same document. It shall not be necessary in making proof of any Loan
Document to produce or account for more than one counterpart signed by the
party to be charged. A counterpart of any Loan Document or to any document
evidencing, and of any an amendment, modification, consent or waiver to or of
any Loan Document transmitted by telecopy shall be deemed to be an originally
executed counterpart. A set of the copies of the Loan Documents signed by all
the parties thereto shall be deposited with each of the Borrower, the Issuing
Bank and the Agent. Any party to a Loan Document may rely upon the signatures
of any other party thereto which are transmitted by telecopy or other
electronic means to the same extent as if originally signed.
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Section 11.11 ADJUSTMENTS; SET-OFF
(a) If the Issuing Bank or any Lender, as the case may be (a
"Benefited Lender"), shall obtain any payment (whether voluntary, involuntary,
through the exercise of any right of setoff, or otherwise) on account of its
Loans, its Notes or the Reimbursement Obligations in excess of its Outstanding
Percentage of payments then due and payable on account of the Loans, the Notes
and the Reimbursement Obligations received by the Issuing Bank and all the
Lenders, as the case may be, such Benefited Lender shall forthwith purchase,
without recourse, for cash, from the Issuing Bank and the other Lenders such
participations in their Loans and Notes (and in the case of the Issuing Bank,
the Reimbursement Obligations) as shall be necessary to cause such Benefited
Lender to share such excess payment with each of them according to their
Outstanding Percentages, provided, however, that if all or any portion of such
excess payment is thereafter recovered from such Benefited Lender, such
purchase from the Issuing Bank or such other Lenders, as the case may be, shall
be rescinded and the Issuing Bank or such other Lenders, as the case may be,
shall repay to such Benefited Lender the purchase price to the extent of such
recovery, together with an amount equal to the Issuer's or Lender's, as
applicable, pro rata share (according to the proportion of (i) the amount of
the Issuing Bank's or such other Lender's, as the case may be, required
repayment to (ii) the total amount so recovered from such Benefited Lender) of
any interest or other amount paid or payable by such Benefited Lender in
respect of the total amount so recovered. The Borrower agrees that such
Benefited Lender so purchasing a participation from the Issuing Bank or such
other Lenders, as the case may be, pursuant to this Section 11.11(a) may
exercise such rights to payment (including the right of setoff) with respect to
such participation as fully as such Benefited Lender were the direct creditor
of the Borrower in the amount of such participation.
(b) In addition to any rights and remedies of the Issuing
Bank and the Lenders provided by law, upon the occurrence of an Event of
Default and the acceleration of the obligations owing in connection with the
Loan Documents, or at any time upon the occurrence and during the continuance
of an Event of Default, under Section 9.1(a) or (b), each of the Issuing Bank
and each Lender shall have the right, without prior notice to the Borrower or
any other Credit Party, any such notice being expressly waived by the Borrower
and each other Credit Party to the extent not prohibited by applicable law, to
set-off and apply against any indebtedness, whether matured or unmatured, of
the Borrower or such other Credit Party, as the case may be, to the Issuing
Bank or such Lender, as the case may be, any amount owing from the Issuing Bank
or such Lender, as the case may be, to the Borrower or such other Credit Party,
as the case may be, at, or at any time after, the happening of any of the
abovementioned events. To the extent not prohibited by applicable law, the
aforesaid right of set-off may be exercised by the Issuing Bank or such Lender,
as the case may be, against the Borrower or such other Credit Party, as the
case may be, or against any trustee in bankruptcy, custodian, debtor in
possession, assignee for the benefit of creditors, receiver, or execution,
judgment or
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attachment creditor of the Borrower or such other Credit Party, as the case may
be, or against anyone else claiming through or against the Borrower or such
other Credit Party, as the case may be, or such trustee in bankruptcy,
custodian, debtor in possession, assignee for the benefit of creditors,
receiver, or execution, judgment or attachment creditor, notwithstanding the
fact that such right of set-off shall not have been exercised by the Issuing
Bank or such Lender, as the case may be, prior to the making, filing or
issuance, or service upon the Issuing Bank or such Lender, as the case may be,
of, or of notice of, any such petition, assignment for the benefit of
creditors, appointment or application for the appointment of a receiver, or
issuance of execution, subpoena, order or warrant. Each of the Issuing Bank and
each Lender agrees promptly to notify the Borrower and the Agent after any such
set-off and application made by such Lender, provided that the failure to give
such notice shall not affect the validity of such set-off and application.
Section 11.12 CONSTRUCTION
Each party to a Loan Document represents that it has been
represented by counsel in connection with the Loan Documents and the
transactions contemplated thereby and that the principle that agreements are to
be construed against the party drafting the same shall be inapplicable.
Section 11.13 GOVERNING LAW
The Loan Documents and the rights and obligations of the
parties thereunder shall be governed by, and construed and interpreted in
accordance with, the internal laws of the State of New York, without regard to
principles of conflict of laws, but including Section 51401 of the General
Obligations Law.
Section 11.14 HEADINGS DESCRIPTIVE
Section headings have been inserted in the Loan Documents for
convenience only and shall not be construed to be a part thereof.
Section 11.15 SEVERABILITY
Every provision of the Loan Documents is intended to be
severable, and if any term or provision thereof shall be invalid, illegal or
unenforceable for any reason, the validity, legality and enforceability of the
remaining provisions thereof shall not be affected or impaired thereby, and any
invalidity, illegality or unenforceability in any jurisdiction shall not affect
the validity, legality or enforceability of any such term or provision in any
other jurisdiction.
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Section 11.16 INTEGRATION
All exhibits to a Loan Document shall be deemed to be a part
thereof. Except for agreements between the Agent and/or the Issuing Bank and
the Borrower with respect to certain fees, the Loan Documents embody the entire
agreement and understanding among the Borrower, the Agent, the Issuing Bank and
the Lenders with respect to the subject matter thereof and supersede all prior
agreements and understandings among the Borrower, the Agent, the Issuing Bank
and the Lenders with respect to the subject matter thereof.
Section 11.17 CONSENT TO JURISDICTION
Each party to a Loan Document hereby irrevocably submits to
the jurisdiction of any New York State or Federal court sitting in the City of
New York over any suit, action or proceeding arising out of or relating to the
Loan Documents. Each party to a Loan Document hereby irrevocably waives, to the
fullest extent permitted or not prohibited by law, any objection which it may
now or hereafter have to the laying of the venue of any such suit, action or
proceeding brought in such a court and any claim that any such suit, action or
proceeding brought in such a court has been brought in an inconvenient forum.
Each Credit Party hereby agrees that a final judgment in any such suit, action
or proceeding brought in such a court, after all appropriate appeals, shall be
conclusive and binding upon it.
Section 11.18 SERVICE OF PROCESS
Each party to a Loan Document hereby irrevocably consents to
the service of process in any suit, action or proceeding by sending the same by
first class mail, return receipt requested or by overnight courier service, to
the address of such party set forth in Section 11.2 of the applicable Loan
Document executed by such party. Each party to a Loan Document hereby agrees
that any such service (i) shall be deemed in every respect effective service of
process upon it in any such suit, action, or proceeding, and (ii) shall to the
fullest extent enforceable by law, be taken and held to be valid personal
service upon and personal delivery to it.
Section 11.19 NO LIMITATION ON SERVICE OR SUIT
Nothing in the Loan Documents or any modification, waiver,
consent or amendment thereto shall affect the right of the Agent, the Issuing
Bank or any Lender to serve process in any manner permitted by law or limit the
right of the Agent, the Issuing Bank or any Lender to bring proceedings against
any Credit Party in the courts of any jurisdiction or jurisdictions in which
such Credit Party may be served.
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Section 11.20 WAIVER OF TRIAL BY JURY
EACH OF THE AGENT, THE ISSUING BANK, THE LENDERS AND THE
CREDIT PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF,
UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
THEREIN. FURTHER, EACH CREDIT PARTY HEREBY CERTIFIES THAT NO REPRESENTATIVE OR
AGENT OF THE ISSUING BANK, THE AGENT, OR THE LENDERS, OR COUNSEL TO THE ISSUING
BANK, THE AGENT OR THE LENDERS, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
THE ISSUING BANK, THE AGENT OR THE LENDERS WOULD NOT, IN THE EVENT OF SUCH
LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. EACH
CREDIT PARTY ACKNOWLEDGES THAT THE ISSUING BANK, THE AGENT AND THE LENDERS HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, INTER ALIA, THE PROVISIONS OF
THIS SECTION.
Section 11.21 TREATMENT OF CERTAIN INFORMATION
Each Lender, the Issuing Bank and the Agent agrees (on behalf
of itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential
information of the same nature, all non-public information supplied by the
Borrower or any of its Subsidiaries pursuant to this Agreement which (i) is
identified by such Person as being confidential at the time the same is
delivered to such Lender, the Issuing Bank or the Agent, or (ii) constitutes
any financial statement, financial projections or forecasts, budget, compliance
certificate, audit report, management letter or accountants' certification
delivered hereunder, provided, however, that nothing herein shall limit the
disclosure of any such information (a) to the extent required by statute, rule,
regulation or judicial process, (b) on a confidential basis, to counsel to any
of the Lenders, the Issuing Bank or the Agent, (c) to bank examiners, auditors
or accountants, and any analogous counterpart thereof, (d) to the Agent, the
Lenders, or the Issuing Bank (e) in connection with any litigation to which any
one or more of the Lenders, the Issuing Bank or the Agent is a party, (f) to
any assignee or participant (or prospective assignee or participant) so long as
such assignee or participant (or prospective assignee or participant) agrees to
keep such information confidential on substantially the same basis as set forth
in this Section, or (g) to affiliates of the Agent, each Lender and the Issuing
Bank.
93
<PAGE>
Section 11.22 EFFECTIVE DATE
This Fourth Amended and Restated Credit Agreement shall not
be effective until such time (the "Effective Date") as (1) executed
counterparts hereof shall have been delivered to the Agent and the Borrower by
the Agent, the Issuing Bank, the Borrower and each Lender, and each of the
conditions precedent set forth in Section 5 shall have been fulfilled and, (2)
the Master Assignment shall have become effective in accordance with its terms.
94
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this
Credit 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 COMPANY, L.P.
By: ICC ASSOCIATES, L.P.,
the sole general partner thereof
By: INSIGHT COMMUNICATIONS, INC.,
the sole general partner thereof
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
95
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
THE BANK OF NEW YORK,
Individually, as Issuing Bank and as Agent
By:
-----------------------------
Name: Benjamin Todres
---------------------------
Title: Vice President
--------------------------
96
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
CIBC INC.,
Individually and as CoAgent
By:
-----------------------------
Name:
---------------------------
Title: Executive Director,
---------------------------
CIBC Oppenheimer Corp.,
---------------------------
As Agent
---------------------------
97
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
FLEET BANK, N.A.,
Individually and as CoAgent
By:
-----------------------------
Name: Adam Bester
---------------------------
Title: Senior Vice President
---------------------------
98
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
BANK OF MONTREAL
By:
-----------------------------
Name: Allegra Griffiths
---------------------------
Title: Director
---------------------------
99
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
BANKBOSTON, N.A.
By:
-----------------------------
Name: David B. Herter
---------------------------
Title: Managing Director
---------------------------
100
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
PNC BANK, NATIONAL ASSOCIATION
By:
-----------------------------
Name: Kristen E. Talaber
---------------------------
Title: Vice President
---------------------------
101
<PAGE>
WAIVER NO. 1 AND AMENDMENT NO. 1
TO
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
WAIVER NO. 1 AND AMENDMENT NO. 1 (this "Amendment"), dated as of
December 21, 1998, to the Fourth Amended and Restated Credit Agreement (the
"Credit Agreement"), dated as of December 21, 1998, by and among Insight
Communications Company, L.P., a Delaware limited partnership (the "Borrower"),
the lenders party thereto (together with their respective assigns, the
"Lenders", each a "Lender"), CIBC Inc., and Fleet Bank, N.A., as Co-Agents
(collectively, the "Co-Agents"), and The Bank of New York, as administrative
agent for the Lenders (in such capacity, the "Agent") and as Issuing Bank (as
such term is defined in the Credit Agreement).
RECITALS
I. Capitalized terms used herein which are not defined herein shall
have the respective meanings ascribed thereto in the Credit Agreement as
amended hereby.
II. In connection with the closing of the Credit Agreement the
Borrower delivered a certificate stating that the Leverage Ratio at the closing
of the Credit Agreement was not in excess of 5.75:1.00. The Borrower has
notified the Agent that the Leverage Ratio at such closing was 5.84:1.00 and,
therefore, an Event of Default occurred under Section 9.1(e) of the Credit
Agreement (the "Section 9.1(e) Event of Default").
II. The Borrower has requested a waiver of the Section 9.1(e) Event of
Default and an amendment to certain provisions of the Credit Agreement, all as
provided herein.
Therefore, in consideration of the Recitals and the covenants,
conditions and agreements hereinafter set forth, and of other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. Required Lenders hereby waive the Section 9.1(e) Event of Default.
2. The following definitions contained in Section 1.1 of the Credit
Agreement are amended in their entirety to read as follows:
"Pricing Level": Pricing Level I, Pricing Level II, Pricing
Level III, Pricing Level IV, Pricing Level V, Pricing Level VI,
Pricing Level VII or Pricing Level VIII, as applicable.
"Pricing Level I": any time when the Leverage Ratio is greater
than 6.50:1.00.
"Pricing Level II": any time when the Leverage Ratio is greater
than 6.00:1.00 but less than or equal to 6.50:1.00.
"Pricing Level III": any time when the Leverage Ratio is greater
than 5.50:1.00 but less than or equal to 6.00:1.00.
"Pricing Level IV": any time when the Leverage Ratio is greater
than 5.00:1.00 but less than or equal to 5.50:1.00.
"Pricing Level V": any time when the Leverage Ratio is greater
than 4.50:1.00 but less than or equal to 5.00:1.00.
1
<PAGE>
"Pricing Level VI": any time when the Leverage Ratio is greater
than 4.00:1.00 but less than or equal to 4.50:1.00.
"Pricing Level VII": any time when the Leverage Ratio is greater
than 3.50:1.00 but less than or equal to 4.00:1.00.
"Pricing Level VIII": any time when the Leverage Ratio is less
than or equal to 3.50:1.00.
3. The definition of "Applicable Percentage" contained in Section 1.1
of the Credit Agreement is amended by replacing the table set forth therein
with the following table:
Applicable Percentage
Pricing Level ABR Eurodollar Commitment Fee
------------- --- ---------- --------------
Pricing Level I 1.250% 2.500% 0.375%
Pricing Level II 1.000% 2.250% 0.375%
Pricing Level III 0.750% 2.000% 0.375%
Pricing Level IV 0.375% 1.625% 0.375%
Pricing Level V 0.125% 1.375% 0.250%
Pricing Level VI 0.000% 1.250% 0.250%
Pricing Level VII 0.000% 1.125% 0.250%
Pricing Level VIII 0.000% 1.000% 0.250%
4. Section 7.11(c) of the Credit Agreement is amended in its entirety
to read as follows:
(c) Leverage Ratio. Maintain as of any day during the
periods set forth below, a Leverage Ratio of not more than the
ratios set forth below:
Period Ratio
------ -----
Effective Date through
September 29, 1999 6.75:1.00
September 30, 1999 through
June 30, 2000 6.00:1.00
July 1, 2000 through
December 31, 2000 5.50:1.00
January 1, 2001 through
December 31, 2001 5.00:1.00
January 1, 2002 through
December 31, 2002 4.50:1.00
January 1, 2003 and
Thereafter 4.00:1.00
2
<PAGE>
5. Paragraphs 1 - 4 of this Amendment shall not become effective until
the date that the Agent shall have received this Amendment executed by the
Agent, the Borrower, the Guarantors, the Issuing Bank and Required Lenders.
6. In all other respects the Credit Agreement and other Loan Documents
shall remain in full force and effect.
7. No amendment or waiver of any term or condition of the Credit
Agreement herein contained shall be deemed to be an amendment or waiver of any
other term or condition contained in the Credit Agreement or any other Loan
Document.
8. Each of the Borrower and the Guarantors (a) reaffirms and admits
the validity, enforceability and continuation of each Loan Document to which it
is a party, and its obligations thereunder, (b) agrees and admits that it has
no valid defenses to or offsets against any of its obligations to the Agent,
the Issuing Bank or any of the Lenders under any of the Loan Documents to which
it is a party, and (c) on the date hereof, after giving effect to this
Amendment, no Default exists.
9. This Amendment may be executed in any number of separate
counterparts and all of said counterparts taken together shall be deemed to
constitute one and the same document. It shall not be necessary in making proof
of this Amendment to produce or account for more than one counterpart signed by
the party to be charged.
10. This Amendment shall be governed by, and construed and interpreted
in accordance with, the laws of the State of New York.
3
<PAGE>
AMENDMENT NO. 1
INSIGHT COMMUNICATIONS COMPANY, L.P.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
INSIGHT COMMUNICATIONS COMPANY, L.P.
By: ICC ASSOCIATES, L.P.,
the sole general partner thereof
By: INSIGHT COMMUNICATIONS, INC.,
the sole general partner thereof
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
AMENDMENT NO. 1
INSIGHT COMMUNICATIONS COMPANY, L.P.
THE BANK OF NEW YORK,
Individually, as Issuing Bank and as Agent
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
AMENDMENT NO. 1
INSIGHT COMMUNICATIONS COMPANY, L.P.
CIBC INC.,
Individually and as CoAgent
By:
-----------------------------
Name:
---------------------------
Title: Executive Director,
CIBC Oppenheimer Corp.,
As Agent
<PAGE>
AMENDMENT NO. 1
INSIGHT COMMUNICATIONS COMPANY, L.P.
FLEET BANK, N.A.,
Individually and as CoAgent
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
AMENDMENT NO. 1
INSIGHT COMMUNICATIONS COMPANY, L.P.
BANK OF MONTREAL
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
AMENDMENT NO. 1
INSIGHT COMMUNICATIONS COMPANY, L.P.
BANKBOSTON, N.A.
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
AMENDMENT NO. 1
INSIGHT COMMUNICATIONS COMPANY, L.P.
PNC BANK, NATIONAL ASSOCIATION
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
AMENDMENT NO. 1
INSIGHT COMMUNICATIONS COMPANY, L.P.
BANKERS TRUST COMPANY
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
AMENDMENT NO. 1
INSIGHT COMMUNICATIONS COMPANY, L.P.
ACKNOWLEDGED AND CONSENTED TO:
INSIGHT FINANCE CORPORATION
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
INSIGHT HOLDINGS OF OHIO, LLC
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
WAIVER NO. 2 AND AMENDMENT NO. 2
WAIVER NO. 2 AND AMENDMENT NO. 2, dated as of December 31, 1998 (this
"Amendment"), to the Fourth Amended and Restated Credit Agreement, dated as of
December 21, 1998, by and among Insight Communications Company, L.P., the
Lenders party thereto, CIBC Inc. and Fleet Bank, N.A., as Co-Agents, and The
Bank of New York, as Agent and as Issuing Bank (as amended, supplemented and
otherwise modified from time to time, the "Credit Agreement").
RECITALS
I. Capitalized terms used herein and not defined herein shall have the
meanings assigned to such terms in the Credit Agreement.
II. The Borrower has requested that the Agent agree to amend the
Credit Agreement upon the terms and conditions contained herein, and the Agent
is willing so to agree.
Accordingly, in consideration of the Recitals and the terms and
conditions hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Borrower and the Agent hereby agree as follows:
1. Section 1.1 of the Credit Agreement is amended by adding a new
defined term thereto as follows:
"Bridge Commitment Fee": the lesser of (a) the upfront
commitment fee paid by the Borrower to DLJ Bridge Finance, Inc.
and/or its affiliates (collectively, "DLJ") upon the acceptance by
the Borrower of DLJ's offer to provide up to $350 million of bridge
financing to an Affiliate of the Borrower, and (b) $3,500,000.
2. The defined term "Adjusted Consolidated Annualized Cash Flow"
contained in Section 1.1 of the Credit Agreement is amended and restated in its
entirety as follows:
"Adjusted Consolidated Annualized Cash Flow": for any fiscal
quarter, four multiplied by the sum of Consolidated Annualized Cash
Flow for such fiscal quarter (excluding all management fees accrued
to the Borrower to the extent included therein), plus management fees
that accrued to the Borrower during such fiscal quarter to the extent
paid to the Borrower during such fiscal quarter or at any time
thereafter but before the date of delivery, pursuant to Section
7.1(c), of the Compliance Certificate for such fiscal quarter.
Notwithstanding anything to the contrary contained in this
definition, for purposes of determining "Adjusted Consolidated
Annualized Cash Flow" only, with respect to any fiscal quarter, all
Acquisitions, Dispositions and Exchanges occurring during the quarter
shall be deemed to have occurred on the first day of such quarter.
<PAGE>
3. Clause (ii)(c) of the defined term "Consolidated Cash Flow"
contained in Section 1.1 of the Credit Agreement is amended and restated in its
entirety as follows:
(c) management fees that accrued during such period that were not paid
during such period or at any time before the date of delivery,
pursuant to Section 7.1(c), of the Compliance Certificate for the last
full fiscal quarter included in such period.
4. The defined term "Consolidated Interest Expense" contained in
Section 1.1 of the Credit Agreement is amended by adding the phrase
"(excluding, to the extent included therein, the Bridge Commitment Fee)"
immediately following the term "interest expense" contained therein.
5. The defined term "Interest Coverage Ratio" contained in Section 1.1
of the Credit Agreement is amended and restated in its entirety as follows:
"Interest Coverage Ratio": as of any fiscal quarter end, the
ratio of (i) Consolidated Cash Flow to (ii) Consolidated Interest
Expense, in each case for the period comprised of (a) for the fiscal
quarter ended on December 31, 1998, the two month period ended on
such fiscal quarter end, (b) for the fiscal quarter ended on March
31, 1999, the five month period ended on such fiscal quarter end, (c)
for the fiscal quarter ending on June 30, 1999, for the eight month
period ending on such fiscal quarter end, (d) for the fiscal quarter
ending on September 30, 1999, for the eleven month period ending on
such fiscal quarter end, and (e) for each fiscal quarter ending
thereafter, the four consecutive fiscal quarters then ending, in each
case referred to above as reflected in the financial statements in
respect thereof delivered pursuant to Sections 7.1(a) or 7.1(b), as
the case may be (adjusted, on a consistent basis, for purposes of
calculating compliance with respect to clauses (a) through (d) above,
which calculations shall be in reasonable detail and reasonably
satisfactory to the Agent and the Lenders).
6. The defined term "Consolidated Proforma Interest Expense" contained
in Section 1.1 the Credit Agreement is hereby amended by adding the following
immediately after the designation "(i)" contained therein:
(A) the Bridge Commitment Fee shall, to the extent included therein,
be excluded, and (B)
7. The Agent hereby waives compliance by the Borrower with Sections
7.1(a) and 7.1(c) of the Credit Agreement with respect to the delivery of all
of the items referred to therein regarding the fiscal year ended December 31,
1998, provided that all of such items are delivered in accordance with such
Sections on or before May 30, 1999.
2
<PAGE>
8. Section 7.11(a) of the Credit Agreement is amended and restated in
its entirety as follows:
(a) Interest Coverage Ratio. Maintain as of each fiscal
quarter end during the periods set forth below, an Interest Coverage
Ratio of not less than the ratios set forth below:
Period Ratio
------ -----
Effective Date through
June 30, 1999 1.75:1.00
July 1, 1999 through
December 31, 1999 2.00:1.00
January 1, 2000 through
December 31, 2000 2.25:1.00
January 1, 2001 and 2.50:1.00
Thereafter
9. Paragraphs 1 through 8 hereof shall not be effective until such
time as Required Lenders and each of the Guarantors shall have consented hereto
in writing.
10. The Borrower hereby (a) reaffirms and admits the validity and
enforceability of each Loan Document and all of its obligations thereunder, (b)
agrees and admits that it has no defense to or offset against any such
obligation, and (c) represents and warrants that, as of the date of the
execution and delivery hereof by the Borrower and assuming the effectiveness of
all of the provisions of this Amendment, no Default has occurred and is
continuing, and that each of the representations and warranties made by it in
the Credit Agreement is true and correct with the same effect as though such
representation and warranty had been made on such date, except to the extent
such representations and warranties specifically relate to an earlier date, in
which case such representations and warranties shall have been true and correct
on and as of such earlier date.
11. In all other respects, the Loan Documents shall remain in full
force and effect, and no amendment in respect of any term or condition of any
Loan Document shall be deemed to be an amendment in respect of any other term
or condition contained in any Loan Document.
12. This Amendment may be executed in any number of counterparts all
of which, when taken together, shall constitute one agreement. In making proof
of this Amendment, it shall only be necessary to produce the counterpart
executed and delivered by the party to be charged.
13. THIS AMENDMENT IS BEING EXECUTED AND DELIVERED IN, AND IS INTENDED
TO BE PERFORMED IN, THE STATE OF NEW YORK AND SHALL BE
3
<PAGE>
CONSTRUED AND ENFORCEABLE IN ACCORDANCE WITH, AND BE GOVERNED BY, THE INTERNAL
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF
LAWS.
4
<PAGE>
WAIVER NO. 2 AND AMENDMENT NO. 2
INSIGHT COMMUNICATIONS COMPANY, L.P.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
INSIGHT COMMUNICATIONS COMPANY, L.P.
By: ICC ASSOCIATES, L.P.,
the sole general partner thereof
By: INSIGHT COMMUNICATIONS, INC.,
the sole general partner thereof
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
WAIVER NO. 2 AND AMENDMENT NO. 2
INSIGHT COMMUNICATIONS COMPANY, L.P.
THE BANK OF NEW YORK,
individually, as Issuing Bank and as Agent
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
WAIVER NO. 2 AND AMENDMENT NO. 2
INSIGHT COMMUNICATIONS COMPANY, L.P.
CIBC INC.,
individually and as Co-Agent
By:
-----------------------------
Name:
---------------------------
Title: Executive Director,
CIBC Oppenheimer Corp.,
As Agent
<PAGE>
WAIVER NO. 2 AND AMENDMENT NO. 2
INSIGHT COMMUNICATIONS COMPANY, L.P.
FLEET BANK, N.A.,
individually and as Co-Agent
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
WAIVER NO. 2 AND AMENDMENT NO. 2
INSIGHT COMMUNICATIONS COMPANY, L.P.
BANK OF MONTREAL
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
WAIVER NO. 2 AND AMENDMENT NO. 2
INSIGHT COMMUNICATIONS COMPANY, L.P.
BANKBOSTON, N.A.
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
WAIVER NO. 2 AND AMENDMENT NO. 2
INSIGHT COMMUNICATIONS COMPANY, L.P.
PNC BANK, NATIONAL ASSOCIATION
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
WAIVER NO. 2 AND AMENDMENT NO. 2
INSIGHT COMMUNICATIONS COMPANY, L.P.
BANKERS TRUST COMPANY
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
WAIVER NO. 2 AND AMENDMENT NO. 2
INSIGHT COMMUNICATIONS COMPANY, L.P.
ACKNOWLEDGED AND CONSENTED TO:
INSIGHT FINANCE CORPORATION
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
INSIGHT HOLDINGS OF OHIO, LLC
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
================================================================================
CREDIT AGREEMENT
by and among
INSIGHT COMMUNICATIONS OF INDIANA, LLC,
THE LENDERS PARTY HERETO,
CANADIAN IMPERIAL BANK OF COMMERCE,
AS SYNDICATION AGENT AND AS CO-LEAD ARRANGER,
FLEET BANK, N.A.,
AS DOCUMENTATION AGENT,
BANK OF MONTREAL,
THE BANK OF NOVA SCOTIA,
THE BANK OF TOKYO-MITSUBISHI TRUST COMPANY,
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES,
NATIONSBANK, N.A.,
PNC BANK, NATIONAL ASSOCIATION,
AND
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH,
AS CO-AGENTS
AND
THE BANK OF NEW YORK,
AS ISSUING BANK,
AS ADMINISTRATIVE AGENT AND AS CO-LEAD ARRANGER
Dated as of October 30, 1998
================================================================================
================================================================================
THIS TRANSACTION WAS ARRANGED BY
BNY CAPITAL MARKETS, INC., CIBC OPPENHEIMER CORP. and FLEET BANK, N.A.
<PAGE>
Credit Agreement
----------------
TABLE OF CONTENTS
1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION.........................1
1.1 Definitions........................................................1
1.2 Principles of Construction.........................................19
2. AMOUNT AND TERMS OF LOANS AND LETTERS OF
CREDIT.............................................................20
2.1 Revolving Loans....................................................20
2.2 Term Loans.........................................................21
2.3 Term Amortization..................................................21
2.4 Procedure for Borrowing............................................21
2.5 Termination or Reduction of Revolving Commitments..................23
2.6 Prepayments of the Loans...........................................25
2.7 Use of Proceeds....................................................26
2.8 Letter of Credit Sub-Facility......................................26
2.9 Letter of Credit Participation and Funding Commitments.............28
2.10 Absolute Obligation With Respect to Letter of Credit Payments......29
2.11 Payments...........................................................30
2.12 Records............................................................30
3. INTEREST, FEES, YIELD PROTECTIONS, ETC.............................31
3.1 Interest Rate and Payment Dates....................................31
3.2 Fees...............................................................32
3.3 Conversions........................................................33
3.4 Concerning Interest Periods........................................34
3.5 Indemnification for Loss...........................................34
3.6 Capital Adequacy...................................................35
3.7 Reimbursement for Increased Costs..................................35
3.8 Illegality of Funding..............................................36
3.9 Substituted Interest Rate..........................................36
3.10 Taxes..............................................................37
3.11 Option to Fund.....................................................38
3.12 Mitigation Obligations; Replacement of Lenders.....................38
4. REPRESENTATIONS AND WARRANTIES.....................................39
4.1 Subsidiaries; Capitalization.......................................39
4.2 Existence and Power................................................39
<PAGE>
Credit Agreement
----------------
4.3 Authority and Execution............................................39
4.4 Binding Agreement..................................................40
4.5 Litigation.........................................................40
4.6 Required Consents..................................................40
4.7 Absence of Defaults; No Conflicting Agreements.....................40
4.8 Compliance with Applicable Laws....................................41
4.9 Taxes..............................................................41
4.10 Governmental Regulations...........................................41
4.11 Federal Reserve Regulations; Use of Loan Proceeds..................41
4.12 Plans..............................................................41
4.13 No Material Adverse Change.........................................42
4.14 Property...........................................................42
4.15 Authorizations.....................................................42
4.16 Environmental Matters..............................................42
4.17 Absence of Certain Restrictions....................................43
4.18 No Misrepresentation...............................................43
4.19 Year 2000 Issue....................................................43
4.20 Security Agreement.................................................44
4.21 Solvency...........................................................44
5. CONDITIONS TO FIRST LOANS OR THE ISSUANCE
OF FIRST LETTERS OF CREDIT.........................................44
5.1 Evidence of Action.................................................45
5.2 This Agreement.....................................................45
5.3 Notes..............................................................45
5.4 Security Agreement.................................................45
5.5 Absence of Litigation; Approvals and Consents......................45
5.6 Financial Officer's Certificate....................................46
5.7 Opinions of Counsel................................................46
5.8 Material Agreements................................................46
5.9 Insurance..........................................................46
5.10 Other Matters......................................................46
5.11 Fees...............................................................47
5.12 Fees and Expenses of Special Counsel...............................47
6. CONDITIONS OF LENDING - ALL LOANS AND
LETTERS OF CREDIT..................................................47
6.1 Compliance.........................................................47
6.2 Borrowing Request; Letter of Credit Request........................47
6.3 Loan Closings......................................................48
6.4 Other Documents....................................................48
ii
<PAGE>
Credit Agreement
----------------
7. AFFIRMATIVE COVENANTS..............................................48
7.1 Financial Statements and Information...............................48
7.2 Certificates; Other Information....................................49
7.3 Legal Existence....................................................51
7.4 Taxes..............................................................51
7.5 Insurance..........................................................51
7.6 Performance of Obligations.........................................52
7.7 Condition of Property..............................................52
7.8 Observance of Legal Requirements...................................52
7.9 Inspection of Property; Books and Records; Discussions.............52
7.10 Authorizations.....................................................53
7.11 Financial Covenants................................................53
7.12 Interest Rate Protection Arrangements..............................54
7.13 Year 2000 Issue....................................................54
7.14 Subsidiaries.......................................................54
8. NEGATIVE COVENANTS.................................................55
8.1 Indebtedness.......................................................55
8.2 Liens..............................................................55
8.3 Merger, Consolidations and Acquisitions............................56
8.4 Dispositions and Exchanges.........................................57
8.5 Investments, Loans, Etc............................................58
8.6 Restricted Payments................................................58
8.7 Capital Expenditures...............................................59
8.8 Line of Business...................................................59
8.9 ERISA..............................................................60
8.10 Prepayments of Indebtedness........................................60
8.11 Changes to Documents and Other Agreements..........................60
8.12 Transactions with Affiliates.......................................60
8.13 Limitation on Certain Restrictions on Subsidiaries.................60
8.14 Management Fees....................................................60
9. DEFAULT............................................................61
9.1 Events of Default..................................................61
9.2 Contract Remedies..................................................63
10. THE ADMINISTRATIVE AGENT...........................................63
11. OTHER PROVISIONS...................................................65
iii
<PAGE>
Credit Agreement
----------------
11.1 Amendments and Waivers.............................................65
11.2 Notices............................................................66
11.3 No Waiver; Cumulative Remedies.....................................67
11.4 Survival of Representations and Warranties and Certain
Obligations........................................................68
11.5 Payment of Expenses and Indemnity..................................68
11.6 Lending Offices....................................................69
11.7 Assignments and Participations.....................................69
11.8 Limitation of Liability............................................71
11.9 Counterparts.......................................................72
11.10 Set-off and Adjustments............................................72
11.11 Construction.......................................................73
11.12 Governing Law......................................................73
11.13 Headings Descriptive...............................................73
11.14 Severability.......................................................73
11.15 Integration........................................................73
11.16 Consent to Jurisdiction............................................74
11.17 Service of Process.................................................74
11.18 No Limitation on Service or Suit...................................74
11.19 WAIVER OF TRIAL BY JURY............................................74
11.20 Treatment of Certain Information...................................75
11.21 Effective Date.....................................................75
EXHIBITS
Exhibit A List of Commitments and Term Loan Amounts
Exhibit B Form of Note
Exhibit C-1 Form of Borrowing Request
Exhibit C-2 Form of Letter of Credit Request
Exhibit D Form of Notice of Conversion
Exhibit E Form of Compliance Certificate
Exhibit F-1 Form of Opinion of Cooperman Levitt Winikoff Lester & Newman,
P.C.
Exhibit F-2 Form of Opinion of Sherman & Howard
Exhibit G [RESERVED]
Exhibit H Form of Assignment and Acceptance Agreement
Exhibit I Form of Security Agreement
Exhibit J Form of Guarantee Agreement
Exhibit K-1 Form of Revolver Supplement
Exhibit K-2 Form of Term Loan Supplement
SCHEDULES
iv
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Schedule 1.1 List of Domestic and Eurodollar Lending Offices
Schedule 2.3 Schedule of Commitment Reductions and Amortization
Schedule 4.1 List of Subsidiaries and Capitalization
Schedule 4.6 List of Consent Exceptions
Schedule 8.1 List of Indebtedness
Schedule 8.2 List of Liens
Schedule 8.4 List of Permitted Exchanges
Schedule 8.5 List of Investments
v
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CREDIT AGREEMENT, dated as of October 30, 1998, by and among INSIGHT
COMMUNICATIONS OF INDIANA, LLC, a Delaware limited liability company (the
"Borrower"), the lenders party hereto (together with their respective assigns,
the "Lenders", each a "Lender"), CANADIAN IMPERIAL BANK OF COMMERCE, as
Syndication Agent and as Co-Lead Arranger, FLEET BANK, N.A., as Documentation
Agent, Bank of Montreal, The Bank of Nova Scotia, NationsBank, N.A., PNC Bank,
National Association, Dresdner Bank AG, New York and/or Cayman Islands Branch,
Bank of Tokyo-Mitsubishi Trust Company, Cooperatieve Centrale Raiffeisen -
Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as Co-Agents and THE
BANK OF NEW YORK, as Administrative Agent for the Lenders (in such capacity, the
"Administrative Agent"), as Issuing Bank (as such term is defined below) and as
Co-Lead Arranger (as the same may be amended, supplemented or otherwise modified
from time to time, the "Credit Agreement").
1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION
1.1 Definitions
As used in this Agreement, terms defined in the preamble have
the meanings therein indicated, and the following terms have the following
meanings:
"ABR Advances": the Loans (or any portions thereof) at such
time as they (or such portions) are made and/or being maintained at a rate of
interest based upon the Alternate Base Rate.
"Accountants": Ernst & Young, LLP (or any successor thereto),
or such other firm of certified public accountants of recognized national
standing selected by the Borrower and reasonably satisfactory to the
Administrative Agent.
"Accumulated Funding Deficiency": as defined in Section 302 of
ERISA.
"Acquisition": with respect to any Person, the purchase or
other acquisition by such Person, by any means whatsoever (including through a
merger, dividend or otherwise and whether in a single transaction or in a series
of related transactions), of (i) any Capital Stock of, or other equity
securities of, any other Person if, immediately thereafter, such other Person
would be either a Subsidiary of such Person or otherwise under the control of
such Person, (ii) any Operating Entity, or (iii) any Property of (a) any other
Person or (b) any Operating Entity, in either case other than in the ordinary
course of business, provided that no acquisition of all or substantially all of
the assets of such other Person or Operating Entity shall be deemed to be in the
ordinary course of business, provided further that any replacement or repair of
Property with the proceeds of property insurance shall be deemed to be the
acquisition of Property other than in the ordinary course of business.
"Acquisition Cost": with respect to any Acquisition by any
Person, the sum of (i) all cash consideration paid or agreed to be paid by such
Person to make such Acquisition (inclusive of payments by such Person of
professional fees and expenses and other out-of-pocket expenses in connection
therewith), plus (ii) the fair market value of all non-cash consideration paid
by such Person in connection therewith, plus (iii) an amount equal to the
principal or stated amount of all liabilities assumed or incurred by such Person
in connection therewith. The principal or stated amount of any liability assumed
or incurred by a Person in connection with an Acquisition which is a contingent
liability shall be an
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Credit Agreement
----------------
amount equal to the stated amount of such liability or, if the same is not
stated, the maximum reasonably anticipated amount payable by such Person in
respect thereof as determined by such Person in good faith.
"Adjusted Annualized Operating Cash Flow": as of any date,
Annualized Operating Cash Flow for the most recent fiscal quarter in respect of
which the financial statements required by paragraphs (a) or (b) of Section 7.1
have been delivered, adjusted on a consistent basis to give effect to all
Acquisitions, Dispositions and Exchanges made by the Borrower and the
Subsidiaries during such fiscal quarter as if each had occurred on the first day
of such fiscal quarter.
"Advance": an ABR Advance or a Eurodollar Advance, as the case
may be.
"Affected Advance": as defined in Section 3.9.
"Affiliate": as to any Person, any other Person which,
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
shall mean the power, direct or indirect, to direct or cause the direction of
the management or policies of such Person, whether through the ability to
exercise voting power, by contract or otherwise. With respect to the Borrower,
"Affiliate" shall include, without limitation, each of the TCI Affiliates. With
respect to any Lender that is a fund that invests in commercial loans,
"Affiliate" shall include (i) any other fund that invests in commercial loans
and is managed or advised by the same investment advisor as such Lender or by an
Affiliate of such investment advisor, and (ii) any bank or Affiliate thereof
that manages or controls such Lender.
"Aggregate Revolving Commitment Amount": at any time, the sum
at such time of the Revolving Commitment Amounts of all Lenders.
"Aggregate Revolving Commitments": the Revolving Commitments
of all Lenders.
"Aggregate Revolving Exposure": at any time, the sum at such
time of (i) the outstanding principal balance of the Revolving Loans of all
Lenders, plus (ii) an amount equal to the Letter of Credit Exposure of all
Lenders.
"Agreement": this Credit Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
"Alternate Base Rate": on any date, a rate of interest per
annum equal to the higher of (i) the Federal Funds Rate in effect on such date
plus 1/2 of 1% or (ii) the BNY Rate in effect on such date.
"Annualized Operating Cash Flow": as of any date, Operating
Cash Flow for the most recent fiscal quarter in respect of which the financial
statements required by subsections (a) or (b) of Section 7.1 have been
delivered, multiplied by four.
"Applicable Percentage": with respect to ABR Advances,
Eurodollar Advances, the Revolving Commitment Fee and the Letter of Credit
Commissions, in each case at all times during which the applicable Pricing Level
set forth below is in effect, the percentage set forth below next to such
Pricing Level and under the applicable column, subject to the provisos set forth
below:
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<TABLE>
<CAPTION>
Eurodollar Advances
ABR Revolving Commitment and Letter of Credit
Pricing Level Advances Fee Commissions
------------- -------- --- -----------
<S> <C> <C> <C>
Pricing Level I 0.750% 0.375% 2.000%
Pricing Level II 0.500% 0.375% 1.750%
Pricing Level III 0.125% 0.375% 1.375%
Pricing Level IV 0.000% 0.250% 1.125%
Pricing Level V 0.000% 0.250% 1.000%
Pricing Level VI 0.000% 0.250% 0.875%
Pricing Level VII 0.000% 0.250% 0.750%
</TABLE>
Changes in the Applicable Percentage resulting from a change in a
Pricing Level, in each case, shall be based upon the Compliance Certificate most
recently delivered pursuant to Section 7.1(c) and shall become effective, in the
event that such delivery shall occur on the first day of a calendar month, on
such day, and, in all other cases, on the first day of the calendar month
immediately following such delivery. Notwithstanding anything to the contrary
contained in this definition, (a) if at any time and from time to time the
Borrower shall be in default of its obligations under Section 7.1(c), Pricing
Level I shall apply until such default is cured, and (b) subject to clause (a)
immediately above, during the period commencing on the Effective Date and ending
on the date of delivery, pursuant to Section 7.1(c), of the Compliance
Certificate in respect of the fiscal quarter ending September 30, 1999, Pricing
Level I shall apply.
"Asset Contribution Agreement": the Asset Contribution
Agreement, dated May 14, 1998, among the TCI Affiliates, Insight and the
Borrower, as the same may be amended, supplemented or otherwise modified from
time to time.
"Assignment and Acceptance Agreement": an assignment and
acceptance agreement executed by an assignor and an assignee pursuant to which
such assignor assigns to such assignee all or any portion of such assignor's
Loans and Revolving Commitment, substantially in the form of Exhibit H.
"Assumption": the assumption by the Borrower of not in excess
of $452,000,000 of Indebtedness.
"BNY": The Bank of New York.
"BNY Rate": a rate of interest per annum equal to the rate of
interest publicly announced in New York City by BNY from time to time as its
prime commercial lending rate, such rate to be adjusted automatically (without
notice) on the effective date of any change in such publicly announced rate.
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"Borrowing Date": any Business Day specified in (i) a
Borrowing Request as a date on which the Borrower requests the Lenders to make
Loans or (ii) a Letter of Credit Request as a date on which the Borrower
requests the Issuing Bank to issue a Letter of Credit.
"Borrowing Request": a request for Loans in the form of
Exhibit C-1.
"Business Day": for all purposes other than as set forth in
clause (ii) below, (i) any day other than a Saturday, a Sunday or a day on which
commercial banks located in New York City are authorized or required by law or
other governmental action to close, and (ii) with respect to all notices and
determinations in connection with, and payments of principal and interest on,
Eurodollar Advances, any day which is a Business Day described in clause (i)
above and which is also a day on which eurodollar funding between banks may be
carried on in London, England.
"Capital Expenditures": with respect to any Person for any
period, the aggregate of all expenditures incurred by such Person during such
period which, in accordance with GAAP, are required to be included in "Additions
to Property, Plant or Equipment" or similar items reflected on the balance sheet
of such Person, provided, however, for purposes of measuring compliance with
Section 8.7 only, financing costs incurred in connection with the acquisition of
properties shall be excluded from "Capital Expenditures" to the extent included
therein.
"Capital Lease Obligations": with respect to any Person,
obligations of such Person with respect to leases which are required to be
capitalized for financial reporting purposes in accordance with GAAP.
"Capital Stock": as to any Person, all shares, interests,
partnership interests, limited liability company interests, participations,
rights in or other equivalents (however designated) of such Person's equity
(however designated) and any rights, warrants or options exchangeable for or
convertible into such shares, interests, participations, rights or other equity.
"Cash Equivalents": (i) securities issued or directly and
fully guaranteed or insured by the United States or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in full support thereof) having maturities of not more than
six months from the date of acquisition, (ii) Dollar denominated time deposits,
certificates of deposit and bankers acceptances of (a) any Lender or (b) any
bank whose (or whose parent company's) unsecured non-credit supported short-term
commercial paper rating from (i) Standard & Poor's is at least A-1 or the
equivalent thereof or (ii) Moody's is at least P-1 or the equivalent thereof, in
any such case with maturities of not more than six months from the date of
acquisition, (iii) commercial paper issued by any such bank or by the parent
company of any such bank and commercial paper issued by, or guaranteed by, any
industrial or financial company with an unsecured non-credit supported
short-term commercial paper rating of at least A-1 or the equivalent by Standard
& Poor's or at least P-1 or the equivalent by Moody's, or guaranteed by any
industrial or financial company with a long term unsecured non-credit supported
senior debt rating of at least A or A-2, or the equivalent, by Standard & Poor's
or Moody's, as the case may be, and in each case maturing within six months
after the date of acquisition, (iv) marketable direct obligations issued by any
state of the United States or any political subdivision of any such state or any
public instrumentality thereof maturing within six months 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 or Moody's and (v)
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investments in money market funds substantially all the assets of which are
comprised of securities of the types described in clauses (i) through (iv)
above.
"Code": the Internal Revenue Code of 1986, as the same may be
amended from time to time, or any successor thereto, and the rules and
regulations issued thereunder, as from time to time in effect.
"Collateral": the Property in which a security interest is
granted under the Collateral Documents.
"Collateral Documents": collectively, the Security Agreement,
when executed and delivered, the Guarantee Agreement, and all documents executed
or delivered in connection with the foregoing.
"Compensatory Interest Payment": as defined in Section 3.1(c).
"Compliance Certificate": a certificate substantially in the
form of Exhibit E.
"Consolidated": the Borrower and its Subsidiaries on a
consolidated basis in accordance with GAAP.
"Contingent Obligation": as to any Person (a "secondary
obligor"), any obligation of such secondary obligor (i) guaranteeing or in
effect guaranteeing any return on any investment made by another Person, or (ii)
guaranteeing or in effect guaranteeing any Indebtedness, lease, dividend or
other obligation (a "primary obligation") of any other Person (a "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of such secondary obligor, whether contingent, (a) to
purchase any primary obligation or any Property constituting direct or indirect
security therefor, (b) to advance or supply funds (A) for the purchase or
payment of any primary obligation or (B) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency of a primary obligor, (c) to purchase Property, securities or services
primarily for the purpose of assuring the beneficiary of any primary obligation
of the ability of a primary obligor to make payment of a primary obligation, (d)
otherwise to assure or hold harmless the beneficiary of a primary obligation
against loss in respect thereof, and (e) in respect of the liabilities of any
partnership in which a secondary obligor is a general partner, except to the
extent that such liabilities of such partnership are nonrecourse to such
secondary obligor and its separate Property, provided, however, that the term
"Contingent Obligation" shall not include (x) the indorsement of instruments for
deposit or collection in the ordinary course of business, and (y) with respect
to the Borrower, any Restricted Payment made or to be made by the Borrower
pursuant to its Organizational Documents as in effect on the date hereof. The
amount of any Contingent Obligation of a Person shall be deemed to be an amount
equal to the stated or determinable amount of a primary obligation in respect of
which such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by
such Person in good faith.
"Contribution": the contribution to the Borrower of
substantially all of the assets that each of Insight and the TCI Affiliates
agreed to contribute to the Borrower pursuant to the Asset Contribution
Agreement as in effect on the Effective Date.
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"Control Person": as defined in Section 3.6.
"Conversion Date": the date on which: (i) a Eurodollar
Advance is converted to an ABR Advance, (ii) an ABR Advance is converted to a
Eurodollar Advance, or (iii) a Eurodollar Advance is converted to a new
Eurodollar Advance.
"Credit Party": the Administrative Agent, the Issuing Bank or
any Lender.
"Debt Service": for any period, the sum of (i) Interest
Expense for such period, plus (ii) with respect to all Indebtedness under
revolving credit facilities (including, without limitation, the facility
evidenced hereby) of the Borrower and its Subsidiaries, determined on a
Consolidated basis in accordance with GAAP, an amount equal to the excess, if
any, of (a) the aggregate outstanding principal balance of all such Indebtedness
at the beginning of such period, minus (b) the aggregate amount of all
commitments under such revolving credit facilities at the end of such period,
plus (iii) with respect to all other Indebtedness of the Borrower and its
Subsidiaries, determined on a Consolidated basis in accordance with GAAP, all
repayments of such Indebtedness which were required to be made during such
period.
"Default": any event or condition which constitutes an Event
of Default or which, with the giving of notice, the lapse of time, or any other
condition, would, unless cured or waived, become an Event of Default.
"Disposition": with respect to any Person, any sale,
assignment, transfer or other disposition by such Person, by any means, of (i)
the Capital Stock of, or other equity interests of, any other Person, (ii) any
Operating Entity, or (iii) any other Property of such Person other than in the
ordinary course of business, provided, however, that no such sale, assignment,
transfer or other disposition of Property (other than inventory, except to the
extent subject to a bulk sale) shall be deemed to be in the ordinary course of
business (a) if the fair market value thereof is in excess of $500,000, or (b)
to the extent that the fair market value thereof, when aggregated with all other
sales, assignments, transfers and other dispositions made by such Person within
the same fiscal year, exceeds $1,000,000, and then only to the extent of such
excess, if any, or (c) it is the sale, assignment, transfer or disposition of
(A) all or substantially all of the Property of such Person or (B) any Operating
Entity.
"Dollars" and "$": lawful currency of the United States.
"Domestic Lending Office": in respect of (i) any Lender listed
on the signature pages hereof, initially, the office or offices of such Lender
designated as such on Schedule 1.1; thereafter, such other office of such
Lender, through which it shall be making or maintaining ABR Advances, as
reported by such Lender to the Administrative Agent and the Borrower, and (ii)
in the case of any other Lender, initially, the office or offices of such Lender
designated as such on Schedule 2 of the Assignment and Acceptance Agreement or
other document pursuant to which it became a Lender; thereafter, such other
office of such Lender, through which it shall be making or maintaining ABR
Advances, as reported by such Lender to the Administrative Agent and the
Borrower.
"Effective Date": as defined in Section 11.21.
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"Employee Benefit Plan": an employee benefit plan within the
meaning of Section 3(3) of ERISA maintained, sponsored or contributed to by the
Borrower, any of its Subsidiaries or any ERISA Affiliate.
"Environmental Laws": any and all federal, state and local
laws relating to the environment, the use, storage, transporting, manufacturing,
handling, discharge, disposal or recycling of hazardous substances, materials or
pollutants or industrial hygiene, and including, without limitation, (i) the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 USCA ss.9601 et seq.; (ii) the Resource Conservation and Recovery
Act of 1976, as amended, 42 USCA ss.6901 et seq.; (iii) the Toxic Substance
Control Act, as amended, 15 USCA ss.2601 et seq.; (iv) the Water Pollution
Control Act, as amended, 33 USCA ss.1251 et seq.; (v) the Clean Air Act, as
amended, 42 USCA ss.7401 et seq.; (vi) the Hazardous Materials Transportation
Authorization Act of 1994, as amended, 49 USCA ss.5101 et seq. and (viii) all
rules, regulations, judgments, decrees, injunctions and restrictions thereunder
and any analogous state law.
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the rules and regulations issued thereunder,
as from time to time in effect.
"ERISA Affiliate": when used with respect to an Employee
Benefit Plan, ERISA, the PBGC or a provision of the Code pertaining to employee
benefit plans, any Person which is a member of any group of organizations within
the meaning of Sections 414(b) or (c) of the Code (or, solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, Sections 414(m) or (o) of the Code) of which the Borrower or any of
its Subsidiaries is a member.
"Eurodollar Advances": the Loans (or any portions thereof) at
such time as they (or such portions) are made and/or being maintained at a rate
of interest based upon the Eurodollar Rate.
"Eurodollar Lending Office": in respect of (i) any Lender
listed on the signature pages hereof, initially, the office or offices of such
Lender designated as such on Schedule 1.1; thereafter, such other office of such
Lender, through which it shall be making or maintaining Eurodollar Advances, as
reported by such Lender to the Administrative Agent and the Borrower and (ii) in
the case of any other Lender, initially, the office or offices of such Lender
designated as such on Schedule 2 of the Assignment and Acceptance Agreement or
other document pursuant to which it became a Lender; thereafter, such other
office of such Lender, through which it shall be making or maintaining
Eurodollar Advances, as reported by such Lender to the Administrative Agent and
the Borrower.
"Eurodollar Rate": with respect to the Interest Period
applicable to any Eurodollar Advance, a rate of interest per annum, as
determined by the Administrative Agent, obtained by dividing (and then rounding
to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, then to the
next higher 1/16 of 1%):
(a) the rate, as reported by BNY to the Administrative Agent,
quoted by BNY to leading banks in the interbank eurodollar market as the rate at
which BNY is offering Dollar deposits in an amount equal approximately to the
Eurodollar Advance of BNY to which such Interest Period shall apply for a period
equal to such Interest Period, as quoted at approximately 11:00 a.m. two
Business Days prior to the first day of such Interest Period, by
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(b) a number equal to 1.00 minus the aggregate of the then
stated maximum rates during such Interest Period of all reserve requirements
(including, without limitation, marginal, emergency, supplemental and special
reserves), expressed as a decimal, established by the Board of Governors of the
Federal Reserve System and any other banking authority to which BNY and other
major money center banks chartered under the laws of the United States or any
state thereof are subject, in respect of eurocurrency funding (currently
referred to as "Eurocurrency liabilities" in Regulation D of the Board of
Governors of the Federal Reserve System) or in respect of any other category of
liabilities including deposits by reference to which the interest rate on
Eurodollar Advances is determined or any category of extensions of credit or
other assets which includes loans by non-domestic offices of any Lender to
United States residents. Such reserve requirements shall include, without
limitation, those imposed under such Regulation D. Eurodollar Advances shall be
deemed to constitute Eurocurrency liabilities and as such shall be deemed to be
subject to such reserve requirements without benefit of credits for proration,
exceptions or offsets which may be available from time to time to any Lender
under such Regulation D. The Eurodollar Rate shall be adjusted automatically on
and as of the effective date of any change in any such reserve requirement.
"Event of Default": as defined in Section 9.1.
"Excess Cash Flow": for each fiscal year, Operating Cash Flow
in respect of such fiscal year minus, without duplication, the sum of each of
the following with respect to the Borrower and its Subsidiaries, determined on a
Consolidated basis in accordance with GAAP: (i) Capital Expenditures made during
such fiscal year (net of the aggregate principal amount of all Indebtedness
assumed by the Borrower and its Subsidiaries, determined on a Consolidated basis
in accordance with GAAP, during such fiscal year in connection with the
financing of such Capital Expenditures), to the extent such Capital Expenditures
were permitted by Section 8.7, (ii) interest expense to the extent paid during
such fiscal year, (iii) with respect to all Indebtedness under revolving credit
facilities, an amount equal to the excess, if any, of (a) the aggregate
outstanding principal balance of all such Indebtedness at the beginning of such
fiscal year, minus (b) the aggregate amount of all commitments under such
revolving credit facilities at the end of such fiscal year, (iv) with respect to
all other Indebtedness, all repayments of such Indebtedness which were made
during such fiscal year, (v) income taxes to the extent paid during such fiscal
year, and (vi) Capital Lease Obligations to the extent paid during such fiscal
year.
"Excess Cash Flow Prepayment Date": as defined in Section
2.5(b).
"Exchange": with respect to any Person, a simultaneous or
substantially simultaneous Acquisition and Disposition by such Person.
"Excluded Taxes": with respect to any Credit Party or any
other recipient of any payment to be made by or on account of any obligation of
the Borrower hereunder (a) Taxes imposed on (or measured by) its net income, net
profits or net gains by the United States or any State or political subdivision
thereof (including the District of Columbia), or by the jurisdiction under the
laws of which such recipient is organized or in which its principal office is
located or, in the case of any Credit Party, in which its applicable lending
office is located, (b) any branch profits Taxes imposed by the United States or
any State or political subdivision thereof (including the District of Columbia)
or any similar Tax imposed by any other jurisdiction in which the Borrower is
located and (c) in the case of a Foreign Lender (other than an assignee pursuant
to a request by the Borrower under Section 3.12(b)), any withholding Tax that is
imposed on amounts payable to such Foreign Lender, which Tax is (i) applicable
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at the time such Foreign Lender becomes a party to this Agreement (or designates
a new lending office) or is (ii) attributable to such Foreign Lender's failure
to comply with Section 3.10(e), except to the extent that such Foreign Lender
(or its assignor, if any) was entitled, at the time of designation of a new
lending office (or assignment), to receive additional amounts from the Borrower
with respect to such withholding Tax pursuant to Section 3.10(a).
"Facility Percentage": as to any Lender, a fraction (expressed
as a percentage) the numerator of which is the sum of such Lender's Revolving
Commitment Amount and the outstanding principal balance of such Lender's Term
Loan and the denominator of which is the sum of the Aggregate Revolving
Commitment Amount and the outstanding principal balance of all Lenders' Term
Loans.
"Federal Funds Rate": for any day, a rate per annum (expressed
as a decimal, rounded upwards, if necessary, to the next higher 1/100 of 1%)
equal to the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day, provided that (i) if the day for
which such rate is to be determined is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and (ii) if
such rate is not so published for any day, the Federal Funds Rate for such day
shall be the average of the quotations for such day on such transactions
received by BNY as determined by BNY and reported to the Administrative Agent.
"Fees": as defined in Section 2.11.
"Financial Officer": as to any Person, the chief financial
officer of such Person or such other officer as shall be satisfactory to the
Administrative Agent.
"Fixed Charge Coverage Ratio": as of any fiscal quarter end,
the ratio of (i) Operating Cash Flow to (ii) Fixed Charges, in each case for the
period comprised of the four consecutive fiscal quarters then ended as reflected
in the financial statements in respect thereof delivered pursuant to Section
7.1(a) or 7.1(b), as the case may be.
"Fixed Charges": for any period, the sum of, without
duplication, (i) Debt Service for such period, (ii) Capital Expenditures made
during such period by the Borrower and its Subsidiaries, determined on a
Consolidated basis in accordance with GAAP, and (iii) Restricted Payments made
pursuant to Section 8.6(b) during such period by the Borrower and its
Subsidiaries, determined on a Consolidated basis in accordance with GAAP.
"Foreign Lender": any Lender that is organized under the
laws of a jurisdiction other than that in which the Borrower is located. For
purposes of this definition, the United States, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"Funded Current Liability Percentage": as defined in Section
401(a)(29) of the Code.
"GAAP": at any time, generally accepted accounting principles
as in effect at such time in the United States.
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Credit Agreement
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"Governmental Authority": any foreign, federal, state,
municipal or other government, or any department, commission, board, bureau,
agency, public authority or instrumentality thereof, or any court or arbitrator.
"Guarantee Agreement": the Guarantee Agreement, substantially
in the form of Exhibit J, among the Borrower, the Guarantors and the
Administrative Agent, as the same may be amended, supplemented or otherwise
modified from time to time.
"Guarantors": as defined in the Guarantee Agreement.
"Hazardous Substance": any hazardous or toxic substance,
material or waste, including, but not limited to, (i) those substances,
materials, and wastes listed in the United States Department of Transportation
Hazardous Materials Table (49 CFR 172.101) or by the Environmental Protection
Agency as hazardous substances (40 CFR Part 302) and amendments thereto and
replacements thereof and (ii) any substance, pollutant or material defined as,
or designated in, any Environmental Law as a "hazardous substance," "toxic
substance," "hazardous material," "hazardous waste," "restricted hazardous
waste," "pollutant," "toxic pollutant" or words of similar import.
"Highest Lawful Rate": as to any Lender or the Issuing Bank,
the maximum rate of interest, if any, that at any time or from time to time may
be contracted for, taken, charged or received by such Lender on its Loans or by
the Issuing Bank on the Reimbursement Agreements, as the case may be, or which
may be owing to such Lender or the Issuing Bank pursuant to the Loan Documents
under the laws applicable to such Lender or the Issuing Bank and this
transaction.
"Indebtedness": as to any Person, at a particular time, all
items which constitute, without duplication, (i) indebtedness for borrowed money
or with respect to deposits or advances of any kind, (ii) indebtedness in
respect of the deferred purchase price of Property (other than trade payables
incurred in the ordinary course of business), (iii) indebtedness evidenced by
notes, bonds, debentures or similar instruments, (iv) obligations upon which
interest charges are customarily paid and obligations with respect to any
conditional sale or title retention agreement, (v) indebtedness arising under
acceptance facilities and the amount available to be drawn under all letters of
credit issued for the account of such Person and, without duplication, all
drafts drawn thereunder to the extent such Person shall not have reimbursed the
issuer in respect of the issuer's payment thereof, (vi) all liabilities secured
by any Lien on any Property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof (other than
carriers', warehousemen's, mechanics', repairmen's or other like non-consensual
statutory Liens arising in the ordinary course of business), (vii) Capital Lease
Obligations, and (viii) Contingent Obligations of such Person in respect of
Indebtedness (of the types referred to in clauses (i) through (vii) hereof) of
another. The Indebtedness of any Person shall include the Indebtedness of any
other entity (including any partnership in which such Person is a general
partner) to the extent such Person is liable therefor as a result of such
Person's ownership interest in or other relationship with such entity, except to
the extent the terms of such Indebtedness provide that such Person is not liable
therefor. Notwithstanding anything to the contrary in this definition, the term
"Indebtedness" shall not include any obligation in respect of any operating
lease.
"Indemnified Taxes": Taxes (including Other Taxes) other than
Excluded Taxes.
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Credit Agreement
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"Indiana Documents": collectively, (a) the Operating
Agreement, (b) the Asset Contribution Agreement, and (c) the Asset Exchange
Agreement, dated as of May 14, 1998, among certain of the TCI Affiliates and
Insight, as amended, supplemented or otherwise modified from time to time.
"Initial Transactions": as defined in Section 4.21.
"Insight": Insight Communications Company, L.P.
"Intercompany Indebtedness": loans which are (i) made by the
Borrower to direct or indirect Subsidiaries or (ii) made by direct or indirect
Subsidiaries to the Borrower or to other direct or indirect Subsidiaries of the
Borrower.
"Interest Coverage Ratio": as of any fiscal quarter end, the
ratio of (i) Operating Cash Flow to (ii) Interest Expense, in each case for the
period comprised of the four consecutive fiscal quarters then ended as reflected
in the financial statements in respect thereof delivered pursuant to Section
7.1(a) or 7.1(b), as the case may be.
"Interest Expense": for any period, the sum of all interest
expense during such period of the Borrower and its Subsidiaries, determined on a
Consolidated basis in accordance with GAAP.
"Interest Payment Date": (i) as to any ABR Advance, the last
day of each March, June, September and December commencing on the first of such
days to occur after such ABR Advance is made or any Eurodollar Advance is
converted to an ABR Advance, (ii) as to any Eurodollar Advance as to which the
Borrower has selected an Interest Period of one, two or three months, the last
day of such Interest Period, (iii) as to any Eurodollar Advance as to which the
Borrower has selected an Interest Period greater than three months, the last day
of each three month interval occurring during such Interest Period and the last
day of such Interest Period; and (iv) as to all Eurodollar Advances comprising
all or a portion of the Loans, the Maturity Date.
"Interest Period": with respect to any Eurodollar Advance
requested by the Borrower, the period commencing on, as the case may be, the
Borrowing Date or Conversion Date with respect to such Eurodollar Advance and
ending one, two, three or six months thereafter, as selected by the Borrower in
its irrevocable Borrowing Request or its irrevocable Notice of Conversion,
provided, however, that (i) if any Interest Period would otherwise end on a day
which 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, and (ii) any
Interest Period which 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. Interest Periods shall be subject to the provisions of Section
3.4.
"Interest Rate Protection Arrangement": any interest rate
swap, cap or collar arrangement or any other derivative product customarily
offered by banks to their customers in order to reduce the exposure of such
customers to interest rate fluctuations, as the same may be amended,
supplemented or otherwise modified from time to time.
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Credit Agreement
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"Investments": as defined in Section 8.5.
"Issuing Bank": BNY.
"Letter of Credit": as defined in Section 2.8.
"Letter of Credit Commissions": as defined in Section 3.2(b).
"Letter of Credit Commitment": the commitment of the Issuing
Bank to issue Letters of Credit under and in accordance with the terms of this
Agreement.
"Letter of Credit Commitment Amount": $25,000,000.
"Letter of Credit Exposure": at any time, (i) in respect of
all the Lenders, the sum at such time, without duplication, of (a) the aggregate
undrawn face amount of the outstanding Letters of Credit, (b) the aggregate
amount of unpaid drafts drawn on all Letters of Credit, and (c) the aggregate
unpaid Reimbursement Obligations (after giving effect to any Revolving Loans
made at such time to pay any such Reimbursement Obligations), and (ii) in
respect of any Lender, an amount equal to (x) the amount determined under clause
(i) of this definition multiplied by (y) such Lender's Revolving Commitment
Percentage.
"Letter of Credit Request": a request in the form of Exhibit
C-2.
"Leverage Ratio": at any date of determination, the ratio of
(i) Total Consolidated Debt on such date to (ii) Adjusted Annualized Operating
Cash Flow on such date.
"Lien": any mortgage, pledge, hypothecation, assignment,
deposit or preferential arrangement, encumbrance, lien (statutory or other), or
other security agreement or security interest of any kind or nature whatsoever,
including, without limitation, any conditional sale or other title retention
agreement and any capital or financing lease having substantially the same
economic effect as any of the foregoing.
"Loan Documents": collectively, this Agreement, the Notes, if
any, the Reimbursement Agreements, and the Collateral Documents.
"Loans": the Revolving Loans and Term Loans.
"Managing Person": with respect to any Person that is a (i)
corporation, its board of directors, (ii) a limited liability company, its board
of control, managing member or members, (iii) a limited partnership, its general
partner, (iv) a general partnership, its managing partner or executive committee
or (v) such other managing body or Person analogous to the foregoing.
"Management Agreement": the Management Agreement, dated as of
October 30, 1998, between the Borrower and Insight, as the same may be amended,
supplemented or otherwise modified from time to time.
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Credit Agreement
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"Margin Stock": any "margin stock", as defined in
Regulation U of the Board of Governors of the Federal Reserve System, as
amended, supplemented or otherwise modified from time to time.
"Material Adverse Change": a material adverse change in (i)
the financial condition, operations, business, prospects or Property of (a) the
Borrower or (b) the Borrower and its Subsidiaries taken as a whole, (ii) the
ability of the Borrower or any of its Subsidiaries to perform its obligations
under the Loan Documents to which it is a party or (iii) the ability of the
Administrative Agent and the Lenders to enforce the Loan Documents.
"Material Adverse Effect": a material adverse effect on (i)
the financial condition, operations, business, prospects or Property of (a) the
Borrower or (b) the Borrower and its Subsidiaries taken as a whole, (ii) the
ability of the Borrower or any of its Subsidiaries to perform its obligations
under the Loan Documents to which it is a party or (iii) the ability of the
Administrative Agent and the Lenders to enforce the Loan Documents.
"Maturity Date": December 31, 2006, or such earlier date on
which the Loans shall become due and payable, whether by acceleration or
otherwise.
"Moody's": Moody's Investors Service, Inc., or any successor
thereto.
"Multiemployer Plan": a Pension Plan which is a multiemployer
plan as defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": with respect to any Disposition or
Exchange by the Borrower or any of its Subsidiaries, and with respect to any
receipt by the Borrower or any Subsidiary of property insurance proceeds or
condemnation awards or similar payments, the aggregate proceeds or consideration
received by the Borrower or such Subsidiary (or any qualified intermediary
acting on their behalf) in cash in connection therewith, minus the sum of (i)
sales and other commissions and legal and other out-of-pocket expenses paid by
the Borrower or such Subsidiary in connection therewith, (ii) any taxes paid or
payable by the Borrower or such Subsidiary in connection therewith (determined
on a Consolidated basis after giving effect to net operating loss and other
deductions and applicable tax credits), and (iii) the amount of Indebtedness
(other than the Loans and in respect of Letters of Credit) secured by the
Property subject to such Disposition or Exchange, or the casualty loss or taking
that gave rise to the receipt of such proceeds, awards or other payments, as the
case may be, that is required to be repaid thereupon.
"Note": any promissory note executed and delivered pursuant to
Section 2.12(d).
"Notice of Conversion": a notice substantially in the form of
Exhibit D.
"Obligations": (a) the due and punctual payment of (i)
principal of and premium, if any, and interest (including interest accruing
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Loans, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, and (ii) all other monetary
obligations, including fees, commissions, costs, expenses and indemnities,
whether primary, secondary, direct, contingent, fixed or otherwise (including
monetary
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Credit Agreement
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obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of the Obligors to the Credit Parties under the
Credit Agreement and the other Loan Documents, (b) the due and punctual
performance of all covenants, agreements, obligations and liabilities of the
Credit Parties under or pursuant to the Credit Agreement and the other Loan
Documents and (c) unless otherwise agreed upon in writing by the applicable
Lender party thereto, all obligations of the Borrower, monetary or otherwise,
under each interest rate protection agreement entered into with a counterparty
and that was a Lender (or an Affiliate thereof) at the time such interest rate
protection agreement was entered into.
"Obligor": the Borrower, any Guarantor, or any Grantor (as
such term is defined in the Security Agreement).
"Operating Agreement": the Operating Agreement, dated as of
May 14, 1998, of the Borrower, as the same may be amended, supplemented or
otherwise modified from time to time.
"Operating Cash Flow": for any period, net income of the
Borrower and its Subsidiaries for such period, determined on a Consolidated
basis in accordance with GAAP (1) excluding all non-recurring items and
extraordinary gains or losses, in each case to the extent included in
determining such net income, and (2) plus the sum of, without duplication, each
of the following with respect to the Borrower and its Subsidiaries on a
Consolidated basis to the extent utilized in determining such net income: (a)
all interest expense, (b) depreciation, amortization and other non-cash charges
to income, and (c) all Restricted Payments made by the Borrower in cash under
Section 8.6(b) during such period. For purposes of this definition, management
fees (i) shall be deemed to constitute expenses only when paid in cash, and (ii)
shall be deemed to constitute revenue only when received in cash.
"Operating Entity": any Person or any business or operating
unit of a Person which is, or could be, operated separate and apart from (i) the
other businesses and operations of such Person, or (ii) any other line of
business or business segment.
"Organizational Documents": as to any Person which is (i) a
corporation, the certificate or articles of incorporation and by-laws of such
Person, (ii) a limited liability company, the limited liability company
agreement, operating agreement or similar agreement of such Person, (iii) a
partnership, the partnership agreement or similar agreement of such Person, or
(iv) any other form of entity or organization, the organizational documents
analogous to the foregoing.
"Other Taxes": any and all current 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.
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA, or any Governmental Authority
succeeding to the functions thereof.
"Pension Plan": at any date of determination, any Employee
Benefit Plan (including a Multiemployer Plan), the funding requirements of which
(under Section 302 of ERISA or Section 412 of the Code) are, or at any time
within the six years immediately preceding such date, were in whole or in part,
the responsibility of the Borrower, any of its Subsidiaries or any ERISA
Affiliate.
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"Perfection Certificate": a certificate in the form of Annex 1
to the Security Agreement or any other form approved by the Administrative
Agent.
"Permitted Lien": a Lien permitted to exist under Section 8.2.
"Person": any individual, firm, partnership, limited liability
company, joint venture, corporation, association, business enterprise, joint
stock company, unincorporated association, trust, Governmental Authority or any
other entity, whether acting in an individual, fiduciary, or other capacity, and
for the purpose of the definition of "ERISA Affiliate", a trade or business.
"Prepayment Amount": as defined in Section 2.5(c).
"Prepayment Event": as defined in Section 2.5(c).
"Pricing Level": Pricing Level I, Pricing Level II, Pricing
Level III, Pricing Level IV, Pricing Level V, Pricing Level VI or Pricing Level
VII, as applicable.
"Pricing Level I": any time when the Leverage Ratio is greater
than or equal to 6.00:1.00.
"Pricing Level II": any time when the Leverage Ratio is
greater than or equal to 5.50:1.00 but less than 6.00:1.00.
"Pricing Level III": any time when the Leverage Ratio is
greater than or equal to 5.00:1.00 but less than 5.50:1.00.
"Pricing Level IV": any time when the Leverage Ratio is
greater than or equal to 4.50:1.00 but less than 5.00:1.00.
"Pricing Level V": any time when the Leverage Ratio is greater
than or equal to 4.00:1.00 but less than 4.50:1.00.
"Pricing Level VI": any time when the Leverage Ratio is
greater than or equal to 3.50:1.00 but less than 4.00:1.00.
"Pricing Level VII": any time when the Leverage Ratio is less
than 3.50:1.00.
"Pro Forma Debt Service": as of any fiscal quarter end, the
sum of (i) Pro Forma Interest Expense as of such fiscal quarter end, plus (ii)
with respect to all Indebtedness under revolving credit facilities (including,
without limitation, the facility evidenced hereby) of the Borrower and its
Subsidiaries, determined on a Consolidated basis in accordance with GAAP, an
amount equal to the excess, if any, of (a) the aggregate outstanding principal
balance of all such Indebtedness at such fiscal quarter end, minus (b) the
aggregate amount of all commitments under such revolving credit facilities
which, at such fiscal quarter end, are scheduled to remain in effect at the end
of the four fiscal quarter period immediately succeeding such fiscal quarter
end, plus (iii) with respect to all other Indebtedness of the Borrower and the
Subsidiaries, determined on a Consolidated basis in accordance with GAAP, all
repayments of such Indebtedness which, as of such fiscal quarter end, are
scheduled to be made during the immediately succeeding four fiscal quarter
period.
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"Pro Forma Debt Service Ratio": as of any fiscal quarter end,
the ratio of (i) Adjusted Annualized Operating Cash Flow to (ii) Pro Forma Debt
Service, in each case at such fiscal quarter end.
"Pro Forma Interest Expense": as of any fiscal quarter end,
the sum of all scheduled interest payments due on the Indebtedness of the
Borrower and its Subsidiaries, determined on a Consolidated basis in accordance
with GAAP, for the four fiscal quarter period immediately succeeding such fiscal
quarter end. For purposes of calculating "Pro Forma Interest Expense", (i) to
the extent that the interest rate applicable to any such Indebtedness is a
variable rate, then the rate in effect, adjusted for any Interest Rate
Protection Arrangements, at such fiscal quarter end shall be deemed to be the
rate thereof in effect for such four fiscal quarter period, (ii) the principal
amount of such Indebtedness outstanding under any revolving or line of credit
facility at such fiscal quarter end shall be deemed to be the outstanding amount
thereof throughout such four fiscal quarter period, adjusted to give effect to
all scheduled reductions of the commitments or availability thereunder during
such four fiscal quarter period, and (iii) any other such Indebtedness
outstanding at such fiscal quarter end shall be deemed to be the outstanding
amount thereof throughout such four fiscal quarter period, adjusted to give
effect to all scheduled repayments thereof during such four fiscal quarter
period, to the extent that the amount of such repayment is known at such fiscal
quarter end.
"Prohibited Transaction": a transaction which is prohibited
under Section 4975 of the Code or Section 406 of ERISA and not exempt under
Section 4975 of the Code or Section 408 of ERISA.
"Property": all types of real, personal, tangible, intangible
or mixed property.
"Real Property": all real property owned or leased by the
Borrower or any of its Subsidiaries.
"Regulatory Change": (i) the introduction or phasing in of any
law, rule or regulation after the Relevant Date, (ii) the issuance or
promulgation after the Relevant Date of any directive, guideline or request from
any central bank or United States (including, without limitation, any state
thereof) or foreign Governmental Authority (whether or not having the force of
law), or (iii) any change after the Relevant Date in the interpretation of any
existing law, rule, regulation, directive, guideline or request by any central
bank or United States (including, without limitation, any state thereof) or
foreign Governmental Authority charged with the administration thereof. For
purposes of this definition, the term "Relevant Date" shall mean (a) in the case
of each Lender listed on the signature pages hereof, the Effective Date, or (b)
in the case of each other Lender, the effective date of the Assignment and
Acceptance Agreement or other document pursuant to which it became a Lender.
"Reimbursement Agreement": as defined in Section 2.8(b).
"Reimbursement Obligation": the obligation of the Borrower to
reimburse the Issuing Bank for amounts drawn under a Letter of Credit.
"Related Parties": with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents,
advisors and trustees of such Person and such Person's Affiliates.
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"Reportable Event": with respect to any Pension Plan, (i) any
event set forth in Sections 4043(b) (other than a Reportable Event as to which
the 30 day notice requirement is waived by the PBGC under applicable
regulations), 4062(c) or 4063(a) of ERISA or the regulations thereunder, (ii) an
event requiring the Borrower, any of its Subsidiaries or any ERISA Affiliate to
provide security to a Pension Plan under Section 401(a)(29) of the Code, or
(iii) any failure to make any payment required by Section 412(m) of the Code.
"Required Lenders": at any time, Lenders having Facility
Percentages equal to or more than 51%.
"Restricted Payment": as to any Person (i) any dividend or
other distribution, direct or indirect, on account of any shares of Capital
Stock of such Person now or hereafter outstanding (other than a dividend payable
solely in shares of such Capital Stock to the holders of such shares) and (ii)
any redemption, retirement, sinking fund or similar payment, purchase or other
acquisition, direct or indirect, of any shares of any class of Capital Stock of
such Person or any Affiliate thereof now or hereafter outstanding.
"Revolver Supplement": an increase supplement in the form of
Exhibit K-1.
"Revolving Commitment": in respect of any Lender, such
Lender's undertaking during the Revolving Commitment Period to make Revolving
Loans and to participate in the Letters of Credit, subject to the terms and
conditions hereof, in an aggregate outstanding principal amount not exceeding
the Revolving Commitment Amount of such Lender.
"Revolving Commitment Amount": as of any date and with respect
to any Lender, the amount set forth adjacent to its name under the heading
"Revolving Commitment Amount" in Exhibit A on such date or, in the event that
such Lender is not listed in Exhibit A, the "Revolving Commitment Amount" which
such Lender shall have assumed from another Lender in accordance with Section
11.7 on or prior to such date, as each of the same may be reduced from time to
time pursuant to Section 2.5, and as each may be affected by assignments
pursuant to Section 11.7.
"Revolving Commitment Fee": as defined in Section 3.2(a).
"Revolving Commitment Percentage": as to any Lender at any
time, the percentage, at such time, equal to such Lender's Revolving Commitment
Amount, if any, divided by the Aggregate Revolving Commitment Amount (or, if no
Revolving Commitments exist at such time, the percentage equal to such Lender's
Revolving Commitment Amount, if any, on the last day upon which Revolving
Commitments did exist divided by the Aggregate Revolving Commitment Amount on
such day).
"Revolving Commitment Period": the period from the Effective
Date until the Revolving Commitment Termination Date.
"Revolving Commitment Termination Date": the earlier of the
Business Day immediately preceding the Maturity Date or such other date upon
which the Revolving Commitments shall have been terminated in accordance with
Section 2.5 or Section 9.2.
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"Revolving Exposure": with respect to any Lender as of any
date, the sum as of such date of (i) the outstanding principal balance of such
Lender's Revolving Loans, plus (ii) an amount equal to such Lender's Letter of
Credit Exposure.
"Revolving Lender": at any time, any Lender which has a
Revolving Commitment at such time (or, if no Revolving Commitments exist at such
time, any Lender that had a Revolving Commitment on the last day upon which
Revolving Commitments did exist).
"Revolving Loan" and "Revolving Loans": as defined in
Section 2.1.
"SEC": the Securities and Exchange Commission or any
Governmental Authority succeeding to the functions thereof.
"Security Agreement": the Security Agreement, substantially in
the form of Exhibit I, by and among the Obligors and the Administrative Agent,
as the same may be amended, supplemented or otherwise modified from time to
time.
"Special Counsel": Emmet, Marvin & Martin, LLP, special
counsel to the Administrative Agent.
"Standard & Poor's": Standard & Poor's Rating Services, a
division of The McGraw-Hill Companies, Inc., or any successor thereto.
"Subsidiary": as to any Person, any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which such Person or any Subsidiary of such Person, directly or indirectly,
either (i) in respect of a corporation, owns or controls more than 50% of the
outstanding Capital Stock having ordinary voting power to elect a majority of
the Managing Person, irrespective of whether a class or classes shall or might
have voting power by reason of the happening of any contingency, or (ii) in
respect of an association, partnership, limited liability company, joint venture
or other business entity, is entitled to share in more than 50% of the profits
and losses, however determined. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary
or Subsidiaries of the Borrower.
"Taxes": any and all current or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"TCI": Tele-Communications, Inc., or any successor to
substantially all of the cable television properties and cable television
interests of Tele-Communications, Inc. and its Subsidiaries.
"TCI Affiliates": the following Affiliates of TCI: UACC
Midwest, Inc., TCI of Kokomo, Inc., TCI of Indiana, Inc., Heritage Cablevision
Associates, a limited partnership, and TCI of Indiana Holdings, LLC.
"Term Loan": any loan made pursuant to Section 2.2.
"Term Loan Supplement": an increase supplement in the form of
Exhibit K-2.
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"Termination Event": with respect to any Pension Plan, (i) a
Reportable Event, (ii) the termination of a Pension Plan, or the filing of a
notice of intent to terminate a Pension Plan, or the treatment of a Pension Plan
amendment as a termination under Section 4041(c) of ERISA, (iii) the institution
of proceedings to terminate a Pension Plan under Section 4042 of ERISA, or (iv)
the appointment of a trustee to administer any Pension Plan under Section 4042
of ERISA.
"Total Consolidated Debt": at any date of determination, the
aggregate Indebtedness on such date of the Borrower and its Subsidiaries,
determined on a Consolidated basis in accordance with GAAP.
"Type": with respect to any Loan, the character of such Loan
as an ABR Advance or a Eurodollar Advance, each of which constitutes a type of
loan.
"Unfunded Pension Liabilities": with respect to any Pension
Plan, at any date of determination, the amount determined by taking the
accumulated benefit obligation, as disclosed in accordance with Statement of
Accounting Standards No. 87, "Employers' Accounting for Pensions", over the fair
market value of Pension Plan assets.
"United States": the United States of America.
"Unqualified Amount": as defined in Section 3.1(c).
"Unrecognized Retiree Welfare Liability": with respect to any
Employee Benefit Plan that provides postretirement benefits other than pension
benefits, the amount of the transition obligation, as determined in accordance
with Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," as of the most recent
valuation date, that has not been recognized as an expense in an income
statement of the Borrower and its Subsidiaries, provided that prior to the date
such Statement is applicable to the Borrower, such amount shall be based on an
estimate made in good faith of such transition obligation.
"Year 2000 Issue" means the failure of computer software,
hardware and firmware systems and equipment containing embedded computer chips
to properly receive, transmit, process, manipulate, store, retrieve, re-transmit
or in any other way utilize data and information due to the occurrence of the
year 2000 or the inclusion of dates on or after January 1, 2000.
1.2 Principles of Construction
(a) All terms defined in a Loan Document shall have the
meanings given such terms therein when used in the other Loan Documents or any
certificate, opinion or other document made or delivered pursuant thereto,
unless otherwise defined therein.
(b) As used in the Loan Documents and in any certificate,
opinion or other document made or delivered pursuant thereto, accounting terms
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 them
under GAAP.
(c) The words "hereof", "herein", "hereto" and "hereunder" and
similar words when used in a Loan Document shall refer to such Loan Document as
a whole and not to any particular
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provision thereof, and Section, schedule and exhibit references contained
therein shall refer to Sections thereof or schedules or exhibits thereto, unless
otherwise expressly provided therein.
(d) The phrase "may not" is prohibitive and not permissive.
(e) Unless the context otherwise requires, words in the
singular number include the plural, and words in the plural include the
singular.
(f) Unless specifically provided in a Loan Document to the
contrary, any reference to a time shall refer to such time in New York.
(g) Unless specifically provided in a Loan Document to the
contrary, in the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including" and the words "to"
and "until" each means "to but excluding".
(h) References in any Loan Document to a fiscal period shall
refer to that fiscal period of the Borrower.
2. AMOUNT AND TERMS OF LOANS AND LETTERS OF CREDIT
2.1 Revolving Loans
Subject to the terms and conditions hereof, each Lender
severally (and not jointly) agrees to make revolving credit loans (each a
"Revolving Loan" and, as the context may require, collectively with all other
Revolving Loans of such Lender and with the Revolving Loans of all other
Lenders, the "Revolving Loans") to the Borrower from time to time during the
Revolving Commitment Period, provided that immediately after giving effect
thereto, (i) such Lender's Revolving Exposure would not exceed such Lender's
Revolving Commitment Amount, and (ii) the Aggregate Revolving Exposure would not
exceed the Aggregate Revolving Commitment Amount. During the Revolving
Commitment Period, the Borrower may borrow, prepay in whole or in part and
reborrow under the Revolving Commitments, all in accordance with the terms and
conditions of this Agreement.
2.2 Term Loans
(a) Initial Term Loans. Subject to the terms and conditions
hereof, each Lender severally (and not jointly) agrees to make a term loan to
the Borrower on the Effective Date in a principal amount not to exceed the
amount set forth adjacent to its name under the heading "Term Loan Amount" in
Exhibit A.
(b) Additional Term Loans. The Borrower may at any time and
from time to time prior to December 31, 2000, at its sole cost and expense,
request any one or more of the Lenders to make (such decision to be within the
sole and absolute discretion of such Lender) additional term loans, or any other
Person reasonably satisfactory to the Administrative Agent and the Issuing Bank
to make additional term loans, by submitting a Term Loan Supplement duly
executed by the Borrower and each such Lender or other Person, as the case may
be. If such Term Loan Supplement is in all respects reasonably satisfactory to
the Administrative Agent, the Administrative Agent shall execute such Term Loan
Supplement and deliver a copy thereof to the Borrower and each such Lender or
other Person, as the case may be. Each
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such Lender and each such other Person shall make a term loan to the Borrower on
the effective date of such Term Loan Supplement (which shall in no event be
after December 31, 2000), and upon making its term loan, such other Person shall
become a party hereto and shall for all purposes of the Loan Documents be deemed
a "Lender"; provided, however, that:
(A) immediately after giving effect thereto, the sum of the Aggregate
Revolving Commitment Amount and the aggregate outstanding principal
balance of the Term Loans shall not exceed $700,000,000;
(B) each such extension of additional term loans shall be in an
aggregate amount not less than $10,000,000 or such amount plus an
integral multiple of $5,000,000;
(C) additional term loans shall not be made on more than two occasions;
(D) each such other Person shall have delivered to the Administrative
Agent and the Borrower all forms, if any, that are required to be
delivered by such other Person pursuant to Section 3.10; and
(E) the Borrower shall have delivered to the Administrative Agent and
each Lender a certificate of a Financial Officer thereof
demonstrating pro-forma compliance with the terms of this Agreement
through the Maturity Date, and the Administrative Agent shall have
received such certificates, legal opinions and other items as it
shall reasonably request in connection with such additional term
loans.
2.3 Term Amortization
On the last Business Day of each month listed on Schedule 2.3,
the Borrower shall repay the Term Loans by an amount equal to the product of (i)
the percentage set forth under the heading "Term Loan Prepayment Percentage" set
forth adjacent to such month on such Schedule, multiplied by (ii) the aggregate
principal balance of the Term Loans outstanding on March 29, 2001.
2.4 Procedure for Borrowing
(a) The Borrower may (i) borrow under the Aggregate Revolving
Commitments on any Business Day during the Revolving Commitment Period, (ii)
borrow Term Loans under Section 2.2(a) on the Effective Date, and (iii) borrow
Term Loans under Section 2.2(b) on the effective date of the applicable Term
Loan Supplement, provided that the Borrower shall notify the Administrative
Agent by the delivery of a Borrowing Request, which shall be sent by telecopy
and shall be irrevocable (confirmed promptly, and in any event within five
Business Days, by the delivery to the Administrative Agent of a Borrowing
Request manually signed by the Borrower), no later than 11:00 a.m., three
Business Days prior to the requested Borrowing Date, in the case of Eurodollar
Advances, or one Business Day prior to the requested Borrowing Date, in the case
of ABR Advances, specifying (A) the aggregate principal amount to be borrowed
under the Aggregate Revolving Commitments and/or the aggregate principal amount
of Term Loans to be borrowed, (B) the requested Borrowing Date, (C) whether such
borrowing is to consist of Revolving Loans, Term Loans, or a combination
thereof, (D) whether such borrowing is to consist of one or more Eurodollar
Advances, ABR Advances, or a combination thereof, and (E) if such borrowing is
to consist of one or more Eurodollar Advances, the length of the Interest Period
for each
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such Eurodollar Advance. Each (i) Eurodollar Advance to be made on a Borrowing
Date, when aggregated with all amounts to be converted to a Eurodollar Advance
on such date and having the same Interest Period as such first Eurodollar
Advance, shall equal no less than $2,000,000 or such amount plus a whole
multiple of $100,000 in excess thereof, and (ii) ABR Advance made on each
Borrowing Date shall equal no less than $500,000 or such amount plus a whole
multiple of $100,000 in excess thereof or, if less, the unused portion of the
Aggregate Revolving Commitment Amount.
(b) Upon receipt of each Borrowing Request, the Administrative
Agent shall promptly notify each Lender thereof. Subject to its receipt of the
notice referred to in the preceding sentence, each Lender will make the amount
of its Revolving Commitment Percentage of the requested Revolving Loans and the
amount of its Term Loan (in the case of the Term Loan borrowing) available to
the Administrative Agent for the account of the Borrower at the office of the
Administrative Agent set forth in Section 11.2 not later than 12:00 noon on the
relevant Borrowing Date requested by the Borrower, in funds immediately
available to the Administrative Agent at such office. The amounts so made
available to the Administrative Agent on such Borrowing Date will then, subject
to the satisfaction of the terms and conditions of this Agreement, as determined
by the Administrative Agent, be made available on such date to the Borrower by
the Administrative Agent at the office of the Administrative Agent specified in
Section 11.2 by crediting the account of the Borrower on the books of such
office with the aggregate of said amounts received by the Administrative Agent.
(c) Unless the Administrative Agent shall have received prior
notice from a Lender (by telephone or otherwise, such notice to be promptly
confirmed by telecopy or other writing) that such Lender will not make available
to the Administrative Agent either such Lender's Revolving Commitment Percentage
of the Revolving Loans requested, or the amount of its Term Loan requested, by
the Borrower, the Administrative Agent may assume that such Lender has made such
share available to the Administrative Agent on the Borrowing Date in accordance
with this Section, provided that such Lender received notice of the requested
Loans from the Administrative Agent, and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on the Borrowing
Date a corresponding amount. If and to the extent such Lender shall not have so
made its applicable portion of such Loans available to the Administrative Agent,
such Lender and the Borrower severally agree to pay to the Administrative Agent
forthwith on demand such corresponding amount (to the extent not previously paid
by the other), together with interest thereon for each day from the date such
amount is made available to the Borrower to the date such amount is paid to the
Administrative Agent, at a rate per annum equal to, in the case of the Borrower,
the applicable interest rate set forth in Section 3.1 for ABR Advances, and, in
the case of such Lender, at a rate of interest per annum equal to the Federal
Funds Rate for the first three days after the due date of such payment until the
date such payment is received by the Administrative Agent and the Federal Funds
Rate plus 2% thereafter. Such payment by the Borrower, however, shall be without
prejudice to its rights against such Lender. If such Lender shall pay to the
Administrative Agent such corresponding amount, such amount so paid shall
constitute such Lender's Loan as part of the Loans for purposes of this
Agreement, which Loan shall be deemed to have been made by such Lender on the
Borrowing Date applicable to such Loans.
(d) If a Lender makes a new Loan on a Borrowing Date on which
the Borrower is to repay a Loan from such Lender, such Lender shall apply the
proceeds of such new Loan to make such repayment, and only the excess of the
proceeds of such new Loan over the Loan being repaid need be made available to
the Administrative Agent.
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2.5 Termination or Reduction of Revolving Commitments.
(a) Voluntary Revolving Commitment Reductions. The Borrower
shall have the right, upon at least three Business Days' prior written notice to
the Administrative Agent, to (i) terminate the Aggregate Revolving Commitments,
provided that after giving effect thereto (and any contemporaneous prepayment of
the Revolving Loans), the Aggregate Revolving Exposure shall equal zero or (ii)
from time to time permanently reduce the Aggregate Revolving Commitments,
provided that (A) any such reduction shall be in the amount of $5,000,000 or
such amount plus a whole multiple of $1,000,000 in excess thereof and (B)
immediately after giving effect thereto (and any contemporaneous prepayment of
the Revolving Loans), the Aggregate Revolving Exposure shall be less than or
equal to the Aggregate Revolving Commitment Amount.
(b) Mandatory Revolving Commitment Reductions Relating to
Excess Cash Flow. By no later than the last Business Day of March of each year
commencing on the last Business Day of March 2000 (each an "Excess Cash Flow
Prepayment Date"), the Aggregate Revolving Commitment Amount shall, in the event
the Leverage Ratio is greater than or equal to 4.50:1.00 as of the last day of
the immediately preceding fiscal year, be permanently reduced by an amount equal
to the excess of (i) 50% of Excess Cash Flow for the fiscal year ended
immediately prior to such Excess Cash Flow Prepayment Date, over (ii) the
prepayment, if any, required to be made by the Borrower pursuant to Section
2.6(c).
(c) Mandatory Revolving Commitment Reductions Relating to
Dispositions, Exchanges, Insurance and Condemnation. Upon the occurrence of the
270th day after (i) each Disposition under Section 8.4(c) pursuant to which the
Net Cash Proceeds thereof shall exceed $250,000, (ii) each Exchange under such
Section pursuant to which the Net Cash Proceeds thereof shall exceed 10% of the
fair market value of the total consideration received by the Borrower and its
Subsidiaries in connection with such Exchange, (iii) each receipt by the
Borrower or any Subsidiary of the proceeds of any property insurance or
condemnation award or similar payment pursuant to which the Net Cash Proceeds
thereof shall exceed $250,000 (each of the events described in the foregoing
clauses (i), (ii) and (iii) being herein referred to as a "Prepayment Event"),
the Aggregate Revolving Commitment Amount shall be automatically reduced by an
amount equal to (1)(A) 100% of such Net Cash Proceeds minus (B) to the extent
paid in cash or cash equivalents the Acquisition Cost of all Acquisitions and
Exchanges made by the Borrower and its Subsidiaries during the period commencing
on the date of such Disposition, Exchange or receipt of insurance or
condemnation proceeds, as the case may be, to such 270th day ((A) minus (B)
being herein referred to as the "Prepayment Amount"), minus (2) the prepayment,
if any, required to be made by the Borrower pursuant to Section 2.6(b).
(d) Scheduled Mandatory Revolving Commitment Reductions. On
the last Business Day of each month listed on Schedule 2.3, the Aggregate
Revolving Commitment Amount shall be automatically reduced by an amount equal to
the product of (i) the percentage set forth under the heading "Revolving
Commitment Reduction Percentage" set forth adjacent to such month on such
Schedule, multiplied by (ii) the Aggregate Revolving Commitment Amount as in
effect on March 29, 2001.
(e) Revolving Commitment Reductions In General. Simultaneously
with each reduction of the Aggregate Revolving Commitment Amount pursuant to
Sections 2.5(a), 2.5(b) or 2.5(c), as the case may be, the remaining reductions
required to be made pursuant to Section 2.5(d) shall be reduced, (i) in the case
of a reduction pursuant to Section 2.5(b) in inverse order based on the amount
of such
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reduction, and (ii) in all other cases, pro rata based on the amount of such
reduction. Each reduction of the Aggregate Revolving Commitment Amount shall be
made by reducing each Lender's Revolving Commitment Amount by an amount equal to
such Lender's Revolving Commitment Percentage of such reduction. Simultaneously
with any termination of the Aggregate Revolving Commitments and each reduction
of the Aggregate Revolving Commitment Amount, the Borrower shall pay the
Revolving Commitment Fee accrued on the amount by which the Aggregate Revolving
Commitment Amount shall have been reduced.
(f) Increases of Revolving Commitments. The Borrower may at
any time and from time to time prior to December 31, 2000, at its sole cost and
expense, request any one or more of the Lenders to increase (such decision to
increase the Revolving Commitment of a Lender to be within the sole and absolute
discretion of such Lender) its Revolving Commitment, or any other Person
reasonably satisfactory to the Administrative Agent and the Issuing Bank to
provide a new Revolving Commitment, by submitting a Revolver Supplement duly
executed by the Borrower and each such Lender or other Person, as the case may
be. If such Revolver Supplement is in all respects reasonably satisfactory to
the Administrative Agent, the Administrative Agent shall execute such Revolver
Supplement and deliver a copy thereof to the Borrower and each such Lender or
other Person, as the case may be. Upon execution and delivery of such Revolver
Supplement, (i) in the case of each such Lender, such Lender's Revolving
Commitment shall be increased to the amount set forth in such Revolver
Supplement, (ii) in the case of each such other Person, such other Person shall
become a party hereto and shall for all purposes of the Loan Documents be deemed
a "Lender" having a Revolving Commitment Amount as set forth in such Revolver
Supplement, and (iii) in each case, the Revolving Commitment of such Lender or
such other Person, as the case may be, shall be as set forth in the applicable
Revolver Supplement; provided, however, that:
(A) immediately after giving effect thereto, the sum of the Aggregate
Revolving Commitment Amount and the aggregate outstanding principal
balance of the Term Loans shall not exceed $700,000,000;
(B) each such increase shall be in an amount not less than $10,000,000
or such amount plus an integral multiple of $5,000,000;
(C) the Aggregate Revolving Commitments shall not be increased on more
than two occasions;
(D) if Revolving Loans would be outstanding immediately after giving
effect to each such increase, then simultaneously with such
increase (1) each such Lender, each such other Person and each
other Lender shall be deemed to have entered into a master
assignment and acceptance agreement, in form and substance
substantially similar to Exhibit H, pursuant to which each such
other Lender shall have assigned to each such Lender and each such
other Person a portion of its Revolving Loans necessary to reflect
proportionately the Aggregate Revolving Commitments as adjusted in
accordance with this subsection (f), and (2) in connection with
such assignment, each such Lender and each such other Person shall
pay to the Administrative Agent, for the account of the other
Lenders, such amount as shall be necessary to appropriately reflect
the assignment to it of Revolving Loans, and in connection with
such master assignment each such other Lender may treat the
assignment of Eurodollar Advances as a prepayment of such
Eurodollar Advances for purposes of Section 3.5;
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(E) each such other Person shall have delivered to the Administrative
Agent and the Borrower all forms, if any, that are required to be
delivered by such other Person pursuant to Section 3.10; and
(F) the Borrower shall have delivered to the Administrative Agent and
each Lender a certificate of a Financial Officer thereof
demonstrating pro-forma compliance with the terms of this Agreement
through the Maturity Date, the Administrative Agent shall have
received such certificates, legal opinions and other items as it
shall reasonably request in connection with such increase.
2.6 Prepayments of the Loans
(a) Voluntary Prepayments. The Borrower may, at its option,
prepay the Loans without premium (but subject to Section 3.5), in full at any
time or in part from time to time by notifying the Administrative Agent in
writing at least one Business Day prior to the proposed prepayment date, in the
case of Loans consisting of ABR Advances and at least three Business Days prior
to the proposed prepayment date, in the case of Loans consisting of Eurodollar
Advances, specifying the aggregate amount of the Loans to be prepaid, whether
such Loans consist of ABR Advances, Eurodollar Advances, or a combination
thereof and the date of prepayment, provided that any such prepayment pursuant
to this Section 2.6(a) shall be applied on a pro rata basis first to the
Revolving Loans and, if no Revolving Loans are outstanding, to the Term Loans.
Each such notice shall be irrevocable and the amount specified in each such
notice shall be due and payable on the date specified, together with accrued
interest to the date of such payment on the amount prepaid. Upon receipt of such
notice, the Administrative Agent shall promptly notify each Lender thereof. Each
partial prepayment of Loans pursuant to this subsection shall be in an aggregate
principal amount of $5,000,000 or such amount plus a whole multiple of
$1,000,000 in excess thereof, or, if less, the aggregate outstanding principal
balance of the Revolving Loans and Term Loans. After giving effect to any
partial prepayment with respect to Eurodollar Advances which were made (whether
as the result of a borrowing or a conversion) on the same date and which had the
same Interest Period, the outstanding principal balance of such Eurodollar
Advances shall exceed (subject to Section 3.3) $2,000,000 or such amount plus a
whole multiple of $100,000 in excess thereof.
(b) Mandatory Prepayments Relating to Dispositions, Exchanges,
Insurance and Condemnation. On or before the 270th day after each Prepayment
Event, the Borrower shall prepay the Term Loans by an amount equal to the lesser
of (i) the Prepayment Amount, and (ii) the outstanding principal balance of the
Term Loans.
(c) Mandatory Prepayments Relating to Excess Cash Flow. In the
event that as of any fiscal year end on or after December 31, 1999, the Leverage
Ratio is greater than or equal to 4.50:1.00, then on or prior to the Excess Cash
Flow Prepayment Date immediately succeeding such fiscal year end the Borrower
shall prepay the Term Loans by an amount equal to the lesser of (i) 50% of
Excess Cash Flow for such fiscal year, and (ii) the outstanding principal
balance of the Term Loans.
(d) Mandatory Prepayments Relating to Termination of Revolving
Commitments and Reductions of Revolving Commitment Amounts. Simultaneously with
the termination of the Aggregate Revolving Commitments and each reduction of the
Aggregate Revolving Commitment Amount, the Borrower shall prepay the Revolving
Loans in full, in the case of the termination of the Aggregate Revolving
Commitments, and prepay the Revolving Loans by the amount, if any, by which the
Aggregate
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Revolving Exposure exceeds the Aggregate Revolving Commitment Amount as so
reduced, in the case of a reduction of the Aggregate Revolving Commitment
Amount.
(e) Application of Prepayments. Each prepayment of the Term
Loans pursuant to this Section 2.6 shall be applied against the remaining
installments of principal required to be paid pursuant to Section 2.3: (i) in
the inverse order of maturity, in the case of a prepayment pursuant to Section
2.6(c), and (ii) pro rata, in the case of a prepayment pursuant to Section
2.6(a) or 2.6(b).
2.7 Use of Proceeds
The Borrower agrees that the proceeds of the Loans shall be
used solely (i) to repay certain debt assumed by the Borrower from Insight and
certain of the TCI Affiliates in an amount not to exceed $452,000,000 and (ii)
to fund acquisitions, capital expenditures, working capital and other company
purposes. Notwithstanding anything to the contrary contained in any Loan
Document, the Borrower further agrees that no part of the proceeds of any Loan,
nor any Letter of Credit, will be used, directly or indirectly, for a purpose
which violates any law, rule or regulation of any Governmental Authority,
including, without limitation, the provisions of Regulations U or X of the Board
of Governors of the Federal Reserve System, as amended.
2.8 Letter of Credit Sub-Facility
(a) Subject to the terms and conditions of this Agreement, the
Issuing Bank agrees, in reliance on the agreement of the other Lenders set forth
in Section 2.9, to issue, extend and renew standby letters of credit (drawable
on a sight basis only) denominated in Dollars (the "Letters of Credit"; each,
individually, a "Letter of Credit") during the Revolving Commitment Period for
the account of the Borrower, provided that immediately after the issuance of
each Letter of Credit (i) the Letter of Credit Exposure of all Lenders (whether
or not the conditions for drawing under one or more Letters of Credit have or
may be satisfied) would not exceed the Letter of Credit Commitment Amount and
(ii) the Aggregate Revolving Exposure would not exceed the Aggregate Revolving
Commitment Amount. Any extension of any expiry date of, or renewal of, a Letter
of Credit shall constitute an "issuance" of such Letter of Credit for all
purposes of this Agreement. Each Letter of Credit shall be for the purpose of
supporting the Borrower's obligations with respect to deposit requirements
associated with proposed acquisitions and to support ordinary course business
transactions, and shall have an expiration date which shall be not later than
the earlier of (i) twelve months after the date of issuance thereof or (ii) the
thirtieth day before the Maturity Date.
(b) The Borrower may cause the issuance of one or more Letters
of Credit on any Business Day, provided that the Borrower shall give the
Administrative Agent a Letter of Credit Request for the issuance of each Letter
of Credit by 11:00 a.m., three Business Days prior to the requested date of
issuance. Each Letter of Credit Request shall be accompanied by the Issuing
Bank's standard application and agreement for standby letter of credit (each, a
"Reimbursement Agreement") executed by the Borrower, and shall specify (i) the
beneficiary of such Letter of Credit and the obligations of the Borrower in
respect of which such Letter of Credit is to be issued, (ii) the Borrower's
proposal as to the conditions under which a drawing may be made under such
Letter of Credit and the documentation to be required in respect thereof, (iii)
the maximum amount to be available under such Letter of Credit, (iv) the
requested dates of issuance and expiration, and (v) such other information
reasonably satisfactory to the Issuing Bank as to enable the Issuing Bank to
issue such Letter of Credit consistent with the reasonable
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requirements of the beneficiary thereof. Upon receipt of such Letter of Credit
Request and accompanying Reimbursement Agreement from the Borrower, the
Administrative Agent shall promptly notify the Issuing Bank and each Revolving
Lender thereof and shall forward such Reimbursement Agreement to the Issuing
Bank. Each Letter of Credit shall be in form and substance reasonably
satisfactory to the Issuing Bank, with such provisions with respect to the
conditions under which a drawing may be made thereunder and the documentation
required in respect of such drawing as the Issuing Bank shall reasonably
require. The Issuing Bank shall, on the proposed date of issuance and subject to
the terms and conditions of the Reimbursement Agreement and to the other terms
and conditions of this Agreement, issue the requested Letter of Credit.
(c) The obligation of the Issuing Bank to issue any Letter of
Credit is subject to the satisfaction of the following conditions precedent on
the date of issuance thereof: (1) each condition specified in Section 6 shall
have been satisfied, (2) the Issuing Bank has received the related Reimbursement
Agreement, duly executed and delivered by the Borrower, and such other documents
and items relating to such Letter of Credit as the Issuing Bank reasonably may
request, (3) the Issuing Bank has received a Letter of Credit Request with
respect to such Letter of Credit in accordance with this Agreement, (4) the
issuance of such Letter of Credit will not contravene any law, rule or
regulation applicable to the Issuing Bank or any Lender, and (5) the Issuing
Bank has received all fees and other amounts due to the Issuing Bank in
connection with such Letter of Credit. The Issuing Bank shall, on the proposed
date of issuance and subject to the terms and conditions of the Reimbursement
Agreement and to the terms and conditions of this Agreement, issue the requested
Letter of Credit in accordance with the Issuing Bank's usual and customary
business practices and confirm to the Revolving Lenders and the Borrower that
such Letter of Credit has been issued.
(d) Notwithstanding anything to the contrary contained herein
or in any Reimbursement Agreement, to the extent that the terms of this
Agreement shall be inconsistent with the terms of such Reimbursement Agreement,
the terms of this Agreement shall govern.
(e) The Issuing Bank shall promptly notify the Borrower and
the Administrative Agent of the Issuing Bank's receipt of a drawing request
under any Letter of Credit, stating the amount of such drawing request and the
date on which such request will be honored, and promptly after receipt of such
notice the Administrative Agent shall notify each Revolving Lender of such
Revolving Lender's Revolving Commitment Percentage of such drawing and the date
on which such request will be honored. Any failure or delay of either the
Issuing Bank or the Administrative Agent to give any such notice shall not
release or diminish the obligations of the Borrower or any Lender in respect
thereof.
(f) The Borrower shall pay (either from the proceeds of Loans
or otherwise) to the Issuing Bank on demand in Dollars in immediately available
funds the amount of all Reimbursement Obligations owing to the Issuing Bank
under any Letter of Credit, together with interest thereon at a rate of interest
per annum equal to the rate of interest applicable to ABR Advances in effect
from time to time for each day from, and including, the date of payment by the
Issuing Bank of the applicable draw request under such Letter of Credit to, but
excluding, the payment in full to the Issuing Bank of such Reimbursement
Obligations, irrespective of any claim, setoff, defense or other right which the
Borrower may have at any time against the Issuing Bank or any other Person.
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2.9 Letter of Credit Participation and Funding Commitments
(a) Each Lender hereby unconditionally, irrevocably and
severally (and not jointly) for itself only and without representation or
warranty, and without any notice to or the taking of any action by such Lender,
takes an undivided participating interest in respect of each Letter of Credit in
an amount equal to such Lender's Revolving Commitment Percentage of the amount
of such Letter of Credit. Each Lender shall be liable to the Issuing Bank for
its Revolving Commitment Percentage of the unreimbursed amount of any draft
drawn and honored under each Letter of Credit. Each Lender shall also be liable
for an amount equal to the product of its Revolving Commitment Percentage
multiplied by any amounts paid by the Borrower in connection with any Letter of
Credit or Reimbursement Agreement that are subsequently rescinded or avoided, or
must otherwise be restored or returned. All liabilities of the Lenders in
respect of the Letters of Credit and Reimbursement Obligations shall be without
regard to the occurrence of any Default or the compliance by the Borrower with
any of its obligations under the Loan Documents.
(b) The Issuing Bank will promptly notify the Administrative
Agent, and the Administrative Agent will promptly notify each Revolving Lender
(which notice shall be promptly confirmed in writing) of the date and the amount
of any draft presented under any Letter of Credit with respect to which full
reimbursement of payment is not made by the Borrower as provided in Section 2.8,
and forthwith upon receipt of such notice, such Revolving Lender (other than the
Issuing Bank in its capacity as a Revolving Lender) shall make available to the
Administrative Agent for the account of the Issuing Bank its Revolving
Commitment Percentage of the amount of such unreimbursed draft at the office of
the Administrative Agent specified in Section 11.2, in Dollars and in
immediately available funds, before 4:00 p.m., on the day such notice was given
by the Administrative Agent, if the relevant notice was given by the
Administrative Agent at or prior to 12:00 noon, on such day, and before 12:00
noon, on the next Business Day, if the relevant notice was given by the
Administrative Agent after 12:00 noon, on such day. The Administrative Agent
shall distribute the payments made by each Revolving Lender pursuant to the
immediately preceding sentence to the Issuing Bank promptly upon receipt thereof
in like funds as received. All such payments by the Revolving Lenders shall
constitute Revolving Loans constituting ABR Advances made by such Revolving
Lenders to the Borrower pursuant to Section 2.1 (irrespective of the
satisfaction of the conditions in Section 6, which are irrevocably waived) and
the Reimbursement Obligations with respect to which such Revolving Loans were
made shall thereupon be satisfied to the extent of such payments.
(c) Each Lender shall indemnify and hold harmless the
Administrative Agent and the Issuing Bank from and against any and all losses,
liabilities (including, without limitation, liabilities for penalties), actions,
suits, judgments, demands, costs and expenses (including, without limitation,
reasonable attorneys' fees and disbursements and an administration fee of not
less than $100 payable to the Issuing Bank as the issuer of the relevant Letter
of Credit) resulting from either of the following (except to the extent
resulting from the gross negligence or willful misconduct of the Issuing Bank):
(i) any failure on the part of such Lender to provide, or from any delay in
providing, the Administrative Agent with such Lender's Revolving Commitment
Percentage of the amount of any payment made by the Issuing Bank under a Letter
of Credit (except in respect of losses, liabilities or other obligations
suffered by the Issuing Bank resulting from the gross negligence or willful
misconduct of the Issuing Bank), and (ii) the collection of amounts due under,
and the preservation and enforcement of any rights conferred by, any Letter of
Credit or the performance of the Issuing Bank's obligations as issuer of the
Letters of Credit under this Agreement, to the extent of such Lender's Revolving
Commitment Percentage thereof.
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If a Revolving Lender does not pay to the Administrative Agent, for the account
of the Issuing Bank, when due any amount due from such Lender pursuant to this
Section 2.9, such Lender shall be required to pay interest to the Administrative
Agent for the account of the Issuing Bank on the unpaid portion of such payment
for the period from and including the due date for such payment to but excluding
the date such payment is paid in full at a rate per annum equal to (i) during
the first three days during such period, the Federal Funds Rate, and (ii)
thereafter during such period, 2.00% plus the Federal Funds Rate. The
Administrative Agent shall distribute such interest payments to the Issuing Bank
upon receipt thereof in like funds as received.
(d) Whenever the Issuing Bank is reimbursed by the Borrower
or, the Administrative Agent is reimbursed by the Borrower for the account of
the Issuing Bank, for any payment under or in respect of a Letter of Credit and
such payment relates to an amount previously paid by a Lender in respect of its
Revolving Commitment Percentage of the amount of such payment under or in
respect of such Letter of Credit, the Administrative Agent (or the Issuing Bank,
to the extent that it has received the same) will promptly, but in no event
later than one Business Day after the date such payment is received, pay over
such payment to such Lender. If any payment by or on behalf of the Borrower and
received by the Administrative Agent or the Issuing Bank with respect to any
Letter of Credit is rescinded or must otherwise be returned by the
Administrative Agent or the Issuing Bank for any reason and the Administrative
Agent or the Issuing Bank has paid to any Revolving Lender any portion thereof,
each such Revolving Lender shall forthwith pay over to the Administrative Agent
for the account of the Issuing Bank an amount equal to such Revolving Lender's
Revolving Commitment Percentage of the amount which must be so returned by the
Administrative Agent or Issuing Bank, as the case may be.
2.10 Absolute Obligation With Respect to Letter of Credit Payments
In determining whether to pay under any Letter of Credit, the
Issuing Bank shall have no obligation to any Lender or the Borrower other than
to confirm that any documents required to be delivered under such Letter of
Credit have been delivered and that they appear to comply on their face with the
requirements of such Letter of Credit. The obligation of the Borrower to
reimburse the Issuing Bank pursuant to Sections 2.8 and 2.9, and the obligation
of each Revolving Lender to make available to the Issuing Bank the amounts set
forth in and pursuant to Sections 2.8 and 2.9, shall be absolute, unconditional
and irrevocable under any and all circumstances, shall be made without reduction
for any set-off, counterclaim or other deduction of any nature whatsoever, may
not be terminated, suspended or delayed for any reason whatsoever, shall not be
subject to any qualification or exception and shall be made in accordance with
the terms and conditions of this Agreement, including, without limitation, any
defense based on the failure of any drawing to conform to the terms of such
Letter of Credit, any drawing document proving to be forged, fraudulent or
invalid, or the legality, validity, regularity or enforceability of such Letter
of Credit; provided, that, the foregoing shall not relieve the Issuing Bank of
any liability it may have to the Borrower or any Revolving Lender with respect
to any Letter of Credit for any actual damages sustained by the Borrower or such
Revolving Lender to the extent arising as a result of the Issuing Bank's gross
negligence or willful misconduct, provided further that in the absence of gross
negligence or willful misconduct on the part of the Issuing Bank, the Issuing
Bank shall have no liability to any Lender or the Borrower for any action taken
or omitted to be taken by it under or in connection with any Letter of Credit,
including any such action negligently taken or negligently omitted to be taken
by it.
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2.11 Payments
Each borrowing of Revolving Loans by the Borrower from the
Lenders, any conversion of Revolving Loans from one Type to another and any
reduction in the Revolving Commitments shall be made pro rata according to the
Revolving Commitment Percentage of such Lender. Each payment, including each
prepayment, of principal and interest on the Loans, of the Revolving Commitment
Fee, the Letter of Credit Commissions and of all of the other fees to be paid to
the Administrative Agent, the Issuing Bank and the Lenders in connection with
this Agreement (the Revolving Commitment Fee and the Letter of Credit
Commissions, together with all of such other fees, being sometimes hereinafter
collectively referred to as the "Fees") shall be made by the Borrower prior to
1:00 p.m. on the date such payment is due to the Administrative Agent for the
account of the applicable Lenders at the Administrative Agent's office specified
in Section 11.2, in each case in lawful money of the United States, in
immediately available funds and without set-off or counterclaim. As between the
Borrower and the Lenders, any payment by the Borrower to the Administrative
Agent for the account of the Lenders shall be deemed to be payment by the
Borrower to the Lenders. The failure of the Borrower to make any such payment by
such time shall not constitute a Default, provided that such payment is made on
such due date, but any such payment made after 1:00 p.m. on such due date shall
be deemed to have been made on the next Business Day for the purpose of
calculating interest on amounts outstanding on the Loans. The Administrative
Agent shall distribute any such payments received by it for the account of any
other Person to the appropriate recipient promptly following receipt thereof. If
any payment hereunder shall be due on a day that is not a Business Day, the date
for payment (except as otherwise provided in the definition of Interest Period)
shall be extended to the next succeeding Business Day, and, in the case of any
payment accruing interest, interest thereon shall be payable for the period of
such extension, provided, however that if such next succeeding Business Day is
after the Maturity Date, any such payment shall be due on the immediately
preceding Business Day. All payments hereunder shall be made in Dollars. If at
any time insufficient funds are received by and available to the Administrative
Agent to pay fully all amounts of principal, interest, fees and commissions then
due hereunder, such funds shall be applied (i) first, towards payment of
interest, fees and commissions then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of interest, fees and
commissions then due to such parties and (ii) second, towards payment of
principal then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of principal then due to such parties.
2.12 Records
(a) Lender's Records. Each Lender will note on its internal
records with respect to each Loan made by it (i) the date and amount of such
Loan, (ii) whether such Loan is a Revolving Loan or a Term Loan, (iii) the
character of such Loan as an ABR Advance, a Eurodollar Advance or a combination
thereof, (iv) the interest rate (without regard to the Applicable Margin) and
the Interest Period applicable to Eurodollar Advances, and (v) each payment and
prepayment of the principal thereof.
(b) Administrative Agent's and Issuing Bank's Records. The
Administrative Agent and the Issuing Bank shall keep records regarding the
Loans, the Letters of Credit and the Loan Documents in accordance with their
customary procedures for agented credits and Letters of Credit, respectively.
(c) Prima Facie Evidence. The entries made in the records
maintained pursuant to subsections (a) and (b) above shall, to the extent not
prohibited by applicable law, be prima facie
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evidence of the existence and amount of the obligations of the Borrower recorded
therein; provided that the failure of the Administrative Agent, the Issuing Bank
or any Lender, as the case may be, to make any notation on its records or its
Notes shall not affect the Borrower's or any other Obligor's obligations in
respect of the Loans, the Letters of Credit or any other Loan Documents.
(d) Notes. Upon the request of any Lender to the
Administrative Agent and the Borrower, the Borrower agrees to execute and
deliver, at each Borrower's own cost and expense, to the Agent (for delivery to
such Lender) a promissory note of the Borrower evidencing such Lender's Loans,
substantially in the form of Exhibit B, payable to the order of such Lender, and
dated the Effective Date.
3. INTEREST, FEES, YIELD PROTECTIONS, ETC.
3.1 Interest Rate and Payment Dates
(a) Prior to Maturity. Except as otherwise provided in Section
3.1(b) and 3.1(c), prior to maturity, the Loans shall bear interest on the
outstanding principal balance thereof at the applicable interest rate or rates
per annum set forth below:
ADVANCES RATE
-------- ----
Each ABR Advance Alternate Base Rate plus the Applicable
Percentage applicable to ABR Advances.
Each Eurodollar Advance Eurodollar Rate for the applicable Interest
Period plus the Applicable Percentage
applicable to Eurodollar Advances.
(b) Default Rate. Upon the occurrence and during the
continuance of an Event of Default, the unpaid principal balance of the Loans
shall bear interest at a rate per annum (whether before or after the entry of a
judgment thereon) equal to the rate which would otherwise be applicable under
Section 3.1(a) plus 2%, and any overdue interest or other amount payable under
the Loan Documents (including any unpaid Reimbursement Obligations) shall bear
interest (whether before or after the entry of a judgment thereon) at a rate per
annum equal to the Alternate Base Rate plus the Applicable Percentage applicable
to ABR Advances plus 2%. All interest accruing pursuant to this Section 3.1(b)
shall be payable upon demand.
(c) Highest Lawful Rate. At no time shall the interest rate
payable on the Loans of any Lender, together with the Fees and all other amounts
payable under the Loan Documents to such Lender, to the extent the same are
construed to constitute interest, exceed the Highest Lawful Rate applicable to
such Lender. If with respect to any Lender for any period during the term of
this Agreement, any amount paid to such Lender under the Loan Documents, to the
extent the same shall (but for the provisions of this Section) constitute or be
deemed to constitute interest, would exceed the maximum amount of interest
permitted by the Highest Lawful Rate applicable to such Lender during such
period (such amount being hereinafter referred to as an "Unqualified Amount"),
then (i) such Unqualified Amount shall be applied or shall be deemed to have
been applied as a prepayment of the Loans of such Lender, and (ii) if in any
subsequent period during the term of this Agreement, all amounts payable under
the Loan
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Documents to such Lender in respect of such period which constitute or shall be
deemed to constitute interest shall be less than the maximum amount of interest
permitted by the Highest Lawful Rate applicable to such Lender during such
period, then the Borrower shall pay to such Lender in respect of such period an
amount (each a "Compensatory Interest Payment") equal to the lesser of (A) a sum
which, when added to all such amounts, would equal the maximum amount of
interest permitted by the Highest Lawful Rate applicable to such Lender during
such period, and (B) an amount equal to the Unqualified Amount less all other
Compensatory Interest Payments made in respect thereof.
(d) In General. Interest on (i) ABR Advances to the extent
based on the BNY Rate shall be calculated on the basis of a 365 or 366-day year
(as the case may be), and (ii) ABR Advances to the extent based on the Federal
Funds Rate and Eurodollar Advances shall be calculated on the basis of a 360-day
year, in each case, for the actual number of days elapsed. Except as otherwise
provided in Section 3.1(b), interest shall be payable in arrears on each
Interest Payment Date and upon each payment (including prepayment) of the Loans.
Any change in the interest rate on the Loans resulting from a change in the
Alternate Base Rate or reserve requirements shall become effective as of the
opening of business on the day on which change shall become 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 the BNY
Rate, but any failure to so notify shall not in any manner affect the obligation
of the Borrower to pay interest on the Loans in the amounts and on the dates
required. Each determination of the Alternate Base Rate or a Eurodollar Rate by
the Administrative Agent pursuant to this Agreement shall be conclusive and
binding on all parties hereto absent manifest error. The Borrower acknowledges
that to the extent interest payable on ABR Advances is based on the BNY Rate,
such rate is only one of the bases for computing interest on loans made by the
Lenders, and by basing interest payable on ABR Advances on the BNY Rate, the
Lenders have not committed to charge, and the Borrower has not in any way
bargained for, interest based on a lower or the lowest rate at which the Lenders
may now or in the future make loans to other borrowers.
3.2 Fees
(a) Commitment Fees. The Borrower agrees to pay to the
Administrative Agent, for the account of the Lenders in accordance with each
Lender's Revolving Commitment Percentage, a fee (the "Revolving Commitment
Fee"), equal to the Applicable Percentage of (1) prior to the Revolving
Commitment Termination Date, the average daily excess of the Aggregate Revolving
Commitment Amount over the Aggregate Revolving Exposure, and (2) thereafter, on
the outstanding principal balance of the Revolving Loans. The Revolving
Commitment Fee shall be payable quarterly in arrears on the last Business Day of
each March, June, September and December of each year, commencing on the first
such Business Day following the Effective Date, and ending on the date that the
Aggregate Revolving Commitments shall expire or otherwise terminate, provided
that on and after the Revolving Commitment Termination Date, the Revolving
Commitment Fee shall be payable upon demand. The Revolving Commitment Fee shall
be calculated on the basis of a 360 day year, as the case may be, for the actual
number of days elapsed.
(b) Letter of Credit Commissions. The Borrower agrees to pay
to the Administrative Agent, for the account of the Lenders in accordance with
each Lender's Revolving Commitment Percentage, commissions (the "Letter of
Credit Commissions") with respect to each Letter of Credit for the period from
and including the date of issuance thereof to and including the expiration date
thereof, at a rate per annum equal to the Applicable Percentage in effect on the
date of issuance thereof plus, in the
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event that an Event of Default shall have occurred and be continuing, 2.00%, on
the average daily maximum amount available under any contingency to be drawn
under such Letter of Credit. With respect to each Letter of Credit, the Letter
of Credit Commissions shall be calculated on the basis of a 360-day year for the
actual number of days elapsed and shall be payable quarterly in arrears on the
last Business Day of each March, June, September and December of each year and
on the expiration or other termination of such Letter of Credit, provided that
on and after the Revolving Commitment Termination Date, the Letter of Credit
Commissions shall be payable upon demand.
(c) Administrative Agent's and Issuing Bank's Fees. The
Borrower agrees to pay to the Administrative Agent and the Issuing Bank, for
their own respective accounts, such other fees as have been agreed to in writing
by the Borrower and the Administrative Agent or the Issuing Bank, as the case
may be.
3.3 Conversions
(a) The Borrower may elect from time to time to convert one or
more Eurodollar Advances to ABR Advances by giving the Administrative Agent at
least one Business Day's prior irrevocable notice of such election, specifying
the amount to be converted, provided, that any such conversion of Eurodollar
Advances shall only be made on the last day of the Interest Period applicable
thereto. In addition, the Borrower may elect from time to time to convert (i)
ABR Advances to Eurodollar Advances and (ii) Eurodollar Advances to new
Eurodollar Advances by selecting a new Interest Period therefor, in each case by
giving the Administrative Agent at least three Business Days' prior irrevocable
notice of such election, in the case of a conversion to Eurodollar Advances,
specifying the amount to be so converted and the initial Interest Period
relating thereto, provided that any such conversion of ABR Advances to
Eurodollar Advances shall only be made on a Business Day and any such conversion
of Eurodollar Advances to new Eurodollar Advances shall only be made on the last
day of the Interest Period applicable to the Eurodollar Advances which are to be
converted to such new Eurodollar Advances. Each such notice shall be irrevocable
and shall be given by the delivery by telecopy of a Notice of Conversion
(confirmed promptly, and in any event within five Business Days, by the delivery
to the Administrative Agent of a Notice of Conversion manually signed by the
Borrower). The Administrative Agent shall promptly provide the Lenders with
notice of each such election. Advances may be converted pursuant to this Section
in whole or in part, provided that the amount to be converted to each Eurodollar
Advance, when aggregated with any Eurodollar Advance to be made on such date in
accordance with Section 2.4 and having the same Interest Period as such first
Eurodollar Advance, shall equal no less than $2,000,000 or such amount plus a
whole multiple of $100,000 in excess thereof.
(b) Notwithstanding anything in this Agreement to the
contrary, if an Event of Default has occurred and is continuing and the
Administrative Agent, at the request of the Required Lenders, so notifies the
Borrower, then, so long as an Event of Default is continuing, (i) no outstanding
Advance may be converted to or continued as a Eurodollar Advance and (ii) unless
repaid, each Eurodollar Advance shall be converted to an ABR Advance at the end
of the Interest Period applicable thereto.
(c) Each conversion shall be effected by each Lender by
applying the proceeds of its new ABR Advance or Eurodollar Advance, as the case
may be, to its Advances (or portion thereof) being converted (it being
understood that any such conversion shall not constitute a borrowing for
purposes of Sections 4, 5 or 6).
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Credit Agreement
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3.4 Concerning Interest Periods
Notwithstanding any other provision of any Loan Document:
(a) If the Borrower shall have failed to elect a Eurodollar
Advance under Sections 2.4 or 3.3, as the case may be, in connection with any
borrowing of new Loans or expiration of an Interest Period with respect to any
existing Eurodollar Advance, the amount of the Loans subject to such borrowing
or such existing Eurodollar Advance shall thereafter be an ABR Advance until
such time, if any, as the Borrower shall elect a new Eurodollar Advance pursuant
to Section 3.3.
(b) No Interest Period selected in respect of the conversion
of any Eurodollar Advance comprising a Loan shall end after the Maturity Date.
(c) The Borrower shall select Interest Periods such that, on
each date that a mandatory scheduled principal payment is required to be made
pursuant to Section 2.3 the outstanding principal balance of all ABR Advances
comprising all or a portion of the Term Loans, when added to the aggregate
principal balance of each Eurodollar Advance comprising all or a portion of the
Term Loans, the applicable Interest Period of which shall end on or before such
date, shall equal or exceed the aggregate principal balance of the Term Loans
required to be paid on such date pursuant to Section 2.3.
(d) The Borrower shall select Interest Periods such that, on
each date that a mandatory scheduled reduction in the Aggregate Revolving
Commitment Amount is required to be made pursuant to Section 2.5(d), the
outstanding principal balance of all ABR Advances comprising all or a portion of
the Revolving Loans, when added to the aggregate principal balance of each
Eurodollar Advance comprising all or a portion of the Revolving Loans, the
applicable Interest Period of which shall end on or before such date, shall
equal or exceed the aggregate amount of the reduction required to be made on
such date.
(e) The Borrower shall not be permitted to have more than
twenty Eurodollar Advances outstanding at any one time, it being agreed that
each borrowing of a Eurodollar Advance pursuant to a single Borrowing Request
shall constitute the making of one Eurodollar Advance for the purpose of
calculating such limitation.
3.5 Indemnification for Loss
Notwithstanding anything contained herein to the contrary, if
the Borrower shall fail for any reason to borrow or convert an Advance after it
shall have given notice to do so in which it shall have requested a Eurodollar
Advance pursuant to Section 2.4 or 3.3, or if a Eurodollar Advance shall be
terminated for any reason prior to the last day of the Interest Period
applicable thereto, or if any repayment or prepayment of the principal amount of
a Eurodollar Advance is made by the Borrower for any reason on a date which is
prior to the last day of the Interest Period applicable thereto, the Borrower
agrees to indemnify each Lender against, and to pay on demand directly to such
Lender the amount (calculated by such Lender using any method chosen by such
Lender which is customarily used by such Lender for such purpose) equal to any
loss or out-of-pocket expense suffered by such Lender as a result of such
failure to borrow or convert, or such termination, repayment or prepayment,
including any loss, cost or expense suffered by such Lender in liquidating or
employing deposits acquired to fund or maintain the funding of such Eurodollar
Advance, or redeploying funds prepaid or repaid, in amounts
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Credit Agreement
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which correspond to such Eurodollar Advance, and any internal processing charge
customarily charged by such Lender in connection therewith.
3.6 Capital Adequacy
If the amount of capital required or expected to be maintained
by any Lender or any Person directly or indirectly owning or controlling such
Lender or the Issuing Bank (each a "Control Person"), shall be affected by the
occurrence of a Regulatory Change and such Lender or the Issuing Bank shall have
determined that such Regulatory Change shall have had or will thereafter have
the effect of reducing (i) the rate of return on such Lender's or such Control
Person's capital, or (ii) the asset value to such Lender or the Issuing Bank or
such Control Person of the Loans or commitments made or maintained by such
Lender, or of the Reimbursement Obligations or any participation therein, in any
case to a level below that which such Lender or the Issuing Bank or such Control
Person could have achieved or would thereafter be able to achieve but for such
Regulatory Change (after taking into account such Lender's or the Issuing Bank's
or such Control Person's policies regarding capital adequacy) by an amount
deemed by such Lender or the Issuing Bank to be material to such Lender or the
Issuing Bank or Control Person, then, within ten days after demand by such
Lender or the Issuing Bank, the Borrower shall pay to such Lender or the Issuing
Bank or such Control Person such additional amount or amounts as shall be
sufficient to compensate such Lender or the Issuing Bank or such Control Person,
as the case may be, for such reduction.
3.7 Reimbursement for Increased Costs
If any Lender, the Administrative Agent or the Issuing Bank
shall determine that a Regulatory Change:
(a) does or shall subject it to any Taxes of any kind
whatsoever with respect to any Eurodollar Advances or its obligations under this
Agreement to make Eurodollar Advances, or change the basis of taxation of
payments to it of principal, interest or any other amount payable hereunder in
respect of its Eurodollar Advances, or impose on the Administrative Agent, the
Issuing Bank or such Lender any other condition regarding the Letters of Credit
including any Taxes required to be withheld from any amounts payable under the
Loan Documents (except for imposition of, or change in the rate of, Tax on the
Income of such Lender); or
(b) does or shall impose, modify or make applicable any
reserve, special deposit, compulsory loan, assessment, increased cost or similar
requirement against assets held by, or deposits of, or advances or loans by, or
other credit extended by, or any other acquisition of funds by, any office of
such Lender in respect of its Eurodollar Advances which is not otherwise
included in the determination of a Eurodollar Rate or against any Letters of
Credit issued by the Issuing Bank or participated in by any Lender;
and the result of any of the foregoing is to increase the cost to such Lender of
making, renewing, converting or maintaining its Eurodollar Advances or its
commitment to make such Eurodollar Advances, or to reduce any amount receivable
hereunder in respect of its Eurodollar Advances, or to increase the cost to the
Issuing Bank of issuing or maintaining the Letters of Credit or the cost to any
Lender of participating therein or the cost to the Administrative Agent or the
Issuing Bank of performing its respective functions hereunder with respect to
the Letters of Credit, then, in any such case, the Borrower
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shall pay such Lender, the Administrative Agent, or the Issuing Bank, as the
case may be, within ten days after demand therefor, such additional amounts as
is sufficient to compensate such Lender, the Issuing Bank or the Administrative
Agent, as the case may be, for such additional cost or reduction in such amount
receivable which such Lender deems to be material as determined by such Lender,
the Issuing Bank or the Administrative Agent, as the case may be; provided,
however, that nothing in this Section shall require the Borrower to indemnify
the Lenders, the Administrative Agent, or the Issuing Bank, as the case may be,
with respect to withholding Taxes for which the Borrower has no obligation under
Section 3.10. No failure by any Lender or the Administrative Agent, or the
Issuing Bank to demand, and no delay in demanding, compensation for any
increased cost shall constitute a waiver of its right to demand such
compensation at any time. A statement setting forth the calculations of any
additional amounts payable pursuant to this Section submitted by a Lender, the
Administrative Agent or the Issuing Bank, as the case may be, to the Borrower
shall be conclusive absent manifest error.
3.8 Illegality of Funding
Notwithstanding any other provision hereof, if any Lender
shall reasonably determine that any law, regulation, treaty or directive, or any
change therein or in the interpretation or application thereof, shall make it
unlawful for such Lender to make or maintain any Eurodollar Advance as
contemplated by this Agreement, such Lender shall promptly notify the Borrower
and the Administrative Agent thereof, and (i) the commitment of such Lender to
make such Eurodollar Advances or convert ABR Advances to Eurodollar Advances
shall forthwith be suspended, (ii) such Lender shall fund its portion of each
requested Eurodollar Advance as an ABR Advance and (iii) such Lender's Loans
then outstanding as such Eurodollar Advances, if any, shall be converted
automatically to an ABR Advance on the last day of the then current Interest
Period applicable thereto or at such earlier time as may be required. If the
commitment of any Lender with respect to Eurodollar Advances is suspended
pursuant to this Section and such Lender shall have obtained actual knowledge
that it is once again legal for such Lender to make or maintain Eurodollar
Advances, such Lender shall promptly notify the Administrative Agent and the
Borrower thereof and, upon receipt of such notice by each of the Administrative
Agent and the Borrower, such Lender's commitment to make or maintain Eurodollar
Advances shall be reinstated.
3.9 Substituted Interest Rate
In the event that (i) the Administrative Agent shall have
determined (which determination shall be conclusive and binding upon the
Borrower) that by reason of circumstances affecting the interbank eurodollar
market either adequate or reasonable means do not exist for ascertaining the
Eurodollar Rate applicable pursuant to Section 3.1 or (ii) the Required Lenders
shall have notified the Administrative Agent that they have determined (which
determination shall be conclusive and binding on the Borrower) that the
applicable Eurodollar Rate will not adequately and fairly reflect the cost to
such Lenders of maintaining or funding loans bearing interest based on such
Eurodollar Rate, with respect to any portion of the Loans that the Borrower has
requested be made as Eurodollar Advances or Eurodollar Advances that will result
from the requested conversion of any portion of the Advances into or of
Eurodollar Advances (each, an "Affected Advance"), the Administrative Agent
shall promptly notify the Borrower and the Lenders (by telephone or otherwise,
to be promptly confirmed in writing) of such determination, on or, to the extent
practicable, prior to the requested Borrowing Date or Conversion Date for such
Affected Advances. If the Administrative Agent shall give such notice, (a) any
Affected Advances shall be made as ABR Advances, (b) the Advances (or any
portion thereof) that were to have been converted to Affected Advances shall be
converted to ABR
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Advances and (c) any outstanding Affected Advances shall be converted, on the
last day of the then current Interest Period with respect thereto, to ABR
Advances. Until any notice under clauses (i) or (ii), as the case may be, of
this Section has been withdrawn by the Administrative Agent (by notice to the
Borrower promptly upon either (A) the Administrative Agent having determined
that such circumstances affecting the interbank eurodollar no longer exist and
that adequate and reasonable means do exist for determining the Eurodollar Rate
pursuant to Section 3.1 or (B) the Administrative Agent having been notified by
such Required Lenders that circumstances no longer render the Advances (or any
portion thereof) Affected Advances, no further Eurodollar Advances shall be
required to be made by the Lenders, nor shall the Borrower have the right to
convert all or any portion of the Loans to or as Eurodollar Advances.
3.10 Taxes
(a) Any and all payments by or on account of any obligation of
the Borrower hereunder shall be made free and clear of and without deduction for
any Indemnified Taxes, provided that, if the Borrower shall be required to
deduct any Indemnified Taxes from such payments, then (i) the sum payable shall
be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section),
the applicable Credit Party receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall make such
deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify each Credit Party, within 10
days after written demand therefor, for the full amount of any Indemnified Taxes
paid by such Credit Party on or with respect to any payment by or on account of
any obligation of the Borrower hereunder (including Indemnified Taxes imposed or
asserted on or attributable to amounts payable under this Section) and any
penalties, interest and reasonable expenses arising therefrom or with respect
thereto (other than any such penalties, interest or expenses that are incurred
by such Credit Party's unreasonably taking or omitting to take action with
respect to such Indemnified Taxes), whether or not such Indemnified Taxes were
correctly or legally imposed or asserted by the relevant Governmental Authority.
A certificate as to the amount of such payment or liability delivered to the
Borrower by a Credit Party, or by the Administrative Agent on its own behalf or
on behalf of a Credit Party, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified
Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to
the Administrative Agent the original or a certified copy of a receipt issued by
such Governmental Authority evidencing such payment, a copy of the return
reporting such payment or other evidence of such payment reasonably satisfactory
to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from
or reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, the Code 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, such properly completed and executed documentation
prescribed by applicable law or reasonably
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requested by the Borrower as will permit such payments to be made without
withholding or at a reduced rate.
(f) If a Credit Party determines that it received a refund in
respect of any Indemnified Taxes as to which it has been indemnified by the
Borrower or with respect to which the Borrower has paid additional amounts
pursuant to this Section, it shall within 60 days from the date of such
determination pay over such refund to the Borrower (but only to the extent of
indemnity payments made, or additional amounts paid, by the Borrower pursuant to
this Section with respect to the Indemnified Taxes giving rise to such refund),
net of all out-of-pocket expenses of the Administrative Agent or such Credit
Party and without interest (other than interest paid by the relevant
Governmental Authority with respect to such refund); provided, however, that the
Borrower, upon the request of the Administrative Agent or such Credit Party,
agrees to repay the amount paid over to the Borrower (plus penalties, interest
or other charges imposed by the relevant Governmental Authority) to the
Administrative Agent or such Credit Party in the event the Administrative Agent
or such Credit Party is required to repay such refund to such Governmental
Authority.
3.11 Option to Fund
Each Lender has indicated that, if the Borrower requests a
Eurodollar Advance, such Lender may wish to purchase one or more deposits in
order to fund or maintain its funding of its applicable portion of such
Eurodollar Advance during the Interest Period with respect thereto; it being
understood that the provisions of this Agreement relating to such funding are
included only for the purpose of determining the rate of interest to be paid in
respect of such Eurodollar Advance and any amounts owing under Sections 3.5 and
3.7. Each Lender shall be entitled to fund and maintain its funding of all or
any part of each Eurodollar Advance in any manner it sees fit, but all such
determinations hereunder shall be made as if each Lender had actually funded and
maintained its applicable portion of each Eurodollar Advance during the
applicable Interest Period through the purchase of deposits in an amount equal
to its applicable portion of such Eurodollar Advance having a maturity
corresponding to such Interest Period. Any Lender may fund its applicable
portion of each Eurodollar Advance from or for the account of any branch or
office of such Lender as such Lender may choose from time to time.
3.12 Mitigation Obligations; Replacement of Lenders
(a) If the Borrower is required to pay any additional amount
to any Credit Party or any Governmental Authority for the account of any Credit
Party pursuant to Section 3.10, then such Credit Party shall use reasonable
efforts to designate a different lending office for funding or booking its Loans
or Letters of Credit (or any participation therein) or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if, in
the judgment of such Credit Party, such designation or assignment (i) would
eliminate or reduce amounts payable pursuant to Section 3.10 in the future and
(ii) would not subject such Credit Party to any unreimbursed cost or expense and
would not otherwise be disadvantageous to such Credit Party. The Borrower hereby
agrees to pay all reasonable costs and expenses incurred by any Credit Party in
connection with any such designation or assignment.
(b) If the Borrower is required to pay any additional amount
to any Lender or any Governmental Authority for the account of any Lender
pursuant to Section 3.10, or if any Lender defaults in its obligation to fund
Loans hereunder, then the Borrower may, at its sole expense and effort, upon
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notice to such Lender and the Administrative Agent, require such Lender to
assign and delegate, without recourse (in accordance with and subject to the
restrictions contained in Section 11.7), all its interests, rights and
obligations under this Agreement to an assignee that shall assume such
obligations (which assignee may be another Lender, if a Lender accepts such
assignment), provided that (i) the Borrower shall have received the prior
written consent of each of the Administrative Agent and the Issuing Bank, which
consents shall not unreasonably be withheld, (ii) such Lender shall have
received payment of an amount equal to the outstanding principal of its Loans,
accrued interest thereon, accrued fees, commissions and all other amounts
payable to it under the Loan Documents, from the assignee (to the extent of such
outstanding principal and accrued interest, fees and commissions) or the
Borrower (in the case of all other amounts) and (iii) in the case of any such
payments required to be made pursuant to Section 3.10, such assignment will
result in a reduction in such payment. A Lender shall not be required to make
any such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling the Borrower to require
such assignment and delegation cease to apply. The Borrower's rights under this
paragraph shall be in addition to any claims that the Borrower may have against
any Lender that is in default of its obligations to fund Loans hereunder.
4. REPRESENTATIONS AND WARRANTIES
In order to induce the Administrative Agent and the Lenders to enter
into this Agreement and to make the Loans and the Issuing Bank to issue the
Letters of Credit and the Lenders to participate therein, the Borrower makes the
following representations and warranties to the Administrative Agent, the
Issuing Bank and each Lender:
4.1 Subsidiaries; Capitalization
As of the Effective Date, the Borrower does not have any
Subsidiaries, and the authorized, issued and outstanding Capital Stock of the
Borrower is as set forth on Schedule 4.1.
4.2 Existence and Power
Each of the Borrower and each of its Subsidiaries is duly
organized or formed and validly existing in good standing under the laws of the
jurisdiction of its incorporation or formation, has all requisite power and
authority to own its Property and to carry on its business as now conducted, and
is in good standing and authorized to do business by it in each jurisdiction in
which the nature of the business conducted therein or the Property owned by it
therein makes such qualification necessary, except where such failure to qualify
could not reasonably be expected to have a Material Adverse Effect.
4.3 Authority and Execution
Each of the Borrower and each of its Subsidiaries has full
legal power and authority to enter into, execute, deliver and perform the terms
of the Loan Documents to which it is a party all of which have been duly
authorized by all proper and necessary corporate, partnership, limited liability
company or other applicable action and are in full compliance with its
Organizational Documents. The Borrower and each of its Subsidiaries has duly
executed and delivered the Loan Documents to which it is a party.
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4.4 Binding Agreement
The Loan Documents constitute the valid and legally binding
obligations of each Obligor, in each case, to the extent it is a party thereto,
enforceable in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by equitable principles relating to the
availability of specific performance as a remedy.
4.5 Litigation
There are no actions, suits or proceedings at law or in equity
or by or before any Governmental Authority (whether purportedly on behalf of the
Borrower, any of its Subsidiaries or any other Obligor) pending or, to the
knowledge of the Borrower, threatened against the Borrower, any of its
Subsidiaries or any other Obligor or maintained by the Borrower, any of its
Subsidiaries or any other Obligor or which may affect the Property of the
Borrower, any of its Subsidiaries or any other Obligor or any of their
respective Properties or rights, which (i) could reasonably be expected to have
a Material Adverse Effect, (ii) call into question the validity or
enforceability of, or otherwise seek to invalidate, any Loan Document, or (iii)
might, individually or in the aggregate, materially and adversely affect any of
the transactions contemplated by any Loan Document.
4.6 Required Consents
Except as set forth on Schedule 4.6 and except for information
filings required to be made in the ordinary course of business which are not a
condition to the performance by the Borrower or any of its Subsidiaries under
the Loan Documents to which it is a party, no consent, authorization or approval
of, filing with, notice to, or exemption by, stockholders, holders of limited
liability company interests or holders of any other equity interest, any
Governmental Authority or any other Person is required to authorize, or is
required in connection with the execution, delivery and performance of the Loan
Documents to which the Borrower or any of its Subsidiaries or any other Obligor
is a party or is required as a condition to the validity or enforceability of
the Loan Documents to which any of the same is a party.
4.7 Absence of Defaults; No Conflicting Agreements
(a) None of the Borrower nor any of its Subsidiaries nor any
other Obligor is in default under any mortgage, indenture, contract or agreement
to which it is a party or by which it or any of its Property is bound, the
effect of which default could reasonably be expected to have a Material Adverse
Effect. The execution, delivery or carrying out of the terms of the Loan
Documents will not constitute a default under, or result in the creation or
imposition of, or obligation to create, any Lien upon any Property of the
Borrower or any of its Subsidiaries or result in a breach of or require the
mandatory repayment of or other acceleration of payment under or pursuant to the
terms of any such mortgage, indenture, contract or agreement.
(b) None of the Borrower nor any of its Subsidiaries nor any
other Obligor is in default with respect to any judgment, order, writ,
injunction, decree or decision of any Governmental Authority which default could
reasonably be expected to have a Material Adverse Effect.
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4.8 Compliance with Applicable Laws
The Borrower and each of its Subsidiaries is complying with
all statutes, regulations, rules and orders of all Governmental Authorities
which are applicable to the Borrower or such Subsidiary, a violation of which
could reasonably be expected to have a Material Adverse Effect.
4.9 Taxes
The Borrower and each of its Subsidiaries has filed or caused
to be filed all tax returns required to be filed and has paid, or has made
adequate provision for the payment of, all taxes shown to be due and payable on
said returns or in any assessments made against it (other than those being
contested as required under Section 7.4) which would be material to the Borrower
or any of its Subsidiaries, and no tax Liens have been filed with respect
thereto. The charges, accruals and reserves on the books of the Borrower and
each of its Subsidiaries with respect to all taxes are, to the best knowledge of
the Borrower, adequate for the payment of such taxes, and the Borrower knows of
no unpaid assessment which is due and payable against the Borrower or any of its
Subsidiaries or any claims being asserted which could reasonably be expected to
have a Material Adverse Effect, except such thereof as are being contested as
required under Section 7.4, and for which adequate reserves have been set aside
in accordance with GAAP.
4.10 Governmental Regulations
Neither the Borrower nor any of its Subsidiaries nor any
Person controlled by, controlling, or under common control with, the Borrower or
any of its Subsidiaries, is subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, as amended, or
the Investment Company Act of 1940, as amended, or is subject to any statute or
regulation which prohibits or restricts the incurrence of Indebtedness,
including, without limitation, statutes or regulations relative to common or
contract carriers or to the sale of electricity, gas, steam, water, telephone,
telegraph or other public utility services.
4.11 Federal Reserve Regulations; Use of Loan Proceeds
Neither the Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock. After giving
effect to the making of each Loan, Margin Stock will constitute less than 25% of
the assets (as determined by any reasonable method) of the Borrower and its
Subsidiaries, subject to Sections 8.2 and 8.4.
4.12 Plans
There are no Pension Plans in effect on the Effective Date.
Each Employee Benefit Plan of the Borrower, its Subsidiaries and the ERISA
Affiliates is in compliance with ERISA and the Code, where applicable, in all
material respects. As of the Effective Date, (i) the amount of all Unfunded
Pension Liabilities under the Pension Plans, excluding any plan which is a
Multiemployer Plan, does not exceed $0, and (ii) the amount of the aggregate
Unrecognized Retiree Welfare Liability under all applicable Employee Benefit
Plans does not exceed $0. The Borrower and each of its Subsidiaries and ERISA
Affiliates has complied with the requirements of Section 515 of ERISA with
respect to each
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Pension Plan which is a Multiemployer Plan. As of the Effective Date, the
aggregate potential annual withdrawal liability payments, as determined in
accordance with Title IV of ERISA, of the Borrower and its Subsidiaries and
ERISA Affiliates with respect to all Pension Plans which are Multiemployer Plans
is not in excess of $0. The Borrower and its Subsidiaries and ERISA Affiliates
have, as of the Effective Date, made all contributions or payments to or under
each such Pension Plan required by law or the terms of such Pension Plan or any
contract or agreement with respect thereto. No material liability to the PBGC
has been, or is expected by the Borrower, any of its Subsidiaries or any ERISA
Affiliate to be, incurred by the Borrower, any such Subsidiary or any ERISA
Affiliate. Liability, as referred to in this Section, includes any joint and
several liability. Each Employee Benefit Plan which is a group health plan
within the meaning of Section 5000(b)(1) of the Code is in material compliance
with the continuation of health care coverage requirements of Section 4980B of
the Code.
4.13 No Material Adverse Change
Since the Effective Date and after giving effect to the
Initial Transactions, the Borrower and each of its Subsidiaries has conducted
its business only in the ordinary course and there has been no Material Adverse
Change.
4.14 Property
The Borrower and each of its Subsidiaries has (i) good and
marketable title to all of its Property, title to which is material to the
Borrower or such Subsidiary and (ii) a valid leasehold interest in all Property,
a leasehold interest in which is material to the Borrower or such Subsidiary, in
each case subject to no Liens, except Permitted Liens.
4.15 Authorizations
The Borrower and each of its Subsidiaries possesses or has the
right to use all franchises, licenses and other rights as are material and
necessary for the conduct of its business, and with respect to which it is in
compliance, with no known conflict with the valid rights of others which could
reasonably be expected to have a Material Adverse Effect. No event has occurred
which permits or, to the best knowledge of the Borrower, after notice or the
lapse of time or both, or any other condition, could reasonably be expected to
permit, the revocation or termination of any such franchise, license or other
right which revocation or termination could reasonably be expected to have a
Material Adverse Effect.
4.16 Environmental Matters
(a) No Hazardous Substances have been generated or
manufactured on, transported to or from, treated at, stored at or discharged
from any Real Property, discharged into subsurface waters under any Real
Property or discharged from any Real Property on or into Property or waters
(including subsurface waters) adjacent to any Real Property, in each case
referred to above in violation of any Environmental Laws the violation of which
could reasonably be expected to have a Material Adverse Effect. There are not
now, nor ever have been, on any Real Property, any underground or above ground
storage tanks regulated under any Environmental Laws the violation of which
could reasonably be expected to have a Material Adverse Effect.
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(b) Neither the Borrower nor any of its Subsidiaries (i) has
received notice (written or oral) or otherwise learned of any claim, demand,
suit, action, proceeding, event, condition, report, directive, Lien, violation,
non-compliance or investigation indicating or concerning any potential or actual
liability (including, without limitation, potential liability for enforcement,
investigatory costs, cleanup costs, government response costs, removal costs,
remedial costs, natural resources damages, Property damages, personal injuries
or penalties) arising in connection with: (A) any non-compliance with or
violation of the requirements of any applicable Environmental Laws the violation
of which could reasonably be expected to have a Material Adverse Effect, or (B)
the presence of any Hazardous Substance on any Real Property (or any Real
Property previously owned by the Borrower or any of its Subsidiaries) or the
release or threatened release of any Hazardous Substance into the environment in
either case which could reasonably be expected to have a Material Adverse
Effect, (ii) has any threatened or actual liability in connection with the
presence of any Hazardous Substance on any Real Property (or any Real Property
previously owned by the Borrower or any of its Subsidiaries) or the release or
threatened release of any Hazardous Substance into the environment, (iii) has
received notice of any federal or state investigation evaluating whether any
remedial action is needed to respond to the presence of any Hazardous Substance
on any Real Property (or any Real Property previously owned by the Borrower or
any of its Subsidiaries) or a release or threatened release of any Hazardous
Substance into the environment for which the Borrower or any of its Subsidiaries
is or may be liable, or (iv) has received notice that the Borrower or any of its
Subsidiaries is or may be liable to any Person under any Environmental Law, in
each case referred to in clauses (ii), (iii) and (iv) above which could
reasonably be expected to have a Material Adverse Effect.
4.17 Absence of Certain Restrictions
No indenture, certificate of designation for preferred equity
securities, agreement or instrument to which the Borrower or any of its
Subsidiaries is a party (other than this Agreement), prohibits or limits in any
way, directly or indirectly, the ability of any Subsidiary of the Borrower to
make advances for the benefit of, to make loans or Restricted Payments to or to
repay any Indebtedness to the Borrower or to any other Subsidiary of the
Borrower.
4.18 No Misrepresentation
No representation or warranty contained in any Loan Document,
and no certificate or report from time to time furnished by the Borrower or any
of its Subsidiaries in connection with the transactions contemplated thereby,
contains or will contain a misstatement of material fact or omits or will omit
to state a material fact required to be stated in order to make the statements
therein contained not misleading in the light of the circumstances under which
made, provided that any projections or pro-forma financial information contained
therein are based upon good faith estimates and assumptions believed by the
Borrower to be reasonable at the time made, it being recognized by the
Administrative Agent and the Lenders that such projections as to future events
are not to be viewed as facts, and that actual results during the period or
periods covered thereby may differ from the projected results.
4.19 Year 2000 Issue
The Borrower is reviewing the effect of the Year 2000 Issue on
the computer software, hardware and firmware systems and equipment containing
embedded microchips owned or operated by or for the Borrower and each Subsidiary
or used or relied upon in the conduct of their business (including
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systems and equipment supplied by others or with which such computer systems of
the Borrower and the Subsidiaries interface). To the Borrower's knowledge, the
costs to the Borrower and the Subsidiaries of any reprogramming required as a
result of the Year 2000 Issue to permit the proper functioning of such systems
and equipment and the proper processing of data, and the testing of such
reprogramming, and of the reasonably foreseeable consequences of the Year 2000
Issue to the Borrower or any Subsidiary (including reprogramming errors and the
failure of systems or equipment supplied by others) are not reasonably expected
to result in a Default or to have a Material Adverse Effect.
4.20 Security Agreement
The Security Agreement is effective to create in favor of the
Administrative Agent, for the ratable benefit of the Credit Parties, a legal,
valid and enforceable security interest in the Collateral and, when (a)
financing statements in appropriate form are filed in the offices specified on
Schedule 5 to the Perfection Certificates, and (b) with respect to all
Possessory Collateral (as defined in the Security Agreement), if any, the
delivery thereof to, and the acceptance and continuous possession thereof by,
the Administrative Agent in the State of New York, the Security Agreement shall
constitute a fully perfected Lien on, and security interest in, all right, title
and interest of the grantors thereunder in such Collateral, in each case prior
and superior in right to any other person, other than with respect to Liens
expressly permitted by Section 8.2.
4.21 Solvency
Immediately after the execution and delivery of the Loan
Documents and the consummation of each of the Contribution, the Assumption, the
making of each Loan and the issuance of each Letter of Credit on the first
Borrowing Date, and the repayment of all of the Indebtedness subject to the
Assumption (each of the foregoing being herein referred to collectively as the
"Initial Transactions") (a) the fair value of the assets of the Borrower and the
Subsidiaries, taken as a whole, at a fair valuation, will exceed their debts and
liabilities, subordinated, contingent or otherwise; (b) the present fair
saleable value of the property of the Borrower and the Subsidiaries, taken as a
whole, will be greater than the amount that will be required to pay the probable
liability of their debts and other liabilities, subordinated, contingent or
otherwise, as such debts and other liabilities become absolute and matured; (c)
each of the Borrower and the Subsidiaries will be able to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (d) each of the Borrower and the
Subsidiaries will not have unreasonably small capital with which to conduct the
business in which it is engaged as such business is now conducted and is
proposed to be conducted following the Effective Date.
5. CONDITIONS TO FIRST LOANS OR THE ISSUANCE OF FIRST LETTERS OF CREDIT
In addition to the conditions precedent set forth in Section
6, the obligation of each Lender to make a Loan, and of the Issuing Bank to
issue a Letter of Credit, on the first Borrowing Date shall be subject to the
fulfillment of the following conditions precedent:
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5.1 Evidence of Action
The Administrative Agent shall have received such documents
and certificates as the Administrative Agent or its counsel may reasonably
request relating to the organization, existence and good standing of each
Obligor, the authorization of the Initial Transactions and any other legal
matters relating to the Obligors, the Loan Documents or the Initial
Transactions, all in form and substance satisfactory to the Administrative Agent
and its counsel.
5.2 This Agreement
The Administrative Agent shall have received from each party
hereto either (i) a counterpart of this Agreement signed on behalf of such party
or (ii) written evidence satisfactory to the Administrative Agent (which may
include telecopy transmission of a signed signature page of this Agreement) that
such party has signed a counterpart of this Agreement.
5.3 Notes
The Administrative Agent shall have received, in respect of
each Lender that shall have requested a Note, a Note made by the Borrower and
payable to the order of such Lender, each in all respects satisfactory to the
Administrative Agent.
5.4 Security Agreement
The Administrative Agent shall have received counterparts of
the Security Agreement signed on behalf of the Borrower and each member of the
Borrower, together with the following:
(a) all documents and instruments, including Uniform
Commercial Code financing statements, required by law or reasonably requested by
the Administrative Agent to be filed, registered, recorded or delivered to
create or perfect the Liens intended to be created under the Security Agreement,
and
(b) a completed Perfection Certificate from each Primary
Company (as defined in the Security Agreement), dated the Effective Date and
signed by an executive officer or Financial Officer of such Primary Company,
together with all attachments contemplated thereby, including the results of a
search of the Uniform Commercial Code (or equivalent) filings made with respect
to the Obligors in the jurisdictions contemplated by the Perfection Certificates
and copies of the financing statements (or similar documents) disclosed by such
search and evidence reasonably satisfactory to the Administrative Agent that the
Liens indicated by such financing statements (or similar documents) are
permitted by Section 8.2 or have been released.
5.5 Absence of Litigation; Approvals and Consents
The Administrative Agent shall have received a certificate, in
all respects satisfactory to the Administrative Agent, of an executive officer
of the Borrower to the effect that (i) there is no injunction, writ, preliminary
restraining order or other order of any nature issued by any Governmental
Authority in any respect affecting the Initial Transactions or the other
transactions provided for in the Loan Documents and no action or proceeding by
or before any Governmental Authority has been commenced and is pending or, to
the knowledge of the Borrower, threatened, seeking to prevent or delay
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the Initial Transactions or the other transactions contemplated by the Loan
Documents or challenging any other terms and provisions hereof or thereof or
seeking any damages in connection therewith, and (ii) except as set forth in
Schedule 4.6, all approvals and consents of all Persons required to be obtained
in connection with the consummation of the Initial Transactions and the other
transactions contemplated by the Loan Documents shall have been obtained and
shall be in full force and effect, and all required notices have been given and
all required waiting periods shall have expired.
5.6 Financial Officer's Certificate
The Administrative Agent shall have received a certificate of
a Financial Officer of the Borrower in all respects satisfactory to the
Administrative Agent certifying that after giving effect the Initial
Transactions, to the best knowledge of such Financial Officer: (i) the Borrower
and each of its Subsidiaries is Solvent, and (ii) the Leverage Ratio (on a pro
forma basis) is not greater than 6.25:1.00.
5.7 Opinions of Counsel
The Administrative Agent shall have received an opinion of (i)
Cooperman Levitt Winikoff Lester & Newman, P.C., counsel to the Borrower, the
Subsidiaries and Insight and (ii) Sherman & Howard, LLC, counsel to each TCI
Affiliate, each to be addressed to the Administrative Agent, the Issuing Bank
and the Lenders, and dated the Effective Date, substantially in the form of
Exhibit F-1 and Exhibit F-2, respectively, together with such other legal
opinions as the Administrative Agent may reasonably require.
5.8 Material Agreements
The Administrative Agent shall have received a fully executed
copy of each of the Indiana Documents and the Management Agreement, in each case
as in effect on the Effective Date and certified to be a true, correct and
complete copy thereof by the Borrower, and each of which shall be in form and
substance satisfactory to the Administrative Agent.
5.9 Insurance
The Administrative Agent shall have evidence satisfactory to
it that the insurance required by Section 7.5 is in effect.
5.10 Other Matters
The Lenders shall be reasonably satisfied (i) that there shall
be no litigation or administrative proceeding, or regulatory development
(including any such development relating specifically to the communications or
media industries), that would reasonably be expected to have a material adverse
effect on (a) the business, assets, operations, prospects, condition (financial
or otherwise) or material agreements of the Borrower and the Subsidiaries taken
as a whole, (b) the ability of any Obligor to perform any of its obligations
under any Loan Document or (c) the rights of or benefits available to any Credit
Party under any Loan Document, (ii) with the current status of, and the terms of
any settlement or other resolution of, any litigation or other proceedings
brought against any Obligor or any other Subsidiary by or on behalf of its
subscribers or by any Governmental Authority relating to its business, and (iii)
with all aspects of each of the Initial Transactions.
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5.11 Fees
All fees payable to the Administrative Agent, the Issuing Bank
and the Lenders on or prior to the Effective Date shall have been paid.
5.12 Fees and Expenses of Special Counsel
The fees and expenses of Special Counsel in connection with
the preparation, negotiation and closing of the Loan Documents shall have been
paid.
The Administrative Agent shall notify the Borrower and each Credit Party of the
date upon which each of the conditions precedent set forth in this Section 5
have been satisfied (or waived in accordance with Section 11.1), and such notice
shall be conclusive and binding. Notwithstanding the foregoing, the obligations
of the Credit Parties to make Loans and issue Letters of Credit shall not become
effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 11.1) on or before November 30, 1998 (and, in the event such
conditions are not so satisfied or waived, the Lenders shall have no obligation
to make Loans and the Revolving Commitments shall terminate at such time).
6. CONDITIONS OF LENDING - ALL LOANS AND LETTERS OF CREDIT
The obligation of each Lender to make Loans or the Issuing Bank to
issue Letters of Credit on a Borrowing Date is subject to the satisfaction of
the following conditions precedent as of the date of such Loan or the issuance
of such Letter of Credit, as the case may be:
6.1 Compliance
(i) At the time of the making of such requested Loans and the
issuance of such requested Letter(s) of Credit, there shall exist no Default,
and (ii) at the time of the making of such requested Loans and the issuance of
such requested Letters of Credit, and immediately thereafter, the
representations and warranties of each Obligor in or pursuant to the Loan
Documents shall be true and correct with the same effect as though such
representations and warranties had been then made, except to the extent such
representations and warranties specifically relate to an earlier date, in which
case such representations and warranties shall have been true and correct on and
as of such earlier date. Each borrowing of Loans by the Borrower and each
request by the Borrower for the issuance of a Letter of Credit shall constitute
a representation and warranty by the Borrower that each of the foregoing matters
is true and correct in all respects.
6.2 Borrowing Request; Letter of Credit Request
With respect to the Loans to be made, and the Letters of
Credit to be issued, on each Borrowing Date, the Administrative Agent shall have
received, (i) in the case of Loans, a Borrowing Request and (ii) in the case of
Letters of Credit, a Letter of Credit Request and a Reimbursement Agreement, in
each case duly executed by the Borrower.
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6.3 Loan Closings
All documents required by the provisions of the Loan Documents
to be executed or delivered to the Administrative Agent on or before the
applicable Borrowing Date shall have been executed and shall have been delivered
at the office of the Administrative Agent set forth in Section 11.2 on or before
such Borrowing Date.
6.4 Other Documents
The Administrative Agent shall have received such other
documents, each in form and substance reasonably satisfactory to the
Administrative Agent, as the Administrative Agent shall reasonably require in
connection with the making of any Loan and/or the issuance of any Letter of
Credit.
7. AFFIRMATIVE COVENANTS
The Borrower agrees that, so long as this Agreement is in effect, any
Loan or Reimbursement Obligation (contingent or otherwise) in respect of any
Letter of Credit remains outstanding and unpaid, any Letter of Credit remains
outstanding, or any other amount is owing under any Loan Document to any Lender,
the Issuing Bank or the Administrative Agent, the Borrower shall:
7.1 Financial Statements and Information
Maintain, and cause each of its Subsidiaries to maintain, a
standard system of accounting in accordance with GAAP, and furnish or cause to
be furnished to the Administrative Agent and each Lender:
(a) As soon as available, but in any event within 90 days
after the end of each fiscal year, a copy of its Consolidated Balance Sheet as
at the end of such fiscal year, together with the related Consolidated
Statements of Income and Cash Flows as of and through the end of such fiscal
year, setting forth in each case in comparative form the figures for the
preceding fiscal year. The Consolidated Balance Sheets and Consolidated
Statements of Income and Cash Flows shall be audited and certified without
qualification by the Accountants, which certification shall (i) state that the
examination by such Accountants in connection with such Consolidated financial
statements has been made in accordance with generally accepted auditing
standards and, accordingly, included such tests of the accounting records and
such other auditing procedures as were considered necessary in the
circumstances, and (ii) include the opinion of such Accountants that such
Consolidated financial statements have been prepared in accordance with GAAP
consistently applied.
(b) As soon as available, but in any event within 45 days
after the end of each of the first three fiscal quarters of each fiscal year, a
copy of the Consolidated Balance Sheet of the Borrower as at the end of each
such quarterly period, together with the related Consolidated Statements of
Income and Cash Flows for such period and for the elapsed portion of the fiscal
year through such date, setting forth in each case in comparative form the
figures for the corresponding periods of the preceding fiscal year, certified by
a Financial Officer of the Borrower, as presenting fairly in all material
respects the Consolidated financial condition and the Consolidated results of
operations of the Borrower and its Subsidiaries.
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(c) Within 45 days after the end of each of the first three
fiscal quarters (90 days after the end of the last fiscal quarter) of each
fiscal year, a Compliance Certificate, certified by a Financial Officer of the
Borrower.
(d) Such other information as the Administrative Agent or any
Lender may reasonably request from time to time.
7.2 Certificates; Other Information
Furnish to the Administrative Agent and each Lender:
(a) The Borrower will furnish to the Administrative Agent
prompt written notice of any change (i) in any Obligor's corporate name or in
any trade name used to identify it in the conduct of its business or in the
ownership of its properties, (ii) in the location of any Obligor's chief
executive office, its principal place of business, any office in which it
maintains books or records relating to Collateral owned by it or any office or
facility at which Collateral owned by it with an aggregate book value in excess
of $1,000,000 is located (including the establishment of any such new office or
facility), (iii) in any Obligor's identity or organizational structure such that
a filed financing statement becomes misleading or (iv) in any Obligor's Federal
Taxpayer Identification Number. The Borrower agrees not to effect or permit any
change referred to in the preceding sentence unless all filings have been made
under the Uniform Commercial Code or otherwise that are required in order for
the Administrative Agent to continue at all times following such change to have
a valid, legal and perfected security interest in all the Collateral.
(b) Each year, at the time of delivery of annual financial
statements with respect to the preceding fiscal year pursuant to paragraph (a)
of Section 7.1, the Borrower shall deliver to the Administrative Agent a
certificate of a Financial Officer of the Borrower (i) setting forth the
information required pursuant to Sections 1, 2, 6 and 7 of the Perfection
Certificate or confirming that there has been no change in such information
since the date of the Perfection Certificate delivered by the Borrower on the
Effective Date or the date of the most recent certificate delivered by the
Borrower pursuant to this Section and (ii) certifying that all Uniform
Commercial Code financing statements or other appropriate filings, recordings or
registrations, including all refilings, rerecordings and reregistrations,
containing a description of the Collateral have been filed of record in each
governmental, municipal or other appropriate office in each jurisdiction
identified pursuant to clause (i) above to the extent necessary to protect and
perfect the security interests under the Security Agreement for a period of not
less than 18 months after the date of such certificate (except as noted therein
with respect to any continuation statements to be filed within such period).
(c) Prompt written notice if: (i) any Indebtedness of the
Borrower or any of its Subsidiaries in an aggregate amount in excess of
$1,000,000 is declared or shall become due and payable prior to its stated
maturity, or is called and not paid when due, (ii) the holder or obligee of any
note (other than the Notes), certificate, security or other evidence of
Indebtedness of the Borrower or any of its Subsidiaries in an aggregate amount
in excess of $1,000,000 has the right to declare such Indebtedness due and
payable prior to its stated maturity, or (iii) there shall occur and be
continuing a Default.
(d) Prompt written notice of: (i) any citation, summons,
subpoena, order to show cause or other document naming the Borrower or any of
its Subsidiaries a party to any proceeding before any
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Governmental Authority which could reasonably be expected to have a Material
Adverse Effect or which calls into question the validity or enforceability of
any of the Loan Documents, and include with such notice a copy of such citation,
summons, subpoena, order to show cause or other document, (ii) any lapse or
other termination of any material license, permit, franchise or other
authorization issued to the Borrower or any of its Subsidiaries by any Person or
Governmental Authority, and (iii) any refusal by any Person or Governmental
Authority to renew or extend any such material license, permit, franchise or
other authorization, which lapse, termination, refusal or dispute could
reasonably be expected to have a Material Adverse Effect.
(e) Promptly upon becoming available, copies of all (i)
regular, periodic or special reports, schedules and other material which the
Borrower or any of its Subsidiaries may now or hereafter be required to file
with or deliver to any securities exchange or the SEC, or any other Governmental
Authority succeeding to the functions thereof and (ii) material news releases
and annual reports relating to the Borrower or any of its Subsidiaries.
(f) Prompt written notice in the event that the Borrower, any
of its Subsidiaries or any ERISA Affiliate knows, or has reason to know, that
(i) any Termination Event with respect to a Pension Plan has occurred or will
occur, (ii) any condition exists with respect to a Pension Plan which presents a
material risk of termination of the Pension Plan, imposition of an excise tax,
requirement to provide security to the Pension Plan or other liability on the
Borrower, any of its Subsidiaries or any ERISA Affiliate, (iii) the Borrower,
any of its Subsidiaries or any ERISA Affiliate has applied for a waiver of the
minimum funding standard under Section 412 of the Code with respect to a Pension
Plan, (iv) the aggregate amount of the Unfunded Pension Liabilities under all
Pension Plans is in excess of $250,000, (v) the aggregate amount of Unrecognized
Retiree Welfare Liability under all applicable Employee Benefit Plans is in
excess of $250,000, (vi) the Borrower, any of its Subsidiaries or any ERISA
Affiliate has engaged in a Prohibited Transaction with respect to an Employee
Benefit Plan, (vii) the imposition of any tax under Section 4980B(a) of the Code
or (viii) the assessment of a civil penalty under Section 502(c) of ERISA,
together with a certificate of the president or a Financial Officer of the
Borrower setting forth the details of such event and the action which the
Borrower, such Subsidiary or such ERISA Affiliate proposes to take with respect
thereto, together with a copy of all notices and filings with respect thereto.
(g) Prompt written notice in the event that Borrower, any of
its Subsidiaries or any ERISA Affiliate shall receive a demand letter from the
PBGC notifying the Borrower, such Subsidiary or such ERISA Affiliate of any
final decision finding liability and the date by which such liability must be
paid, together with a copy of such letter and a certificate of the president or
a Financial Officer of the Borrower setting forth the action which the Borrower,
such Subsidiary or such ERISA Affiliate proposes to take with respect thereto.
(h) Promptly upon the same becoming available, and in any
event by the date such amendment is adopted, a copy of any Pension Plan
amendment that the Borrower, any of its Subsidiaries or any ERISA Affiliate
proposes to adopt which would require the posting of security under Section
401(a)(29) of the Code, together with a certificate of the president or a
Financial Officer of the Borrower setting forth the reasons for the adoption of
such amendment and the action which the Borrower, such Subsidiary or such ERISA
Affiliate proposes to take with respect thereto.
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(i) As soon as possible and in any event by the tenth day
after any required installment or other payment under Section 412 of the Code
owed to a Pension Plan shall have become due and owing and remain unpaid a copy
of the notice of failure to make required contributions provided to the PBGC by
the Borrower, any of its Subsidiaries or any ERISA Affiliate under Section
412(n) of the Code, together with a certificate of the president or a Financial
Officer setting forth the action which the Borrower, such Subsidiary or such
ERISA Affiliate proposes to take with respect thereto.
(j) If the termination of any Pension Plan would result in the
imposition of any tax under Section 4980 of the Code, then as soon as possible,
but in no event less than 60 days before the due date of the tax, a certificate
of the president or a Financial Officer of the Borrower setting forth the
estimated amount of such tax, any reversion, and the proposed use of such
reversion. This subsection shall apply to a transaction notwithstanding a
reduction or complete elimination of a tax because of the operation of either
Sections 4980(d) or 420(a)(3)(A) of the Code.
(k) Prompt written notice of any order, notice, claim or
proceeding received by, or brought against, the Borrower or any of its
Subsidiaries, or with respect to any of the Real Property, under any
Environmental Law.
(l) Such other information as the Administrative Agent or any
Lender shall reasonably request from time to time.
7.3 Legal Existence
Except as may otherwise be permitted by Sections 8.3 and 8.4,
maintain, and cause each of its Subsidiaries to maintain, its corporate,
partnership or analogous existence, as the case may be, in good standing in the
jurisdiction of its incorporation or formation and in each other jurisdiction in
which the failure so to do could reasonably be expected to have a Material
Adverse Effect.
7.4 Taxes
Pay and discharge when due, and cause each of its Subsidiaries
so to do, all Taxes, upon or with respect to the Borrower or such Subsidiary and
all Taxes upon the income, profits and Property of the Borrower and its
Subsidiaries, which if unpaid, could reasonably be expected to have a Material
Adverse Effect or become a Lien on Property of the Borrower or such Subsidiary
(other than a Lien described in Section 8.2(i)), unless and to the extent only
that such Taxes, shall be contested in good faith and by appropriate proceedings
diligently conducted by the Borrower or such Subsidiary and provided that any
such contested Tax, shall not constitute, or create, a Lien on any Property of
the Borrower or such Subsidiary senior to the Liens, if any, granted to the
Administrative Agent and the Lenders by the Collateral Documents on such
Property, and, provided further, that the Borrower shall give the Administrative
Agent prompt notice of such contest and that such reserve or other appropriate
provision as shall be required by the Accountants in accordance with GAAP shall
have been made therefor.
7.5 Insurance
Maintain, and cause each of its Subsidiaries to maintain,
insurance with financially sound insurance carriers on such of its Property,
against at least such risks, and in at least such amounts, as are usually
insured against by similar businesses, including, without limitation, public
liability (bodily
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injury and property damage), fidelity, business interruption, and workers'
compensation with deductibles which are customary for companies engaged in
similar businesses, and which, in the case of property insurance, shall be (i)
in amounts sufficient to prevent the Borrower or such Subsidiary from becoming a
co-insurer, and (ii) against all risks; and file with the Administrative Agent
within ten days after request therefor a detailed list of such insurance then in
effect, stating the names of the carriers thereof, the policy numbers, the
insureds thereunder, the amounts of insurance, dates of expiration thereof, and
the Property and risks covered thereby.
7.6 Performance of Obligations
Pay and discharge when due, and cause each of its Subsidiaries
so to do, all lawful Indebtedness, obligations and claims for labor, materials
and supplies or otherwise which, if unpaid, might (i) have a Material Adverse
Effect, or (ii) become a Lien upon Property of the Borrower or any of its
Subsidiaries other than a Permitted Lien, unless and to the extent only that the
validity of such Indebtedness, obligation or claim shall be contested in good
faith and by appropriate proceedings diligently conducted, and provided that the
Borrower shall give the Administrative Agent prompt notice of any such contest
and that such reserve or other appropriate provision as shall be required by the
Accountants in accordance with GAAP shall have been made therefor.
7.7 Condition of Property
At all times, maintain, protect and keep in good repair,
working order and condition (ordinary wear and tear excepted), and cause each of
its Subsidiaries so to do, all Property necessary to the operation of the
Borrower's or such Subsidiary's business.
7.8 Observance of Legal Requirements
Observe and comply in all respects, and cause each of its
Subsidiaries so to do, with all laws, ordinances, orders, judgments, rules,
regulations, certifications, franchises, permits, licenses, directions and
requirements of all Governmental Authorities, which now or at any time hereafter
may be applicable to it, a violation of which could reasonably be expected to
have a Material Adverse Effect, except such thereof as shall be contested in
good faith and by appropriate proceedings diligently conducted by it, provided
that the Borrower shall give the Administrative Agent prompt notice of such
contest and that such reserve or other appropriate provision as shall be
required by the Accountants in accordance with GAAP shall have been made
therefor.
7.9 Inspection of Property; Books and Records; Discussions
At all reasonable times, upon reasonable prior notice, permit
representatives of the Administrative Agent and each Lender to visit the offices
of the Borrower and each of its Subsidiaries, to examine the books and records
thereof and Accountants' reports relating thereto, and to make copies or
extracts therefrom, to discuss the affairs of the Borrower and each such
Subsidiary with the respective officers thereof, and to examine and inspect the
Property of the Borrower and each such Subsidiary and to meet and discuss the
affairs of the Borrower and each such Subsidiary with the Accountants.
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7.10 Authorizations
Maintain, and cause each of its Subsidiaries to maintain, in
full force and effect, all of its licenses, franchises, permits, authorizations
and other rights, other than such licenses, franchises, permits, authorizations
and other rights the loss of which would not reasonably be expected to have a
Material Adverse Effect.
7.11 Financial Covenants
(a) Interest Coverage Ratio. Maintain as of each fiscal
quarter end during the periods set forth below, an Interest Coverage Ratio of
not less than the ratios set forth below:
Period Ratio
------ -----
Effective Date through
December 31, 1999 1.75:1.00
January 1, 2000 through
December 31, 2000 2.00:1.00
January 1, 2001 through
December 31, 2001 2.25:1.00
January 1, 2002 and
thereafter 2.50:1.00.
(b) Fixed Charge Coverage Ratio. Maintain as of each fiscal
quarter end commencing on December 31, 2000, a Fixed Charge Coverage Ratio of
not less than 1.00:1.00.
(c) Leverage Ratio. Maintain as of any day during the periods
set forth below, a Leverage Ratio of not more than the ratios set forth below:
Period Ratio
------ -----
Effective Date through
December 30, 2000 6.50:1.00
December 31, 2000 through
December 30, 2001 6.00:1.00
December 31, 2001 through
December 30, 2002 5.50:1.00
December 31, 2002 through
December 30, 2003 4.50:1.00
December 31, 2003 and
thereafter 4.00:1.00
(d) Pro Forma Debt Service Ratio. Maintain as of each fiscal
quarter end, a Pro Forma Debt Service Ratio of not less than 1.10:1.00.
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7.12 Interest Rate Protection Arrangements
Commencing no later than 120 days after the Effective Date,
and on each date thereafter, maintain Interest Rate Protection Arrangements,
each in form and substance satisfactory to the Administrative Agent, covering at
least 40% of Total Consolidated Debt as of such date, which agreements shall
have an initial term of at least 3 years.
7.13 Year 2000 Issue
The Borrower will, and will cause each of the Subsidiaries, to
take all necessary action to complete in all material respects by September 30,
1999, the reprogramming of computer software, hardware and firmware systems and
equipment containing embedded microchips owned or operated by or for the
Borrower and the Subsidiaries or used or relied upon in the conduct of their
business (including systems and equipment supplied by others or with which such
systems of the Borrower and the Subsidiaries interface) required as a result of
the Year 2000 Issue to permit the proper functioning of such computer systems
and other equipment and the testing of such systems and equipment, as so
reprogrammed. At the request of the Administrative Agent, the Borrower will, and
will cause each of the Subsidiaries to, provide to the Administrative Agent
reasonable assurance of its compliance with the preceding sentence.
7.14 New Subsidiaries
(a) If any Subsidiary is formed or acquired after the
Effective Date the Borrower will within 10 Business Days after such Subsidiary
is formed or acquired (a) notify the Administrative Agent and the Lenders in
writing thereof, (b) execute and deliver the Guarantee Agreement, and cause such
Subsidiary to become a party to the Guarantee Agreement and the Security
Agreement in the manner provided therein, (c) if any shares of capital stock or
Indebtedness of such Subsidiary are owned by or on behalf of the Borrower or any
other Subsidiary, cause such shares and promissory notes evidencing such
Indebtedness to be pledged pursuant to the Security Agreement, and (d) promptly
take such actions to create and perfect the Liens created or intended to be
created by the Loan Documents on such Subsidiary's assets as the Administrative
Agent or the Required Lenders shall reasonably request.
(b) The Borrower will, and will cause each Guarantor to,
execute any and all further documents, financing statements, agreements and
instruments, and take all such further actions (including the filing and
recording of financing statements and other documents), that may be required
under any applicable law, or which the Administrative Agent or the Required
Lenders may reasonably request, to effectuate the transactions contemplated by
the Loan Documents or to grant, preserve, protect or perfect the Liens created
or intended to be created by the Security Agreement or the validity or priority
of any such Lien, all at the expense of the Obligors. The Borrower also agrees
to provide to the Administrative Agent, from time to time upon request, evidence
reasonably satisfactory to the Administrative Agent as to the perfection and
priority of the Liens created or intended to be created by the Security
Agreement.
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8. NEGATIVE COVENANTS
The Borrower agrees that, so long as this Agreement is in effect, any
Loan or Reimbursement Obligation (contingent or otherwise) in respect of any
Letter of Credit remains outstanding and unpaid any Letter of Credit remains
outstanding, or any other amount is owing under any Loan Document to any Lender,
the Issuing Bank or the Administrative Agent, the Borrower shall not, directly
or indirectly:
8.1 Indebtedness
(a) Create, incur, assume or suffer to exist any liability for
Indebtedness, or permit any of its Subsidiaries so to do, except (i)
Indebtedness due under the Loan Documents, (ii) Indebtedness of the Borrower or
any of its Subsidiaries existing on the date hereof as set forth on Schedule
8.1, excluding increases and refinancings thereof, (iii) purchase money
Indebtedness (other than any such Indebtedness described in clause (ii) above)
incurred in connection with the purchase, after the date hereof, of any
Property, in an aggregate principal amount not to exceed $10,000,000 at any time
outstanding, (iv) liabilities of the Borrower arising out of Interest Rate
Protection Arrangements covering a notional principal amount not in excess of
the sum of (1) the Aggregate Revolving Commitment Amount and (2) the aggregate
outstanding principal balance of the Term Loans, and (v) Intercompany
Indebtedness.
(b) The Borrower will not issue any additional shares of its
equity securities (which term shall be deemed to include membership interests)
and will not (and will not permit any Subsidiary to) (i) issue any preferred
stock or (ii) be or become liable in respect of any obligation (contingent or
otherwise) to purchase, redeem, retire, acquire or make any other payment in
respect of any shares of equity securities of Insight, any TCI Affiliate, any
Affiliate of either thereof or any Subsidiary or any option, warrant or other
right to acquire any such shares of equity securities, except as permitted under
Section 8.6.
8.2 Liens
Create, incur, assume or suffer to exist any Lien upon any of
its Property, whether now owned or hereafter acquired, or permit any of its
Subsidiaries so to do, except (i) Liens for Taxes in the ordinary course of
business which are not delinquent or which are being contested in accordance
with Section 7.4, provided that enforcement of such Liens is stayed pending such
contest, (ii) Liens in connection with workers' compensation, unemployment
insurance or other social security obligations (but not ERISA), (iii) deposits
or pledges to secure bids, tenders, contracts (other than contracts for the
payment of money), leases, statutory obligations, surety and appeal bonds and
other obligations of like nature arising in the ordinary course of business,
(iv) zoning ordinances, easements, rights of way, minor defects, irregularities,
and other similar restrictions affecting Real Property which do not adversely
affect the value of such Real Property or the financial condition of the
Borrower or such Subsidiary or impair its use for the operation of the business
of the Borrower or such Subsidiary, (v) Liens arising by operation of law such
as mechanics', materialmen's, carriers', warehousemen's liens incurred in the
ordinary course of business which are not delinquent or which are being
contested in accordance with Section 7.6, provided that enforcement of such
Liens is stayed pending such contest, (vi) Liens arising out of judgments or
decrees which are being contested in accordance with Section 7.6, provided that
enforcement of such Liens is stayed pending such contest, (vii) Liens in favor
of the Credit Parties under the Loan Documents, (viii) purchase money Liens on
Property of the Borrower or any of its Subsidiaries acquired after the date
hereof to secure Indebtedness of the Borrower permitted by Section 8(a)(iii),
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incurred in connection with the acquisition of such Property, provided that each
such Lien is limited to such Property so acquired, (ix) Liens on Property of the
Borrower and its Subsidiaries existing on the Effective Date and set forth on
Schedule 8.2A, as renewed from time to time, but not any increases in the
amounts secured thereby, and (x) Liens on Property of the Borrower and its
Subsidiaries existing on the Effective Date and set forth on Schedule 8.2B,
provided that each Lien referred to in this clause (x) shall be released
substantially simultaneously with the Initial Transactions.
8.3 Merger, Consolidations and Acquisitions
Consolidate with, be acquired by, merge into or with any
Person, or make any Acquisition, or permit any of its Subsidiaries so to do,
except:
(a) Capital Expenditures permitted by Section 8.7, and the
Contribution;
(b) provided that (i) the Administrative Agent shall have
received ten days' prior written notice thereof and (ii) immediately before and
after giving effect thereto no Default shall exist, any direct or indirect
wholly-owned Subsidiary of the Borrower may merge or consolidate with the
Borrower or any other direct or indirect wholly-owned Subsidiary of the
Borrower, provided that in the event of a merger of the Borrower and such
wholly-owned Subsidiary, the Borrower shall be the survivor thereof;
(c) mergers involving Subsidiaries as part of an Acquisition
permitted by subsection (f) below;
(d) Investments permitted by 8.5;
(e) Acquisitions permitted under Section 8.4; and
(f) additional Acquisitions, provided that (i) if immediately
after giving effect to each such Acquisition pursuant to this Section 8.3(f) the
Leverage Ratio would be greater than 5.50:1.00, the Acquisition Cost in respect
of all Acquisitions consummated under this Section 8.3(f) shall not exceed
$50,000,000 immediately after giving effect to such Acquisition, (ii)
immediately before and after giving effect to each such Acquisition, no Default
shall or would exist, (iii) the Borrower will be in compliance with each of the
financial covenants contained in Section 7.11 on a pro-forma basis after giving
effect to such Acquisition and any Indebtedness incurred or assumed in
connection therewith which is permitted by Section 8.1, (iv) immediately after
giving effect to each such Acquisition, all of the representations and
warranties contained in Section 4 shall be true and correct as if then made,
except to the extent such representations and warranties specifically relate to
an earlier date, in which case such representations and warranties shall have
been true and correct on and as of such earlier date, (v) the Administrative
Agent and the Lenders shall have been given five Business Days' prior written
notice thereof and (vi) the Administrative Agent shall have received a
certificate signed by a Financial Officer of the Borrower, identifying the
Person or Property to be acquired, the name of the Person making such
Acquisition, setting forth the total consideration to be paid in respect of such
Acquisition, and certifying as to the matters set forth in clauses (i), (ii),
(iii) and (iv) hereof.
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8.4 Dispositions and Exchanges
Make any Disposition or consummate any Exchange, or permit any
of its Subsidiaries so to do, except:
(a) the Exchanges described on Schedule 8.4, and Dispositions
of any Investments permitted under Section 8.5(a), (b) or (c);
(b) Dispositions of Property which, in the reasonable opinion
of the Borrower or such Subsidiary, is obsolete or no longer useful in the
conduct of its business; and
(c) additional Dispositions, and one or more additional
Exchanges, provided that with respect to each such Disposition and each such
Exchange pursuant to this Section 8.4(c), the following conditions have been
satisfied:
(i) no Default shall exist immediately before or after giving
effect thereto,
(ii) the sum of (A) a fraction, the numerator of which is the
Operating Cash Flow attributable to the Property being disposed of or
exchanged, as the case may be, and the denominator of which is the
Operating Cash Flow, in each case for the four fiscal quarter period
ended immediately preceding the date of such Disposition or Exchange,
as the case may be, plus (B) with respect to each other Property
disposed of or exchanged, as the case may be, in accordance with this
Section 8.4(c) during the one year period ending on the date of such
Disposition or such Exchange, as the case may be, the fraction
calculated with respect thereto under Section 8.4(c)(ii)(A) at the
time of the Disposition or Exchange thereof, as the case may be,
shall not exceed 15%,
(iii) the sum of (A) the fraction calculated with respect to such
Property being disposed of or exchanged, as the case may be, under
Section 8.4(c)(ii)(A), plus (B) with respect to each other Property
disposed of or exchanged, as the case may be, in accordance with this
Section 8.4(c) during the period commencing on the Effective Date and
ending on the date of such Disposition or such Exchange, as the case
may be, the fraction calculated with respect thereto under Section
8.4(c)(ii)(A) at the time of the Disposition or Exchange thereof, as
the case may be, shall not exceed 30%,
(iv) in the case of such Exchange, the Property disposed of by the
Borrower and its Subsidiaries shall be substantially similar in
nature to the Property acquired by the Borrower and its Subsidiaries,
(v) in the case of such Exchange, any cash consideration paid by
the Borrower or any Subsidiary in connection therewith shall be
considered as an Acquisition pursuant to, and shall be subject to,
Section 8.3(f); and
(vi) (A) the Borrower will be in compliance with each of the financial
covenants contained in Section 7.11 on a pro-forma basis after giving
effect to such Exchange and any Indebtedness incurred or assumed in
connection therewith which is permitted by Section 8.1, (B)
immediately after giving effect to each such Acquisition, all of the
representations and
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warranties contained in Section 4 shall be true and correct as if
then made, (C) the Administrative Agent and the Lenders shall have
been given five Business Days' prior written notice thereof, and (D)
the Administrative Agent shall have received a certificate signed by
a Financial Officer of the Borrower, identifying the Properties to be
Exchanged, the name of the other party to the Exchange, setting forth
the total consideration to be paid in respect of such Exchange, and
certifying as to the matters set forth in clauses (A) and (B) hereof.
8.5 Investments, Loans, Etc.
At any time, purchase or otherwise acquire, hold or invest in
the Capital Stock of, or any other interest in, any Person, or make any loan or
advance to, or enter into any arrangement for the purpose of providing funds or
credit to, or make any other investment, whether by way of capital contribution,
time deposit or otherwise, in or with any Person, or permit any of its
Subsidiaries so to do, (all of which are sometimes referred to herein as
"Investments") except:
(a) Investments in Cash Equivalents;
(b) Investments existing on the date hereof as set forth on
Schedule 8.5;
(c) normal business banking accounts and short-term
certificates of deposit and time deposits in, or issued by, federally insured
institutions in amounts not exceeding the limits of such insurance;
(d) Acquisitions permitted by Section 8.3; and
(e) Investments by the Borrower or any Subsidiary in
Intercompany Indebtedness permitted under Section 8.1, provided that any such
Intercompany Indebtedness owed to any Obligor shall be evidenced by a promissory
note and such note shall be pledged to the Administrative Agent under the
applicable Collateral Document.
8.6 Restricted Payments
Make any Restricted Payments payable in cash or otherwise or
apply any of its Property thereto or set apart any sum therefor, or permit any
of its Subsidiaries so to do, except that:
(a) a wholly-owned Subsidiary of the Borrower may declare and
pay Restricted Payments to the Borrower;
(b) the Borrower may pay cash distributions to its members, in
such amounts and at such times, as required pursuant to Section 4.1(a)(1) of the
Operating Agreement as in effect on the Effective Date, provided that both
immediately before and after giving effect thereto, no Default shall or would
exist; and
(c) the Borrower may make Restricted Payments at any time and
from time to time during any fiscal year when that the Leverage Ratio is less
than 5.50:1.00, in an aggregate amount not in excess of 25% of Excess Cash Flow
in respect of such fiscal year, provided, that immediately before and after
giving effect thereto, no Default shall or would exist.
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8.7 Capital Expenditures.
(a) During the two fiscal year period ending December 31,
1999, make any Capital Expenditures, or incur any obligation to make Capital
Expenditures, or permit any of its Subsidiaries so to do, except any one or more
of the following: (i) Acquisitions permitted under Section 8.3, and (ii) any
Capital Expenditure made in any fiscal year set forth below which, when added to
all of the other Capital Expenditures of the Borrower and its Subsidiaries on a
Consolidated basis during such fiscal year (excluding all of those permitted by
Section 8.7(a)(i)), does not exceed the amount (the "Allowable Amount") set
forth below adjacent to such fiscal year:
Fiscal Year Amount
----------- ------
1998 $ 35,000,000
1999 $110,000,000
For purposes of this Section 8.7, in calculating Capital Expenditures for the
fiscal year ending 1998, all Capital Expenditures chargeable to the operations
contributed to the Borrower in connection with the Contribution (whether such
Capital Expenditures were made before or after giving effect to the
Contribution) shall be included in the calculation of Capital Expenditures.
(b) In the event that, in respect of any fiscal year referred
to in Section 8.7(a), the Allowable Amount shall exceed the actual amount of
Capital Expenditures of the Borrower and its Subsidiaries on a Consolidated
basis, the Borrower and its Subsidiaries may make additional Capital
Expenditures in the immediately succeeding fiscal year in an aggregate amount
not exceeding such excess.
8.8 Line of Business
Engage, or permit any Subsidiary to engage, whether directly
or indirectly, through interests in one or more Subsidiaries, in any business
other than the Cable Television Business. For purposes hereof, "Cable Television
Business" means the business of (i) acquiring, developing, owning, operating,
managing, selling, or investing in cable television systems and businesses
related to and ancillary to the ownership and operation of cable television
systems (including, but not limited to, high speed data service, Internet
access, telephony services and other telephony-related investments or
businesses, and video wireless services and wireless communications services and
other wireless-related investments or businesses, but not including multipoint
distribution systems, multichannel multipoint distribution systems,
direct-to-home satellite systems or Internet Backbone Services), and (ii) using
IP technology to provide telephone, fax, video, video conferencing,
telecommuting, virtual private networks, security and energy management services
to subscribers of the Borrower's or any Subsidiary's cable television systems.
For purposes hereof, "IP" means the Internet Protocols as defined by the
document titled RFC-791, by John Pastell of the University of Southern
California, dated 1981, or subsequent revisions thereof.
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8.9 ERISA
Establish or contribute, or permit any of its Subsidiaries so
to do, to any Pension Plan, except to the extent that the same could not
reasonably be expected to result in a Material Adverse Effect, cause any Pension
Plan to have a Funded Current Liability Percentage of less than 60%, or increase
benefits, or permit any of its Subsidiaries so to do, under any Employee Benefit
Plan or establish or contribute to any new Employee Benefit Plan, except to the
extent that the same could not reasonably be expected to result in a Material
Adverse Effect.
8.10 Prepayments of Indebtedness
Prepay or obligate itself to prepay, in whole or in part, any
Indebtedness (other than Indebtedness under the Loan Documents), or permit any
of its Subsidiaries so to do.
8.11 Changes to Documents and Other Agreements
The Borrower will not, and will not permit any Subsidiary to,
amend, modify or waive any of its rights under the Management Agreement, any
Indiana Document or its organizational documents, other than amendments,
modifications or waivers that could not reasonably be expected to adversely
affect the Issuing Bank or the Lenders.
8.12 Transactions with Affiliates
Become a party to any transaction with an Affiliate unless the
Borrower's Managing Person shall have determined that the terms and conditions
relating thereto are as favorable to the Borrower as those which would be
obtainable at the time in a comparable arms-length transaction with a Person
other than an Affiliate, or permit any of its Subsidiaries so to do.
8.13 Limitation on Certain Restrictions on Subsidiaries
Directly or indirectly create or otherwise cause or suffer to
exist or become effective, any encumbrance or restriction on the ability of any
Subsidiary to (i) make Restricted Payments to the Borrower, (ii) repay any
Indebtedness owed to the Borrower or any other Subsidiary, (iii) make loans or
advances to the Borrower or any other Subsidiary or (iv) transfer any of its
Property to the Borrower, except for such encumbrances or restrictions existing
under or by reason of (x) applicable law and (y) the Loan Documents.
8.14 Management Fees
Accrue or pay any management fee, or permit any Subsidiary
thereof so to do, provided that the Borrower may accrue and pay management fees
under and in accordance with the Management Agreement, provided that (a) such
management fees are subordinated, in all respects satisfactory to the
Administrative Agent in its discretion, to the obligations of the Borrower under
the Loan Documents, and (b) the Borrower shall not make any payment in respect
of such management fees if, immediately before or after giving effect thereto
(i) the aggregate amount of all management fees paid during any fiscal year
would exceed 3.0% of consolidated gross revenues for such fiscal year, or (ii)
any Default shall or would exist.
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9. DEFAULT
9.1 Events of Default
The following shall each constitute an "Event of Default"
hereunder:
(a) The failure of the Borrower to make any payment of
principal on any Loan, or any reimbursement payment hereunder or under any
Reimbursement Agreement, when due and payable; or
(b) The failure of the Borrower to make any payment of
interest, Fees, expenses or other amounts payable under any Loan Document or
otherwise to the Administrative Agent with respect to the loan facilities
established hereunder within three Business Days of the date when due and
payable; or
(c) The failure of the Borrower to observe or perform any
covenant or agreement contained in Sections 2.7, 7.3, 7.11, 7.13 or Section 8;
or
(d) The failure of any Obligor to observe or perform any other
term, covenant, or agreement contained in any Loan Document and such failure
shall have continued unremedied for a period of 30 days after such Obligor shall
have obtained knowledge thereof; or
(e) Any representation or warranty made by any Obligor (or by
an officer thereof on its behalf) in any Loan Document or in any certificate,
report, opinion (other than an opinion of counsel) or other document delivered
or to be delivered pursuant thereto, shall prove to have been incorrect or
misleading (whether because of misstatement or omission) in any material respect
when made; or
(f) Liabilities and/or other obligations of the Borrower or
any of its Subsidiaries (other than obligations under the Loan Documents),
whether as principal, guarantor, surety or other obligor, for the payment of any
Indebtedness or operating leases in an aggregate amount in excess of $5,000,000
(i) shall become or shall be declared to be due and payable prior to the
expressed maturity thereof, (ii) shall not be paid when due or within any grace
period for the payment thereof, (iii) any holder of any such liability or
obligation shall have the right to declare the same due and payable prior to the
expressed maturity thereof, or (iv) as a consequence of the occurrence or
continuation of any event or condition, the Borrower or any of its Subsidiaries
has become obligated to purchase or repay any Indebtedness in an aggregate in
excess of $5,000,000 before its regularly scheduled maturity date; or
(g) The Borrower, any Subsidiary or TCI shall (i) suspend or
discontinue its business, (ii) make an assignment for the benefit of creditors,
(iii) generally not be paying its debts as such debts become due, (iv) admit in
writing its inability to pay its debts as they become due, (v) file a voluntary
petition in bankruptcy, (vi) become insolvent (however such insolvency shall be
evidenced), (vii) file any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment of debt, liquidation or
dissolution or similar relief under any present or future statute, law or
regulation of any jurisdiction, (viii) petition or apply to any tribunal for any
receiver, custodian or any trustee for any substantial part of its Property,
(ix) be the subject of any such proceeding filed against it which remains
undismissed for a period of 60 days, (x) file any answer admitting or not
contesting the material allegations of any such petition filed against it or any
order, judgment or decree approving such petition in any such proceeding, (xi)
seek, approve, consent to, or acquiesce in any such proceeding, or in the
appointment of any trustee, receiver, sequestrator, custodian, liquidator, or
fiscal agent for it, or any
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substantial part of its Property, or an order is entered appointing any such
trustee, receiver, custodian, liquidator or fiscal agent and such order remains
in effect for 60 days, or (xii) take any formal action for the purpose of
effecting any of the foregoing or looking to the liquidation or dissolution of
the Borrower, any Subsidiary or TCI, as the case may be; or
(h) An order for relief is entered under the United States
bankruptcy laws or any other decree or order is entered by a court having
jurisdiction (i) adjudging of the Borrower, any Subsidiary or TCI, bankrupt or
insolvent, (ii) approving as properly filed a petition seeking reorganization,
liquidation, arrangement, adjustment or composition of or in respect of the
Borrower, any Subsidiary or TCI, under the United States bankruptcy laws or any
other applicable Federal or state law, (iii) appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar official) of the
Borrower, any Subsidiary or TCI, or of any substantial part of the Property of
any thereof, or (iv) ordering the winding up or liquidation of the affairs, of
the Borrower, any Subsidiary or TCI, and any such decree or order continues
unstayed and in effect for a period of 60 days; or
(i) Judgments or decrees against the Borrower, or any
Subsidiary aggregating in excess of $5,000,000 shall remain unpaid, unstayed on
appeal, undischarged, unbonded or undismissed for a period of 30 days; or
(j) Any Lien purported to be created under the Security
Agreement shall cease to be, or shall be asserted by any Obligor not to be, a
valid and perfected Lien on any Collateral, with the priority required by the
Security Agreement, except (i) as a result of the sale or other disposition of
the applicable Collateral in a transaction permitted under the Loan Documents or
(ii) as a result of the Administrative Agent's failure to maintain possession of
any stock certificates, promissory notes or other instruments delivered to it
under the Security Agreement; or
(k) Any Loan Document shall cease, for any reason, to be in
full force and effect, or any Obligor shall so assert in writing or shall
disavow any of its obligations thereunder; or
(l) (i) any Termination Event shall occur; (ii) any
Accumulated Funding Deficiency, whether waived, shall exist with respect to any
Pension Plan; (iii) any Person shall engage in any Prohibited Transaction
involving any Employee Benefit Plan; (iv) the Borrower, any of its Subsidiaries
or any ERISA Affiliate shall fail to pay when due an amount which is payable by
it to the PBGC or to a Pension Plan under Title IV of ERISA; (v) the imposition
of any tax under Section 4980B(a) of the Code; (vi) the assessment of a civil
penalty with respect to any Employee Benefit Plan under Section 502(c) of ERISA;
or (vii) any other event or condition shall occur or exist with respect to an
Employee Benefit Plan which would have a Material Adverse Effect; or
(m) any one or more of the following shall occur: (1) the
failure of any one of Insight, TCI or any Subsidiary of Insight or TCI to be the
Managing Member (as defined in the Operating Agreement as in effect on the
Effective Date) of the Borrower, (2) either Insight or TCI fails to maintain
ownership, directly or indirectly, of at least 25.0% of the membership interests
in the Borrower, or (3) either Insight or TCI fails to be entitled, directly or
indirectly, to at least 25.0% of the profits and losses of the Borrower.
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9.2 Contract Remedies
Upon the occurrence and during the continuance of an Event of
Default (other than an event described in clause (g) or (h) of Section 9.1), and
at any time thereafter during the continuance of such event, the Administrative
Agent may, and at the request of the Required Lenders shall, by notice to the
Borrower, take either or both of the following actions, at the same or different
times: (i) terminate the Revolving Commitments, and thereupon the Revolving
Commitments shall terminate immediately and (ii) declare the Loans then
outstanding to be due and payable in whole (or in part, in which case any
principal not so declared to be due and payable may thereafter be declared to be
due and payable), and thereupon the principal of the Loans so declared to be due
and payable, together with accrued interest thereon and all fees, commissions
and other obligations of each Obligor accrued under the Loan Documents
(including all amounts of the aggregate Letter of Credit Exposures of all
Lenders, whether or not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder), shall become due
and payable immediately, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower; and in case of any
event described in clause (g) or (h) of Section 9.1, the Revolving Commitments
shall automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and all fees, commissions and other
obligations of each Obligor accrued under the Loan Documents (including all
amounts with respect to the aggregate Letter of Credit Exposure, whether or not
the beneficiaries of the then outstanding Letters of Credit shall have presented
the documents required thereunder), shall automatically become due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower. Notwithstanding anything to the contrary
contained in any Loan Document, (A) 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 Section 9, the Borrower shall at such time deposit
in a cash collateral account opened by the Administrative Agent an amount equal
to the aggregate of the then undrawn and unexpired amount of such Letters of
Credit, (B) the Borrower hereby grants to the Administrative Agent, for the
benefit of the Credit Parties, a security interest in such cash collateral to
secure all of the Obligations, (C) amounts held in such 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 and (D) 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, shall have been paid in full, the balance, if any, in
such account shall be returned to the Borrower.
10. THE ADMINISTRATIVE AGENT
Each of the Issuing Bank and the Lenders hereby irrevocably
appoints the Administrative Agent as its agent and authorizes the Administrative
Agent to take such actions on its behalf and to exercise such powers as are
delegated to the Administrative Agent by the terms hereof, together with such
actions and powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall
have the same rights and powers in its capacity as a Lender as any other Lender
and may exercise the same as though it were not the Administrative Agent, and
such bank and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not the Administrative Agent hereunder.
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The Administrative Agent shall not have any duties or
obligations except those expressly set forth herein. Without limiting the
generality of the foregoing, (a) the Administrative Agent shall not be subject
to any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty
to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated by the Loan Documents
that the Administrative Agent is required to exercise in writing by the Required
Lenders (or such other number or percentage of the Lenders as shall be necessary
under the circumstances as provided in Section 11.1), and (c) except as
expressly set forth herein, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to the Borrower, any Subsidiary or any Affiliate thereof that is
communicated to or obtained by the bank serving as Administrative Agent or any
of its Affiliates in any capacity. The Administrative Agent shall not be liable
for any action taken or not taken by it with the consent or at the request of
the Required Lenders (or such other number or percentage of the Lenders as shall
be necessary under the circumstances as provided in Section 11.1) or in the
absence of its own gross negligence or willful misconduct. The Administrative
Agent shall be deemed not to have knowledge of any Default unless and until
written notice thereof is given to the Administrative Agent by the Borrower, the
Issuing Bank or a Lender, and the Administrative Agent shall not be responsible
for or have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with any Loan Document, (ii) the
contents of any certificate, report or other document delivered thereunder or in
connection therewith, (iii) the performance or observance of any of the
covenants, agreements or other terms or conditions set forth therein, (iv) the
validity, enforceability, effectiveness or genuineness thereof or any other
agreement, instrument or other document, or (v) the satisfaction of any
condition set forth in Sections 5 or 6 or elsewhere herein, other than to
confirm receipt of items expressly required to be delivered to the
Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed
by it to be genuine and to have been signed or sent by the proper Person. The
Administrative Agent also may rely upon any statement made to it orally or by
telephone and believed by it to be made by the proper Person, and shall not
incur any liability for relying thereon. The Administrative Agent may consult
with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts reasonably selected by it, and shall not be liable
for any action taken or not taken by it in accordance with the advice of any
such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties
and exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent, provided that no such delegation shall
serve as a release of the Administrative Agent or waiver by the Borrower of any
rights hereunder. The Administrative Agent and any such sub-agent may perform
any and all its duties and exercise its rights and powers through their
respective Related Parties. The exculpatory provisions of the preceding
paragraphs shall apply to any such sub-agent and to the Related Parties of the
Administrative Agent and any such sub-agent, and shall apply to their respective
activities in connection with the syndication of the credit facilities provided
for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders, the Issuing Bank and the Borrower.
Upon any such resignation, the Required Lenders shall have the right, in
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consultation with the Borrower, to appoint a successor. If no successor shall
have been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the retiring Administrative Agent gives notice
of its resignation, then the retiring Administrative Agent may, on behalf of the
Issuing Bank and the Lenders, appoint a successor Administrative Agent which
shall be a bank with an office in New York, New York, or an Affiliate of any
such bank. Upon the acceptance of its appointment as Administrative Agent
hereunder by a successor, such successor shall succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from its duties
and obligations hereunder. The fees payable by the Borrower to a successor
Administrative Agent shall be the same as those payable to its predecessor
unless otherwise agreed between the Borrower and such successor. After the
Administrative Agent's resignation hereunder, the provisions of this Section 10
and Section 11.5 shall continue in effect for the benefit of such retiring
Administrative Agent, its sub-agents and their respective Related Parties in
respect of any actions taken or omitted to be taken by any of them while it was
acting as Administrative Agent.
Each of the Issuing Bank and the Lenders acknowledges that it
has, independently and without reliance upon the Administrative Agent, the
Issuing Bank or any other Lender and based on such documents and information as
it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each of the Issuing Bank and the Lenders also acknowledges
that it will, independently and without reliance upon the Administrative Agent,
the Issuing Bank or any other Lender and based on such documents and information
as it shall from time to time deem appropriate, continue to make its own
decisions in taking or not taking action under or based upon any Loan Document,
any related agreement or any document furnished thereunder.
Notwithstanding anything herein to the contrary, none of the
Co-Lead Arrangers, the Arrangers, the Syndication Agent, the Documentation Agent
or the Co-Agents shall have any duty or obligation, as such, under this
Agreement.
11. OTHER PROVISIONS
11.1 Amendments and Waivers
(a) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Required Lenders or by the Borrower
and the Administrative Agent with the consent of the Required Lenders, provided
that no such agreement shall (i) increase the Revolving Commitment Amount of any
Lender without the written consent of such Lender, (ii) reduce the principal
amount of any Loan or reduce the rate of interest thereon, or reduce any fees,
commissions or other amounts payable under the Loan Documents, without the
written consent of each Credit Party affected thereby, (iii) postpone the
scheduled date of payment of the principal amount of any Loan, or any interest
thereon, or any fees, commissions or other amounts payable under the Loan
Documents, or reduce the amount of, waive or excuse any such payment, or
postpone the Maturity Date, or extend the expiration date of any Letter of
Credit beyond the Maturity Date, without the written consent of each Credit
Party affected thereby, (iv) change any provision hereof in a manner that would
alter the pro rata sharing of payments required by the Loan Documents, without
the written consent of each Credit Party, (v) change any of the provisions of
this Section or the definition of "Required Lenders" or any other provision
hereof specifying the number
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or percentage of Lenders required to waive, amend or modify any rights hereunder
or make any determination or grant any consent hereunder, without the written
consent of each Lender, (vi) release any Guarantor from its guarantee under the
Guarantee Agreement (except as expressly provided in the Guarantee Agreement or
as a result of the termination of the existence of such Subsidiary Guarantor or
its status as a Subsidiary in a transaction permitted by Section 8.4) or limit
its liability in respect of such guarantee, without the written consent of each
Lender, (vii) release all or substantially all of the Collateral from the Liens
of the Loan Documents, without the written consent of each Lender, or (viii)
change Sections 2.2(b) or 2.5(f), without the written consent of each Lender,
provided further, that no such agreement shall amend, modify or otherwise affect
the rights or duties of the Administrative Agent or the Issuing Bank hereunder
without the prior written consent of the Administrative Agent or the Issuing
Bank, respectively.
(b) Notwithstanding anything to the contrary contained in any
Loan Document, the Administrative Agent may, at any time and from time to time
without the consent of any one or more of the Lenders or the Issuing Bank, (i)
release any or all of the obligations of any Obligor under the Collateral
Documents in connection with (A) a Disposition of such Obligor permitted by
Section 8.4, (B) the dissolution of such Obligor permitted by Section 7.3, or
(C) any release specifically provided for in the Collateral Documents, and (ii)
release any Collateral or any security interest therein in connection with (A)
any disposition of such Collateral permitted by Section 8.4, (B) any dissolution
permitted by Section 7.3, (C) any release specifically provided for in the
Collateral Documents, or (D) any release of Collateral (other than cash
Collateral) having a fair market value of $500,000 or less.
(c) No waiver of any provision of any Loan Document or consent
to any departure by the Borrower therefrom shall in any event be effective
unless the same shall be permitted by paragraph (b) of this Section, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. Without limiting the generality of the foregoing,
neither the making of a Loan nor the issuance of a Letter of Credit shall be
construed as a waiver of any Default, regardless of whether any Credit Party may
have had notice or knowledge of such Default at the time.
11.2 Notices
All notices, requests and demands to or upon the respective
parties to the Loan Documents to be effective shall be in writing and, unless
otherwise expressly provided therein, shall be deemed to have been duly given or
made when delivered by hand, one Business Day after having been sent by
overnight courier service, or when deposited in the mail, first-class postage
prepaid, or, in the case of notice by telecopy, when sent, addressed as follows
in the case of the Borrower, the Administrative Agent or the Issuing Bank,
addressed to the Domestic Lending Office, in the case of each Lender, or
addressed to such other addresses as to which the Administrative Agent may be
hereafter notified by the respective parties thereto or any future holders of
the Notes:
The Borrower:
Insight Communications of Indiana, LLC
126 East 56th Street
New York, New York 10022
Attention: Kim D. Kelly,
Executive Vice President
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and Chief Financial Officer
Telephone: (212) 371-2266
Telecopy: (212) 371-1549
with a copy to:
Cooperman Levitt Winikoff
Lester & Newman, P.C.
800 Third Avenue
New York, New York 10022
Attention: Robert L. Winikoff, Esq.
Telephone: (212) 688-7000
Telecopy: (212) 755-2839
The Administrative Agent or the Issuing Bank:
The Bank of New York
One Wall Street
Agency Function Administration
18th Floor
New York, New York 10286
Attention: Michael Pizarro
Telephone: (212) 635-4697
Telecopy: (212) 635-6365 or 6366 or 6367
with a copy to:
The Bank of New York
One Wall Street
New York, New York 10286
Attention: Benjamin B. Todres,
Vice President
Telephone: (212) 635-8745
Telecopy: (212) 635-8593
except that any notice, request or demand by the Borrower to or upon the
Administrative Agent, the Issuing Bank or the Lenders pursuant to Sections 2.4,
2.8 or 3.3 shall not be effective until received. Any party to a Loan Document
may rely on signatures of the parties thereto which are transmitted by telecopy
or other electronic means as fully as if originally signed.
11.3 No Waiver; Cumulative Remedies
No failure to exercise and no delay in exercising, on the part
of the Administrative Agent, the Issuing Bank or any Lender, any right, remedy,
power or privilege under any Loan Document shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege under any Loan Document preclude any other or further exercise thereof
or the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges under the Loan
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Documents are cumulative and not exclusive of any rights, remedies, powers and
privileges provided by law.
11.4 Survival of Representations and Warranties and Certain
Obligations
(a) All representations and warranties made under the Loan
Documents and in any document, certificate or statement delivered pursuant
thereto or in connection therewith shall survive the execution and delivery of
the Loan Documents.
(b) The obligations of the Borrower under Sections 3.5, 3.6,
3.7, 3.8, 3.9, 3.10, 3.11 and 11.5 shall survive the termination of the
Revolving Commitments of all of the Lenders, the Letter of Credit Commitment and
the payment of the Loans, the Reimbursement Obligations and all other amounts
payable under the Loan Documents.
11.5 Payment of Expenses and Indemnity
(a) The Borrower shall pay (i) all reasonable out-of-pocket
expenses incurred by the Administrative Agent and its Affiliates, including the
reasonable fees, charges and disbursements of counsel for the Administrative
Agent, in connection with the syndication of the credit facilities provided for
herein, the preparation and administration of this Agreement or any amendments,
modifications or waivers of the provisions of any Loan Document (whether or not
the transactions contemplated thereby shall be consummated) and (ii) all
out-of-pocket expenses incurred by any Credit Party, including the reasonable
fees, charges and disbursements of any counsel for any Credit Party, in
connection with the enforcement or protection of its rights in connection with
the Loan Documents, including its rights under this Section, or in connection
with the Loans made or the Letters of Credit issued hereunder, including all
such out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans or such Letters of Credit.
(b) The Borrower shall indemnify each Credit Party and each
Related Party thereof (each such Person being called an "Indemnitee") against,
and hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including the fees, charges and disbursements
of any counsel for any indemnitee, incurred by or asserted against any
Indemnitee arising out of, in connection with, or as a result of (i) the
execution or delivery of any Loan Document or any agreement or instrument
contemplated thereby, the performance by the parties to the Loan Documents of
their respective obligations thereunder or the consummation of the Initial
Transactions or any other transactions contemplated thereby, (ii) any Loan or
Letter of Credit or the use of the proceeds therefrom, (iii) any actual or
alleged presence or release of Hazardous Materials on or from any property owned
or operated by the Borrower, any member of the Borrower or any Subsidiary, or
any Environmental Liability related in any way to the Borrower, any member of
the Borrower or any Subsidiary or (iv) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnitee is a party thereto, provided that such indemnity shall not, as to
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of such Indemnitee.
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(c) To the extent that the Borrower fails to pay any amount
required to be paid by it to the Administrative Agent under paragraph (a) or (b)
of this Section, each Lender severally agrees to pay to the Administrative Agent
such Lender's Facility Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount,
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent in its capacity as such.
(d) To the extent permitted by applicable law, the Borrower
shall not assert, and hereby waives, any claim against any Indemnitee, on any
theory of liability, for special, indirect, consequential or punitive damages
(as opposed to direct or actual damages) arising out of, in connection with, or
as a result of, any Loan Document or any agreement, instrument or other document
contemplated thereby, the Initial Transactions or any Loan or Letter of Credit
or the use of the proceeds therefrom.
(e) All amounts due under this Section shall be payable
promptly after written demand therefor.
11.6 Lending Offices
(a) Each Lender shall have the right at any time and from time
to time to transfer its Loans to a different office, provided that such Lender
shall promptly notify the Administrative Agent and the Borrower of any such
change of office. Such office shall thereupon become such Lender's Domestic
Lending Office or Eurodollar Lending Office, as the case may be, provided,
however, that no Lender shall be entitled to receive any greater amount under
Sections 3.5, 3.7 and 3.10, as a result of a transfer of any such Loans to a
different office of such Lender than it would be entitled to immediately prior
thereto unless such claim would have arisen even if such transfer had not
occurred.
(b) Each Lender agrees that, upon the occurrence of any event
giving rise to any increased cost or indemnity under Sections 3.5, 3.7 and 3.10
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, provided
that such designation is made on such terms that such Lender and its lending
office suffer no economic, legal or regulatory disadvantage, with the object of
avoiding the consequence of the event giving rise to the operation of any such
Section. Nothing in this Section shall affect or postpone any of the obligations
of the Borrower or the right of any Lender provided in Sections 3.5, 3.6, 3.7
and 3.10.
11.7 Assignments and Participations
(a) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby, except that the Borrower may not assign or otherwise
transfer any of its rights or obligations hereunder without the prior written
consent of each Credit Party (and any attempted assignment or transfer by the
Borrower without such consent shall be null and void). Nothing in this
Agreement, expressed or implied, shall be construed to confer upon any Person
(other than the parties hereto, their respective successors and assigns
permitted hereby and, to the extent expressly contemplated hereby, the Related
Parties of each Credit Party) any legal or equitable right, remedy or claim
under or by reason of any Loan Document.
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(b) Any Lender may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Revolving Commitment and the Loans at the time owing to it),
provided that (i) except in the case of an assignment to a Lender or an
Affiliate of a Lender, each of the Administrative Agent and the Issuing Bank
must give its prior written consent (which consent shall not be unreasonably
withheld or delayed), (ii) except in the case of an assignment to a Lender or an
Affiliate of a Lender or an assignment upon or during the continuance of an
Event of Default, the Borrower must give its prior written consent to such
assignment (which consent shall not be unreasonably withheld or delayed), (iii)
except in the case of an assignment to a Lender or an Affiliate of a Lender or
an assignment of the entire remaining amount of the assigning Lender's Revolving
Commitment or the aggregate unpaid principal amount of the assigning Lender's
Term Loan, the amount of the Revolving Commitment and the aggregate unpaid
principal amount of the Term Loan of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and Acceptance Agreement
with respect to such assignment is delivered to the Administrative Agent) shall
not be less than $5,000,000, unless the Borrower and the Administrative Agent
otherwise consent, (iv) the parties to each assignment shall execute and deliver
to the Administrative Agent an Assignment and Acceptance Agreement, together
with a processing and recordation fee of $3,500, and (v) the assignee, if it
shall not be a Lender, shall deliver to the Administrative Agent an
administrative questionnaire in form and substance satisfactory to the
Administrative Agent. Subject to acceptance and recording thereof pursuant to
paragraph (d) of this Section, from and after the effective date specified in
each Assignment and Acceptance Agreement, the assignee thereunder shall be a
party hereto and, to the extent of the interest assigned by such Assignment and
Acceptance Agreement, have the rights and obligations of a Lender under the Loan
Documents, and the assigning Lender thereunder shall, to the extent of the
interest assigned by such Assignment and Acceptance Agreement, be released from
its obligations under the Loan Documents (and, in the case of an Assignment and
Acceptance Agreement covering all of the assigning Lender's rights and
obligations under the Loan Documents, such Lender shall cease to be a party
hereto but shall continue to be entitled to the benefits of Sections 3.5, 3.6,
3.7, 3.10 and 11.5). Any assignment or transfer by a Lender of rights or
obligations under the Loan Documents that does not comply with this paragraph
shall be treated for purposes of the Loan Documents as a sale by such Lender of
a participation in such rights and obligations in accordance with paragraph (e)
of this Section.
(c) The Administrative Agent, acting for this purpose as an
agent of the Borrower, shall maintain at one of its offices in New York City a
copy of each Assignment and Acceptance Agreement delivered to it and a register
for the recordation of the names and addresses of the Lenders, and the Revolving
Commitment of, and principal amount of the Loans owing to, each Lender pursuant
to the terms hereof from time to time (the "Register"). The entries in the
Register shall be conclusive absent clearly demonstrable error, and the
Borrower, the Administrative Agent, the Issuing Bank and the Lenders may treat
each Person whose name is recorded in the Register pursuant to the terms hereof
as a Lender hereunder for all purposes of this Agreement, notwithstanding notice
to the contrary. The Register shall be available for inspection by the Borrower,
the Issuing Bank and any Lender, at any reasonable time and from time to time
upon reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and
Acceptance Agreement executed by an assigning Lender and an assignee, the
assignee's completed administrative questionnaire (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in paragraph (b) of this Section and any written consent to such assignment
required by paragraph (b) of this Section, the Administrative Agent shall accept
such Assignment and Acceptance Agreement and
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record the information contained therein in the Register. No assignment shall be
effective for purposes of this Agreement unless it has been recorded in the
Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower, the
Issuing Bank or the Administrative Agent, sell participations to one or more
banks or other entities (each such bank or other entity being called a
"Participant") in all or a portion of such Lender's rights and obligations under
the Loan Documents (including all or a portion of its Revolving Commitment and
the Loans owing to it), provided that (i) such Lender's obligations under the
Loan Documents shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations
and (iii) the Obligors and the Credit Parties shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under the Loan Documents. Any agreement or instrument pursuant to
which a Lender sells such a participation shall provide that such Lender shall
retain the sole right to enforce the Loan Documents and to approve any
amendment, modification or waiver of any provision of any Loan Documents,
provided that such agreement or instrument may provide that such Lender will
not, without the consent of the Participant, agree to any amendment,
modification or waiver described in the first proviso to Section 11.1(a) that
affects such Participant. The Borrower agrees that each Participant shall be
entitled to the benefits of Sections 3.5, 3.6, 3.7 and 3.10 to the same extent
as if it were a Lender and had acquired its interest by assignment pursuant to
paragraph (b) of this Section, provided, however, that to obtain the benefits of
Section 3.10, a Participant must agree, for the benefit of the Borrower, to
comply with Section 3.12 as though it were a Lender. To the extent permitted by
law, each Participant also shall be entitled to the benefits of Section 11.10(a)
as though it were a Lender, provided that such Participant agrees to be subject
to Section 11.10(b) as though it were a Lender. A Participant that would be a
Foreign Lender if it were a Lender shall not be entitled to the benefits of
Section 3.10 unless the Borrower is notified of the participation sold to such
Participant and such Participant agrees, for the benefit of the Borrower, to
comply with Section 3.10(e) as though it were a Lender.
(f) Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under the Loan Documents to secure
obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest, provided that no such pledge
or assignment of a security interest shall release a Lender from any of its
obligations under the Loan Documents or substitute any such pledgee or assignee
for such Lender as a party hereto.
11.8 Limitation of Liability
No claim may be made by any party hereto (or any Related
Party) against any other party hereto (or any Related Party) for any special,
indirect, consequential or punitive damages in respect of any claim for breach
of contract or any other theory of liability arising out of or related to the
transactions contemplated by any Loan Document, or any act, omission or event
occurring in connection therewith, and each such party and Related Party hereby
waives, releases and agrees not to sue upon any claim for any such damages,
whether or not accrued and whether or not known or suspected to exist in its
favor.
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11.9 Counterparts
Each Loan Document (other than the Notes) may be executed by
one or more of the parties thereto on any number of separate counterparts and
all of said counterparts taken together shall be deemed to constitute one and
the same document. It shall not be necessary in making proof of any Loan
Document to produce or account for more than one counterpart signed by the party
to be charged. A counterpart of any Loan Document or to any document evidencing,
and of any an amendment, modification, consent or waiver to or of any Loan
Document transmitted by telecopy shall be deemed to be an originally executed
counterpart. A set of the copies of the Loan Documents signed by all the parties
thereto shall be deposited with each of the Borrower, the Issuing Bank and the
Administrative Agent. Any party to a Loan Document may rely upon the signatures
of any other party thereto which are transmitted by telecopy or other electronic
means to the same extent as if originally signed.
11.10 Set-off and Adjustments
(a) If any Event of Default shall have occurred and be
continuing under Sections 9.1(a) or 9.1(b), each of the Issuing Bank, the
Lenders and their respective Affiliates is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other obligations at any time owing by it to or for the
credit or the account of the Borrower against any of and all the obligations of
the Borrower now or hereafter existing under this Agreement held by it,
irrespective of whether or not it shall have made any demand under this
Agreement and although such obligations may be unmatured. The rights of each of
the Issuing Bank, the Lenders and their respective Affiliates under this Section
are in addition to other rights and remedies (including other rights of setoff)
that it may have.
(b) If any Lender shall, by exercising any right of setoff or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Loans resulting in such Lender receiving payment of a
greater proportion of the aggregate amount of its Loans and accrued interest
thereon than the proportion received by any other applicable Lender, then the
Lender receiving such greater proportion shall purchase (for cash at face value)
participations in the Loans of other applicable Lenders to the extent necessary
so that the benefit of all such payments shall be shared by the applicable
Lenders ratably in accordance with the aggregate amount of principal of and
accrued interest on their respective Loans, provided that (i) if any such
participations are purchased and all or any portion of the payment giving rise
thereto is recovered, such participations shall be rescinded and the purchase
price restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment made
by the Borrower pursuant to and in accordance with the express terms of this
Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans to any assignee or
participant, other than to the Borrower or any Subsidiary or Affiliate thereof
(as to which the provisions of this paragraph shall apply) The Borrower consents
to the foregoing and agrees, to the extent it may effectively do so under
applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against the Borrower rights of setoff and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.
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11.11 Construction
Each party to a Loan Document represents that it has been
represented by counsel in connection with the Loan Documents and the
transactions contemplated thereby and that the principle that agreements are to
be construed against the party drafting the same shall be inapplicable.
11.12 Governing Law
The Loan Documents and the rights and obligations of the
parties thereunder shall be governed by, and construed and interpreted in
accordance with, the internal laws of the State of New York, without regard to
principles of conflict of laws, but including Section 5-1401 of the General
Obligations Law.
11.13 Headings Descriptive
Section headings have been inserted in the Loan Documents for
convenience only and shall not be construed to be a part thereof.
11.14 Severability
Every provision of the Loan Documents is intended to be
severable, and if any term or provision thereof shall be invalid, illegal or
unenforceable for any reason, the validity, legality and enforceability of the
remaining provisions thereof shall not be affected or impaired thereby, and any
invalidity, illegality or unenforceability in any jurisdiction shall not affect
the validity, legality or enforceability of any such term or provision in any
other jurisdiction.
11.15 Integration
All exhibits to a Loan Document shall be deemed to be a part
thereof. Except for agreements between the Administrative Agent and/or the
Issuing Bank and the Borrower with respect to certain fees, the Loan Documents
embody the entire agreement and understanding among the Borrower, the
Administrative Agent, the Issuing Bank and the Lenders with respect to the
subject matter thereof and supersede all prior agreements and understandings
among the Borrower, the Administrative Agent, the Issuing Bank and the Lenders
with respect to the subject matter thereof.
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11.16 Consent to Jurisdiction
Each party to a Loan Document hereby irrevocably submits to
the jurisdiction of any New York State or Federal court sitting in the City of
New York over any suit, action or proceeding arising out of or relating to the
Loan Documents. Each party to a Loan Document hereby irrevocably waives, to the
fullest extent permitted or not prohibited by law, any objection which it may
now or hereafter have to the laying of the venue of any such suit, action or
proceeding brought in such a court and any claim that any such suit, action or
proceeding brought in such a court has been brought in an inconvenient forum.
Each Obligor hereby agrees that a final judgment in any such suit, action or
proceeding brought in such a court, after all appropriate appeals, shall be
conclusive and binding upon it.
11.17 Service of Process
Each party to a Loan Document hereby irrevocably consents to
the service of process in any suit, action or proceeding by sending the same by
first class mail, return receipt requested or by overnight courier service, to
the address of such party set forth in Section 11.2 of the applicable Loan
Document executed by such party. Each party to a Loan Document hereby agrees
that any such service (i) shall be deemed in every respect effective service of
process upon it in any such suit, action, or proceeding, and (ii) shall to the
fullest extent enforceable by law, be taken and held to be valid personal
service upon and personal delivery to it.
11.18 No Limitation on Service or Suit
Nothing in the Loan Documents or any modification, waiver,
consent or amendment thereto shall affect the right of the Administrative Agent,
the Issuing Bank or any Lender to serve process in any manner permitted by law
or limit the right of the Administrative Agent, the Issuing Bank or any Lender
to bring proceedings against any Obligor in the courts of any jurisdiction or
jurisdictions in which such Obligor may be served.
11.19 WAIVER OF TRIAL BY JURY
EACH OF THE ADMINISTRATIVE AGENT, THE ISSUING BANK, THE
LENDERS AND THE OBLIGORS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING
OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED THEREIN. FURTHER, EACH OBLIGOR HEREBY CERTIFIES THAT NO
REPRESENTATIVE OR ADMINISTRATIVE AGENT OF THE ISSUING BANK, THE ADMINISTRATIVE
AGENT, OR THE LENDERS, OR COUNSEL TO THE ISSUING BANK, THE ADMINISTRATIVE AGENT
OR THE LENDERS, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE ISSUING BANK,
THE ADMINISTRATIVE AGENT OR THE LENDERS WOULD NOT, IN THE EVENT OF SUCH
LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. EACH
CREDIT PARTY ACKNOWLEDGES THAT THE ISSUING BANK, THE ADMINISTRATIVE AGENT AND
THE LENDERS HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, INTER ALIA, THE
PROVISIONS OF THIS SECTION.
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11.20 Treatment of Certain Information
Each Lender, the Issuing Bank and the Administrative Agent
agrees (on behalf of itself and each of its affiliates, directors, officers,
employees and representatives) to use reasonable precautions to keep
confidential, in accordance with their customary procedures for handling
confidential information of the same nature, all non-public information supplied
by the Borrower or any of its Subsidiaries pursuant to this Agreement which (i)
is identified by such Person as being confidential at the time the same is
delivered to such Lender, the Issuing Bank or the Administrative Agent, or (ii)
constitutes any financial statement, financial projections or forecasts, budget,
compliance certificate, audit report, management letter or accountants'
certification delivered hereunder, provided, however, that nothing herein shall
limit the disclosure of any such information (a) to the extent required by
statute, rule, regulation or judicial process, (b) on a confidential basis, to
counsel to any of the Lenders, the Issuing Bank or the Administrative Agent, (c)
to bank examiners, auditors or accountants, and any analogous counterpart
thereof, (d) to the Administrative Agent, the Lenders, or the Issuing Bank (e)
in connection with any litigation to which any one or more of the Lenders, the
Issuing Bank or the Administrative Agent is a party, (f) to any assignee or
participant (or prospective assignee or participant) so long as such assignee or
participant (or prospective assignee or participant) agrees to keep such
information confidential on substantially the same basis as set forth in this
Section, or (g) to affiliates of the Administrative Agent, each Lender and the
Issuing Bank.
11.21 Effective Date
This Agreement shall not be effective until such time (the
"Effective Date") as the Administrative Agent shall have executed a counterpart
hereof and executed counterparts hereof shall have been delivered to the
Administrative Agent by , the Issuing Bank, the Borrower and each Lender.
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IN WITNESS WHEREOF, the parties hereto have caused this Credit
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 INDIANA, LLC
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
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THE BANK OF NEW YORK, as Issuing Bank and as
Administrative Agent
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
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Credit Agreement
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THE BANK OF NEW YORK COMPANY, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
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Credit Agreement
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FLEET BANK, N.A.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE>
Credit Agreement
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CIBC INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE>
EXHIBIT 10.4
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
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<TABLE>
<CAPTION>
Page
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<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>
OPERATING AGREEMENT OF
INSIGHT COMMUNICATIONS OF INDIANA, LLC,
DATED AS OF
MAY 14, 1998
<PAGE>
OPERATING AGREEMENT OF
INSIGHT COMMUNICATIONS OF INDIANA, LLC,
DATED AS OF
MAY 14, 1998
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS
1.1 Terms Defined in this Section................................... 1
1.2 Terms Defined Elsewhere in this Agreement.......................12
1.3 Terms Generally.................................................13
ARTICLE 2
FORMATION AND PURPOSE
2.1 Formation.......................................................13
2.2 Name............................................................13
2.3 Principal and Registered Office.................................14
2.4 Term............................................................14
2.5 Purposes of Company.............................................14
2.6 Actions of Company Prior to Closing.............................16
2.7 Certificate of Formation........................................16
2.8 Addresses of the Members........................................16
2.9 Foreign Qualification...........................................17
2.10 Tax Classification.............................................17
ARTICLE 3
COMPANY CAPITAL
3.1 Contributions...................................................17
3.2 Additional Capital Contributions................................18
3.3 Assumption of Liabilities.......................................18
3.4 Return of Contributions.........................................18
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<PAGE>
ARTICLE 4
DISTRIBUTIONS; ALLOCATIONS OF PROFIT AND LOSS
4.1 Distributions of Cash...........................................19
4.2 Allocations of Net Profit and Net Loss..........................20
4.3 Special Provisions Regarding Allocations of Profit and Loss.....21
4.4 Tax Allocations: Code Section 704(c)............................23
4.5 Allocation in Event of Transfer.................................23
4.6 Alternative Allocations.........................................24
ARTICLE 5
AUTHORITY OF THE MANAGING MEMBER; OTHER MATTERS AFFECTING
MANAGING MEMBER
5.1 Authority of Managing Member....................................24
5.2 No Personal Liability...........................................24
5.3 Management Agreement............................................25
5.4 Resignation as Managing Member..................................25
5.5 Tax Matters Member..............................................26
ARTICLE 6
STATUS OF MEMBERS
6.1 No Management and Control.......................................28
6.2 Limited Liability...............................................28
6.3 Return of Distributions of Capital..............................28
6.4 Specific Limitations............................................29
ARTICLE 7
MANAGEMENT OF THE COMPANY
7.1 Management Committee Powers.....................................29
7.2 Appointment and Removal of Representatives......................29
7.3 Meetings of the Management Committee............................30
7.4 Procedural Matters..............................................30
7.5 Matters Requiring TCI Approval..................................31
7.6 Matters Requiring Insight and TCI Approval......................32
7.7 Member Consent Defined..........................................34
ARTICLE 8
TRANSFER OF MEMBERSHIP INTERESTS
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<PAGE>
8.1 Limitations on Transfers........................................35
8.2 Transferees and Successors......................................36
8.3 Transfers of Interests in Members...............................36
8.4 Other Consents and Requirements.................................37
8.5 Assignment Not In Compliance....................................37
8.6 Division of Membership Interests................................38
8.7 Pledge of Membership Interests..................................38
8.8 Code Section 708(b)(1)(B).......................................38
ARTICLE 9
BUY/SELL RIGHTS
9.1 Commencement of Buy/Sell Process................................39
9.2 Non-Initiating Member's Option to Postpone the Buy/Sell Process.40
9.3 TCI's Options as Non-Initiating Member..........................40
9.4 Insight's Options as Non-Initiating Member......................41
9.5 TCI's Option to Negotiate Alternative Structure.................42
9.6 Insight's Option to Require TCI to Purchase Insight's
Membership Interest.............................................43
9.7 Default by Member...............................................43
9.8 Removal of Insight as Member....................................44
9.9 General Terms Applicable to Purchase and Sale of
Membership Interests............................................46
ARTICLE 10
OTHER BUSINESSES AND INVESTMENT OPPORTUNITIES
10.1 [Intentionally Deleted]........................................48
10.2 Limitations on Activities of the Company.......................48
10.3 Prohibited Cross-Interests.....................................49
10.4 Limitations on Other Activities of the Members.................51
10.5 No Other Restrictions..........................................52
ARTICLE 11
DISSOLUTION AND LIQUIDATION OF COMPANY
11.1 Events of Dissolution..........................................52
11.2 Liquidation....................................................53
11.3 Distribution in Kind...........................................54
11.4 No Action for Dissolution......................................55
11.5 No Further Claim...............................................55
ARTICLE 12
INDEMNIFICATION
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<PAGE>
12.1 General........................................................55
12.2 Exculpation....................................................56
12.3 Persons Entitled to Indemnity..................................56
12.4 Procedure Agreements...........................................56
ARTICLE 13
BOOKS, RECORDS, ACCOUNTING, AND REPORTS
13.1 Books and Records..............................................56
13.2 Delivery to Member and Inspection..............................57
13.3 Annual Statements..............................................57
13.4 Quarterly Financial Statements.................................58
13.5 Monthly Statements.............................................59
13.6 Operating and Capital Expenditure Budgets......................59
13.7 Other Information..............................................59
13.8 Tax Matters....................................................59
13.9 Other Filings..................................................59
13.10 Non-Disclosure................................................60
ARTICLE 14
REPRESENTATIONS BY THE MEMBERS
14.1 Investment Intent..............................................61
14.2 Securities Regulation..........................................61
14.3 Knowledge and Experience.......................................61
14.4 Economic Risk..................................................62
14.5 Binding Agreement..............................................62
14.6 Tax Position...................................................62
14.7 Information....................................................62
ARTICLE 15
AMENDMENTS AND WAIVERS
15.1 Amendments to Operating Agreement..............................62
15.2 Waivers........................................................62
ARTICLE 16
MISCELLANEOUS
16.1 Programming and Discounts......................................63
16.2 Cost Sharing; Reimbursement....................................66
16.3 Additional Documents...........................................66
16.4 Inspection.....................................................66
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<PAGE>
16.5 General........................................................66
16.6 Notices, Etc...................................................67
16.7 Execution of Papers............................................67
16.8 Attorneys' Fees................................................68
16.9 No Third-Party Beneficiaries...................................68
16.10 Headings......................................................68
16.11 Board Approval................................................68
EXHIBITS AND SCHEDULES
Exhibit A Management Agreement
Schedule I Addresses of the Members
Schedule II Capital Contributions; Capital Accounts; Percentage Interest
Schedule III Initial Members of the Management Committee
Schedule IV Map of the State of Indiana
- v -
<PAGE>
OPERATING AGREEMENT
OF
INSIGHT COMMUNICATIONS OF INDIANA, LLC
THIS OPERATING AGREEMENT is made and entered into as of May 14, 1998,
by and between INSIGHT COMMUNICATIONS COMPANY, L.P., a Delaware limited
partnership, and TCI OF INDIANA HOLDINGS, LLC, a Colorado limited liability
company.
PRELIMINARY STATEMENT
TCI, together with certain of its Affiliates, owns and operates certain
cable television systems located in central Indiana.
Insight owns and operates certain cable television systems located in
Indiana and Kentucky.
Concurrently with the execution and delivery of this Agreement, the
Members are entering into the Contribution Agreement, pursuant to which TCI and
certain of its Affiliates have agreed to contribute or cause to be contributed
to the Company substantially all the assets of certain cable television systems,
subject to certain liabilities being assumed by the Company, and Insight has
agreed to contribute or cause to be contributed to the Company substantially all
the assets of certain cable television systems, subject to certain liabilities
being assumed by the Company.
The parties to this Agreement desire to enter into this Agreement to
provide for the formation of the Company, the allocation of profits and losses,
cash flow, and other proceeds of the Company between the Members, the respective
rights, obligations, and interests of the Members to each other and to the
Company, and certain other matters.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Terms Defined in this Section.
For purposes of this Agreement, the following terms shall have the
following meanings (all terms used in this Agreement that are not defined in
this Section 1.1 shall have the meanings set forth elsewhere in this Agreement
as indicated in Section 1.2, except as otherwise provided in this Agreement):
"@Home" means At Home Corporation, a Delaware corporation.
"@Home Distribution Agreement" means collectively, the Master
Distribution Agreement
- 1 -
<PAGE>
Term Sheet and the Term Sheet for Form of LCO Agreement, each of which are
exhibits to the letter agreement, dated as of May 15, 1997, among @Home and
Tele-Communications, Inc., Comcast Corporation, Cox Enterprises, Inc., Kleiner,
Perkins, Caufield & Byers and certain of their respective Affiliates, as each
such term sheet has been amended by the letter agreement, dated as of October 2,
1997, as amended as of October 10, 1997, among the parties to the May 15, 1997
letter agreement and Cablevision Systems Corporation and certain of its
Affiliates; provided, that such term shall include any definitive agreements
entered into by such parties in respect of the distribution of the @Home Service
as contemplated by the May 15, 1997 letter agreement.
"@Home Service" has the meaning specified in the @Home Distribution
Agreement.
"Act" means the Delaware Limited Liability Company Act.
"Adjusted Capital Account Deficit" means with respect to either Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant Fiscal Year, after:
(i) crediting to such Capital Account any amounts that such
Member is obligated to restore to the Company pursuant to Treasury Regulations
Section 1.704-1(b)(2)(ii)(c) or is deemed to be obligated to restore pursuant to
the penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(ii) debiting from such Capital Account the items described in
Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5),
and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Treasury Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by, or under common control with such Person. For
purposes of this definition and the definition of "Controlled Affiliate," the
term "control" means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of Voting Stock or other equity interests, by contract, or
otherwise, and the terms "controlled by" and "under common control with" have
meanings corresponding to the meaning of "control."
"Agreement" means this Agreement, as it may be amended from time to
time.
"Asset Acquisition" shall mean (i) an investment by the Company or any
of its Subsidiaries in any other Person, pursuant to which such Person becomes a
Subsidiary of the Company or another Subsidiary of the Company or is merged,
consolidated, amalgamated with or into, or is liquidated into, the Company or
any of its Subsidiaries, or (ii) the acquisition by the Company or any of its
Subsidiaries of the assets of any Person (other than the Company or any of its
Subsidiaries) that
- 2 -
<PAGE>
constitute a division or line of business or operating business (even if not a
separate division or line of business) of such Person, including, without
limitation, the acquisition by the Company or any of its Subsidiaries of any
cable television system or other business.
"Asset Disposition" shall mean the sale, exchange or other disposition
by the Company or any of its Subsidiaries (other than to the Company or another
Subsidiary of the Company) (i) of all or substantially all of the capital stock
of any Subsidiary of the Company, or (ii) of the assets that constitute a
division or line of business or operating business (even if not a separate
division or line of business) of the Company or of any of its Subsidiaries,
including, without limitation, the sale, exchange or disposition by the Company
or any of its Subsidiaries of any cable television system or other business.
"Business Day" means any day (other than a day that is a Saturday or
Sunday) on which banks are permitted to be open for business in the State of New
York.
"Capital Account" means a separate account to be maintained for each
Member in accordance with the Code, which, subject to any contrary requirements
of the Code, shall equal such Member's initial Capital Account balance as of
immediately after the Closing as provided in Section 3.1(c), increased by: (i)
the amount of money contributed by such Member to the Company, if any (not
including payments for Closing Adjustments made by such Member pursuant to
Section 3 of the Contribution Agreement); (ii) the fair market value without
regard to Code Section 7701(g) of property, if any, contributed by such Member
to the Company (net of liabilities that are secured by such contributed property
or that the Company or any other Member is considered to assume or take subject
to under Code Section 752), but excluding contributions of property pursuant to
the Contribution Agreement; (iii) allocations to the Member of Net Profit and
items of income and gain pursuant to Article 4; and (iv) other additions made in
accordance with the Code; and decreased by (i) the amount of cash distributed to
such Member by the Company (not including payments for Closing Adjustments made
to such Member pursuant to Section 3 of the Contribution Agreement); (ii)
allocations to the Member of Net Loss and items of loss and deduction pursuant
to Article 4; (iii) the fair market value without regard to Code Section 7701(g)
of property distributed to such Member by the Company (net of liabilities that
are secured by such distributed property or that such Member is considered to
assume or take subject to under Code Section 752); and (iv) other deductions
made in accordance with the Code. Notwithstanding the foregoing, for purposes of
determining Capital Accounts, all of the adjustments, contributions or
distributions required pursuant to the Contribution Agreement to be made
subsequent to the Closing, including, without limitation, contributions of cash
or property pursuant to Section 7.24 of the Contribution Agreement, shall be
treated as if they had been made at the Closing, and such adjustments,
contributions and distributions shall not give rise to any adjustments to
Capital Account balances or redetermination of amounts contributed by or
distributed to any Member. The foregoing provisions and the other provisions of
this Agreement relating to the maintenance of Capital Accounts are intended to
comply with Treasury Regulations under Code Section 704(b) and, to the extent
not inconsistent with the provisions of this Agreement, shall be interpreted and
applied in a manner consistent with such Treasury Regulations.
- 3 -
<PAGE>
"Capital Contributions" means, with respect to either Member, the
amount of money and the net fair market value of property contributed by such
Member to the Company pursuant to this Agreement.
"Certificate of Formation" means the certificate of formation to be
filed with respect to the Company pursuant to the Act.
"Closing" means the Closing under the Contribution Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any subsequent federal law of similar import, and, to the extent
applicable, the Treasury Regulations.
"Company" means the limited liability company created by this
Agreement.
"Company Minimum Gain" means the excess of the Company Nonrecourse
Liabilities over the adjusted tax basis of property securing such Company
Nonrecourse Liabilities. The amount of Company Minimum Gain shall be determined
in accordance with Treasury Regulations Section 1.704-2(d), which provides
generally that the amount of Company Minimum Gain shall be determined by first
computing for each Nonrecourse Liability any gain the Company would realize if
it disposed of the property subject to that Nonrecourse Liability for no
consideration other than full satisfaction of such Nonrecourse Liability, and
then aggregating the separately computed gains.
"Contribution Agreement" means the Asset Contribution Agreement, dated
as of May 4, 1998, among the Company, the Members and the other parties named
therein, as it may be amended from time to time in accordance with its terms.
"Controlled Affiliate" means (i) with respect to TCI, any Person that,
at such time, is controlled directly or indirectly by TCI or TCI Communications,
Inc., a Delaware corporation, but not including InterMedia Capital Partners VI,
L.P. or its Subsidiaries, (ii) with respect to Insight, any Person (other than
the Company or any Subsidiary) that, at such time, is controlled directly or
indirectly by Insight, and (iii) with respect to any other specified Person, any
Person that, at such time, is controlled directly or indirectly by such
specified Person.
"Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such Fiscal Year, Depreciation shall be determined in the
manner described in Treasury Regulations Section 1.704-1(b)(2)(iv)(g)(3) or
Treasury Regulations Section 1.704-3(d)(2), as applicable.
"Equity Value" means, with respect to any Membership Interest for
purposes of any provision of this Agreement that refers to the Equity Value of
such Membership Interest, the amount
- 4 -
<PAGE>
that would be distributed to the holder of such Membership Interest if the
Company's assets were sold on the date of closing the purchase and sale of such
Member's Membership Interest or the date of closing an Alternative Structure, as
applicable, pursuant to Article 9 for the Stated Value of the Company (except,
in the event of the purchase of Insight's Membership Interest by TCI pursuant to
Section 9.8, for the Fair Market Value of the Company) and the Company were then
liquidated in accordance with Article 11 of this Agreement on the date of said
closing, subject to the following sentences. In applying the provisions of
Section 11.2 to such hypothetical liquidation of the Company, (i) all current
assets and all liabilities of the Company, defined and determined in accordance
with generally accepted accounting principles, shall be calculated as of the
date of said closing, (ii) all costs that would customarily be incurred in
connection with such a purchase and sale (including attorneys' fees and broker
fees, but excluding taxes measured on the amount of income, gain or proceeds
realized by the selling Member or any governmental charges imposed in lieu of
such taxes) shall be treated as an expense of liquidation under Section
11.2(d)(1), and (iii) appropriate reserves shall be set up pursuant to Section
11.2(d)(2) for any contingent or unforeseen liabilities or obligations of the
Company that relate to the period prior to the date of such closing pursuant to
Article 9 or any obligation or liability that relates to the period prior to the
date of such closing pursuant to Article 9 not then due and payable (subject to
the last sentence of Section 9.9(f)). The current assets and liabilities
referred to in clause (i), the costs referred to in clause (ii), and the
reserves referred to in clause (iii) shall all be determined in accordance with
the procedures set forth in Section 9.9(d).
"Exclusive Internet Services" means Internet Services which would
constitute a Restricted Business (as defined in the @Home Distribution
Agreement) to the extent engaged in or distributed by TCI Cable Parent or their
Controlled Affiliates.
"FCC" means the Federal Communications Commission.
"Fiscal Year" means the fiscal year of the Company, which shall be the
calendar year.
"Gross Asset Value" means with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by
a Member to the Company shall be the gross fair market value of such asset, as
determined in accordance with Section 3.1(d);
(ii) The Gross Asset Values of all assets of the Company shall
be adjusted to equal their respective gross fair market values, as determined by
the Management Committee by unanimous vote, as of the following times: (A) the
acquisition of an additional interest in the Company by any new or existing
Member in exchange for more than a de minimis Capital Contribution; (B) the
distribution by the Company to a Member of more than a de minimis amount of
property of the Company as consideration for an interest in the Company; and (C)
the liquidation of the Company within the meaning of Treasury Regulations
Section 1.704- 1(b)(2)(ii)(g); provided,
- 5 -
<PAGE>
however, that the adjustments pursuant to clauses (A) and (B) above shall be
made only if the Management Committee determines by unanimous vote that such
adjustments are necessary or appropriate to reflect the relative economic
interests of the Members in the Company;
(iii) The Gross Asset Value of any asset of the Company
distributed to either Member shall be the gross fair market value of such asset
on the date of distribution; and
(iv) The Gross Asset Value of the assets of the Company shall
be increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Treasury Regulations Section 1.704- 1(b)(2)(iv)(m) and
Section 4.3(g); provided, however, that Gross Asset Value shall not be adjusted
pursuant to this paragraph (iv) to the extent that the Management Committee
determines by unanimous vote that an adjustment pursuant to paragraph (ii) of
this definition is necessary or appropriate in connection with a transaction
that would otherwise result in an adjustment pursuant to this paragraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to paragraph (i), (ii), or (iv) of this definition, the Gross Asset
Value of such asset shall thereafter be adjusted by the Depreciation taken into
account with respect to such asset for purposes of computing Net Profit and Net
Loss.
"Indebtedness" means, as to any Person, (without duplication) (i) all
indebtedness of such Person for borrowed money; (ii) obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii)
obligations of such Person to pay the deferred purchase price of property or
services (other than trade payables incurred in the ordinary course of
business); (iv) all capitalized lease obligations of such Person; (v)
obligations of such Person in respect of letters of credit or other similar
forms of surety obligations to the extent treated as debt for purposes of
calculating applicable financial leverage covenants under the Insight Credit
Agreement, as in effect at the time of determination (but excluding any such
obligations under any cable television franchise, pole attachment agreement,
lease, or other similar agreement or license entered into in connection with the
day-to-day operations of a cable television system); and (vi) obligations of
such Person under guarantees in respect of, and obligations of such Person to
purchase or otherwise acquire, or otherwise to assure a creditor against loss in
respect of, indebtedness or obligations of other Persons (excluding any
obligations of any Subsidiary of the Company) of the kind referred to in clauses
(i) through (v) above; provided that the term guarantee shall not include
endorsements for collection or deposit in the ordinary course of business or
obligations under or related to cable television franchises, pole attachment
agreements, leases, or other similar agreements or licenses entered into in
connection with the day-to-day operations of a cable television system. The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations or liabilities as
described in the foregoing sentence and shall be the amount that would appear as
a liability on the balance sheet of such Person prepared in accordance with
generally accepted accounting principles.
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<PAGE>
"Initiating Member" means the Member that elects pursuant to Section
9.1(a) to commence the process described in Article 9.
"Insight" means Insight Communications Company, L.P., a Delaware
limited partnership, or any other Person that succeeds to its Membership
Interest and is admitted as a Member in accordance with the provisions of this
Agreement, provided that to the extent Insight transfers less than all of its
Membership Interest to any other Person(s) and such Person(s) is/are admitted as
a Member in accordance with the provisions of this Agreement, "Insight" shall
refer to Insight and such other Person(s) collectively.
"Insight Credit Agreement" means the Third Amended and Restated Credit
Agreement by and among Insight, the lenders party thereto, CIBC Inc., and Fleet
Bank, N.A., as Co-Agents, and The Bank of New York, as Issuing Bank and as
Agent, dated as of January 22, 1998, as such agreement may be amended from time
to time in accordance with its terms.
"Internet Backbone" means a network which: (i) can or does (A) assign
IP addresses or manage IP address assignments for machines or networks to which
it is connected, (B) accept or deliver IP datagrams from machines or networks to
which it is connected, or (C) maintain IP packet traffic to other machines or
networks; and (ii) provides IP connectivity on a regional, national or
international basis; provided, however, that such a network which provides
connectivity solely within a single metropolitan area shall not be deemed an
Internet Backbone.
"Internet Backbone Service" means a communications service provided
over an Internet Backbone.
"Internet Service" means a communications service provided over a
network which can or does (i) assign IP addresses or manage IP address
assignments for machines or networks to which it is connected, (ii) accept or
deliver IP datagrams from machines or networks to which it is connected, or
(iii) maintain IP package traffic to other machines or networks.
"IP" means the Internet Protocols as defined by the document titled
RFC-791, by John Pastell of the University of Southern California, dated 1981,
or subsequent revisions thereof.
"Lien" has the meaning specified in the Contribution Agreement.
"Management Agreement" means the Management Agreement attached as
Exhibit A to this Agreement, to be dated the date of the Closing, between the
Company and Insight (or its designated Affiliate), as it may be amended from
time to time in accordance with its terms.
"Management Committee" means the Management Committee established by
Article 7.
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<PAGE>
"Management Incentive Plan" means the Management Incentive Plan to be
effective as of the date of Closing, as it may be amended from time to time in
accordance with its terms and the provisions of this Agreement.
"Managing Member" means Insight, and any new Managing Member appointed
as successor to Insight in accordance with the provisions of this Agreement.
"Member" means each of the signatories hereto in their respective
capacities as members of the Company, and any additional Person that is admitted
as a Member in accordance with the provisions of this Agreement.
"Member Nonrecourse Debt" has the meaning set forth in Treasury
Regulations Section 1.704-2(b)(4), which generally defines "Member Nonrecourse
Debt" as any Company liability to the extent such liability is nonrecourse and a
Member (or related Person) bears the economic risk of loss pursuant to Treasury
Regulations Section 1.752-2.
"Member Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulations Section 1.704-2(i)(2), which generally defines "Member
Nonrecourse Debt Minimum Gain" as the Company Minimum Gain attributable to
Member Nonrecourse Debt. The amount of Member Nonrecourse Debt Minimum Gain
shall be determined in accordance with Treasury Regulations Section
1.704-2(i)(3).
"Member Nonrecourse Deductions" means losses, deductions, or Code
Section 705(a)(2)(B) expenditures attributable to Member Nonrecourse Debt. The
amount of Member Nonrecourse Deductions shall be determined pursuant to Treasury
Regulations Section 1.704- 2(i)(2), which provides generally that the amount of
Member Nonrecourse Deductions for a Fiscal Year shall equal the net increase, if
any, in Member Nonrecourse Debt Minimum Gain during that Fiscal Year, reduced
(but not below zero) by the proceeds of Member Nonrecourse Debt distributed
during the Fiscal Year to the Member bearing the economic risk of loss for such
Member Nonrecourse Debt that are both attributable to such Member Nonrecourse
Debt and allocable to an increase in Member Nonrecourse Debt Minimum Gain.
"Membership Interest" means the entire ownership interest of a Member
in the Company at any particular time, including all of its rights and
obligations hereunder and under the Act.
"Net Profit and Net Loss" means for each Fiscal Year or other period,
an amount equal to the Company's taxable income or loss for such Fiscal Year or
other period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss, or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
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(i) Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Net Profit or Net
Loss shall be added to such taxable income or loss;
(ii) Code Section 705(a)(2)(B) expenditures of the Company
that are not otherwise taken into account in computing Net Profit or Net Loss
shall be subtracted from such taxable income or loss;
(iii) If the Gross Asset Value of any asset of the Company is
adjusted pursuant to paragraph (ii) or (iii) of the definition of Gross Asset
Value, the amount of such adjustment shall be taken into account as gain or loss
from the disposition of such asset for purposes of computing Net Profit or Net
Loss;
(iv) Gain or loss resulting from any disposition of property
of the Company with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset Value of
the property disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year or other
period;
(vi) Notwithstanding anything to the contrary in the
definition of the terms "Net Profit" and "Net Loss," any items that are
specially allocated pursuant to Section 4.3 of this Agreement shall not be taken
into account in computing Net Profit or Net Loss; and
(vii) For purposes of this Agreement, any deduction for a loss
on a sale or exchange of property of the Company that is disallowed to the
Company under Code Section 267(a)(1) or Code Section 707(b) shall be treated as
a Code Section 705(a)(2)(B) expenditure.
"Non-Initiating Member" means TCI, if Insight is the Initiating Member,
and Insight, if TCI is the Initiating Member.
"Nonrecourse Deductions" means losses, deductions, or Code Section
705(a)(2)(B) expenditures attributable to Company Nonrecourse Liabilities. The
amount of Nonrecourse Deductions shall be determined pursuant to Treasury
Regulations Section 1.704-2(c), which provides generally that the amount of
Nonrecourse Deductions for a Fiscal Year shall equal the net increase, if any,
in Company Minimum Gain during that Fiscal Year, reduced (but not below zero) by
the aggregate distributions made during that Fiscal Year of proceeds of a
Nonrecourse Liability that are allocable to an increase in Company Minimum Gain.
"Nonrecourse Liability" has the meaning set forth in Treasury
Regulations Section 1.752- 1(a)(2).
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"Operating Cash Flow" means, for any Person, for any period, an amount
equal to (i) the net income (or loss) of such Person (exclusive of any
non-recurring items and any extraordinary gain or loss and of any gain or loss
realized in such period upon an Asset Disposition), plus (ii) the sum of
depreciation, amortization, income tax expense (other than income tax expense
(either positive or negative) attributable to extraordinary or nonrecurring
gains or losses or sales of assets), interest expense, management fees paid or
payable under the Management Agreement or otherwise, the fees paid or payable to
SSI under the Programming Supply Agreement and other non-cash charges, in each
case to the extent deducted in determining such net income, all as determined on
a consolidated basis in accordance with generally accepted accounting principles
consistently applied.
"Operating Cash Flow Ratio" means, for the Company, on any applicable
date, the ratio of (i) the aggregate amount of Indebtedness of the Company and
its Subsidiaries on a consolidated basis on such date to (ii) four times the
Operating Cash Flow of the Company and its Subsidiaries on a consolidated basis
for the most recent fiscal quarter for which financial information in respect
thereof is available immediately prior to such date. In making the foregoing
calculation, (1) pro forma effect shall be given to any Asset Acquisition or
Asset Disposition to the extent that either the outstanding Indebtedness
incurred in connection therewith or income or loss generated therefrom were not
included for the whole period in computing the Operating Cash Flow Ratio and (2)
Operating Cash Flow shall be adjusted to give effect to any pro forma cost
reductions arising out of any such Asset Acquisition or Asset Disposition, in
such amount as Insight shall reasonably and in good faith determine.
"Ownership Restriction" means any provision of the Communications Act
of 1934, as amended, or any other law subsequently enacted, or any rule,
regulation, or policy of the FCC promulgated thereunder restricting the
ownership and control of communications properties (including cable television
systems, television broadcast stations, radio broadcast stations, telephone
companies, and newspapers), including those relating to multiple ownership,
cross-ownership and cross-interest, as those terms are commonly understood in
the communications industry.
"Percentage Interest" means initially, with respect to each Member, the
respective percentage specified on Schedule II hereto, subject to any
adjustments made in accordance with the provisions of this Agreement.
"Permitted Lien" has the meaning specified in the Contribution
Agreement.
"Person" means an individual, partnership, joint venture, association,
corporation, trust, estate, limited liability company, limited liability
partnership, or any other legal entity.
"Programming Agreement" means the Programming Supply Agreement
contemplated to be entered into on or before the Closing by the Company and SSI,
as it may be amended from time to time in accordance with its terms.
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"Representative" means each of the individuals appointed by the Members
pursuant to Article 7 to serve as a representative of the appointing Member on
the Management Committee.
"Securities Act" means the Securities Act of 1933, as amended.
"Sprint PCS Partnership Agreement" means the Amended and Restated
Agreement of Limited Partnership of Sprint Spectrum Holding Company L.P.
(formerly known as MajorCo., L.P.), dated January 31, 1996, among Sprint
Enterprises, L.P. (formerly known as Sprint Spectrum, L.P.), TCI Network
Services, Comcast Telephony Services and Cox Telephony Partnership, as such
agreement is in effect on the date hereof.
"SSI" means Satellite Services, Inc., a Delaware corporation and an
indirect wholly-owned subsidiary of Tele-Communications, Inc.
"Subsidiary" means, at any time, any Person that is controlled by the
Company at such time.
"Tax Amount" means, subject to the last sentence of this definition,
the sum of Insight's tax liabilities for the current Fiscal Year and all
previous Fiscal Years. For this purpose, Insight's tax liability for any Fiscal
Year shall be the greater of Insight's "Regular Tax Liability" or its "AMT
Liability" for such Fiscal Year. "Regular Tax Liability" for a Fiscal Year shall
be determined separately for ordinary income and each character of capital gain
income to which separate federal income tax rates may apply, and for each such
type of income shall be computed as the product of (i) the excess of (A) the
aggregate amount of taxable income (if any) allocated to Insight with respect to
the Company in such Fiscal Year over (B) the aggregate amount of taxable losses
(if any) allocated to Insight with respect to the Company for all prior Fiscal
Years since the beginning of the Company and not previously taken into account
for purposes of computing Insight's Tax Amount, and (ii) the highest marginal
combined federal, state and local tax rate (taking into account the provisions
of Section 68 of the Tax Code) imposed on an individual resident in New York
City for income of such type. Insight's "AMT Liability" for a Fiscal Year shall
be computed as the product of (x) the aggregate amount of alternative minimum
taxable income (if any) allocated to Insight with respect to the Company in such
Fiscal Year (less any alternative minimum tax losses allocated to Insight with
respect to the Company for all prior Fiscal Years since the beginning of the
Company and not previously taken into account for purposes of computing
Insight's Tax Amount) and (y) the highest marginal combined federal, state and
local tax rate imposed on the alternative minimum taxable income of an
individual resident in New York City (taking into account the lack of
deductibility for state and local taxes under the federal alternative minimum
tax).
"TCI" means TCI of Indiana Holdings, LLC, a Colorado limited liability
company, or any other Person that succeeds to its Membership Interest and is
admitted as a Member in accordance with the provisions of this Agreement,
provided that to the extent TCI transfers less than all of its Membership
Interest to any other Person(s) and such Person(s) is/are admitted as a Member
in accordance with the provisions of this Agreement, "TCI" shall refer to TCI
and such other Person(s) collectively.
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"TCI Cable Parent" means TCI Internet Services, Inc., TCI NET, Inc.,
TCI Communications, Inc. and TCI Cable Investments, Inc., individually and
collectively as the context requires.
"TCI Systems" means (i) the cable television systems contributed to the
Company by TCI and (ii) any cable television system acquired by the Company upon
the disposition of a TCI System or an exchange of a TCI System (including an
acquisition by the Company using the proceeds of any disposition of a TCI
System).
"Transferee" means any Person (other than a Successor) that acquires a
Membership Interest from a Member in accordance with the provisions of this
Agreement.
"Treasury Regulations" means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"Voting Stock" means ownership interests in a Person of any class or
kind ordinarily giving the holder the power to vote for the election of
directors, managers, or other members of the governing body of such Person or
(as may be the case with general partnership interests in a partnership) giving
the holder the power to exercise rights typically exercised by directors of a
corporation.
1.2 Terms Defined Elsewhere in this Agreement.
For purposes of this Agreement, the following terms have the meanings
set forth in the sections indicated:
Term Section
- ---- -------
Alternative Structure Section 9.3
Competitive Activities Section 10.2(a)
Exit Notice Section 9.1(a)
Fair Market Value of the Company Section 9.8(b)
Formal Determination Section 10.3(b)
Indemnified Persons Section 12.1
Initial Election Notice Section 9.3
Liquidator Section 11.2(b)
Parents' Agreement Section 10.2(b)
Regulatory Allocations Section 4.3(i)
Secretary Section 5.5(b)
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Term Section
- ---- -------
Stated Value of the Company Section 9.1(a)
Successor Section 8.1(b)(2)
Transfer Section 8.1(a)
Withholding Advance Section 4.1(c)(2)
1.3 Terms Generally.
The definitions in Section 1.1 and elsewhere in this Agreement shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context requires, any pronoun includes the corresponding masculine,
feminine, and neuter forms. The words "include," "includes," and "including" are
not limiting. Any reference in this Agreement to a "day" or number of "days"
(without the explicit qualification of "Business") shall be interpreted as a
reference to a calendar day or number of calendar days. If any action or notice
is to be taken or given on or by a particular calendar day, and such calendar
day is not a Business Day, then such action or notice shall be deferred until,
or may be taken or given on, the next Business Day.
ARTICLE 2
FORMATION AND PURPOSE
2.1 Formation.
The Members hereby form the Company as a limited liability company
pursuant to the Act. The rights and liabilities of the Members shall be
determined pursuant to the Act and this Agreement. To the extent that the rights
or obligations of either Member are different by reason of any provision of this
Agreement than they would be in the absence of such provision, this Agreement
shall, to the extent permitted by the Act, control.
2.2 Name.
(a) The name of the Company is Insight Communications of
Indiana, LLC. Except as provided in Section 2.2(b), the business of the Company
may be conducted under that name or, upon compliance with applicable laws, any
other name that the Management Committee deems appropriate or advisable. The
Company shall file any assumed name certificates and similar filings, and any
amendments thereto, that the Management Committee considers appropriate or
advisable. Such names and any trade or service names, marks, emblems or logos
used by the Company shall be exclusive property of the Company and no Person
shall have any right to use, and each Member agrees not to use, any of said
names, marks, emblems or logos other than on behalf of the Company (other than
any of the foregoing that incorporates the name "Insight" or any variant
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thereof, which shall remain the exclusive property of Insight and may be used by
Insight without limitation).
(b) The Company shall not conduct business under the name
"TeleCommunications, Inc.," "TCI," or any variation thereof without the approval
of TCI, except that any asset contributed to the Company by TCI may continue to
bear any name borne by such asset at the time of its contribution to the Company
for a period of 120 days after its contribution. The parties agree that
"Communications" is not a variation of "Tele-Communications, Inc." for purposes
of this Section 2.2(b).
2.3 Principal and Registered Office.
The office required to be maintained by the Company in the State of
Delaware pursuant to Section 18-104 of the Act shall initially be located at
1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The resident
agent of the Company pursuant to Section 18-104 of the Act shall initially be
The Corporation Trust Company. The Company may, upon compliance with the
applicable provisions of the Act, change its principal office or resident agent
from time to time in the discretion of the Management Committee. The principal
office of the Company shall be located at 126 E. 56th Street, New York, New York
10022, or at such other place as the Management Committee shall from time to
time designate by written notice to the Members. The Company may conduct
business at such additional places as the Management Committee shall deem
advisable.
2.4 Term.
The term of the Company shall commence on the date of the filing of the
Certificate of Formation with the Secretary of State of Delaware, and shall
continue until the date that is twelve years from the date of the Closing,
unless sooner terminated as provided in this Agreement.
2.5 Purposes of Company.
Subject to Sections 2.6, 10.1, 10.2, 10.4 and 16.1, the purposes of the
Company are:
(a) to engage in the business, directly or indirectly through
interests in one or more Subsidiaries, of acquiring, developing, owning,
operating, managing, and selling the cable television systems in the State of
Indiana and in the Commonwealth of Kentucky and other assets to be contributed
to the Company by the Members pursuant to the Contribution Agreement;
(b) to acquire, develop, own, operate, manage, and sell
additional cable television systems in the State of Indiana and the Commonwealth
of Kentucky and such other States as the Managing Member may determine (subject
to the provisions of Section 7.6(m));
(c) to acquire, develop, own, operate, manage, and sell, or
invest in, businesses related to and ancillary to the ownership and operation of
the cable television systems referred to
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above (including, but not limited to, high speed data service, Internet access,
telephony services and other telephony-related investments or businesses, and
video wireless services and wireless communications services and other
wireless-related investments or businesses but not including multipoint
distribution systems ("MDS"), multichannel multipoint distribution systems
("MMDS"), direct-to-home satellite systems ("DTH") or Internet Backbone
Services), it being agreed that the use of IP technology to provide telephone,
fax, video, video conferencing, telecommuting, virtual private networks,
security and energy management services to subscribers of the Company's cable
television systems does not constitute engaging in an Internet Backbone Service
and, subject to Section 16.1(b), is within the purposes of the Company;
(d) to conduct other businesses as determined by mutual
agreement of the Members;
(e) in connection with the businesses described in Section
2.5(a)-(d), to possess, transfer, mortgage, pledge, or otherwise deal in, and to
exercise all rights, powers, privileges, and other incidents of ownership or
possession with respect to securities or other assets held or owned by the
Company, and to hold securities or assets in the name of a nominee or nominees;
(f) in connection with the businesses described in Section
2.5(a)-(d), to borrow or raise money, and from time to time to issue, accept,
endorse, and execute promissory notes, loan agreements, options, stock purchase
agreements, contracts, documents, checks, drafts, bills of exchange, warrants,
bonds, debentures, and other negotiable or non-negotiable instruments and
evidences of indebtedness, and to secure the payment of any thereof and of the
interest thereon by mortgage upon or pledge, conveyance, or assignment in trust
of, the whole or any part of the property of the Company whether at the time
owned or thereafter acquired and to guarantee the obligations of others and to
sell, pledge, or otherwise dispose of such bonds or other obligations of the
Company for its purposes;
(g) in connection with the businesses described in Section
2.5(a)-(d), to guarantee the obligations of others in connection with the
purchase or acquisition by the Company of securities or assets;
(h) to maintain an office or offices in such place or places
as the Management Committee shall determine and in connection therewith to rent
or acquire office space, engage personnel, and do such other acts and things as
may be necessary or advisable in connection with the maintenance of such office,
and on behalf of and in the name of the Company to pay and incur reasonable
expenses and obligations for legal, accounting, investment advisory,
consultative and custodial services, and other reasonable expenses including
taxes, travel, insurance, rent, supplies, interest, salaries and wages of
employees, and all other reasonable costs and expenses incident to the operation
of the Company;
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(i) to form and own one or more corporations, trusts,
partnerships or other entities (but no entity so formed or owned, while it is a
Subsidiary, may do what the Company is prohibited by this Agreement from doing);
and
(j) to own, lease, or otherwise acquire any and all assets and
services related to the foregoing purposes and to engage in such other
activities related either directly or indirectly to the foregoing purposes as
may be necessary, advisable, or appropriate, in the opinion of the Management
Committee, for the promotion or conduct of the business of the Company.
2.6 Actions of Company Prior to Closing.
Notwithstanding any other provisions hereof, until the Closing, the
sole activities of the Company shall be efforts to obtain the consents and
approvals required under the Contribution Agreement and to otherwise take
actions in accordance with the terms of the Contribution Agreement to consummate
the transactions contemplated thereby. Until the Closing shall occur, there
shall be no Management Committee and all actions undertaken by or on behalf of
the Company must be executed by authorized signatories of the Managing Member
and TCI; provided that actions to be taken by the Company prior to Closing will
be taken in accordance with the terms of the Contribution Agreement and the
Managing Member and TCI shall take such actions and execute such documents as
reasonably necessary to carry out such terms.
2.7 Certificate of Formation.
The Managing Member shall cause the Certificate of Formation to be
filed with the Secretary of State of Delaware and shall cause the Certificate of
Formation to be filed or recorded in any other public office where filing or
recording is required or is deemed by the Management Committee to be advisable.
2.8 Addresses of the Members.
The respective addresses of the Members are set forth on Schedule I.
2.9 Foreign Qualification.
The Managing Member shall take all necessary actions to cause the
Company to be authorized to conduct business legally in all appropriate
jurisdictions, including registration or qualification of the Company as a
foreign limited liability company in those jurisdictions that provide for
registration or qualification and the filing of a certificate of limited
liability company in the appropriate public offices of those jurisdictions that
do not provide for registration or qualification.
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2.10 Tax Classification.
Notwithstanding any other provision of this Agreement, no Member or
employee of the Company may take any action (including the filing of a U.S.
Treasury Form 8832 Entity Classification Election) that would cause the Company
to be characterized as an entity other than a partnership for federal income tax
purposes without the affirmative unanimous consent of the Members. A
determination of whether any action will have the effect described in the
preceding sentence will be based upon a declaratory judgement or similar relief
obtained from a court of competent jurisdiction, a favorable ruling from the
Internal Revenue Service, or the receipt of an opinion of counsel reasonably
satisfactory to the Members.
ARTICLE 3
COMPANY CAPITAL
3.1 Contributions.
(a) Contributions at Formation. Simultaneously with the
execution of this Agreement, the Members shall each contribute to the Company
the capital contributions specified in Schedule II hereto.
(b) Contributions at Closing. At the Closing, and pursuant to
the terms of the Contribution Agreement:
(1) TCI will contribute or cause to be
contributed to the Company, free and clear of all Liens (other than Permitted
Liens), the assets specified in Section 2.1 of the Contribution Agreement; and
(2) Insight will contribute or cause to be
contributed to the Company, free and clear of all Liens (other than Permitted
Liens), the assets specified in Section 2.1 of the Contribution Agreement.
(c) Fair Market Value of Contributions; Capital Account
Balances, Applicable Percentages. Schedule II sets forth (1) the aggregate gross
fair market value of all assets as a group to be contributed to the Company by
Insight and TCI, respectively, pursuant to Section 3.1(b); (2) the Capital
Accounts of each Member immediately after the Closing; and (3) the Percentage
Interest of each Member immediately after the Closing.
(d) Determining Fair Market Value of Contributed Assets.
Except as otherwise agreed to between the Members, the fair market value of any
asset contributed by a Member to the Company shall be determined for purposes of
this Agreement as follows:
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(1) For purposes of this Agreement, other than
under Article 9 and other than with respect to the assets contributed by the
Members pursuant to Sections 3.1(a) and (b), which shall have the value
specified in this Agreement, the fair market value of an asset shall be that
value agreed to by the Management Committee by unanimous vote within ten days
after any party having an interest in the determination of such value requests
such determination.
(2) In the event the Management Committee is
unable to agree on a value during such ten-day period, fair market value shall
be determined within 20 days thereafter by an investment banker mutually
selected within five days of the end of such ten-day period by the parties in
interest and such determination shall be conclusive and binding on all such
parties. Each such party shall pay its pro rata portion of the expenses of the
investment banker. If the investment banker is only able to provide a range in
which fair market value would exist, fair market value shall be the average
value of the highest and lowest values of such range.
3.2 Additional Capital Contributions.
There shall be no further assessments for additional Capital
Contributions by the Members to the Company, provided that this section shall
not in any way limit either Member's obligations pursuant to the Contribution
Agreement to make any payment to the Company required thereunder.
3.3 Assumption of Liabilities.
In accordance with the terms and conditions of the Contribution
Agreement, the Company will, at the Closing, assume and undertake to pay,
discharge, and perform those obligations and liabilities of TCI, Insight, and
their respective Affiliates that are specified in Section 4.1 of the
Contribution Agreement.
3.4 Return of Contributions.
Neither Member shall have the right to demand a return of all or any
part of its Capital Contribution during the term of the Company, and any return
of the Capital Contribution of either Member shall be made solely from the
assets of the Company and only in accordance with the terms of this Agreement.
No interest shall be paid to either Member with respect to its Capital
Contribution to the Company.
ARTICLE 4
DISTRIBUTIONS; ALLOCATIONS OF PROFIT AND LOSS
4.1 Distributions of Cash.
(a) Amount and Timing of Distributions.
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(1) The Company shall, with respect to each
Fiscal Year (other than the fiscal quarter in which the Company is liquidated),
distribute to Insight, (i) at least 10 days prior to each quarterly due date for
individual estimated tax payments for the Fiscal Year, an amount equal to the
estimated Tax Amount for Insight for such quarter, computed on an annualized
basis and prorated for the cumulative number of months in the Fiscal Year that
have passed as of the end of the quarter for which such estimated Tax Amount is
being computed; and (ii) not later than 90 days after the end of such Fiscal
Year an aggregate amount equal to the Tax Amount for Insight for such Fiscal
Year (to the extent not previously distributed to Insight pursuant to the
preceding clause (i) with respect to such Fiscal Year). For purposes of making
the computation in Section 4.1(a)(1)(i) for the first, second, and third
quarters of each Fiscal Year, such computation shall be based upon the Company's
estimated taxable income for the first three, five and eight months of the
Fiscal Year, respectively. The Company shall make a pro rata distribution to TCI
in proportion to the Members' relative Percentage Interests in respect of each
distribution to Insight pursuant to the preceding sentence.
(2) No cash of the Company not required to be
distributed pursuant to Section 4.1(a)(1) or Section 11.2(d)(3) shall be
distributed except as the Members may approve pursuant to Section 7.6(p).
(b) Allocation of Distributions. All distributions of cash
pursuant to Section 4.1(a), Section 11.2(d)(3) or otherwise approved by the
Members shall be made to the Members in proportion to their Percentage
Interests.
(c) Tax Withholding.
(1) The Company shall seek to qualify for and
obtain exemptions from any provision of the Code or any provision of state,
local, or foreign tax law that would otherwise require the Company to withhold
amounts from payments or distributions to the Members. If the Company does not
obtain any such exemption, the Company is authorized to withhold from any
payment or distribution to either Member any amounts that are required to be
withheld pursuant to the Code or any provision of any state, local, or foreign
tax law that is binding on the Company.
(2) Any amount withheld with respect to any
payment or distribution to either Member shall be credited against the amount of
the payment or distribution to which the Member would otherwise be entitled. If
the Code or any provision of any state, local, or foreign tax law that is
binding on the Company requires that the Company remit to any taxing authority
any withholding tax with respect to, or for the account of, either Member in its
capacity as a Member, the Company shall, to the extent that Company funds are
available therefor, remit the full required amount of such withholding tax to
the taxing authority and shall notify such Member in writing of its obligation
to pay to the Company such withholding tax to the extent it exceeds the amount
of any payment or distribution to which such Member would otherwise then be
entitled. Each Member shall pay to the Company, within five Business Days after
its receipt of written notice from the Company that withholding is required with
respect to such Member, any amounts required to be
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remitted by the Company to any taxing authority with respect to such Member that
are in excess of the amount of any payment or distribution to which such Member
would otherwise be entitled. If the Company is required to remit any withholding
tax with respect to, or for the account of, either Member prior to the Company's
receipt of any payment required to be made by such Member pursuant to the
preceding sentence, the amount of the payment required to be made by such Member
shall be treated as a loan (the "Withholding Advance") from the Company to the
Member, which shall accrue interest from the date the Company is required to
remit such withholding tax until paid by such Member or credited against
payments or distributions to which such Member would otherwise be entitled as
provided in Section 4.1(c)(3) at a rate of fifteen percent per year, compounded
semi-annually.
(3) Any Withholding Advance made to a Member and
any interest accrued thereon shall be credited against, and shall be offset by,
the amount of any later payment or distribution to which the Member would
otherwise be entitled (without duplication of the credit provided in the first
sentence of Section 4.1(c)(2)), with any credit for accrued and unpaid interest
as of the date such payment or distribution would otherwise have been made being
applied before any credit for the amount of the Withholding Advance. Any
Withholding Advance made to a Member and any interest accrued thereon, to the
extent it has not previously been paid by the Member in cash or fully credited
against payments or distributions to which the Member would otherwise be
entitled, shall be paid by the Member to the Company upon the earliest of (A)
the dissolution of the Company, (B) the date on which the Member ceases to be a
Member of the Company, or (C) demand for payment by the Company.
(4) All amounts that are credited against
payments or distributions to which a Member would otherwise be entitled pursuant
to this Section 4.1(c) shall be treated as amounts distributed to such Member
pursuant to Section 4.1(a) for all purposes of this Agreement.
4.2 Allocations of Net Profit and Net Loss.
(a) Allocations of Net Profit and Net Loss. Except as provided
in Section 4.2(b), Net Profit and Net Loss for each Fiscal Year (or portion
thereof) shall be allocated between the Members in proportion to their
Percentage Interests.
(b) Allocations of Net Profit and Net Loss Following
Dissolution. Notwithstanding Section 4.2(a), following the dissolution of the
Company pursuant to Section 11.1, beginning in the Fiscal Year in which such
dissolution occurs or beginning in any Fiscal Year prior to the Fiscal Year in
which such dissolution occurs if the Company's Federal income tax return for
such prior Fiscal Year has not yet been required to be filed (not including
extensions), items of income and gain, loss, and deduction shall be allocated
between the Members so as to cause the credit balances in the Members' Capital
Accounts to be in proportion to their Percentage Interests.
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4.3 Special Provisions Regarding Allocations of Profit and Loss.
(a) Minimum Gain Chargeback. Notwithstanding any other
provision of this Article 4, if there is a net decrease in Company Minimum Gain
for any Fiscal Year, each Member shall be specially allocated items of Company
income and gain for such Fiscal Year (and if necessary for succeeding Fiscal
Years) in an amount equal to such Member's share of the net decrease in Company
Minimum Gain, determined in accordance with Treasury Regulations Section
1.704-2(g); provided, however, that this Section 4.3(a) shall not apply to the
extent the circumstances described in Treasury Regulations Sections
1.704-2(f)(2), 1.704-2(f)(3), 1.704- 2(f)(4), or 1.704-2(f)(5) exist.
Allocations made pursuant to the preceding sentence shall be made in proportion
to the respective amounts required to be allocated to each Member pursuant
thereto. The items of Company income and gain to be allocated pursuant to this
Section 4.3(a) shall be determined in accordance with Treasury Regulations
Section 1.704-2(f)(6). This Section 4.3(a) is intended to comply with the
minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(f)
and shall be interpreted consistently therewith.
(b) Member Minimum Gain Chargeback. Notwithstanding any other
provision of this Article 4 except Section 4.3(a), if during any Fiscal Year
there is a net decrease in Member Nonrecourse Debt Minimum Gain, each Member
with a share of that Member Nonrecourse Debt Minimum Gain (determined in
accordance with Treasury Regulations Section 1.704-2(i)(5)) as of the beginning
of such Fiscal Year must be allocated items of Company income and gain for the
Fiscal Year (and, if necessary, for succeeding Fiscal Years) equal to that
Member's share of the net decrease in the Member Nonrecourse Debt Minimum Gain
(determined in accordance with Treasury Regulations Section 1.704-2(i)(4));
provided, however, that this Section 4.3(b) shall not apply to the extent the
circumstances described in the third and fifth sentences of Treasury Regulations
Section 1.704-2(i)(4) exist. Allocations pursuant to the preceding sentence
shall be made in proportion to the respective amounts required to be allocated
to each Member pursuant thereto. The items of Company income and gain to be
allocated pursuant to this Section 4.3(b) shall be determined in accordance with
Treasury Regulations Section 1.704-2(i)(4). This Section 4.3(b) is intended to
comply with the minimum gain chargeback requirement in Treasury Regulations
Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
(c) Qualified Income Offset. If a Member unexpectedly receives
any adjustments, allocations, or distributions described in Treasury Regulations
Sections 1.704- 1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be specially
allocated to such Member in an amount and manner sufficient to eliminate, to the
extent required by the Treasury Regulations, the Adjusted Capital Account
Deficit of such Member as quickly as possible; provided, however, that an
allocation pursuant to this Section 4.3(c) shall be made if and only to the
extent that such Member would have an Adjusted Capital Account Deficit after all
other allocations provided for in this Article 4 have been tentatively made as
if this Section 4.3(c) were not in this Agreement. Allocations made pursuant to
the preceding sentence shall be made in proportion to the respective amounts
required to be allocated to each Member pursuant thereto.
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(d) Gross Income Allocation. If a Member has a deficit Capital
Account at the end of any Fiscal Year that is in excess of the sum of (1) the
amount such Member is obligated to restore to the Company pursuant to Treasury
Regulations Section 1.704-1(b)(2)(ii)(c), (2) the amount such Member is deemed
to be obligated to restore pursuant to the penultimate sentence of Treasury
Regulations Section 1.704-2(g)(1), and (3) the amount such Member is deemed to
be obligated to restore pursuant to the penultimate sentence of Treasury
Regulations Section 1.704-2(i)(5), such Member shall be specially allocated
items of Company income and gain in the amount of such excess as quickly as
possible; provided, however, that an allocation pursuant to this Section 4.3(d)
shall be made if and only to the extent that such Member would have a deficit
Capital Account in excess of such sum after all other allocations provided for
in this Article 4 have been tentatively made as if Section 4.3(c) and this
Section 4.3(d) were not in this Agreement. Allocations made pursuant to the
preceding sentence shall be made in proportion to the respective amounts
required to be allocated to each Member pursuant thereto.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any
Fiscal Year or other period shall be specially allocated between the Members in
proportion to their Percentage Interests.
(f) Member Nonrecourse Deductions. Any Member Nonrecourse
Deductions for any Fiscal Year or other period shall be specially allocated to
the Member that bears the economic risk of loss with respect to the Member
Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in
accordance with Treasury Regulations Section 1.704- 2(i).
(g) Section 754 Adjustment. To the extent any adjustment to
the adjusted tax basis of any asset of the Company pursuant to Code Section
734(b) or Code Section 743(b) is required, pursuant to Treasury Regulations
Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment shall be treated as an item of gain (if
the adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such gain or loss shall be specially allocated to the
Members in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such section of the Treasury
Regulations.
(h) Excess Nonrecourse Liabilities. For purposes of
determining a Member's proportionate share of the "excess nonrecourse
liabilities" of the Company within the meaning of Treasury Regulations Section
1.752-3(a)(3), each Member's interest in Company profits shall be deemed to be
equal to such Member's Percentage Interest.
(i) Curative Allocations. The allocations set forth in this
Article 4 (other than Section 4.3(g), Section 4.3(h), and this Section 4.3(i))
(the "Regulatory Allocations") are intended to comply with certain requirements
of the Treasury Regulations. The Members intend that, to the extent possible,
all Regulatory Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of Company income, gain,
loss, or deduction pursuant to
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this Section 4.3(i). Therefore, notwithstanding any other provision of this
Article 4 (other than the Regulatory Allocations), offsetting special
allocations of Company income, gain, loss, or deduction shall be made so that,
after such offsetting allocations are made, each Member's Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Member would have had if the Regulatory Allocations were not part of this
Agreement and all Company items were allocated pursuant to Section 4.2. In
making such offsetting special allocations, future Regulatory Allocations under
Section 4.3(a) and Section 4.3(b) that, although not yet made, are likely to
offset Regulatory Allocations made under Section 4.3(e) and Section 4.3(f),
shall be taken into account.
4.4 Tax Allocations: Code Section 704(c).
(a) In accordance with Code Section 704(c) and the Treasury
Regulations thereunder, income, gain, loss, and deduction with respect to any
property contributed to the capital of the Company shall, solely for tax
purposes, be allocated between the Members so as to take account of any
variation between the adjusted basis of such property to the Company for federal
income tax purposes and its initial Gross Asset Value using the traditional
allocation method described in Treasury Regulations Section 1.704-3(b).
(b) If the Gross Asset Value of any asset of the Company is
adjusted pursuant to paragraph (ii) of the definition of Gross Asset Value,
subsequent allocations of income, gain, loss, and deduction with respect to such
asset shall take account of any variation between the adjusted basis of such
asset for federal income tax purposes and its Gross Asset Value in the same
manner as under Code Section 704(c) and the Treasury Regulations thereunder.
(c) Allocations pursuant to this Section 4.4 are solely for
purposes of federal, state, and local taxes and shall not affect, or in any way
be taken into account in computing, either Member's Capital Account or share of
Net Profit, Net Loss, other items, or distributions pursuant to any provision of
this Agreement.
4.5 Allocation in Event of Transfer.
If an interest in the Company is transferred in accordance with Article
8 or 9 of this Agreement, the Net Profit and Net Loss of the Company and each
item thereof, and all other items attributable to the transferred interest for
such Fiscal Year, shall be divided and allocated between the transferor and the
transferee pursuant to the interim closing of the Company books method set forth
in Treasury Regulation Section 1.706-1(c)(2)(ii) unless the parties otherwise
agree. This Section shall apply for purposes of computing a Member's Capital
Account and for federal income tax purposes.
4.6 Alternative Allocations.
The Management Committee is authorized and directed to allocate items
of income, gain, loss, or deduction arising in any Fiscal Year differently from
the manner that is otherwise provided
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for in this Agreement if, and to the extent that, the Management Committee
believes that the allocation of items of income, gain, loss, or deduction in the
manner otherwise provided for in this Agreement would cause the credit balances
in the Members' Capital Accounts not to be in proportion to their Percentage
Interests immediately prior to any distributions pursuant to Section 11.2(d)(3)
if the Company were dissolved and terminated on the last day of such Fiscal
Year. Any allocation that is made pursuant to this Section 4.6 shall be deemed
to be a complete substitute for any allocation that is otherwise provided for in
this Agreement and no amendment to this Agreement shall be required.
ARTICLE 5
AUTHORITY OF THE MANAGING MEMBER; OTHER
MATTERS AFFECTING MANAGING MEMBER
5.1 Authority of Managing Member.
The Managing Member agrees that, except for the designation and removal
of Representatives by the Managing Member pursuant to Section 7.2 hereof, or as
otherwise expressly provided herein (including as provided in Section 2.6) or in
the Management Agreement, the Managing Member acting alone shall not give any
consent on any matter or take any other action as the Managing Member,
including, without limitation, acting on behalf of or binding the Company with
respect to any matter in respect of which approval by the Management Committee
or the Members is required by the provisions of this Agreement or the Act,
unless such consent, matter or other action shall first have been adopted or
approved by the Management Committee or the Members, as the case may be, in
accordance with the provisions of this Agreement or the Act as applicable.
5.2 No Personal Liability.
The Managing Member shall not have any personal liability for the
repayment of the Capital Contributions of any other Member; provided that the
Managing Member shall promptly return to the Company or to the Member or Members
entitled thereto any distributions received by the Managing Member in excess of
those to which the Managing Member is entitled under this Agreement.
5.3 Management Agreement.
The Company and Insight (or its designated Affiliate) shall enter into
the Management Agreement effective as of the Closing. Insight shall be entitled
to the payments and reimbursements set forth therein.
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5.4 Resignation as Managing Member.
(a) Insight may not resign as the Managing Member without the
consent of TCI (subject to the rights of transfer set forth elsewhere in this
Agreement and it being understood that no transfer permitted by the terms of
this Agreement shall be deemed to be a resignation for any purpose), other than
upon the dissolution and winding up of the Company in accordance with the
provisions of Article 11. If TCI consents to such resignation, the Company shall
dissolve in accordance with the provisions of Article 11 unless, within ninety
days after the resignation of Insight as the Managing Member:
(1) TCI and Insight elect to continue the
business of the Company and TCI elects, effective as of the date of the
resignation of Insight as the Managing Member, to become the new Managing
Member; or
(2) TCI and Insight elect to continue the
business of the Company, TCI elects not to become the new Managing Member, and
TCI and Insight agree to the appointment, effective as of the date of the
resignation of Insight as the Managing Member, of one or more new Managing
Members.
For purposes of this Agreement, the term "resignation" does
not include the happening of any event described in Section 18-304(a) or (b) of
the Act, and no Member shall cease to be a Member solely upon the happening of
such event(s); provided, that upon the happening of any such event that results
in the appointment of a trustee, receiver or liquidator of the Member or of all
or substantially all of such Member's properties and the loss by the Member of
its management authority with respect to all or substantially all of its
properties, then (x) all Representatives of the affected Member shall be deemed
to have resigned from the Management Committee and such Member shall have no
further right to designate any Representatives; and (y) no consent of such
Member or its Representatives required under any provision of this Agreement
shall any longer be required and the other Member shall be entitled to grant all
such consents and take all actions relating to the Company and its business.
(b) If the Company is continued pursuant to Section 5.4(a)
following the resignation of Insight as the Managing Member, Insight shall
continue to be a Member of the Company, but not a Managing Member, and TCI shall
have the right to appoint three Representatives to the Management Committee and
Insight shall have the right to appoint two Representatives to the Management
Committee, provided that any such change in the identity of the Managing Member
and the composition of the Management Committee shall be subject to and
conditioned upon receipt of all necessary governmental approvals and other
material third party consents. The resignation of Insight as the Managing Member
shall not alter the allocations and distributions to be made to the Members
pursuant to this Agreement.
(c) Without limiting any other rights or remedies that the
Company or TCI may have at law or in equity, upon any resignation by Insight as
the Managing Member in violation of
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this Agreement (it being understood and agreed that no transfer permitted by the
terms of this Agreement shall be deemed to be a resignation for any purpose),
then, notwithstanding any other provision of this Agreement to the contrary (1)
all representatives of the Managing Member shall be deemed to have resigned from
the Management Committee and the Managing Member shall have no further right to
designate any representatives; and (2) no consent of the Managing Member or its
representatives required under any provision of this Agreement shall any longer
be required and TCI shall be entitled to grant all such consents and take all
actions relating to the Company and its business.
5.5 Tax Matters Member.
(a) The Managing Member is hereby designated as the Tax
Matters Member of the Company, as provided in Treasury Regulations pursuant to
Code Section 6231 and analogous provisions of state law. Each Member, by the
execution of this Agreement, consents to such designation of the Tax Matters
Member and agrees to execute, certify, acknowledge, deliver, swear to, file, and
record at the appropriate public offices such documents as may be necessary or
appropriate to evidence such consent.
(b) To the extent and in the manner provided by applicable law
and Treasury Regulations, the Tax Matters Member shall furnish the name,
address, profits interest, and taxpayer identification number of each Member and
any Transferee to the Secretary of the Treasury or his delegate (the
"Secretary").
(c) The Tax Matters Member shall notify each Member of any
audit that is brought to the attention of the Tax Matters Member by notice from
the Internal Revenue Service, and shall forward to each Member copies of any
written notices, correspondence, reports, or other documents received by the Tax
Matters Member in connection with such audit within ten Business Days following
its notification by the Internal Revenue Service or its receipt, as the case may
be. The Tax Matters Member shall provide TCI with reasonable advance notice of
administrative proceedings with the Internal Revenue Service, including any
closing conference with the examiner and any appeals conference.
(d) The Tax Matters Member shall give the Members written
notice of its intent to initiate judicial review, file a request for
administrative adjustment on behalf of the Company, extend the period of
limitations for making assessments of any tax against a Member with respect to
any Company item, or enter into any agreement with the Internal Revenue Service
that would result in the settlement of any alleged tax deficiency or other tax
matter, or to any adjustment of taxable income or loss or any item included
therein, affecting the Company or any Member. The Tax Matters Member shall not
take any such action if TCI elects within thirty days after its receipt of the
Tax Matters Member's notice to require that the Tax Matters Member refrain from
taking such action.
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(e) Subject to the foregoing provisions of this Section 5.5,
the Tax Matters Member is hereby authorized, but not required:
(1) to enter into any settlement with the
Internal Revenue Service or the Secretary with respect to any tax audit or
judicial review, in which agreement the Tax Matters Member may expressly state
that such agreement shall bind the other Members, except that such settlement
agreement shall not bind either Member that (within the time prescribed pursuant
to the Code and Treasury Regulations thereunder) files a statement with the
Secretary providing that the Tax Matters Member shall not have the authority to
enter into a settlement agreement on the behalf of such Member;
(2) if a notice of a final administrative
adjustment at the Company level of any item required to be taken into account by
a Member for tax purposes (a "final adjustment") is mailed to the Tax Matters
Member, to seek judicial review of such final adjustment, including the filing
of a petition for readjustment with the Tax Court, the District Court of the
United States for the district in which the Company's principal place of
business is located, or elsewhere as allowed by law, or the United States Claims
Court;
(3) to intervene in any action brought by any
other Member for judicial review of a final adjustment;
(4) to file a request for an administrative
adjustment with the Secretary at any time and, if any part of such request is
not allowed by the Secretary, to file a petition for judicial review with
respect to such request;
(5) to enter into an agreement with the Internal
Revenue Service to extend the period for assessing any tax that is attributable
to any item required to be taken into account by a Member for tax purposes, or
an item affected by such item; and
(6) to take any other action on behalf of the
Members (with respect to the Company) or the Company in connection with any
administrative or judicial tax proceeding to the extent permitted by applicable
law or Treasury Regulations.
(f) The Company shall indemnify and reimburse the Tax Matters
Member for all expenses (including legal and accounting fees) incurred pursuant
to this Section 5.5 in connection with any administrative or judicial proceeding
with respect to the tax liability of the Members. The payment of all such
reasonable expenses shall be made before any distributions are made to the
Members. The taking of any action and the incurring of any expense by the Tax
Matters Member in connection with any such proceeding, except to the extent
provided herein or required by law, is a matter in the sole discretion of the
Tax Matters Member and the provisions on limitations of liability of the
Managing Member and indemnification set forth in Article 12 shall be fully
applicable to Insight in its capacity as the Tax Matters Member.
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(g) Any Member that receives a notice of an administrative
proceeding under Code Section 6233 relating to the Company shall promptly notify
the Tax Matters Member of the treatment of any Company item on such Member's
federal income tax return that is or may be inconsistent with the treatment of
that item on the Company's return.
(h) Either Member that enters into a settlement agreement with
the Secretary with respect to any Company item shall notify the Tax Matters
Member of such agreement and its terms within thirty days after its date, and
the Tax Matters Member shall notify the other Members of the settlement
agreement within thirty days of such notification.
ARTICLE 6
STATUS OF MEMBERS
6.1 No Management and Control.
Except as expressly provided in this Agreement, no Member (other than
the Managing Member) shall take part in or interfere in any manner with the
control, conduct, or operation of the Company or have any right or authority to
act for or bind the Company or to vote on matters relating to the Company.
6.2 Limited Liability.
No Member shall be bound by or personally liable for the expenses,
liabilities, or obligations of the Company. In no event shall any Member be
required to make up a deficiency in its Capital Account upon the dissolution and
termination of the Company.
6.3 Return of Distributions of Capital.
A Member may, under certain circumstances, be required by law to return
to the Company, for the benefit of the Company's creditors, amounts previously
distributed. No Member shall be obligated by this Agreement to pay those
distributions to or for the account of the Company or any creditor of the
Company. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, a Member must return or pay
over any part of those distributions, the obligation shall be that of such
Member alone and not of any other Member. Any payment returned to the Company by
a Member or made directly by a Member to a creditor of the Company shall be
deemed a Capital Contribution by such Member.
6.4 Specific Limitations.
No Member shall have the right or power to: (a) (i) resign as a Member
(subject to the rights of transfer set forth elsewhere in this Agreement and
subject to Section 5.4(a) with respect to the Managing Member) or (ii) reduce
its Capital Contribution except as a result of the dissolution of the
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Company or as otherwise provided by law, (b) bring an action for partition
against the Company or any assets of the Company, (c) cause the termination and
dissolution of the Company, except as set forth in this Agreement, or (d) demand
or receive property other than cash in return for its Capital Contribution.
Except as otherwise set forth in this Agreement or in any agreement permitted to
be entered into under this Agreement with respect to the purchase, redemption,
retirement, or other acquisition of Membership Interests, no Member shall have
priority over any other Member either as to the return of its Capital
Contribution or as to Net Profit, Net Loss, or distributions. Other than upon
the termination and dissolution of the Company as provided by this Agreement,
there has been no time agreed upon when the Capital Contribution of any Member
will be returned.
ARTICLE 7
MANAGEMENT OF THE COMPANY
7.1 Management Committee Powers.
(a) Except as otherwise expressly provided for herein
(including as provided in Section 2.6 and Section 5.1) or in the Management
Agreement, the business of the Company shall be managed by the Management
Committee pursuant to the provisions of this Agreement. The Management Committee
shall have exclusive authority and full discretion with respect to the
management of the business of the Company, subject to the provisions of the
Management Agreement; provided, however, any power of the Management Committee
may also be exercised by the unanimous action of the Members.
(b) All decisions of the Management Committee shall be by
resolution duly adopted in accordance with the provisions of this Agreement. The
Management Committee may delegate such general or specific authority to the
Managing Member and the officers of the Company as it from time to time
considers desirable, and the Managing Member and the officers of the Company may
exercise the authority granted to them, subject to any restraints or limitations
imposed by the Management Committee and the provisions of Sections 7.5 and 7.6
and any other express provisions of this Agreement. The authority granted to the
Managing Member pursuant to the Management Agreement shall be deemed a
delegation of authority by the Management Committee pursuant to this Section.
7.2 Appointment and Removal of Representatives.
(a) The Management Committee shall consist of five
Representatives, three Representatives to be appointed by Insight and two
Representatives to be appointed by TCI. The initial Representatives are
specified in Schedule III. The Chairman and Secretary of the Management
Committee shall be chosen by the Management Committee.
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(b) Each Member shall use its good faith efforts to designate
its Representatives as promptly as is reasonably practicable so that the
Committee shall at all times contain the number of Representatives provided for
in Section 7.2(a).
(c) Either Member may at any time, by written notice to the
other Member, remove its Representatives, with or without cause, and substitute
Representatives to serve in their stead. No Representative shall be removed from
office, with or without cause, without the consent of the Member that designated
him.
(d) If any Representative is unwilling or unable to serve as
such or is removed from office by the Member that designated him, before the
transaction of any other business by the Management Committee, such Member shall
designate a successor to such Representative.
(e) The written notice of the Member appointing a
Representative shall in each case set forth such Representative's business
address and business telephone number.
(f) Each Member shall promptly give written notice to the
other Member of any change in the business address or business telephone number
of any of its Representatives.
(g) No compensation of, or expenses incurred by, the
Representatives incident to their duties and responsibilities as such under this
Agreement shall be paid by, or charged to, the Company.
7.3 Meetings of the Management Committee.
The Management Committee shall hold one regular meeting each quarter at
such time and place as shall be determined by the Management Committee. Special
meetings of the Management Committee may be called at any time by any
Representative upon not less than three Business Days' prior notice. Except as
otherwise determined by the Management Committee, all special and regular
meetings of the Management Committee shall be held at the principal office of
the Company.
7.4 Procedural Matters.
(a) Each Representative shall have one vote in all matters
presented to the Management Committee for decision or approval. At all meetings
of the Management Committee, except as otherwise expressly provided for in this
Agreement, the affirmative vote of a majority of the Representatives, present at
such meeting in person or by proxy, shall be required for all actions and
decisions of the Management Committee. If a majority of the Representatives are
not present in person or represented by proxy at any meeting, the
Representatives present may adjourn the meeting from time to time, without
notice other than an announcement at the meeting, until a majority of the
Representatives shall be present or represented.
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(b) Unless waived in writing by all of the Representatives
(before or after a meeting) at least three Business Days' prior notice of any
meeting shall be given to each Representative. Such notice shall state the
purpose for which such meeting has been called.
(c) Each Representative entitled to vote at a meeting of the
Management Committee or to express consent to any action in writing without a
meeting or to express consent to any action pursuant to any other provision of
this Agreement may authorize another Representative or Person to act for him by
proxy. To be effective such proxy shall be presented at the meeting at which
such proxy is to be used or shall be presented with the writing pursuant to
which any action is taken or consent is given pursuant to such proxy, but no
proxy shall be valid after a period of three years from its date, unless the
proxy provides for a longer period.
(d) Any action required or permitted to be taken by the
Management Committee may be taken without a meeting if the number of
Representatives required hereunder to consent to such action, consent in writing
to such action. Such consent shall have the same effect as a vote of the
Management Committee. Prompt notice of any written action taken without the
consent of all Representatives shall be given to all non-consenting
Representatives following the taking of such action. Members of the Management
Committee shall have the right to participate in a meeting of the Management
Committee by means of a conference telephone or similar communications equipment
by means of which all Representatives participating in the meeting can hear each
other and be heard, and such participation shall constitute presence in person
at the meeting.
(e) The Management Committee shall cause to be kept a book of
minutes of all of its meetings in which there shall be recorded the time and
place of each such meeting, whether regular or special, and if special, by whom
called, the notice thereof given, the names of those present, and the
proceedings thereof.
7.5 Matters Requiring TCI Approval.
Notwithstanding any provision in this Agreement to the contrary, and in
addition to any other consent or approval that may be required by the express
terms of this Agreement, without the consent of TCI, which may be withheld by
TCI in its sole discretion, the Company shall not take, and the Management
Committee shall have no authority to cause the Company to, or cause or permit
any Subsidiary to, consummate an Asset Disposition if such Asset Disposition
would result in the allocation of income or gain to TCI pursuant to Section 4.4
and Code Section 704(c), except upon the liquidation and dissolution of the
Company in accordance with Articles 9 and 11; provided, however, that the
limitations of this paragraph shall not apply to any pledging of assets by any
Person to secure any Indebtedness of such Person permitted by this Agreement or
to any disposition of assets upon the exercise of any rights granted by such a
pledge.
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7.6 Matters Requiring Insight and TCI Approval.
Notwithstanding any provision in this Agreement to the contrary, and in
addition to any other consent or approval that may be required by the express
terms of this Agreement, the Company shall not take, and the Management
Committee shall have no authority to cause the Company to take, or cause or
permit any Subsidiary to take, any of the following actions without the consent
of Insight and TCI:
(a) incur any Indebtedness, or consummate any Asset
Acquisition, such that immediately after the incurrence of such Indebtedness or
consummation of such Asset Acquisition, the Company's Operating Cash Flow Ratio
would exceed 7.0 to 1; or
(b) consummate one or more Asset Dispositions, in any
consecutive twelve month period, having an aggregate value in excess of
$25,000,000, except upon the liquidation and dissolution of the Company in
accordance with Articles 9 and 11; provided, however, that the limitations of
this paragraph shall not apply to any pledging of assets by any Person to secure
any Indebtedness of such Person permitted by this Agreement, or to any
disposition of assets upon the exercise of any rights granted by such a pledge;
or
(c) merge with or consolidate into any Person or become a
party to any recapitalization or other form of reorganization, or cause or
permit any Subsidiary to merge with or consolidate into any Person or become a
party to any recapitalization or other form of reorganization (except that, with
approval of the Management Committee and without the separate consent of each of
Insight and TCI, (1) a Subsidiary may merge with another Subsidiary or with the
Company and the Company may merge with a Subsidiary; and (2) a Subsidiary may
merge with a Person other than a Subsidiary as a means of effecting any
acquisition or disposition of assets that is otherwise permitted by this
Agreement); or
(d) enter into any transaction with either Member or any
Affiliate of either Member unless the transaction is in the ordinary course of
the Company's business, is on terms that are no less favorable to the Company
than could have been obtained in a comparable arm's- length transaction with a
Person that is not a Member or an Affiliate of either Member, and contemplates
payments to or by the Company in any twelve month period not in excess of
$500,000, individually or in the aggregate (provided that (1) the Management
Agreement in the form attached hereto is hereby approved, and (2) transactions
described in the Contribution Agreement or in this Agreement, including without
limitation the transactions contemplated by Section 16.1(b) hereof, under the
circumstances specified therein or herein, and in accordance with the terms
provided therein or herein, are hereby approved), or enter into any transaction
with either Member or any Affiliate of either Member pursuant to which such
Member or any Affiliate of such Member would be authorized or permitted to use
the Company's cable television system distribution facilities in connection with
such Member engaging in any business (other than through the Company) that is
ancillary to the ownership or operation of cable television systems, including,
without limitation, those businesses described in Section 2.5(c); or
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(e) elect to continue the business of the Company beyond
its initial 12 year term; or
(f) select a new Managing Member of the Company pursuant
to Section 5.4(b)(2); or
(g) liquidate or dissolve except in accordance with
Articles 9 and 11; or
(h) issue any Membership Interest or other equity interest in
the Company, or any option, warrant or other debt or equity interest convertible
into or evidencing the right to acquire (whether for not for additional
consideration) any Membership Interest or other equity interest in the Company,
except pursuant to the Management Incentive Plan; or
(i) admit any additional Members to the Company except in
accordance with Article 8; or
(j) convert the Company to corporate form or to any other
form or change the partnership tax classification of the Company; or
(k) commence any bankruptcy or insolvency proceeding,
acquiesce in the appointment of a receiver, trustee, custodian or liquidator or
admit to the material allegations of a petition filed against the Company in any
bankruptcy proceeding; or
(l) commence, institute, settle or release any claim or
lawsuit (or series of related claims and/or lawsuits) on behalf of the Company,
or the confession of a judgment against the Company or either Member in
connection with its relationship with the Company, for any amount in excess of
$3,000,000 or involving the potential granting of equitable relief that, if
granted, would have a material adverse effect on the business of the Company
(except that (1) the Management Committee may, without the separate consent of
each of Insight and TCI, cause the Company to take action pursuant to Section
7.19 of the Contribution Agreement subject to the terms and conditions thereof,
and (2) notwithstanding any other provision in this Agreement to the contrary,
TCI may, without the separate consent of Insight or Insight's Representatives,
cause the Company to make a good faith claim against Insight pursuant to the
indemnification provisions of the Contribution Agreement or against Insight
pursuant to the Management Agreement, and Insight may, without the separate
consent of TCI or TCI's Representatives, cause the Company to make a good faith
claim against TCI pursuant to the indemnification provisions of the Contribution
Agreement); or
(m) (1) engage in any line of business not described in
Section 2.5 or (2) acquire, operate or manage cable television systems or
otherwise conduct business (A) in any State other than the State of Indiana;
provided that the Company's operation in those portions of the Commonwealth of
Kentucky that are served (at the time of formation of the Company or thereafter)
by the cable television systems initially contributed to the Company by the
Members pursuant to Section 3.1(b)
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shall not require any additional approval of the Members, or (B) in the
geographic portion of the State of Indiana that is located above the bold line
drawn on the map of the State of Indiana attached hereto as Schedule IV unless
in either case any such systems or businesses that relate to any other State or
to such geographic portion of the State of Indiana that is located above the
bold line drawn on such map were acquired in a transaction or series of
transactions in which any such systems or businesses did not constitute more
than twenty percent of the total assets (as determined by cash flow, the number
of subscribers or such other reasonable method, as determined by the Managing
Member in its reasonable discretion) acquired in such transaction or series of
transactions;
(n) make a call for additional Capital Contributions (other
than the Capital Contributions to be made pursuant to Sections 3.1(a) and (b));
or
(o) purchase, redeem, retire, or otherwise acquire any
Membership Interests or other equity interest in the Company, except for the
purchase, redemption, retirement, or other acquisition of any equity interest
where the terms of such interest, as approved in accordance with this Section
7.6, permit or require such purchase, redemption, retirement, or other
acquisition; or
(p) make any distribution to the Members other than
distributions permitted pursuant to Section 4.1(a)(1) or required by Section
11.2(d)(3);
(q) amend the Management Incentive Plan; or
(r) enter into, conduct, engage in or participate in the
business of providing or engaging in any Internet Backbone Service, or obtain or
acquire any record or beneficial equity interest in any Person which conducts,
engages in or participates in any Internet Backbone Service, it being agreed
that the use of IP technology to provide telephone, fax, video, video
conferencing, telecommuting, virtual private networks, security and energy
management services to subscribers of the Company's cable television systems
does not constitute such conducting, engaging in, or participating in an
Internet Backbone Service and does not, subject to Section 16.1(b), require the
consent or approval of the Members pursuant to this Section 7.6(r).
7.7 Member Consent Defined.
For purposes of this Agreement, including Sections 7.5 and 7.6, Insight
or TCI, as the case may be, shall be deemed to have approved any action or
proposed action by or on behalf of the Managing Member, the Company, or any
Subsidiary if: (A) Insight or TCI, as the case may be, has affirmatively
approved the taking of such action in writing or (B) all of the acting
Representatives appointed by Insight or TCI, as the case may be, have
affirmatively approved the taking of such action in person or in writing.
Insight and TCI may approve any such action or proposed action by either method
described in clauses (A) and (B).
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ARTICLE 8
TRANSFER OF MEMBERSHIP INTERESTS
8.1 Limitations on Transfers.
(a) Except as provided in Section 8.1(b) and 8.1(c), neither
Member may sell, assign, transfer or otherwise dispose of, or pledge,
hypothecate or otherwise encumber (any or all of the foregoing, a "Transfer")
all or any part of its Membership Interest, the profits, losses and
distributions therefrom, or any part thereof (whether voluntarily, involuntarily
or by operation of law) unless approved by the other Member, which consent shall
not be unreasonably withheld or delayed. Notwithstanding the approval of the
non-transferring Member to any Transfer by a Member, the rights of any
Transferee shall be subject at all times to the limitations set forth in Section
8.2.
(b) The restrictions of Section 8.1(a) shall not apply and no
consent of the other Member shall be required for:
(1) a Transfer pursuant to Article 9; or
(2) a Transfer to an Affiliate of such Member
(a "Successor") so long as (A) such Transfer would not hinder or impair
consummation of any of the transactions contemplated by Article 9; (B) such
Successor, prior to such sale or transfer, becomes a party to this Agreement and
agrees to be bound by the terms and conditions hereof; and (C) in the case of a
Transfer by TCI, TCI Communications, Inc. holds and maintains, directly or
indirectly, an economic ownership in such Affiliate equal to at least 50.1% of
the economic interest in such Affiliate following such Transfer and has and
maintains, directly or indirectly, voting control of such Affiliate following
such Transfer; or
(3) a Transfer pursuant to Section 8.7.
(c) If Insight desires to effect a Transfer that is not
permitted by the terms of this Section 8.1 except with the approval of TCI, and
if TCI grants such approval upon Insight's request, TCI shall have the right,
effective upon the Transfer by Insight, to become the Managing Member and to
appoint three Representatives to the Management Committee, and the transferee of
Insight shall have the right to appoint two Representatives to the Management
Committee, provided that any such change in the identity of the Managing Member
and the composition of the Management Committee shall be subject to and
conditioned upon receipt of all necessary governmental approvals and other
material third party consents. TCI shall exercise such right, if at all, by
giving written notice to Insight at the same time TCI grants its approval to the
Transfer by Insight. If TCI exercises such right, the transferee of Insight,
upon becoming a Member, shall not be a Managing Member, and the allocations and
distributions to be made to the Members pursuant to this Agreement shall not be
altered.
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(d) Notwithstanding anything in this Agreement to the
contrary, without the consent of the other Member, neither Member shall effect,
or agree to effect, any Transfer that will adversely affect or change, or is
reasonably likely to adversely affect or change, the partnership tax
classification of the Company.
8.2 Transferees and Successors.
(a) Notwithstanding any provision to the contrary contained
herein, no Membership Interest may be transferred unless the Transferee or
Successor becomes a party to this Agreement, assumes all of the obligations
hereunder of its transferor and agrees to be bound by the terms and conditions
hereof in the same manner as the transferor. Upon becoming a party to this
Agreement in compliance with the terms hereof, except as otherwise provided
herein, any Transferee or Successor shall be substituted fully for, and shall
enjoy the same rights and be subject to the same obligations as, its predecessor
as a Member and/or a Managing Member hereunder as the case may be.
(b) If there is a permitted Transfer of a Membership Interest
under this Agreement:
(1) A Transferee's or Successor's Percentage
Interest shall equal the Percentage Interest transferred to it by the
transferring Member;
(2) A Transferee's or Successor's Capital
Account shall initially be equal to the Capital Account balance transferred to
it by the transferring Member;
(3) If requested to do so by any transferring
Member or by the Transferee or Successor by notice given to the Members, the
Company shall make an election under Section 754 of the Code (and a
corresponding election under applicable state and local law). Upon the request
of either Member, the Company shall also make a timely election under Section
754 of the Code upon a distribution of property or money to a Member.
8.3 Transfers of Interests in Members.
(a) Except as provided in Section 8.3(b), TCI Communications,
Inc. agrees that it will not Transfer (whether voluntarily, involuntarily or by
operation of law) all or any part of its direct or indirect ownership interests
in TCI, without the consent of Insight.
(b) The restriction of Section 8.3(a) shall not apply and no
consent of Insight shall be required for a Transfer directly or indirectly by
TCI Communications, Inc. to an Affiliate of TCI Communications, Inc. so long as
(1) such Transfer would not hinder or impair consummation of any of the
transactions contemplated by Article 9; (2) such transferee, prior to such sale
or transfer, becomes a party to this Agreement and agrees to be bound by the
terms and conditions hereof; and
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(3) TCI Communications, Inc. holds and maintains, directly or indirectly, an
economic ownership in such Affiliate equal to at least 50.1% of the economic
interest in such Affiliate following such Transfer and has and maintains,
directly or indirectly, voting control of such Affiliate following such
Transfer.
(c) It is understood and agreed that nothing in this Section
8.3 shall be deemed to require any consent of Insight to any proposed or actual
transfer of control (however such transfer is effected, by sale of stock or
assets, merger or consolidation or otherwise) of TeleCommunications, Inc. or TCI
Communications, Inc. or to any proposed or actual distribution to the
stockholders of Tele-Communications, Inc. of direct or indirect equity interests
in TeleCommunications, Inc.
(d) It is understood and agreed that nothing in this Agreement
shall be deemed to require any consent of TCI to any proposed or actual transfer
of control (however such transfer is effected, by sale of stock or assets,
merger or consolidation or otherwise) of Insight, provided, however, in the
event of such a transfer of control, TCI shall have the right, effective upon
such transfer, to become the Managing Member and to appoint three
Representatives to the Management Committee, and Insight shall have the right to
appoint two Representatives to the Management Committee, provided that any such
change in the identity of the Managing Member and the composition of the
Management Committee shall be subject to and conditioned upon receipt of all
necessary governmental approvals and other material third party consents. TCI
shall exercise such right, if at all, by giving written notice to Insight within
ten Business Days of TCI's receipt of notice that such a transfer of control is
contemplated. If TCI exercises such right, Insight, effective upon such transfer
of control, shall no longer be a Managing Member, and the allocations and
distributions to be made to the Members pursuant to this Agreement shall not be
altered.
(e) By executing this Agreement, TCI Communications, Inc.
represents and warrants to Insight and the Company that as of the date of this
Agreement it owns, directly or indirectly, all of the outstanding equity
interests in TCI.
8.4 Other Consents and Requirements.
Any Transfer must be in compliance with all requirements imposed by any
state securities administrator having jurisdiction over the Transfer and the
United States Securities and Exchange Commission and must not cause the Company
or any Subsidiary to be in violation of any Ownership Restriction.
8.5 Assignment Not In Compliance.
Any Transfer in contravention of any of the provisions of this Article
8 (whether voluntarily, involuntarily or by operation of law) shall be void and
of no effect, and shall neither bind nor be recognized by the Company.
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8.6 Division of Membership Interests.
The several rights and obligations inherent in the Capital Account and
Percentage Interest attributable to a Member's Membership Interest are
indivisible except in equal proportions, such that the assignment of a specified
percentage of a Member's Membership Interest may only represent an equal
percentage of the total Capital Account and Percentage Interest that were
attributable to such Member's Membership Interest prior to the assignment.
8.7 Pledge of Membership Interests.
At the request of the Management Committee, each Member agrees to
pledge its Membership Interest to secure any Indebtedness of the Company that is
permitted under this Agreement, on terms determined by the Management Committee,
so long as all Members are required to pledge their Membership Interests and the
terms of the pledge do not impose any personal liability on any Member. In
negotiating the terms of any such pledge, the Management Committee will require
that the secured party agree to enforce its rights against the Membership
Interests of the Members proportionately (based on the Percentage Interest of
each Member). If the secured party under any such pledge enforces its rights
against the Membership Interests of the Members other than proportionately, the
Members will afford each other such rights of contribution and indemnity as are
necessary to cause all liabilities, losses, and damages suffered by the Members
as a result of the exercise by the secured party of its rights under such pledge
to be borne by the Members proportionately.
8.8 Code Section 708(b)(1)(B).
(a) If a Transfer by a Member of all or any portion of its
Membership Interest (other than a Transfer pursuant to Article 9) results in a
termination of the Company pursuant to Section 708(b)(1)(B) of the Code, the
transferring Member will indemnify the other Member for any additional income
tax paid by such other Member as a result of such termination (including income
tax attributable to Code Section 704(c) allocations), whether required to be
paid in or for the taxable year in which such termination occurs or in or for
any subsequent taxable year, as offset by any income tax savings to be realized
by the other Member as a result of such termination (including income tax
savings attributable to Code Section 704(c) allocations), whether realized in or
for the taxable year in which such termination occurs or in or for any
subsequent taxable year.
(b) If a Member desires to assign all or part of its
Membership Interest in a transaction that, if consummated at one time, would
result in the termination of the Company within the meaning of Code Section
708(b)(1)(B), such Member may elect (1) to assign immediately as much of its
Membership Interest as may then be assigned without resulting in the termination
of the Company within the meaning of Code Section 708(b)(1)(B) and (2) to assign
the remaining portion of its Membership Interest that it desires to assign as
soon thereafter as such subsequent assignment would not result in the
termination of the Company within the meaning of Code Section 708(b)(1)(B). If a
Member notifies the other Member that it has elected to assign all or part of
its
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Membership Interest in accordance with this Section 8.8(b) specifying in its
notice the portion of its Membership Interest to be assigned immediately in
accordance with clause (1) of the preceding sentence and the portion of its
Membership Interest to be assigned subsequently in accordance with clause (2) of
the preceding sentence (the assignment of such portion, the "Deferred
Assignment"), then, if the other Member assigns all or any part of its
Membership Interest prior to the Deferred Assignment by the notifying Member and
the Deferred Assignment therefore results in the termination of the Company
within the meaning of Code Section 708(b)(1)(B), the other Member and not the
notifying Member shall be treated as the Member causing such termination for
purposes of Section 8.8(a).
ARTICLE 9
BUY/SELL RIGHTS
9.1 Commencement of Buy/Sell Process.
(a) At any time after the fifth anniversary of the Closing
(subject to Section 9.1(b)), either TCI or Insight may elect to commence the
process described in this Article 9 by giving written notice (the "Exit Notice")
of its election to commence the process described in this Article 9 to the
Non-Initiating Member. The Exit Notice shall also specify the Initiating
Member's determination of the fair market value of all of the assets of the
Company as of the date the Initiating Member delivers the Exit Notice (it being
understood and agreed that to the extent the Company has any Subsidiaries, in
making the determination of the value of the Company, the Subsidiaries shall be
taken into account) (such determination, the "Stated Value of the Company").
(b) A Member may not elect to commence the process
described in this Article 9:
(1) at any time within twelve months of
delivering a prior Exit Notice to the Non-Initiating Member pursuant to Section
9.1(a); or
(2) at any time within six months of the
effectiveness of a valid notice of postponement delivered by either Member
pursuant to Section 9.2; or
(3) at any time following the delivery of an
Exit Notice by the other Member pursuant to Section 9.1(a) and prior to such
time, if any, that (A) the Initiating Member and the Non-Initiating Member agree
to abandon the purchase and sale of Membership Interests commenced by such Exit
Notice pursuant to a subsequent election pursuant to Section 9.1(c), or (B) TCI
elects to terminate (or is deemed to have elected to terminate) the purchase and
sale of Membership Interests commenced by such Exit Notice pursuant to a
subsequent election pursuant to Section 9.3(c)(2) or Section 9.5(b), or (C) the
non-defaulting Member elects to terminate the purchase and sale of Membership
Interests commenced by such Exit Notice pursuant to a subsequent election
pursuant to Section 9.7(a)(3).
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(c) The purchase and sale of Membership Interests pursuant to
this Article 9 may be abandoned at any time following the delivery of an Exit
Notice pursuant to Section 9.1(a) and prior to the closing thereof by agreement
between the Initiating Member and the Non- Initiating Member.
9.2 Non-Initiating Member's Option to Postpone the Buy/Sell Process.
Upon receipt of a valid Exit Notice from the Initiating Member pursuant
to Section 9.1, the Non-Initiating Member may elect, by giving written notice to
the Initiating Member within five Business Days of the Non-Initiating Member's
receipt of such Exit Notice, to postpone for a period of six months the first
date on which either Member may commence the process described in this Article 9
by delivering an Exit Notice, provided that each Member may exercise this option
to postpone only once during the term of the Company. If the Non-Initiating
Member fails to give a timely written notice of its election to postpone
pursuant to the preceding sentence (or if the Non-Initiating Member has already
exercised its one election to postpone), the Non- Initiating Member shall be
deemed not to have made such an election to postpone. A timely and valid
election to postpone by the Non-Initiating Member shall become effective
immediately upon its delivery to the Initiating Member, at which time the
Initiating Member's Exit Notice shall automatically be rescinded and be of no
further force and effect and neither Member shall have any further obligations
in respect of such Exit Notice and such Exit Notice shall not count against the
Initiating Member for purposes of Section 9.1(b)(1).
9.3 TCI's Options as Non-Initiating Member.
If TCI receives an Exit Notice from Insight pursuant to Section 9.1 and
does not make (or is deemed not to have made) an election to postpone pursuant
to Section 9.2, TCI shall elect, by giving written notice (an "Initial Election
Notice") of its election to Insight within ninety days after its receipt of the
Exit Notice, either to (1) purchase Insight's Membership Interest, or (2) sell
its Membership Interest to Insight or to otherwise effect an exit from the
Company pursuant to an Alternative Structure. If TCI makes an election pursuant
to clause (2) of the preceding sentence, TCI's Initial Election Notice shall
also specify whether TCI desires to enter into negotiations with Insight to
restructure the sale of TCI's Membership Interest or its exit from the Company
in a manner that results in tax-deferred or tax-advantaged treatment to TCI (for
example, by the purchase by the Company of assets to distribute to TCI in
redemption of TCI's Membership Interest or the distribution by the Company of
certain of its then existing assets in redemption of TCI's Membership Interest)
(an "Alternative Structure").
(a) Election to Purchase. Upon the timely delivery by TCI of
an Initial Election Notice pursuant to this Section 9.3 specifying its election
to purchase Insight's Membership Interest, Insight shall be obligated to sell
and TCI shall be obligated to purchase, in accordance with this Article 9, all
of Insight's Membership Interest for a cash price equal to the Equity Value of
such Membership Interest. At TCI's option, TCI may designate a financially,
legally and technically
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qualified third party to purchase Insight's Membership Interest, provided that
TCI shall not be relieved of its obligation under this Section 9.3(a) in the
event such third party does not perform.
(b) Election to Sell Without Election to Negotiate Alternative
Structure. Upon the timely delivery by TCI of an Initial Election Notice
pursuant to this Section 9.3 specifying TCI's election to sell its Membership
Interest to Insight without an election by TCI to negotiate an Alternative
Structure, TCI shall be obligated to sell and Insight shall be obligated to
purchase, in accordance with this Article 9, all of TCI's Membership Interest
for a cash price equal to the Equity Value of such Membership Interest.
(c) Election to Sell or Exit With an Election to Negotiate
Alternative Structure. Upon the timely delivery by TCI of an Initial Election
Notice pursuant to this Section 9.3 specifying TCI's election to sell its
Membership Interest to Insight or otherwise effect an exit from the Company and
specifying TCI's election to negotiate an Alternative Structure, the Members
will negotiate in good faith and use commercially reasonable efforts (taking
into account any tax, regulatory, or economic considerations) for a reasonable
period (not to exceed sixty days) to agree on an Alternative Structure.
(1) If the Members agree on an Alternative
Structure within such sixty day period, TCI and Insight shall be obligated to
effect TCI's exit from the Company, in accordance with this Article 9 and the
terms of the Alternative Structure.
(2) If the Members are unable to reach agreement
on an Alternative Structure within such sixty day period, then TCI shall elect,
by giving written notice to Insight within fifteen Business Days of the end of
such sixty day period, either to (1) sell its Membership Interest to Insight, in
which event TCI shall be obligated to sell and Insight shall be obligated to
purchase, in accordance with this Article 9, all of TCI's Membership Interest
for a cash price equal to the Equity Value of such Membership Interest, or (2)
terminate the purchase and sale process commenced pursuant to Insight's Exit
Notice, subject to Section 9.6. If TCI fails to give a timely notice to Insight
pursuant to the preceding sentence, TCI shall be deemed to have made an election
pursuant to clause (2) of the preceding sentence.
(d) Failure to Make a Timely Election. If TCI fails to give an
Initial Election Notice to Insight within ninety days after its receipt of
Insight's Exit Notice, TCI shall be deemed to have made an election pursuant to
either Section 9.3(a), 9.3(b) or 9.3(c) as Insight shall determine in its sole
discretion by giving written notice to TCI within five Business Days after the
end of such ninety day period.
9.4 Insight's Options as Non-Initiating Member.
If Insight receives an Exit Notice from TCI pursuant to Section 9.1 and
does not make (or is deemed not to have made) an election to postpone pursuant
to Section 9.2, Insight shall elect, by giving written notice (an "Initial
Election Notice") of its election to TCI within ninety days after its
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receipt of the Exit Notice, either to (1) sell its Membership Interest to TCI,
or (2) purchase TCI's Membership Interest.
(a) Election to Sell. Upon the timely delivery by Insight of
an Initial Election Notice pursuant to this Section 9.4 specifying its election
to sell its Membership Interest to TCI, Insight shall be obligated to sell and
TCI shall be obligated to purchase, in accordance with this Article 9, all of
Insight's Membership Interest, for an amount in cash equal to the Equity Value
of such Membership Interest.
(b) Election to Purchase. Upon the timely delivery by Insight
of an Initial Election Notice pursuant to this Section 9.4 specifying its
election to purchase TCI's Membership Interest, and upon the failure (or deemed
failure) of TCI to make an election to negotiate an Alternative Structure
pursuant to Section 9.5, TCI shall be obligated to sell and Insight shall be
obligated to purchase, in accordance with this Article 9, all of TCI's
Membership Interest, for an amount in cash equal to the Equity Value of such
Membership Interest.
(c) Failure to Make a Timely Election If Insight fails to give
an Initial Election Notice to TCI within ninety days after its receipt of TCI's
Exit Notice, Insight shall be deemed to have made an election pursuant to either
Section 9.4(a) or 9.4(b) as TCI shall determine in its sole discretion by giving
written notice to Insight within five Business Days after the end of such ninety
day period.
9.5 TCI's Option to Negotiate Alternative Structure.
Upon its receipt of an Initial Election Notice from Insight pursuant to
Section 9.4 specifying Insight's election to purchase TCI's Membership Interest,
TCI may elect, by giving written notice to Insight within fifteen Business Days
of its receipt of Insight's Initial Election Notice, to enter into negotiations
with Insight to agree on an Alternative Structure. If TCI fails to give a timely
notice pursuant to the preceding sentence specifying such an election, TCI shall
be deemed not to have made such an election. Upon TCI's timely delivery of its
election to negotiate an Alternative Structure, the Members will negotiate in
good faith and use commercially reasonable efforts (taking into account any tax,
regulatory, or economic considerations) for a reasonable period (not to exceed
sixty days) to agree on an Alternative Structure.
(a) If the Members agree on an Alternative Structure within
such sixty day period, TCI and Insight shall be obligated to effect TCI's exit
from the Company in accordance with this Article 9 and the terms of the
Alternative Structure.
(b) If the Members are unable to reach agreement on an
Alternative Structure within such sixty day period, then TCI shall elect, by
giving written notice to Insight within fifteen Business Days of the end of such
sixty day period, either to (1) sell its Membership Interest to Insight, in
which event TCI shall be obligated to sell and Insight shall be obligated to
purchase, in accordance with this Article 9, all of TCI's Membership Interest
for a cash price equal to the Equity
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Value of such Membership Interest, or (2) terminate the purchase and sale
process commenced pursuant to Insight's Exit Notice, subject to Section 9.6. If
TCI fails to give a timely notice to Insight pursuant to the preceding sentence,
TCI shall be deemed to have made an election pursuant to clause (2) of the
preceding sentence.
9.6 Insight's Option to Require TCI to Purchase Insight's Membership
Interest.
If TCI elects (or is deemed to have elected) to terminate the purchase
and sale process pursuant to Section 9.3(c)(2) or Section 9.5(b), Insight may
elect, by giving written notice to TCI within five Business Days of Insight's
receipt of TCI's election to terminate (or within five Business Days of TCI's
deemed election to terminate), to require TCI to purchase Insight's Membership
Interest. Upon the timely delivery by Insight of a notice pursuant to the
preceding sentence specifying Insight's election to require TCI to purchase
Insight's Membership Interest, Insight shall be obligated to sell and TCI shall
be obligated to purchase, in accordance with this Article 9, all of Insight's
Membership Interest for a cash price equal to the Equity Value of such
Membership Interest. If Insight fails to make a timely election pursuant to the
first sentence of this Section 9.6, Insight shall be deemed to have agreed to
the termination of the purchase and sale process commenced by the Initiating
Member's Exit Notice.
9.7 Default by Member.
(a) If either Member becomes obligated to purchase the other
Member's Membership Interest under this Article 9 pursuant to an Exit Notice, or
if Insight becomes obligated to effect an Alternative Structure under this
Article 9 pursuant to Section 9.3(c)(1) or Section 9.5(a), and such Member
defaults in its obligation to purchase the selling Member's Membership Interest
on the date specified in Section 9.9(a) for the closing of the purchase and sale
of the selling Member's Membership Interest or Insight defaults in its
obligation to effect an Alternative Structure, then the non-defaulting Member
may elect either:
(1) to purchase the Membership Interest of the
defaulting Member for a cash price equal to 95% of the Equity Value of such
Membership Interest and otherwise on the terms and subject to the conditions set
forth in this Article 9; or
(2) to cause the Company to be liquidated and
dissolved in accordance with Article 11; or
(3) to terminate the buy/sell process commenced
by the Initiating Member's Exit Notice and continue the Company.
(b) The three options that may be elected by the
non-defaulting Member pursuant to Section 9.7(a) are exclusive of each other and
are exclusive of all other rights and remedies that may otherwise have been
available to the non-defaulting Member at law or equity as a result of the
defaulting Member's default.
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(c) The non-defaulting Member may make an election pursuant to
Section 9.7(a) by giving written notice of its election to the defaulting Member
at any time within thirty days after the date specified in Section 9.9(a) for
the closing of the purchase and sale of the non-defaulting Member's Membership
Interest or the date scheduled for closing of an Alternative Structure and prior
to such time, if any, as the defaulting Member stands ready, willing, and able
to purchase the non-defaulting Member's Membership Interest in accordance with
this Article 9 or to consummate the Alternative Structure. If the non-defaulting
Member makes a timely election pursuant to Section 9.7(a)(1), the defaulting
Member shall be obligated to sell and the non-defaulting Member shall be
obligated to purchase, in accordance with this Article 9, all of the defaulting
Member's Membership Interest.
9.8 Removal of Insight as Member.
(a) The provisions of this Section 9.8 shall apply if:
(1) a court of competent jurisdiction finds that
Insight has engaged in conduct while acting as Managing Member that constitutes
either fraud against the Company or TCI or a felony involving moral turpitude
and that such conduct has resulted in material harm to the Company or TCI, and
(2) the finding described in Section 9.8(a)(1)
has not been reversed, stayed, enjoined, set aside, annulled, or suspended, and
is not the subject of any pending request for judicial review, reconsideration,
appeal, or stay, and
(3) the time for filing any further request for
judicial review, reconsideration, appeal, or stay of the finding described in
Section 9.8(a)(1) has expired.
(b) If each of the conditions specified in Section 9.8(a) is
satisfied, then (1) TCI shall have the power to appoint three of the five
Representatives of the Management Committee and the Managing Member shall have
the power to appoint two of the five Representatives; provided, that such change
in composition of the Management Committee shall be subject to and conditioned
upon receipt of all necessary governmental approvals and other material third
party consents and (2) TCI shall have the option to purchase all of the Managing
Member's Membership Interest in accordance with the process described in this
Section 9.8(b) and Section 9.8(c). TCI may elect to commence such process by
giving written notice of its election to Insight within ten Business Days after
the condition specified in Section 9.8(a)(3) is satisfied. Upon Insight's
receipt of TCI's notice pursuant to the preceding sentence, Insight and TCI
shall, within thirty Business Days of such receipt, negotiate in good faith to
determine the fair market value of all of the assets of the Company as of the
date TCI delivers notice to Insight pursuant to the first sentence of this
Section 9.8(b) (it being understood and agreed that to the extent the Company
has any Subsidiaries, in making the determination of the value of the Company,
the Subsidiaries shall be taken into account) (the "Fair Market Value of the
Company").
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(1) If Insight and TCI fail to agree upon the
Fair Market Value of the Company within such period, then each of Insight and
TCI will select a nationally recognized investment banking firm or nationally
recognized qualified appraisal firm who will determine the Fair Market Value of
the Company within sixty days of engagement. If the average of the two
appraisals is within 1.5% of the lower of the appraisals, then the Fair Market
Value of the Company will be the average of the two appraisals. If such average
is not within 1.5% of the lower of the two appraisals, the two appraisers
selected by Insight and TCI will select a third nationally recognized investment
banking firm or a nationally recognized qualified appraisal firm who will
conduct a third appraisal, and the Fair Market Value of the Company will be
equal to the average of the two appraisals that are closest to one another,
provided that if the highest and lowest appraisals are equidistant from the
middle appraisal, then the Fair Market Value of the Company will be equal to the
middle appraisal. Each of Insight and TCI shall have the right to submit to all
appraisers a position paper with respect to valuation. Each of Insight and TCI
will bear the expenses of the firm investment banking firm or appraisal firm
that they select, and if a third investment banking firm or appraisal firm is
used, Insight and TCI will share equally the expenses of the third firm. In
conducting the appraisals, the appraisers shall assume that the value of any
business is the price at which the assets of such business as a going concern
would change hands between a willing buyer and a willing seller, on terms and
subject to conditions and costs applicable in the cable television industry
(and, if and to the extent applicable, any other industry in which the Company
or any of its Subsidiaries is engaged) and otherwise use valuation techniques
then prevailing in the cable television industry or such other industry.
(2) If at the time the Fair Market Value of the
Company is being determined pursuant to this Section 9.8 any Retained Franchises
or Exchange Retained Franchises (as defined in the Contribution Agreement) that
are required to be contributed to the Company have not been contributed to the
Company pursuant to the Contribution Agreement, then the Fair Market Value of
the Company shall be determined and calculated as if such Retained Franchises
and Exchange Retained Franchises were then owned by the Company; and if TCI
purchases Insight's Membership Interest pursuant to this Article 9, all
obligations of Insight under the Contribution Agreement with respect to any such
Retained Franchises that are Insight Retained Franchises (including obligations
to contribute the Exchange Retained Franchises to the Company upon transfer from
TCI) shall survive the removal of Insight from the Company upon the sale of its
Membership Interest subject to any conditions on such obligations.
(c) TCI may elect to purchase all of Insight's Membership
Interest and, upon the consummation of such purchase, to remove Insight as a
Member, by giving written notice of its election to Insight within ten Business
Days after the final determination of the Fair Market Value of the Company. Upon
the timely delivery by TCI of notice pursuant to the preceding sentence
specifying its election to purchase Insight's Membership Interest, Insight shall
be obligated to sell and TCI shall be obligated to purchase, in accordance with
this Article 9, all of Insight's Membership Interest for a cash price equal to
the Equity Value of Insight's Membership Interest. If TCI fails to give a timely
notice to Insight pursuant to the first sentence of this Section 9.8(c)
specifying its
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election to purchase Insight's Membership Interest, TCI shall be deemed to have
made an election not to purchase Insight's Membership Interest pursuant to this
Section 9.8, in which event, subject to Sections 9.8(b) and (d), Insight shall
continue as the Managing Member.
(d) The rights of TCI under this Section 9.8 are in addition
to any other rights and remedies available to TCI at law or equity as a result
of any conduct by Insight described in Section 9.8(a).
9.9 General Terms Applicable to Purchase and Sale of Membership
Interests.
(a) The closing of the purchase and sale of a Member's
Membership Interest or of an Alternative Structure in accordance with this
Article 9 shall occur not later than twenty Business Days after the receipt of
all material governmental consents and approvals required in connection with the
sale of the selling Member's Membership Interest in connection with such
Alternative Structure.
(b) The closing of the purchase and sale of the selling
Member's Membership Interest or of the Alternative Structure in accordance with
this Article 9 shall take place at the principal office of the Company or at any
other location agreed to by Insight and TCI.
(c) At the closing of any purchase and sale of the selling
Member's Membership Interest or of any Alternative Structure pursuant to this
Article 9, the purchasing Member or the Company or other buyer in an Alternative
Structure shall pay or cause to be paid to the selling Member, by cash or other
immediately available funds or any other form of consideration mutually agreed
to by the selling Member and the purchasing Member or the consideration agreed
to as part of the Alternative Structure, the purchase price for the Membership
Interest being purchased and the selling Member shall deliver to the purchasing
Member (or its permitted assignee or the Company or other buyer in an
Alternative Structure) good title, free and clear of any liens (other than those
created by this Agreement and those securing financing obtained by the Company
or any Subsidiary), to the Membership Interest being sold.
(d) With respect to the current assets and liabilities of the
Company, the transaction costs and the reserves to be determined as part of the
Equity Value of the Membership Interest to be sold at the closing pursuant to
this Article 9, such current assets and liabilities, costs and reserves shall be
determined by mutual agreement of Insight and TCI at least five days in advance
of the date scheduled for said closing, but to the extent that as of such date
there is a good faith disagreement between the parties as to any portion of such
current assets, liabilities, costs or reserves the parties shall proceed to
closing of such purchase and sale, with closing based on matters not in dispute.
Thereafter, all matters in dispute shall be immediately referred to an
independent public accountant mutually acceptable to Insight and TCI who shall
make such determination as promptly as practicable and whose determination shall
be final and binding upon the parties. If the accountant determines that either
party is entitled to payment from the other party, the party which owes such
payment shall make it to the entitled party in cash (or in the same form of
consideration
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as is being paid in such transaction if the parties have agreed to an
Alternative Structure) in accordance with the accountant's determination.
(e) The Members will cooperate in good faith and use their
respective commercially reasonable efforts to obtain as quickly as practicable
all governmental consents and approvals required in connection with the purchase
and sale of a Member's Membership Interest or an Alternative Structure pursuant
to this Article 9.
(f) From and after the closing, the purchasing Member will be
entitled to indemnification from the selling Member (or another creditworthy
entity reasonably acceptable to the purchasing Member) against any liabilities
of the selling Member as a Member (including without limitation, tax liabilities
of the selling Member for periods prior to the closing) for periods prior to
closing not taken into account in determining the Equity Value of the Membership
Interest purchased by the purchasing Member. The other indemnification
obligations of the selling Member to the purchasing Member shall be
substantially equivalent to its indemnification obligations to the Company
pursuant to the Contribution Agreement. On the date that is one year after the
closing under this Article 9, the selling Member shall be entitled to its
distributable share of any reserves set up pursuant to Section 11.2(d)(2) that
had not yet been used to pay any obligation or liability that relates to the
period prior to the date of closing pursuant to this Article 9 and that would
not be required to be maintained in accordance with generally accepted
accounting principles with respect to the period prior to the date of closing
pursuant to this Article 9.
(g) Each Member agrees that, from and after the date on which
the respective obligations of the Members to purchase and sell the selling
Member's Membership Interest or to effect an Alternative Structure become
effective in accordance with this Article 9, it will negotiate in good faith and
use commercially reasonable efforts to enter into an appropriate purchase
agreement or other agreements on reasonable terms and conditions that are
consistent with the other provisions of this Article 9 and that are otherwise
standard and customary at the time for similar transactions. The Members
recognize that the sixty day period specified in Sections 9.3(c) and 9.5 to
agree on an Alternative Structure relates to agreement on the form and material
terms of the structure and a timetable for entering into the purchase agreement
or other agreements necessary to effect the Alternative Structure, but that
additional time may be required to negotiate and enter into such agreements.
(h) Each Member hereby agrees that the other Member shall be
entitled to an injunction or injunctions to prevent breaches by such Member of
its obligations under this Article 9 and to enforce specifically the terms and
provisions of this Article 9 in any court of the United States or any state
having jurisdiction, in addition to any other remedy to which it is entitled at
law or in equity. If an action is brought by either Member pursuant to this
Section 9.9(h), the other Member shall waive the defense that there is an
adequate remedy at law.
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ARTICLE 10
OTHER BUSINESSES AND INVESTMENT OPPORTUNITIES
10.1 [Intentionally Deleted].
10.2 Limitations on Activities of the Company.
(a) Prior to January 31, 1999, or for such shorter period as
TCI (or its Affiliates) is bound by a similar requirement (as such requirement
is in effect on the date hereof) under that certain Parents Agreement dated as
of January 31, 1996 between TeleCommunications, Inc. and Sprint Corporation (the
"Parents Agreement"), whichever occurs first, the Company will not offer (or
promote or package any of its products or services with or act as a sales agent
for) wireline services (local or long distance) under the brand name of any Bell
Operating Company or any of GTE Corporation, AT&T Corporation, MCI
Communications Corporation, British Telecommunications, plc, WorldCom, Inc.,
Cable & Wireless plc, LCI International Inc. or Frontier Corporation or any of
their respective Affiliates; provided, however, that in no event shall this
restriction apply (1) to the extent that a Controlled Affiliate (as defined in
the Parents Agreement) of Tele-Communications, Inc. would not be subject to a
similar requirement under the Parents Agreement (as a result of any exceptions
in the Parents Agreement to the covenants of Tele-Communications, Inc. and its
Controlled Affiliates thereunder or otherwise) or (2) following the termination
of the Parents Agreement.
(b) Prior to January 31, 1999, or for such shorter period as
TCI (or its Affiliates) is bound by a similar requirement (as such requirement
is in effect on the date hereof) under the Parents Agreement, whichever occurs
first, the Company will not make its distribution facilities available to a
third party in connection with offering local phone service to residential
customers without making the facilities similarly available to Sprint
Corporation; provided, however, (1) the Company itself may offer local phone
service (subject to the restrictions in Section 10.2(a)) without offering its
distribution facilities to Sprint Corporation, and (2) in no event shall this
restriction apply (A) to the extent that a Controlled Affiliate (as defined in
the Parents Agreement) of Tele-Communications, Inc. would not be subject to a
similar requirement under the Parents Agreement (as a result of any exceptions
in the Parents Agreement to the covenants of Tele-Communications, Inc. and its
Controlled Affiliates thereunder or otherwise) or (B) following the termination
of the Parents Agreement.
(c) Prior to January 31, 1999, or for such shorter period as
TCI (or its Affiliates) is bound by a similar requirement (as such requirement
is in effect on the date hereof) under the Parents Agreement, whichever occurs
first, the Company will not make its distribution facilities available to any
Bell Operating Company or any of GTE Corporation, AT&T Corporation, MCI
Communications Corporation, British Telecommunications, plc, WorldCom, Inc.,
Cable & Wireless plc, LCI International Inc. or Frontier Corporation or any of
their respective Affiliates for high speed
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data services without making its facilities similarly available to Sprint
Corporation; provided, however, (1) such facilities may be made available to
other third parties, including @Home, without such facilities being made
available to Sprint Corporation, and (2) in no event shall this requirement
apply (A) to the extent that a Controlled Affiliate (as defined in the Parents
Agreement) of Tele-Communications, Inc. would not be subject to a similar
restriction under the Parents Agreement (as a result of any exceptions in the
Parents Agreement to the covenants of Tele-Communications, Inc. and its
Controlled Affiliates thereunder or otherwise) or (B) following the termination
of the Parents Agreement.
(d) TCI represents and warrants to, and agrees with, Insight
that none of the foregoing restrictions will (1) subject to Section 10.4,
restrict the ability of Insight or its Affiliates (other than the Company) from
engaging in any of the activities specified in Sections 10.2(a), (b) and (c)
other than through the Company; or (2) restrict the Company or its Subsidiaries
from providing wireline backhaul and wireline transport of wireless
communications signals on arms length and customary terms.
10.3 Prohibited Cross-Interests.
(a) Each Member agrees that, during the term of this
Agreement, neither such Member nor any Affiliate of such Member shall, directly
or indirectly, acquire any interest in any business or in any Person if the
acquisition of such interest would cause the Company or any Subsidiary to be in
violation of any Ownership Restriction.
(b) If, during the term of this Agreement, there is a Formal
Determination that either Member's holding of a Membership Interest causes the
Company or any Subsidiary to be in violation of any Ownership Restriction, then
the following provisions of this Section 10.3(b) shall apply. For purposes of
this Section 10.3(b), a "Formal Determination" means (i) an agreement between
Insight and TCI, (ii) a written determination by the FCC (including a
determination by staff employees of the FCC acting under delegated authority),
regardless of whether such determination is subject to administrative or
judicial review, reconsideration, or appeal (except to the extent that, so long
as a stay of any enforcement action by the FCC against the Company or any
Subsidiary as a result of any such violation of an Ownership Restriction is
effective, the Member that caused the violation specifies that any such
determination will not constitute a Formal Determination during the pendency of
any review, reconsideration, or appeal), or (iii) a decision of any court of
competent jurisdiction, regardless of whether such decision is subject to
administrative or judicial review, reconsideration, or appeal (except to the
extent that, so long as a stay of any enforcement action by the FCC against the
Company or any Subsidiary as a result of any such violation of an Ownership
Restriction is effective, the Member that caused the violation specifies that
any such decision will not constitute a Formal Determination during the pendency
of any review, reconsideration, or appeal). Insight and TCI will use their
respective good faith efforts, after consultation with legal counsel, to reach
an agreement as to whether either Member's holding of a Membership Interest
causes the Company or any Subsidiary to be in violation of any Ownership
Restriction.
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(1) The Company will use reasonable efforts to
obtain a stay of any enforcement action by the FCC against the Company or any
Subsidiary as a result of any such violation of an Ownership Restriction (and
the unanimous vote of the Members shall be required for the Company to act
otherwise), and the Members will cooperate reasonably with the Company in such
efforts, to the extent necessary to prevent such violation from having a
material adverse effect on the Company and the Subsidiaries before it is cured.
For purposes of this Section 10.3(b), a material adverse effect on the Company
and the Subsidiaries includes the loss of any license or licenses issued by the
FCC that, in the aggregate, are material to the conduct of the business of the
Company and the Subsidiaries, the imposition of any fines or forfeitures that,
in the aggregate, are material in amount, and limitations on the ability of the
Company or any Subsidiary to conduct its business in the ordinary course
consistent with its past practices.
(2) The Company and the Members will cooperate
reasonably with each other and negotiate in good faith with the FCC to obtain a
determination by the FCC (including a determination by staff employees of the
FCC acting under delegated authority) that certain actions proposed to be taken
by a Member or its Affiliates would cure any such violation of an Ownership
Restriction. The actions proposed to be taken by a Member or its Affiliates to
cure such violation may be those that, in such Member's judgment, are least
detrimental to such Member and its Affiliates, and may include the divestiture
of any asset or the restructuring of any investment.
(3) If there is a Formal Determination that a
Member's holding of a Membership Interest causes the Company or any Subsidiary
to be in violation of any Ownership Restriction, (such Member, the "Curing
Member") agrees to take all actions reasonably necessary to cure any such
violation of an Ownership Restriction; provided, however, that:
(A) if the Company and the Members
receive a determination by the FCC (including a determination by staff employees
of the FCC acting under delegated authority) that certain actions proposed to be
taken by the Curing Member or its Affiliates would cure such violation, then, if
the Curing Member and its Affiliates take such actions, the Curing Member shall
not be required to take any other action under this Section 10.3(b) to cure such
violation until such time, if any, that there is a subsequent Formal
Determination that such actions did not cure such violation;
(B) The Curing Member shall not be required
to take any action to cure such violation prior to the time that such violation
would have a material adverse effect on the Company and the Subsidiaries; and
(C) The Curing Member shall not be required
to take any action to cure any violation that arose from any acquisition made by
the Company or any Subsidiary in violation of Section 10.3(c).
(4) The actions that the Curing Member may be
required to take pursuant to Section 10.3(b)(3), subject to the limitations
therein, shall include, to the extent necessary to cure
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such violation, executing amendments to this Agreement to eliminate any right of
the Curing Member under this Agreement (other than its right to allocations of
income, its right to distributions, its rights under Section 7.5 in the case of
TCI as the Curing Member, its rights under Section 7.6, and its right to approve
any other action by the Company and the Subsidiaries if such action (A) in the
case of an action that does not uniquely affect either Member, such as an
acquisition or disposition of assets or a financing, would have a material
adverse economic effect on the Curing Member or (B) in the case of an action
that uniquely affects either Member, such as a transaction between the Company
and a Member or an Affiliate of a Member, would have an adverse economic effect
on the Curing Member).
(c) Neither Member will approve the acquisition, directly or
indirectly, by the Company or any Subsidiary of any interest in any business or
in any Person if such Member has actual knowledge that consummating such
acquisition would cause either Member or any Affiliate of either Member to be in
violation of any Ownership Restriction; provided that if the Managing Member
desires to cause the Company or a Subsidiary to acquire assets or an interest in
a business or any Person, and the Managing Member does not have actual knowledge
that such acquisition would cause the Company or a Subsidiary, either Member or
any Affiliate of either Member to be in violation of any Ownership Restriction,
then the Managing Member shall provide prior written notice to TCI of such
proposed acquisition at least 30 days prior to entering into a binding agreement
to effect such acquisition and if TCI notifies the Managing Member within
fifteen days of receiving such notice that such acquisition would cause the
Company or a Subsidiary or TCI to be in violation of any Ownership Restriction,
the Managing Member shall not proceed with such acquisition without first
complying with this Section 10.3(c) again, it being understood that if TCI does
not so notify the Managing Member within such fifteen day period then the
Managing Member shall be presumed not to have knowledge that such acquisition
would cause the Company or a Subsidiary, either Member or any Affiliate of
either Member to be in violation of any Ownership Restriction.
10.4 Limitations on Other Activities of the Members.
To the extent that Insight or a Controlled Affiliate of Insight
engages within the geographic portion of the State of Indiana that is located
below the bold line drawn on the map of the State of Indiana attached hereto as
Schedule IV in any of the activities specified in Sections 10.2(a), (b) or (c)
at a time when the Company is prohibited from engaging in such activity, other
than through the Company, for a reasonable period of time (not to exceed 120
days), after TCI (or its Affiliates) are no longer bound by the restrictive
terms of the Sprint PCS Partnership Agreement or the Parents Agreement, as
applicable to the restricted activity at issue, Insight (upon receipt of notice
from TCI of such fact and TCI's election on behalf of the Company in accordance
with this Section 10.4 to exercise its rights under this Section 10.4) and TCI
shall negotiate in good faith to provide the Company the opportunity to acquire
the business related to such activity from Insight or its appropriate Affiliate;
provided that if at such time such business has been discontinued or such assets
(or the equity interests in such Affiliate) have been sold or otherwise disposed
of, none of the parties shall have any further obligation to each other with
respect to any such acquisition opportunity. It is understood and agreed by
Insight and TCI that without limiting any other considerations
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(including any necessary governmental or third party approvals), any such
acquisition by the Company shall be based upon the fair market value of the
business. To the extent Insight and TCI are unable for any reason to reach
agreement within such 120 day period referred to above, none of the parties
shall have any further obligation to each other with respect to any such
acquisition opportunity. TCI shall determine, acting in the best interests of
the Company, whether the Company shall exercise its rights under this Section
10.4 provided that TCI and Insight as part of reaching an agreement for the
Company to make such acquisition, shall also agree on any necessary capital
contributions and/or debt financing necessary to fund such acquisition by the
Company or any Subsidiary pursuant to this Section 10.4.
10.5 No Other Restrictions.
Except as specifically provided above in this Article 10, nothing in
this Agreement shall limit the ability of either Member, or any partner, member,
Affiliate, Controlled Affiliate, agent, or representative of either Member, to
engage in or possess an interest in other business ventures of any nature or
description, independently or with others, whether currently existing or
hereafter created and whether or not competitive with or advanced by the
business of the Company. Neither the Company nor the other Member shall have any
rights in or to the income or profits derived therefrom, nor shall either Member
have any obligation to the other Member with respect to any such enterprise or
related transaction.
ARTICLE 11
DISSOLUTION AND LIQUIDATION OF COMPANY
11.1 Events of Dissolution.
The Company shall be dissolved upon the happening of any of the
following events:
(a) the failure of the Members to continue the Company in
accordance with the provisions of Section 5.4(a) after the resignation of the
Managing Member with the consent of TCI (it being confirmed, with reference to
Section 5.4(c), that the resignation of the Managing Member in violation of this
Agreement shall not cause a dissolution);
(b) the expiration of the term of the Company as set forth in
Section 2.4;
(c) an election to liquidate and dissolve the Company made by
a non-defaulting Member pursuant to Section 9.7(a)(2);
(d) the sale, exchange, involuntary conversion, or other
disposition or transfer of all or substantially all of the assets of the
Company;
(e) upon agreement of Insight and TCI;
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(f) the termination of the Contribution Agreement in
accordance with its terms prior to the Closing (including, without limitation,
pursuant to Section 10.1(e) of the Contribution Agreement); or
(g) subject to any provision of this Agreement that limits or
prevents dissolution, the happening of any event that, under applicable law,
causes the dissolution of a limited liability company.
11.2 Liquidation.
(a) Upon dissolution of the Company for any reason, the
Company shall immediately commence to wind up its affairs. A reasonable period
of time shall be allowed for the orderly termination of the Company business,
discharge of its liabilities, and distribution or liquidation of the remaining
assets so as to enable the Company to minimize the normal losses attendant to
the liquidation process.
(b) Liquidation of the assets of the Company shall be managed
on behalf of the Company by the "Liquidator," which shall be (1) if the Company
is being liquidated pursuant to Section 11.1(c), the non-defaulting Member, and
(2) in all other events, Insight or a liquidating trustee selected by Insight.
The Liquidator shall be responsible for soliciting offers to purchase the
entirety of the Company's assets (including equity interests in other Persons)
or portions or clusters of assets of the Company. The Liquidator shall afford
each Member an opportunity to offer to purchase any assets of the Company that
are offered for sale in connection with the liquidation of the Company to the
extent doing so would be consistent with the orderly liquidation of the Company.
(c) The Liquidator shall cause a full accounting of the assets
and liabilities of the Company to be taken and a statement thereof to be
furnished to each Member within thirty days after the distribution of all of the
assets of the Company.
(d) The property and assets of the Company and the proceeds
from the liquidation thereof shall be applied in the following order of
priority:
(1) first, to payment of the debts and
liabilities of the Company, in the order of priority provided by law (including
any loans by either Member to the Company) and payment of the expenses of
liquidation;
(2) second, to setting up of such reserves as
the Liquidator may deem reasonably necessary for any contingent or unforeseen
liabilities or obligations of the Company or any obligation or liability not
then due and payable; provided, however, that any such reserve shall be paid
over by the Liquidator into a Company account or a liquidating trust account
established for such purpose, to be held in such account for the purpose of
disbursing such reserves in payment of
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such liabilities, and, at the expiration of such holdback period as the
Liquidator shall deem advisable, to distribute the balance thereafter remaining
in the manner hereinafter provided; and
(3) finally, to payment to the Members, in
accordance with Section 4.1(b). The distributions pursuant to this Section
11.2(d)(3) shall, to the extent possible, be made prior to the later of the end
of the Fiscal Year in which the dissolution occurs or the ninetieth day after
the date of dissolution, or such other time period which may be permitted under
Treasury Regulations Section 1.704-1(b)(2)(ii)(b).
(e) If in the course of the liquidation and dissolution of the
Company pursuant to this Article 11, the Liquidator determines that a sale by
all the Members to any Person of their Membership Interests, instead of a sale
by the Company and the Subsidiaries of their respective assets, would more
efficiently effect the liquidation of the Members' economic interests in the
Company or would reduce negative tax consequences to the Members and the
Company, but would not adversely affect the rights and obligations of either
Member (including the tax consequences to either Member), then each Member
agrees to sell its Membership Interest to such Person, and the Liquidator shall
have the authority, pursuant to the power of attorney granted in Section
16.7(b), to execute, acknowledge, deliver, swear to, file, and record all
agreements, instruments, and other documents that may be necessary or
appropriate to effect the sale of such Member's Membership Interest.
(f) Following the dissolution of the Company pursuant to
Section 11.1, the Members will use commercially reasonable efforts to structure
the liquidation of the Company in a manner that minimizes negative tax
consequences to the Members and the Company to the extent doing so would not
materially adversely affect either Member (except to the extent such Member is
adequately compensated by the other Member for such adverse effect). Any
structure agreed to by the Members pursuant to this Section 11.2(f) shall
supersede the other provisions of this Article 11 to the extent it is
inconsistent with such other provisions, but nothing in this Section 11.2(f)
shall modify or otherwise affect the other provisions of this Article 11 if the
Members are unable to agree on such a structure.
11.3 Distribution in Kind.
The Company shall not distribute any non-cash asset to either Member
without the consent of each Member. Any asset distributed in kind to one or more
Members shall first be valued at its fair market value to determine the gain or
loss used in determining Net Profit or Net Loss that would have resulted if such
asset were sold for such value, such gain or loss shall then be allocated
pursuant to Article 4, and the Members' Capital Accounts shall be adjusted to
reflect such gain or loss. The amount distributed and charged to the Capital
Account of each Member receiving an interest in such distributed asset shall be
the fair market value of such interest (net of any liability secured by such
asset that such Member assumes or takes subject to). The fair market value of
any asset distributed in kind in connection with the liquidation of the Company
shall be determined by an independent
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appraiser (any such appraiser must be nationally recognized as an expert in
valuing the type of asset involved) selected by the Liquidator.
11.4 No Action for Dissolution.
The Members acknowledge that irreparable damage would be done to the
goodwill and reputation of the Company if either Member should bring an action
in court to dissolve the Company under circumstances where dissolution is not
required by Section 11.1. This Agreement has been drawn carefully to provide
fair treatment of all parties and equitable payment in liquidation of the
Membership Interests of both Members. Accordingly, except where liquidation and
dissolution are required by Section 11.1, each Member hereby waives and
renounces its right to initiate legal action to seek dissolution or to seek the
appointment of a receiver or trustee to liquidate the Company.
11.5 No Further Claim.
Upon dissolution, each Member shall look solely to the assets of the
Company for the return of its investment, and if the property of the Company
remaining after payment or discharge of the debts and liabilities of the
Company, including debts and liabilities owed to one or more of the Members, is
insufficient to return the aggregate capital contributions of a Member, no
Member shall have any recourse against any other Member.
ARTICLE 12
INDEMNIFICATION
12.1 General.
The Company shall indemnify, defend, and hold harmless each Member and
their respective members, partners, officers, directors, shareholders,
employees, and agents, the employees, officers, and agents of the Company, and
the members of the Management Committee (all indemnified persons being referred
to as "Indemnified Persons" for purposes of this Article 12), 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 the Company, 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 under this Section 12.1 shall not be
available if the action or inaction is finally adjudicated to have constituted
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), or willful misconduct by the
Indemnified Person; and provided, further, however, that indemnification under
this Section 12.1 shall be recoverable only from the assets of the Company and
not from any assets of the Members. The Company may pay
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for insurance covering liability of the Indemnified Persons for negligence in
operation of the Company's affairs.
12.2 Exculpation.
No Indemnified Person shall be liable, in damages or otherwise, to the
Company or to either Member for any loss that arises out of any act performed or
omitted to be performed by it or him pursuant to the authority granted by this
Agreement unless the conduct of the Indemnified Person is finally adjudicated to
have constituted 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), or
willful misconduct by such Indemnified Person.
12.3 Persons Entitled to Indemnity.
Any Person who is within the definition of "Indemnified Person" at the
time of any action or inaction in connection with the business of the Company
shall be entitled to the benefits of this Article 12 as an "Indemnified Person"
with respect thereto, regardless of whether such Person continues to be within
the definition of "Indemnified Person" at the time of his or its claim for
indemnification or exculpation hereunder.
12.4 Procedure Agreements.
The Company may enter into agreements with any of its Members,
employees, officers, and agents, any of the officers, directors, shareholders,
employees, and agents of the Managing Member, and any member of the Management
Committee or other Indemnified Person, setting forth procedures for implementing
the indemnities provided in this Article 12.
ARTICLE 13
BOOKS, RECORDS, ACCOUNTING, AND REPORTS
13.1 Books and Records.
The Company shall maintain at its principal office all of the
following:
(a) A current list of the full name and last known business or
residence address of each Member together with the Capital Contributions and
Membership Interest of each Member;
(b) A copy of the Certificate of Formation, this Agreement,
and any and all amendments to either thereof, together with executed copies of
any powers of attorney pursuant to which any certificate or amendment has been
executed;
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(c) Copies of the Company's federal, state, and local income
tax or information returns and reports, if any, for the six most recent taxable
years;
(d) The audited financial statements of the Company for the
six most recent Fiscal Years; and
(e) The Company's books and records for at least the current
and past three Fiscal Years.
13.2 Delivery to Member and Inspection.
(a) Upon the request of a Member, the Company shall promptly
deliver to the requesting Member, at the expense of the Company, a copy of the
information required to be maintained by Section 13.1 except for Section
13.1(e).
(b) Each Member, or its duly authorized representative, has
the right, upon reasonable request, to inspect and copy during normal business
hours any of the Company records.
13.3 Annual Statements.
(a) The Company shall cause to be prepared for each Member at
least annually, at Company expense, audited financial statements of the Company
and a consolidated audited financial statement for the Company and the
Subsidiaries (other than any Subsidiary the financial statements of which
cannot, under generally accepted accounting principles, be consolidated with the
financial statements of the Company), along with supplemental information for
the Company and each Subsidiary included in the consolidated financial
statements, all prepared in accordance with generally accepted accounting
principles and accompanied by a report thereon containing the opinion of Ernst &
Young LLP or other nationally recognized accounting firm chosen by the
Management Committee. The financial statements will include a balance sheet,
statement of income or loss, statement of cash flows, and statement of Members'
equity. The supplemental information will consist of a consolidating balance
sheet and a consolidating statement of operations and Members' equity for the
preceding Fiscal Year. The Company shall distribute the financial statements or
portions thereof to each Member as follows:
(1) the Company shall distribute to each Member
a statement setting forth the net income or loss of the Company for each Fiscal
Year within forty-five days after the close of such Fiscal Year;
(2) the Company shall distribute to each Member
the balance sheet, statement of income or loss, statement of cash flows, and
statement of Members' equity to be included in the financial statements for each
Fiscal Year within forty-five days after the close of such Fiscal Year;
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(3) the Company shall distribute to each Member
the complete audited financial statements for each Fiscal Year as soon as
practicable after the close of such Fiscal Year and, in any event, by March 15
of the year following the close of such Fiscal Year.
(b) The Company shall have prepared at least annually, at
Company expense, Company information necessary for the preparation of each
Member's federal and state income tax returns. The Company shall send the
information described in this paragraph to each Member within ninety days after
the end of each Fiscal Year and shall use commercially reasonable efforts to
send such information to each Member within seventy-five days after the end of
each Fiscal Year.
(c) The Company shall also cause to be distributed to each
Member, within ten days after delivery to the Company, any audited financial
statements that are prepared with respect to any Subsidiary the financial
statements of which are not consolidated with the financial statements of the
Company.
(d) The Company, shall distribute to each Member, promptly
after they become available, copies of the Company's federal, state, and local
income tax or information returns for each taxable year.
13.4 Quarterly Financial Statements.
At the close of each of the first three quarters of any Fiscal Year,
the Company shall cause to be distributed to each Member a quarterly report
covering each calendar quarter of the operations of the Company and each
Subsidiary, consisting of unaudited financial statements (comprising a balance
sheet, a statement of income or loss, and a statement of cash flows), and a
statement of other pertinent information regarding the Company and each such
Subsidiary and their activities. The Company shall cause copies of the
statements and other pertinent information (including a summarized statement of
operations data of the Company that complies with the requirements of APB
Opinion No. 18 and Rule 4-08(g) of Regulation S-X under the Securities Act) to
be distributed to each Member within thirty days after the close of the calendar
quarter to which the statements relate. The Company shall distribute to each
Member (a) a preliminary draft of a statement setting forth the net income or
loss of the Company for each calendar quarter within twenty-one days after the
close of such calendar quarter, and (b) a final statement setting forth the net
income or loss of the Company for each calendar quarter within thirty days after
the close of such calendar quarter. The Company shall also cause to be
distributed to each Member, within ten days after delivery to the Company, any
quarterly report that is prepared with respect to any Subsidiary the operating
results of which are not included in the quarterly report of the Company.
13.5 Monthly Statements.
The Company shall cause to be distributed to each Member a monthly
report covering each calendar month of the operations of the Company and each
Subsidiary, consisting of unaudited statements of income and loss for the
Company and each Subsidiary. The Company shall cause
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copies of the statements to be distributed to each Member within thirty days
after the close of the calendar month covered by such report. The Company shall
also cause to be distributed to each Member, within ten days after delivery to
the Company, any monthly report that is prepared with respect to any Subsidiary
the operating results of which are not included in the monthly report of the
Company. In addition, the Company shall deliver to each Member within fifteen
calendar days after each month end, a report detailing the number of homes
passed by each cable television system owned by the Company, the number of
equivalent basic subscribers served by each such system and the number of
premium subscribers served by each such system (on a premium service-by-service
basis), together with such other operating statistics as may be reasonably
requested by a Member in reasonable advance.
13.6 Operating and Capital Expenditure Budgets.
After consultation with TCI, commencing with the first Fiscal Year
beginning after the Closing, Insight shall cause to be prepared and distributed
to each Member operating and capital expenditure budgets for the Company for
each Fiscal Year.
13.7 Other Information.
The Company shall provide to each Member any other information and
reports relating to any cable television systems or other businesses owned by,
and the financial condition of, the Company, each Subsidiary, and any other
Person in which the Company owns, directly or indirectly, an equity interest,
the Member may reasonably request. The Company shall distribute to each Member,
promptly after the receipt thereof by the Company, any financial or other
information with respect to any Person in which the Company owns, directly or
indirectly, an equity interest, but which is not a Subsidiary.
13.8 Tax Matters.
The Company shall be treated as a partnership for federal and state
income tax and franchise tax purposes. The Company, at Company expense, shall
prepare and timely file with the appropriate authorities all income tax returns
for the Company required to be filed by the Company.
13.9 Other Filings.
The Company, at Company expense, shall also prepare and timely file,
with appropriate federal and state regulatory and administrative bodies, all
reports required to be filed by the Company with those entities under then
current applicable laws, rules, and regulations. The reports shall be prepared
on the accounting or reporting basis required by the regulatory bodies. Upon
written request, each Member shall be provided with a copy of any of the reports
without expense to the requesting Member.
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13.10 Non-Disclosure.
Each Member agrees that, except as otherwise consented to by the other
Member, all non-public information furnished to it or to which it has access
pursuant to this Agreement will be kept confidential and will not be disclosed
by such Member (it being agreed that the standard each Member shall adhere to is
to use the same degree of care it would use for its own confidential
information), or by any of its agents, representatives, or employees, in any
manner whatsoever, in whole or in part, except that:
(a) each Member shall be permitted to disclose such
information to those of its agents, representatives, and employees who need to
be familiar with such information in connection with such Member's investment in
the Company,
(b) each Member shall be permitted to disclose such
information to its Affiliates,
(c) each Member shall be permitted to disclose information to
the extent required by law, including federal or state securities laws or
regulations, or by the rules and regulations of any stock exchange or
association on which securities of such Member or any of its Affiliates are
traded, so long as such Member shall have first afforded the Company with a
reasonable opportunity to contest the necessity of disclosing such information,
(d) each Member shall be permitted to disclose information to
the extent necessary for the enforcement of any right of such Member arising
under this Agreement,
(e) each Member shall be permitted to disclose information to
a permitted Transferee or Successor, so long as (1) such Member shall first have
provided to the other Member written notice thereof and of the identity of the
Person to whom the disclosure is to be made and (2) such Person agrees (in a
writing which provides the Company with an independent right of enforcement) to
be bound by the provisions of this Section 13.10,
(f) each Member shall be permitted to disclose information
that is or becomes generally available to the public other than as a result of a
disclosure by such Member, its agents, representatives, or employees, and
(g) each Member shall be permitted to disclose information
that becomes available to such Member on a nonconfidential basis from a source
(other than the Company, any other Member, or their respective agents,
representatives, and employees) that, to the best of such Member's knowledge, is
not prohibited from disclosing such information to such Member by a legal,
contractual, or fiduciary obligation to the Company or any other Member.
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ARTICLE 14
REPRESENTATIONS BY THE MEMBERS
Each Member represents and warrants to, and agrees with, the other
Member and the Company as follows:
14.1 Investment Intent.
It is acquiring its Membership Interest with the intent of holding the
same for investment for its own account and without the intent or a view to
participating directly or indirectly in, or for resale in connection with, any
distribution of such Membership Interest within the meaning of the Securities
Act or any applicable state securities laws, and it does not intend to divide
its participation with others, nor to resell, assign, or otherwise dispose of
all or any part of its Membership Interest. In making such representation, each
Member acknowledges that a purchase now with an intent to resell by reason of
any foreseeable specific contingency, some predetermined event, or an
anticipated change in market value or in the condition of the Company would
represent a purchase with an intent inconsistent with the foregoing
representation.
14.2 Securities Regulation.
(a) It acknowledges and agrees that the Membership Interest is
being issued and sold in reliance on the exemption from registration contained
in Section 4(2) of the Securities Act and exemptions contained in applicable
state securities laws, and that it cannot and will not be sold or transferred
except in a transaction that is exempt under the Securities Act and those state
acts or pursuant to an effective registration statement under those acts or in a
transaction that is otherwise in compliance with the Securities Act and those
state acts.
(b) It understands that it has no contract right for the
registration under the Securities Act of the Membership Interest for public sale
and that, unless such Membership Interest is registered or an exemption from
registration is available, such Membership Interest may be required to be held
indefinitely.
14.3 Knowledge and Experience.
It has such knowledge and experience in financial, tax, and business
matters as to enable it to evaluate the merits and risks of its investment in
the Company and to make an informed investment decision with respect thereto.
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14.4 Economic Risk.
It is able to bear the economic risk of an investment in its
Membership Interest.
14.5 Binding Agreement.
This Agreement is and will remain its valid and binding agreement,
enforceable in accordance with its terms (subject, as to the enforcement of
remedies, to any applicable bankruptcy, insolvency, or other laws affecting the
enforcement of creditor's rights).
14.6 Tax Position.
Unless it provides prior written notice to the Company, it will not
take a position on its federal income tax return, on any claim for refund, or in
any administrative or legal proceedings that is inconsistent with any
information return filed by the Company or with the provisions of this
Agreement.
14.7 Information.
It has received all documents, books, and records pertaining to an
investment in the Company requested by it. It has had a reasonable opportunity
to ask questions of and receive answers concerning the Company, and all such
questions have been answered to its satisfaction.
ARTICLE 15
AMENDMENTS AND WAIVERS
15.1 Amendments to Operating Agreement.
(a) This Agreement may only be modified or amended with the
consent of Insight and TCI.
(b) The Company shall prepare and file any amendment to the
Certificate of Formation that may be required to be filed under the Act as a
consequence of any amendment to this Agreement.
15.2 Waivers.
The observance or performance of any term or provision of this
Agreement may be waived (either generally or in a particular instance, and
either retroactively or prospectively) by the party entitled to the benefits of
such term or provision.
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ARTICLE 16
MISCELLANEOUS
16.1 Programming and Discounts.
(a) General. Subject to Section 16.1(b) and any other
particular arrangements the Members may agree to with respect to the following,
each Member will use commercially reasonable efforts to make all of the
services, programming and equipment discounts available to such Member available
to the Company.
(b) @Home.
(1) The Members and the Company agree that,
subject to the other provisions of this Section 16.1(b) and only so long as
controlled affiliates (as used in this Section 16.1, "controlled affiliate" has
the meaning given to such term in the @Home Distribution Agreement) of a TCI
Cable Parent continue to be bound by a similar requirement, @Home will be the
exclusive provider of Exclusive Internet Services over the cable plant and
equipment of the TCI Systems and that the TCI Systems will continue to be bound
by the @Home Distribution Agreement as if such TCI Systems were "controlled
affiliates" of a TCI Cable Parent with respect to the distribution and delivery
of Exclusive Internet Services in accordance with the @Home Distribution
Agreement. In furtherance of the foregoing, subject to the other provisions of
this Section 16.1(b) and only so long as controlled affiliates of a TCI Cable
Parent continue to be bound by a similar requirement, the Company and the
Managing Member each agree that it will not provide or distribute, and will not
permit any Person other than @Home and its controlled affiliates to provide or
distribute, Exclusive Internet Services using the cable plant and equipment of
the TCI Systems, in each case without the prior written consent of TCI. The
Members and the Company acknowledge and agree that the foregoing limitations
will not be applicable to the Company's provision over the TCI Systems of other
Internet Services which do not constitute Exclusive Internet Services (including
all Internet Services which are listed as exceptions to the definition of the
term "Restricted Business" in the @Home Distribution Agreement), and with
respect to those Internet Services which do not constitute Exclusive Internet
Services, the Managing Member shall be entitled to make all determinations in
respect of the provision of such Internet Services, subject to the provisions of
this Agreement. The Members and the Company also acknowledge and agree that the
foregoing limitations are also not applicable to the Company's provision over
the Company's cable television systems other than the TCI Systems (such other
systems, the "Non-TCI Systems") of any Internet Services, whether or not they
would constitute Exclusive Internet Services with respect to the TCI Systems in
accordance with the @Home Distribution Agreement, and do not limit the right of
the Company and the Managing Member to manage and operate the Non-TCI Systems as
the Company and the Managing Member determine (but subject to the terms of this
Agreement and the Management Agreement). Without limiting the preceding
sentence, subject to the other provisions of this Section 16.1(b), the parties
agree as follows: (A) the Company and the Managing Member
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agree that they will: (1) manage and operate (and cause the manager under the
Management Agreement to manage and operate) the TCI Systems in accordance with
the terms and conditions set forth in the @Home Distribution Agreement and in
such a manner that the activities and businesses engaged in by the TCI Systems
will not violate or be in contravention of the Cable Parent Exclusivity
Provisions, or cause any TCI Cable Parent or any of its controlled affiliates to
be in violation of such Cable Parent Exclusivity Provisions, (2) provide to
@Home and its representatives such access to the cable plant and equipment of
the TCI Systems as is required in order to satisfy the TCI Cable Parents'
obligations under the @Home Distribution Agreement in respect of such TCI
Systems and as is reasonably necessary in order to distribute the @Home Service
over the cable plant and equipment of such TCI Systems, (3) cooperate with
@Home, TCI Cable Parent and their respective controlled affiliates in order to
schedule and coordinate @Home's roll-out of the @Home Service to the TCI Systems
with the upgrade of the physical cable plant and equipment of such TCI Systems,
including, without limitation, (x) providing the TCI Cable Parent and @Home with
information and periodic updates as to upgrade schedules, and (y) entering into
LCO Agreements (as defined in the @Home Distribution Agreement) in respect of
each TCI System upon the commencement of the offering of the @Home Service in
such TCI System, and (4) cooperate with the TCI Cable Parent and @Home with
respect to the operational matters relating to the distribution of the @Home
Service, including, without limitation, pricing, the programming of the Local
Area (as defined in the @Home Distribution Agreement), billing, customer service
and service offerings; and (B) (1) with respect to the timing and implementation
of Exclusive Internet Services over the TCI Systems, the Managing Member shall
consult and cooperate with the TCI Cable Parent in order to coordinate the
launch of the @Home Service over the TCI Systems as efficiently and
expeditiously as practical and (2) the TCI Cable Parent may disclose to @Home
information relating to the upgrade plans for the TCI Systems for the purpose of
coordinating the @Home build-out and the launch of the @Home Service in such
systems. Subject to the Company's and the Managing Member's compliance with the
foregoing, the TCI Cable Parent agrees that it will use its commercially
reasonable efforts to obtain for the benefit of the TCI Systems the economic and
other benefits available to a controlled affiliate of a TCI Cable Parent under
the @Home Distribution Agreement, on the same basis as, and for so long as, such
benefits are available to other controlled affiliates of the TCI Cable Parent,
including, but not limited to, the benefits available under the MFN Provision
(as defined in the @Home Distribution Agreement) and the ability to purchase
Ancillary Services (as defined in the @Home Distribution Agreement) from @Home
for the TCI Systems to the extent provided in the @Home Distribution Agreement
and as are reasonably necessary to the distribution of the Exclusive Internet
Services on the TCI Systems. TCI's obligations under the foregoing sentence will
terminate if the Company exercises its option set forth below to terminate its
obligation to manage the TCI Systems in accordance with the terms of the @Home
Distribution Agreement or if the Company enters into a separate distribution
agreement with @Home that covers the TCI Systems. In the event the
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@Home Distribution Agreement is amended or modified in such a way as would
reasonably be expected to cause the terms and conditions of the Company's
distribution of the @Home Service over the TCI Systems to be materially more
onerous to the Company than as provided in the @Home Distribution Agreement as
in effect on the date hereof, the TCI Cable Parent shall promptly notify the
Company and the Company shall then have the option to terminate its obligation
to manage the TCI Systems in accordance with the terms of the @Home Distribution
Agreement; provided that the Company's agreement not to provide or distribute,
or permit any Person to provide or distribute, any Exclusive Internet Services
using the cable plant and equipment of the TCI Systems, other than the @Home
Service, shall survive such termination. No amendment to the @Home Distribution
Agreement shall be deemed to cause the terms and conditions of the Company's
distribution of the @Home Service over the TCI Systems to be materially more
onerous to the Company (x) to the extent that such amendment or modification
does not result in such distribution being more onerous than that provided under
any separate agreement between the Company and @Home relating to the
distribution of the @Home Service to the Non-TCI Systems or (y) if the Company
consents to an amendment or modification of any separate agreement between the
Company and @Home in respect of the distribution of the @Home Service to the
Non-TCI Systems, which amendment or modification has substantially the same
effects as the proposed amendment or modification of the @Home Distribution
Agreement. For so long as the TCI Systems are included under the @Home
Distribution Agreement, to the extent the @Home Distribution Agreement is
modified in any respect (or any other event occurs) that would increase the
benefits available to (or reduces the obligations of) a controlled affiliate of
a TCI Cable Parent, the TCI Cable Parent will use its commercially reasonable
efforts to obtain for the benefit of the TCI Systems such increased benefits,
and to the extent the obligations are reduced, the TCI Cable Parent will use its
commercially reasonable efforts to cause such reduced obligations to be
applicable to the TCI Systems, in each case on the same basis as is applicable
to controlled affiliates of the TCI Cable Parent other than the TCI Systems. For
purposes of this Section 16.1(b), the TCI Systems shall, notwithstanding their
contribution to the Company, continue to be deemed to be controlled affiliates
of a TCI Cable Parent for purposes of determining the Company's satisfaction of
its obligations to operate and manage the TCI Systems in accordance with the
@Home Distribution Agreement.
(2) In addition, the Company and the Managing
Member agree to use their commercially reasonable efforts to enter into prior to
the Closing a distribution agreement for the @Home Service for the cable
television systems contributed to the Company by Insight; provided that such
obligation shall survive the Closing if such distribution agreement is not
entered into prior thereto. To the extent that TCI is not able to include the
TCI Systems under the @Home Distribution Agreement following the Closing, the
Company may enter into a distribution agreement with @Home that covers the TCI
Systems and terminate its obligation to manage the TCI Systems in accordance
with the @Home Distribution Agreement; provided, that such agreement shall be
approved by TCI as it relates to the TCI Systems and provided further that the
Company's obligations under this Section 16.1(b) to (i) have @Home be the
exclusive provider of Exclusive Internet Services over the cable plant and
equipment of the TCI Systems, (ii) not provide or distribute or permit any other
Person to provide or distribute Exclusive Internet Services using the cable
plant and equipment of the TCI Systems and (iii) manage the TCI Systems in such
a manner that the activities and business engaged in by them will not violate or
be in contravention of the Cable Parent Exclusivity Provisions will not cause
any TCI Cable Parent or its controlled affiliates to be in violation of such
provisions will continue notwithstanding such separate agreement being entered
into.
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16.2 Cost Sharing; Reimbursement.
If the Closing occurs, the Company shall reimburse each Member for the
out-of-pocket costs and expenses reasonably incurred by such Member (whether
incurred before or after the formation of the Company) in connection with the
formation, organization, and capitalization of the Company (including costs and
expenses incurred in arranging any proposed or consummated financing); provided,
however, such costs and expenses to be reimbursed by the Company do not include
legal fees or other expenses or costs of the Members incurred in connection with
the preparation, execution, delivery and performance of this Agreement, the
Contribution Agreement or any related agreements (other than the financing
agreements of the Company) and except as specifically provided for in the
Contribution Agreement. If the Contribution Agreement is terminated prior to the
Closing, the Company shall not reimburse either Member for any costs, which
shall be borne by the Members as provided in the Contribution Agreement.
16.3 Additional Documents.
At any time and from time to time after the date of this Agreement,
upon the request of the Company or the other Member, each Member shall do and
perform, or cause to be done and performed, all such additional acts and deeds,
and shall execute, acknowledge, and deliver, or cause to be executed,
acknowledged, and delivered, all such additional instruments and documents, as
may be required to best effectuate the purposes and intent of this Agreement.
16.4 Inspection.
Each Member shall have the right at reasonable times to inspect the
books and records of the Company.
16.5 General.
This Agreement: (a) shall be binding on the executors, administrators,
estates, heirs, and legal successors of the Members; (b) be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to conflicts of law principles thereunder; (c) may be executed in more than one
counterpart as of the day and year first above written; and (d) except for the
Contribution Agreement and the other agreements expressly referred to herein to
which the Members or their Affiliates are parties, contains the entire agreement
between the Members as to the subject matter of this Agreement. The waiver of
any of the provisions, terms, or conditions contained in this Agreement shall
not be considered as a waiver of any of the other provisions, terms, or
conditions of this Agreement.
16.6 Notices, Etc.
All notices and other communications required or permitted hereunder
shall be in writing and shall be deemed effectively given or delivered upon
personal delivery, confirmation of telex or
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telecopy, or receipt (which may be evidenced by a return receipt if sent by
registered mail), addressed (a) if to either Member, at the address of such
Member set forth on Schedule I or at such other address as such Member shall
have furnished to the Company in writing, (b) if to the Company, at 126 E. 56th
Street, New York, New York 10022.
16.7 Execution of Papers.
(a) The Members agree to execute such instruments, documents,
and papers as the Management Committee deems necessary or appropriate to carry
out the intent of this Agreement.
(b) Each Member, including each additional and substituted
Member, by the execution of this Agreement, irrevocably constitutes and appoints
the Liquidator its true and lawful attorney-in-fact with full power and
authority in its name, place, and stead to execute, acknowledge, deliver, swear
to, file, and record all agreements, instruments, and other documents that may
be necessary or appropriate to effect the sale of such Member's Membership
Interest pursuant to Section 11.2(e).
(c) The power of attorney granted pursuant to Section 16.7(b)
shall be deemed to be a power coupled with an interest, in recognition of the
fact that each of the Members under this Agreement will be relying upon the
power of the Liquidator to act as contemplated by this Agreement in any filing
and other action by it on behalf of the Company, and shall survive the
bankruptcy, death, adjudication of incompetence or insanity, or dissolution of
any Person hereby giving such powers and the transfer or assignment of all or
any part of such Person's Membership Interest; provided, however, that in the
event of a Transfer by a Member, the powers of attorney given by the transferor
shall survive such Transfer only until such time as the Transferee or Successor
shall have been admitted to the Company as a substituted Member and all required
documents and instruments shall have been duly executed, filed, and recorded to
effect such substitution.
(d) Each Member agrees to be bound by any actions taken by the
Liquidator acting in good faith pursuant to the power of attorney granted
pursuant to Section 16.7(b) that are consistent with and subject to the
provisions of this Agreement and hereby waives any and all defenses that may be
available to contest, negate, or disaffirm any action of the Liquidator taken in
good faith under the power of attorney granted pursuant to Section 16.7(b) that
are consistent with and subject to the provisions of this Agreement.
16.8 Attorneys' Fees.
In the event of commencement of suit or other action by either party
to enforce the provisions of this Agreement, the prevailing party shall be
entitled to receive such attorneys' fees and costs as the court or other forum
in which such suit or action is adjudicated may determine reasonable in addition
to all other relief granted.
- 67 -
<PAGE>
16.9 No Third-Party Beneficiaries.
This Agreement is not intended to, and shall not be construed to,
create any right enforceable by any Person not a party hereto, including any
partner or member of either Member or any creditor of the Company or of either
of the Members.
16.10 Headings.
The headings herein are included for ease of reference only and shall
not control or affect the meaning or construction of the provisions of this
Agreement.
16.11 Board Approval.
Subject to the other provisions of this Section 16.11, the obligations
of TCI and TCI Communications, Inc. under this Agreement are subject to each
obtaining membership, board of director or partnership approval, as applicable,
with respect to this Agreement. In this regard, reference is made to Section
10.1(e) of the Contribution Agreement and Insight's right to terminate the
Contribution Agreement as provided therein upon the failure of TCI and TCI
Communications, Inc. to obtain such approvals on or before the June 1, 1998, and
reference is also made to Section 11.1(f) of this Agreement in the event of any
such termination of the Contribution Agreement. Upon notification to Insight
prior to the dissolution of the Company that the obligations of TCI and TCI
Communications, Inc. under this Agreement are no longer subject to obtaining
such approvals, the first sentence of this Section 16.11 shall automatically be
of no further force and effect and the obligations of TCI and TCI Communications
under this Agreement shall no longer be subject to obtaining any such approvals.
- 68 -
<PAGE>
IN WITNESS WHEREOF, the Members have hereunto set their hands as of
the day first heretofore mentioned.
INSIGHT COMMUNICATIONS COMPANY,
L.P.
By: ICC Associates, L.P., its general partner
By: Insight Communications, Inc., its general
partner
By:
-----------------------------------------------
Name:
Title:
TCI OF INDIANA HOLDINGS, LLC
By: TCI of Indiana, Inc., its managing member
By:
-----------------------------------------------
Name:
Title:
FOR PURPOSES OF SECTION 8.3, SECTION
10.4 AND SECTION 16.1(b) ONLY:
TCI Communications, Inc.
By:
-----------------------------------------------
Name:
Title:
DC01/169511-19 //
<PAGE>
EXHIBIT A
TO
OPERATING AGREEMENT
MANAGEMENT AGREEMENT
<PAGE>
SCHEDULE I
TO
OPERATING AGREEMENT
ADDRESSES OF THE MEMBERS
Insight Communications Company, L.P.
126 E. 56th Street
New York, New York 10022
Attention: Sidney R. Knafel
Facsimile: (212) 371-1549
TCI of Indiana Holdings, LLC
c/o Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111-3000
Attention: William R. Fitzgerald
Facsimile: (303) 267-6672
<PAGE>
SCHEDULE II
TO
OPERATING AGREEMENT
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS; PERCENTAGE INTEREST
I. Formation Contributions Pursuant to Section 3.1(a):
Insight $100
TCI $100
II. Value of Assets Contributed Pursuant to Section 3.1(b):
The aggregate gross fair market value of the assets to be contributed by the
Members at Closing is as follows, which values are subject to adjustment as
specified below in paragraph IV:
Insight $ 327,851,078
TCI 310,851,078
===========
$ 638,702,156
TCI and Insight will negotiate in good faith to reach agreement prior to Closing
on the allocation of the aggregate gross fair market value among the assets to
be contributed by them to the Company. If TCI and Insight are unable to reach
such agreement prior to Closing, then promptly following Closing they will
mutually agree on an appraiser to be hired by the Company to allocate the
aggregate gross fair market values among the assets contributed by them. Neither
TCI nor Insight will take a position that is inconsistent with the allocations
determined by such appraiser. With respect to any of the assets contributed to
the Company by Insight pursuant to Section 3.1(b) that were acquired by Insight
from TCI pursuant to the Exchange Agreement entered into by Insight and TCI on
the date hereof, Insight and TCI agree to use the allocations determined by any
appraiser hired by Insight and TCI in connection with the Exchange Agreement.
III. Members' Debt Assumed by the Company:
The aggregate amount of indebtedness to be assumed by the Company from the
Members at Closing is as follows, which amounts are subject to adjustment as
specified below in paragraph IV:
Insight $ 234,500,000
TCI 217,500,000
===========
$ 452,000,000
<PAGE>
IV. Adjustments to Value of Assets and Amount of Debt Assumed:
If at Closing the estimated TCI Closing Adjustment or Insight Closing Adjustment
(each as defined in the Contribution Agreement) is to be paid to the Company,
the aggregate gross fair market value of the assets to be contributed by the
Member(s) paying such adjustment as set forth above in paragraph II shall be
decreased by the amount of such Closing Adjustment and the amount of
indebtedness to be assumed by the Company from such Member(s) at Closing as set
forth above in paragraph III shall be decreased by the amount of such Closing
Adjustment.
If at Closing the estimated TCI Closing Adjustment or Insight Closing Adjustment
is to be paid by the Company, the aggregate gross fair market value of the
assets to be contributed by the Member(s) entitled to such adjustment as set
forth above in paragraph II shall be increased by the amount of such Closing
Adjustment and the amount of indebtedness to be assumed by the Company from such
Member(s) at Closing as set forth above in paragraph III shall be increased by
the amount of such Closing Adjustment.
V. Capital Accounts of Members Immediately After Closing:
The Capital Accounts of the Members immediately after the Closing, based on the
net fair market value of the assets contributed by the Members, are:
Insight $ 93,351,078
TCI 93,351,078
==========
$186,702,156
VI. Percentage Interests of Members:
The Percentage Interests of the Members immediately after the Closing are:
Insight 50%
TCI 50%
<PAGE>
SCHEDULE III
TO
OPERATING AGREEMENT
INITIAL MEMBERS OF THE MANAGEMENT COMMITTEE
1. Members designated by Insight pursuant to Section 7.2(a):
Sidney Knafel
Michael Willner
Kim Kelly
2. Members designated by TCI pursuant to Section 7.2(a):
William Fitzgerald
Marvin Jones
<PAGE>
SCHEDULE IV
TO
OPERATING AGREEMENT
RESTRICTED SYSTEMS
See Attached Map.
<PAGE>
FIRST AMENDMENT TO
OPERATING AGREEMENT
OF
INSIGHT COMMUNICATIONS OF INDIANA, LLC
THIS FIRST AMENDMENT TO OPERATING AGREEMENT ("First Amendment") is made and
entered into as of April ___, 1999 by and between INSIGHT COMMUNICATIONS
COMPANY, L.P., a Delaware limited partnership ("Insight"), and TCI OF INDIANA
HOLDINGS, LLC, a Colorado limited liability company ("TCI").
PRELIMINARY STATEMENT
Insight Communications of Indiana, LLC was organized under the Delaware
Limited Liability Company Act on May 1, 1998, pursuant to an Operating Agreement
between Insight and TCI dated as of May 14, 1998 (the "Operating Agreement").
Insight and TCI desire to amend the Operating Agreement as provided in this
Amendment.
NOW, THEREFORE, Insight and TCI agree as follows:
1. Definitions. All capitalized terms used herein and not otherwise defined
herein shall have the same meanings assigned to them in the Operating Agreement.
All section references refer to the sections of the Operating Agreement unless
otherwise expressly indicated.
2. Section 7.5. Section 7.5 is amended in its entirety to read as follows:
"Notwithstanding any provision in this Agreement to the contrary, and in
addition to any other consent or approval that may be required by the express
terms of this Agreement, without the consent of TCI, which may be withheld by
TCI in its sole discretion, the Company shall not take, and the Management
Committee shall have no authority to cause the Company to, or cause or permit
any Subsidiary to, consummate an Asset Disposition if such Asset Disposition
would result in the allocation of income or gain to TCI pursuant to Section 4.4
and Code Section 704(c), unless Insight reimburses TCI for the amount of such
adverse tax consequences as reasonably determined by TCI. Notwithstanding the
foregoing, the limitations of this paragraph shall not apply: (i) upon the
liquidation and dissolution of the Company in accordance with Articles 9 and 11;
(ii) to any pledging of assets by any Person to secure any Indebtedness of such
Person permitted by this Agreement or to any disposition of assets upon the
exercise of any rights granted by such a pledge; or (iii) to exchanges of assets
that cumulatively are equal to or less than 20% of the value of the Companys
assets if such exchanges of assets are made pursuant to Code Section 1031 and do
not result in an adverse tax consequence to TCI as reasonably determined by TCI,
unless Insight reimburses TCI for the amount of such adverse tax consequences as
reasonably determined by TCI."
3. Section 7.6(b). Section 7.6(b) is amended in its entirety to read as
follows:
<PAGE>
"(b) consummate one or more Asset Dispositions, in any
consecutive twelve month period, having an aggregate value in excess of
$25,000,000. Notwithstanding the foregoing, the limitations of this paragraph
shall not apply: (i) upon the liquidation and dissolution of the Company in
accordance with Articles 9 and 11; (ii) to any pledging of assets by any Person
to secure any Indebtedness of such Person permitted by this Agreement or to any
disposition of assets upon the exercise of any rights granted by such a pledge;
or (iii) to exchanges of assets that cumulatively are equal to or less than 20%
of the value of the Companys assets if such exchanges of assets are made
pursuant to Code Section 1031 and do not result in an adverse tax consequence to
TCI as reasonably determined by TCI, unless Insight reimburses TCI for the
amount of such adverse tax consequences as reasonably determined by TCI; or"
4. Authority. Insight and TCI acknowledge and agree that they are entering
into this Amendment pursuant to Section 15.1 of the Operating Agreement.
5. Effect of Amendment. Except as amended hereby, the Operating Agreement
shall remain unchanged and in full force and effect, and this First Amendment
shall be governed by and subject to the terms of the Operating Agreement, as
amended hereby. From and after the date of this First Amendment, each reference
in the Operating Agreement to this Agreement, hereof, hereunder or words of like
import, and all references to the Operating Agreement in any and all agreements,
instruments, documents, notes, certificates and other writings of every kind and
nature (other than in this First Amendment or as otherwise expressly provided)
shall be deemed to mean the Operating Agreement, as amended by this First
Amendment.
6. General. This First Amendment: (a) shall be binding on the executors,
administrators, estates, heirs, and legal successors of the Members; (b) be
governed by and construed in accordance with the laws of the State of Delaware,
without regard to conflicts of law principles thereunder; (c) may be executed in
more than one counterpart as of the day and year first above written.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
- 2 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this First
Amendment as of the date first above written.
INSIGHT COMMUNICATIONS COMPANY,
L.P.
By: ICC Associates, L.P., its general partner
By: ICI Communications, Inc., its general partner
By:
-----------------------------------------------
Name:
Title:
TCI OF INDIANA HOLDINGS, LLC
By: TCI of Indiana, Inc., its managing member
By:
-----------------------------------------------
Name:
Title:
- 3 -
<PAGE>
MANAGEMENT AGREEMENT
THIS AGREEMENT made as of the 21st day of August, 1998 by and between
Coaxial Communications of Central Ohio, Inc., an Ohio corporation ("Central"),
and Insight Communications of Central Ohio, LLC, a Delaware limited liability
company ( "Manager"). All capitalized terms used herein and not defined herein
shall have the same meanings as set forth in the Contribution Agreement referred
to below.
WHEREAS, pursuant to that certain Contribution Agreement, dated as of
June 30, 1998, as amended (the "Contribution Agreement"), between Central and
Insight Communications Company, L.P. ("Insight") (which has assigned all of its
rights and obligations thereunder to Insight Holdings of Ohio LLC, a Delaware
limited liability company ("Holdings")), Central has agreed to contribute to
Manager substantially all of Central's assets used in connection with the
ownership and operation of its cable television system in and around Columbus,
Ohio (the "System"); and
WHEREAS, Central has informed Insight and Holdings that the consents
(the "Consents") required to transfer to the Manager the franchises covering
those portions of the System that are listed on Schedule A hereto (the "Retained
Assets") either will not be obtained prior to the Closing Date or have been
obtained but will not become effective prior to the Closing Date; and
WHEREAS, on the date hereof, Central has transferred to and conveyed to
Manager all of the Assets of the System, other than the Retained Assets,
pursuant to a Bill of Sale, General Assignment and Instrument of Assumption of
Liabilities of even date herewith between Central and Manager (the "Conveyance")
the terms of which provide that at such time as any Consent relating to any of
the Retained Assets shall be obtained and become effective, the Retained Assets
to which such Consent applies shall be automatically transferred by Central to
Manager pursuant to the term of the Conveyance; and
WHEREAS, Central and the Manager desire to enter into this Agreement
and set forth their agreements whereby the Manager will operate and manage the
Retained Assets, until such time as the Retained Assets are transferred and
conveyed to Manager.
NOW, THEREFORE, for the consideration herein stipulated, the parties
hereby agree as follows:
1. Management of the Retained Assets
(a) From and after the date hereof, the parties shall
cooperate with each other and shall continue to assist each other consistent
with the Contribution Agreement in seeking the consent or approval of the
applicable Governmental Authorities to the transfer of the Retained Assets to
the Manager from Central.
(b) From and after the Closing Date,
<PAGE>
(i) The Manager shall operate and manage the Retained Assets
until the earlier of (A) the transfer of the Retained Assets to the
Manager pursuant to the Conveyance or (B) the dissolution of the
Manager pursuant to the Operating Agreement of the Manager.
(ii) Until such time as the Retained Assets are conveyed to
the Manager, Central shall continue to own and exercise ultimate
control over the operation thereof. The Manager shall not, during the
continuance of this Agreement, take any action inconsistent with the
terms and provisions of this Agreement that would constitute (or fail
to take any action inconsistent with the terms and provisions of this
Agreement the effect of which failure would be to cause) (A) an
impermissible change in control under the franchise or applicable state
or local laws or regulations or (B) an impermissible transfer of a
Federal Communications Commission ("FCC") license.
2. Duties of the Manager. During the term of this Agreement, except as
set forth in Section 1, this Section 2 or Section 3, the Manager shall have all
requisite authority to manage the day-to-day operations of the Retained Assets
for the benefit of Central. During the term of this Agreement, the Manager
agrees:
(a) to be responsible for the negotiation and consummation of
any and all agreements, leases, contracts, documents and other instruments
reasonably necessary or convenient for the management and operation of the
Retained Assets;
(b) to supervise the collection of income and other amounts
and the payment of expenses (including but not limited to franchise fees)
relating to the Retained Assets and enforce the rights of Central as a creditor
under any contract in connection with the rendering of any service with respect
to the Retained Assets to the same extent as the Manager would enforce its own
rights as a creditor;
(c) to implement and maintain such accounting and
administrative records, procedures and reports as shall be reasonably necessary
to operate the Retained Assets;
(d) to purchase liability and other insurance reasonably
necessary to protect the Retained Assets and usual and customary for comparable
businesses; to name Central as an additional insured with respect to each such
insurance policy;
(e) to be responsible for all personnel matters, and to
provide, manage and train all employees and other personnel reasonably necessary
to operate the Retained Assets;
(f) to prepare status reports, financial reports and cash
disbursements reports relating to the operation of the Retained Assets;
(g) to keep, in the name and for the account of Central, full
and adequate books of account and other records reflecting the results of
operation of the Retained Assets on an accrual basis, in accordance with
generally accepted accounting principles;
2
<PAGE>
(h) to prepare annual tax reports necessary for the operation
of the Retained Assets (other than Federal, state and local income tax returns
relating to Central), to prepare, as necessary, any reports and other documents
required to be filed with governmental and regulatory agencies (other than with
respect to income tax matters with respect to the operation of the Retained
Assets), and act as liaison with Federal, state and local governmental and
regulatory officials with respect thereto, and to provide Central on a timely
basis all information necessary to prepare its Federal, state and local income
tax returns;
(i) to pay all expenditures incurred by the Manager in the
ordinary course of operating the Retained Assets;
(j) to pay all expenses of the Retained Assets, including, but
not limited to, payroll and all other taxes;
(k) to make all capital expenditures reasonably appropriate or
necessary to maintain operation of the Retained Assets as currently operated;
(l) to manage and operate the Retained Assets in compliance in
all material respects with applicable law, including, not limited to, the
Communications Act of 1934, as amended, and all rules and regulations
promulgated thereunder, all applicable franchise requirements and all other
agreements relating to the Retained Assets;
(m) to operate and manage the Retained Assets with the same
level of care as it operates cable television systems owned by the Manager.
3. Obligations of Central. Notwithstanding anything in Section 1 or 2
hereof to the contrary (a) during the term of this Agreement, Central shall be
responsible for decisions affecting the operations of the Retained Assets,
including the matters referred to in Sections 1 and 2 (and including
particularly all financial and personnel matters), to the extent Central must
continue to be responsible for any such decisions under any agreement, including
any and all franchise agreements relating to the Retained Assets, or applicable
law, and (b) Central shall be entitled to control any tax investigation or audit
relating in any way to the Retained Assets to the extent it could affect any
taxes payable by Central for periods prior to the Closing.
4. Compensation of the Manager. For its services pursuant to this
Agreement, the Manager shall be entitled from and after the Closing to all
revenues attributable to the operations of the Retained Assets (the "Retained
Assets Revenue") for the period commencing at the Closing through the date that
the Manager ceases its operation and management of the Retained Assets in
accordance with Section 1 (b) (i) hereof (or such later date as the parties may
agree).
5. No Contributions by Central. During the term of this Agreement,
Central shall not be obligated to contribute any capital to or make any funds
available for the operation of or the obligations or liabilities relating to the
Retained Assets and the Manager shall be solely responsible
3
<PAGE>
for all expenses and expenditures thereof. Without limiting the generality of
the foregoing, Central will not be responsible for any compensation payable to
the Manager; such compensation shall be payable solely out of the Retained
Assets Revenue as provided in Section 4 above. Nothing in this Agreement shall
require the Manager to make any payments for indebtedness of Central in respect
of any Retained Assets.
6. Term of Agreement; Effect of Termination. This Agreement shall
continue in full force and effect until the date that the Manager ceases its
operation and management of the Retained Assets in accordance with Section l(b)
(i) hereof. Central shall pay to the Manager within 10 days of termination of
this Agreement all amounts due under Section 4 for months ended prior to the
date of termination and a prorated portion, based on days elapsed prior to
termination in the month of termination, of all amounts due under Section 4 for
the month including the date of termination. To the extent that any amount
relating to the period prior to termination which would thereafter have become
due under Section 4 had this Agreement not been terminated, such amount shall be
paid to the Manager on the date it would have been paid had this Agreement not
been terminated.
7. Independent Contractor. The Manager and Central are not partners or
joint venturers with each other with respect to the Retained Assets and nothing
herein shall be construed so as to make them such partners or joint venturers.
In fulfilling their obligations hereunder, the parties shall be independent
contractors with respect to one another and not the agent of the other for any
purpose.
8. Non-Assignability of Agreement. Neither party shall have the right
to assign this Agreement.
9. Waiver. No waiver of any term, provision, or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed or construed as a further and continuing waiver of any such term,
provision or condition, but any party hereto may waive its rights in any
particular instance by a written instrument of waiver.
10. Entire Agreement. This Agreement, together with the Contribution
Agreement, represents the entire understanding of the parties hereto with
respect to the subject matter hereof, and may not be modified or amended, except
by a written instrument executed by each of the parties hereto designating
specifically the terms and provisions so modified and amended.
11. Choice of Law. The internal laws of the State of New York shall
govern this Agreement and the construction of any of its terms.
12. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
13. Notices. Any notice, demand or request required or permitted to be
given under the provisions of this Agreement shall be in writing and shall be
deemed to have been duly given and received (i) when delivered if delivered by
hand or by facsimile transmission or telex (with automatic
4
<PAGE>
machine confirmation) and (ii) three business days after mailing if mailed by a
nationally recognized courier service or registered or certified mail, postage
prepaid and return receipt requested, to the parties at the following addresses
(or to such other address as any party may request in a notice delivered in
accordance with this Section 13 to the other parties hereto, provided that
notices of a change of address shall be effective only upon receipt thereof):
To Central:
c/o Coaxial Communications
5111 Ocean Boulevard
Suite C
Sarasota, Florida 34242
Attention: Dennis McGillicuddy
Telecopier: 941-346-2788
With copy to:
Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, D.C. 20036-6802
Attention: David Wild, Esq.
Telecopier: 202-776-2222
To Manager:
c/o Insight Communications, Inc.
126 East 56th Street
New York, New York 10022
Attention: Michael S. Willner
Telecopier: 212-371-1549
With copy to:
Cooperman Levitt Winikoff Lester & Newman, P.C.
800 Third Avenue
New York, New York 10022
Attention: Robert Winikoff, Esq.
Telecopier: (212) 755-2839
14. Headings. The heading references herein are for convenience
purposes only, do not constitute a part of this Agreement and shall not be
deemed to limit or affect any of the provisions hereof.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date set forth above.
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
By: /s/
------------------------------------
Its: Chairman
-----------------------------------
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
By: Insight Holdings of Ohio, LLC, its Manager
By: Insight Communications Company, L.P., its
Member
By: ICC Associates, L.P., its general partner
By: Insight Communications, Inc., its general
partner
By: /s/
----------------------------
Its: Executive Vice President and
Chief Financial and Operating Officer
6
<PAGE>
SECURITYHOLDERS AGREEMENT
dated May 11, 1999
among
INSIGHT COMMUNICATIONS COMPANY, INC.,
VESTAR CAPITAL PARTNERS III, L.P.,
SIDNEY R. KNAFEL,
MICHAEL S. WILLNER,
KIM D. KELLY,
SANDLER CAPITAL PARTNERS IV, L.P.,
SANDLER CAPITAL PARTNERS IV FTE, L.P.,
AND THE OTHER PARTIES HERETO
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1
FORMATION OF THE COMPANY/REPRESENTATIONS AND WARRANTIES
OF THE PARTIES...........................................................................................1
1.1 Formation of the Company........................................................................1
1.2 Representations and Warranties of the Company...................................................2
1.3 Representations and Warranties of the Securityholders...........................................3
1.4 Company and Management Securityholder Representations...........................................3
ARTICLE 2
VOTING AGREEMENTS........................................................................................3
2.1 Election of Directors...........................................................................3
ARTICLE 3
TRANSFERS OF SECURITIES..................................................................................4
3.1 Restrictions on Transfer of Securities..........................................................4
(a) Class B Stock Transfers................................................................4
(b) Tag-Along Rights.......................................................................4
(c) Excluded Transfers.....................................................................6
(d) Excluded Securities....................................................................6
3.2 Certain Transferees Bound by Agreement..........................................................7
3.3 Ownership of Class B Stock......................................................................7
3.4 Transfers in Violation of Agreement.............................................................7
ARTICLE 4
REGISTRATION RIGHTS......................................................................................7
4.1 Demand Registrations............................................................................7
(a) Requests for Registration..............................................................7
(b) Long-Form Registrations................................................................8
(c) Priority on Demand Registrations.......................................................8
(d) Restrictions on Demand Registrations...................................................8
(e) Selection of Underwriters..............................................................9
4.2 Piggyback Registrations.........................................................................9
(a) Right to Piggyback.....................................................................9
(b) Piggyback Expenses.....................................................................9
(c) Priority on Primary Registrations......................................................9
(d) Priority on Secondary Registrations....................................................9
(e) Other Registrations....................................................................9
4.3 Holdback Agreements............................................................................10
4.4 Registration Procedures........................................................................10
4.5 Shelf Registration.............................................................................12
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
(a) Filing of Registration Statement......................................................12
(b) Holdback Agreement....................................................................13
(c) Limitations on Additional Securities..................................................13
4.6 Registration Expenses..........................................................................13
4.7 Indemnification................................................................................14
4.8 Participation in Underwritten Registrations....................................................15
4.9 No Inconsistent Agreements.....................................................................15
4.10 Short-Form Registrations.......................................................................15
ARTICLE 5
AMENDMENT AND TERMINATION...............................................................................15
5.1 Amendment and Waiver...........................................................................15
5.2 Termination of Agreement.......................................................................15
5.3 Termination as to a Party......................................................................16
ARTICLE 6
MISCELLANEOUS...........................................................................................16
6.1 Certain Defined Terms..........................................................................16
6.2 Legends........................................................................................21
(a) Securityholders Agreement.............................................................21
(b) Registrable Securities................................................................21
(c) Removal of Legends....................................................................22
6.3 Severability...................................................................................22
6.4 Entire Agreement...............................................................................22
6.5 Successors and Assigns.........................................................................22
6.6 Counterparts...................................................................................22
6.7 Remedies.......................................................................................22
6.8 Notices........................................................................................23
6.9 Governing Law..................................................................................23
6.10 Descriptive Headings...........................................................................23
6.11 Effective Date.................................................................................23
</TABLE>
-ii-
<PAGE>
SECURITYHOLDERS AGREEMENT
This Securityholders Agreement (this "Agreement") is entered
into as of May 11, 1999, by and among Insight Communications Company, Inc., a
Delaware corporation (the "Company"), Vestar Capital Partners III, L.P., a
Delaware limited partnership ("Vestar"), Sandler Capital Partners IV, L.P., a
Delaware limited partnership ("Sandler IV"), Sandler Capital Partners IV FTE,
L.P., a Delaware limited partnership ("Sandler FTE"; and together with Sandler
IV, "Sandler"; and, together with Vestar, the "New Partners"), Sidney R.
Knafel ("Knafel", and, together with the persons or entities listed on Exhibit
A hereto as "Knafel Entities," the "Knafel Holders"), Michael S. Willner
("Willner"), Kim D. Kelly ("Kelly"), and the Persons listed on Exhibit A
hereto as Senior Management Securityholders (the "Senior Management
Securityholders") (the Knafel Holders, Willner, Kelly, and the Senior
Management Securityholders are sometimes referred to herein collectively as
"Management Securityholders" and individually as a "Management
Securityholder"). The Company, Vestar, Sandler, Knafel, Willner and Kelly and
each other Person that is or may become a party to this Agreement as a
Securityholder as contemplated hereby are sometimes referred to herein
collectively as the "Securityholders" and individually as a "Securityholder".
Certain capitalized terms used herein are defined in Section 6.1 hereof.
RECITALS
WHEREAS, the parties hereto desire to provide in advance for
the (i) the establishment of the composition of the Company's Board of
Directors (the "Board"), (ii) continuity in the management, ownership and
control of the Company, (iii) certain restrictions on the ability of the
Securityholders to transfer their Securities and (iv) certain rights with
respect to the registration of the Company's Securities;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
FORMATION OF THE COMPANY/REPRESENTATIONS AND WARRANTIES
OF THE PARTIES
1.1 Formation of the Company. Each party hereto will take
all necessary action within such Person's control (whether in his or its
capacity as a stockholder, director, member of a board committee or officer of
the Company or otherwise and, including, without limitation, attendance at
meetings in person or by proxy for purposes of obtaining a quorum and
execution of consents in lieu of meetings) to cause the Company:
(a) to execute and deliver a counterpart of the Agreement
and to take all necessary actions so that this Agreement shall have been duly
and validly executed and delivered by the Company, constituting a legal and
binding obligation of the Company, enforceable against the Company in
accordance with its terms; and
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(b) to ensure that the execution, delivery and performance
by the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby will not, with or without the giving of
notice or lapse of time, or both (i) violate any provision of law, statute,
rule or regulation to which the Company is subject, (ii) violate any order,
judgment or decree applicable to the Company, or (iii) conflict with, or
result in a breach or default under, any term or condition of the Company's
Certificate of Incorporation or Bylaws or any agreement or instrument to which
the Company is a party or by which it is bound.
1.2 Representations and Warranties of the Company. The
Company hereby represents and warrants to the Securityholders that:
(a) as of the date of this Agreement, it is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, it has full corporate power and authority to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby, and the execution, delivery and performance by it of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action;
(b) as of the date of this Agreement, this Agreement has
been duly and validly executed and delivered by the Company and constitutes a
legal and binding obligation of the Company, enforceable against the Company
in accordance with its terms;
(c) as of the date of this Agreement, the execution,
delivery and performance by the Company of this Agreement and the consummation
by the Company of the transactions contemplated hereby will not, with or
without the giving of notice or lapse of time, or both (i) violate any
provision of law, statute, rule or regulation to which the Company is subject,
(ii) violate any order, judgment or decree applicable to the Company, or (iii)
conflict with, or result in a breach or default under, any term or condition
of the Company's Certificate of Incorporation or Bylaws or any agreement or
instrument to which the Company is a party or by which it is bound; and
(d) at all times after the closing of the IPO, each share of
Class A Stock and Class B Stock are and will be identical in all economic and
legal respects except that each share of Class B Stock may have up to 10 votes
per share, and each share of Class A Stock shall have one vote per share, and
the Class B Stock shall be the only equity security of the Company with
extraordinary voting power, other than pursuant to a Permitted Option Plan, no
additional shares of Class B Stock will be issued (excluding distributions of
Class B Stock on account of stock splits or stock dividends applicable to a
share of Class A Stock), provided, however, that, in connection with the
issuance of equity securities to a third party which either (i) provides
financing to the Company, (ii) is the seller of a business to the Company or
its subsidiaries, or (iii) enters into a joint venture or similar strategic
partnership with the Company, the Company may grant such third party the right
to elect members of the board of directors so long as the Management
Securityholders (A) retain the right to elect a majority of the board of
directors and (B) such designees increase the size of the board of directors.
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1.3 Representations and Warranties of the Securityholders.
Each Securityholder (as to himself or itself only) represents and warrants to
the Company and the other Securityholders that, as of the time such
Securityholder becomes a party to this Agreement:
(a) this Agreement (or the separate joinder agreement
executed by such Securityholder) has been duly and validly executed and
delivered by such Securityholder, and this Agreement constitutes a legal and
binding obligation of such Securityholder, enforceable against such
Securityholder in accordance with its terms; and
(b) the execution, delivery and performance by such
Securityholder of this Agreement (or any joinder to this Agreement) and the
consummation by such Securityholder of the transactions contemplated hereby
(and thereby) will not, with or without the giving of notice or lapse of time,
or both (i) violate any provision of law, statute, rule or regulation to which
such Securityholder is subject, (ii) violate any order, judgment or decree
applicable to such Securityholder, or (iii) conflict with, or result in a
breach or default under, any term or condition of any agreement or other
instrument to which such Securityholder is a party or by which such
Securityholder is bound.
1.4 Company and Management Securityholder Representations.
The Company and each Management Securityholder represent and warrant to the
New Partner Majority Holder (a) that Exhibit A attached hereto, modified
immediately prior to the closing of the IPO, sets forth an accurate list of
the legal and beneficial owners (as defined in Rule 13D under the Securities
Exchange Act of 1934, as amended) of all the Class B Stock and other
Management Securities, and the number of shares of each type of Common Stock
which each owns, (b) that each such Person is either a Management
Securityholder or a Permitted Holder, and (c) each Senior Management
Securityholder is a member of the senior management of the Company as of the
closing date of the IPO.
ARTICLE 2
VOTING AGREEMENTS
2.1 Election of Directors.
(a) Each of the Management Securityholders hereby agrees
that such Management Securityholder will vote, or cause to be voted, all
voting securities of the Company over which such Person has the power to vote
or direct the voting, and will take all other necessary or reasonable action
within such Person's control (whether in his or its capacity as a stockholder,
director, member of a board committee or officer of the Company or otherwise
and including without limitation attendance at meetings in person or by proxy
for purposes of obtaining a quorum and execution of consents in lieu of
meetings), and the Company will take all necessary and desirable actions
within its control (including without limitation calling special board and
stockholder meetings) to elect or cause to be elected to the board of
directors of the Company and cause to be continued in office the Required
Vestar Directors (the "Vestar Directors").
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(b) If at any time Vestar shall notify the other parties to
this Agreement of their desire to remove, with or without cause, any Vestar
Director from a Company directorship, all such parties so notified will vote,
or cause to be voted, all voting securities of the Company over which they
have the power to vote or direct the voting, and shall take all such other
reasonable actions promptly as shall be necessary or desirable within the
control of such Person to cause the removal of such director.
(c) If at any time any Vestar Director ceases to serve on
the board of directors of the Company (whether due to resignation, removal or
otherwise), Vestar shall be entitled to designate a successor director to fill
the vacancy created thereby on the terms and subject to the conditions of
paragraph (a) above. Each Person that is a party hereto agrees to vote, or
cause to be voted, all voting securities of the Company over which such Person
has the power to vote or direct the voting, and shall take all such other
reasonable actions as shall be necessary or desirable within the control of
such Person to cause the designated successor to be elected to fill such
vacancy.
(d) Nothing in this Agreement shall be construed to impair
any rights that the stockholders of the Company who execute this Agreement may
have to remove any director for cause pursuant to Section 141(k) of the
General Corporation Law of the State of Delaware (or any successor provision).
No such removal of an individual designated pursuant to this Section 2.1 for
cause shall affect any of Vestar's rights to designate a different individual
pursuant to this Section 2.1 to fill the directorship from which such
individual was removed.
ARTICLE 3
TRANSFERS OF SECURITIES
3.1 Restrictions on Transfer of Securities.
(a) Class B Stock Transfers. The Knafel Holders may not
Transfer any Class B Stock except in a Class B Exempt Transfer. Any Transfer
of interests or beneficial ownership, directly or indirectly, in an entity
which is a Permitted Holder shall be deemed a Transfer of the Class B Stock
owned directly or indirectly by such Permitted Holder.
(b) Tag-Along Rights. Prior to making any Tag-Along Transfer
of Management Securities (other than a Transfer described in Section 3.1(c)
hereof), any holder of Management Securities proposing to make such a Transfer
(for purposes of this Section 3.1, a "Selling Holder") shall give at least
thirty (30) days' prior written notice to each holder of New Partner
Securities (for purposes of this Section 3.1, an "Other Holder") and the
Company, which notice (for purposes of this Section 3.1, the "Sale Notice")
shall identify the type and amount of Management Securities to be sold (for
purposes of this Section 3.1, the "Offered Securities"), describe the terms
and conditions of such proposed Transfer, and identify each prospective
transferee. Any of the Other Holders may, within fifteen (15) days of the
receipt of the Sale Notice, give written notice (each, a "Tag-Along Notice")
to the Selling Holder that such Other Holder wishes to participate in such
proposed Transfer upon the terms and conditions set forth in the Sale Notice,
which Tag-Along Notice shall specify the New Partner Securities such Other
Holder desires to include in such proposed Transfer; provided, however, that
(1) each Other Holder shall be required, as a condition to being permitted to
sell New
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Partner Securities pursuant to this Section 3.1(b) in connection with a
Transfer of Offered Securities, to elect to sell New Partner Securities in the
same relative proportions (which proportions shall be determined on a share
for share basis with respect to Common Stock) as the Securities which comprise
the Offered Securities; and (2) to exercise its tag-along rights hereunder,
each Other Holder must agree to make to the transferee the same
representations, warranties, covenants, indemnities and agreements as the
Selling Holder agrees to make in connection with the Transfer of the Offered
Securities (except that in the case of representations and warranties
pertaining specifically to, or covenants made specifically by, the Selling
Holder, the Other Holders shall make comparable representations and warranties
pertaining specifically to (and, as applicable, covenants by themselves), and
must agree to bear his or its ratable share (which shall be several and not
joint but shall be based on the value of Securities that are Transferred) of
all liabilities to the transferees arising out of representations, warranties
and covenants (other than those representations, warranties and covenants that
pertain specifically to a given Securityholder, who shall bear all of the
liability related thereto), indemnities or other agreements made in connection
with the Transfer, provided that no Other Holder shall be liable under such
indemnity for an amount exceeding 100% of the fair market value of
consideration received with respect to such shares. Each Securityholder will
bear (x) its or his own costs of any sale of Securities pursuant to this
Section 3.1(b) and (y) its or his pro rata share (based upon the relative
amount of Securities sold) of the reasonable costs of any sale of Securities
pursuant to this Section 3.1(b) (excluding all amounts paid to any
Securityholder or his or its Affiliates as a transaction fee, broker's fee,
finder's fee, advisory fee, success fee, or other similar fee or charge
related to the consummation of such sale) to the extent such costs are
incurred for the benefit of all Securityholders and are not otherwise paid by
the acquiring party.
If none of the Other Holders gives the Selling Holder a
timely Tag-Along Notice with respect to the Transfer proposed in the Sale
Notice, then the Selling Holder may Transfer such Offered Securities on the
terms and conditions set forth, and to or among any of the transferees
identified (or Affiliates of transferees identified), in the Sale Notice at
any time within 90 days after expiration of the 15-day period for giving
Tag-Along Notices with respect to such Transfer. Any such Offered Securities
not Transferred by the Selling Holder during such 90-day period (or such
longer period as may be needed to obtain the consent of any governmental or
regulatory authority for such Transfer) will again be subject to the
provisions of this Section 3.1(b) upon subsequent Transfer. If one or more
Other Holders give the Selling Holder a timely Tag-Along Notice, then the
Selling Holder shall use all reasonable efforts to obtain the agreement of the
prospective transferee(s) to the participation of the Other Holders in any
contemplated Transfer, on the same terms and conditions as are applicable to
the Offered Securities, and no Selling Holder shall transfer any of its shares
to any prospective transferee if such prospective transferee(s) declines to
allow the participation of the Other Holders. If the prospective transferee(s)
is unwilling or unable to acquire all of the Offered Securities and all of the
New Partner Securities specified in a timely Tag-Along Notice upon such terms,
then the Selling Holder may elect either to cancel such proposed Transfer or
to allocate the maximum number of each class of Securities that the
prospective transferees are willing to purchase (the "Allocable Shares") among
the Selling Holder and the Other Holders giving timely Tag-Along Notices as
follows (it being understood that the prospective transferees shall be
required to purchase Securities of the same class on the same terms and
conditions taking into account the provisions of clause (1) of the first
paragraph of this Section 3.1(b), and to consummate such Transfer on those
terms and conditions):
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(i) each participating Securityholder (including
the Selling Holder) shall be entitled to sell a number of shares of
each class of Securities (taking into account the provisions of
clause (1) of the first paragraph of this Section 3.1(b)) (not to
exceed, for any Other Holder, the number of shares of such class of
Securities identified in such Other Holder's Tag-Along Notice) equal
to the product of (A) the number of Allocable Shares of such class of
Securities and (B) a fraction, the numerator of which is the number
of shares of such class of Securities owned by such Securityholder
and the denominator of which is the number of shares owned by all
participating Securityholders of such class of Securities; and
(ii) if after allocating the Allocable Shares of
any class of Securities to such Securityholders in accordance with
Section 3.1(b)(i) above, there are any Allocable Shares of such class
that remain unallocated, then they shall be allocated (in one or more
successive allocations on the basis of the allocation method
specified in Section 3.1(b)(i) above) among the Selling Holder and
each such Other Holder that has elected in its Tag-Along Notice to
sell a greater number of shares of such class of Securities than
previously has been allocated to it pursuant to Section 3.1(b)(i)
above and this Section 3.1(b)(ii) (all of whom (but no others) shall,
for purposes of Section 3.1(b)(i) above, be deemed to be the
participating Securityholders) until all such Allocable Shares have
been allocated in accordance with this Section 3.1(b)(ii).
For purposes of this Section 3.1(b), Class A Stock and Class
B Stock shall be deemed the same class of stock.
(c) Excluded Transfers. The rights and restrictions
contained in Section 3.1(b) shall not apply with respect to any of the
following Transfers of Securities:
(i) any Transfer of Management Securities in a
Public Sale;
(ii) any Transfer of Management Securities to
another Management Securityholder;
(iii) any Transfer of Management Securities
incidental to the exercise, conversion or exchange of such securities
in accordance with their terms or any combination of shares
(including any reverse stock split); and
(iv) any Transfer constituting an Exempt Transfer.
(d) Excluded Securities. No Securities that have been
transferred by the Selling Holder or an Other Holder in a Transfer pursuant to
the provisions of Section 3.1(b) hereof ("Excluded Securities") shall be
subject again to the restrictions set forth in Section 3.1(b) hereof, or any
other provision of this Agreement, nor shall any Securityholder holding
Excluded Securities be entitled to exercise any rights as an Other Holder
under Section 3.1(b) hereof with respect to such Excluded Securities, and no
Excluded Securities held by a Selling Holder or any Other Holder shall
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be counted in determining the respective participation rights of such Holders
in a Transfer subject to Section 3.1(b) hereof.
3.2 Certain Transferees Bound by Agreement. Subject to
compliance with the other provisions of this Article 3 applicable to such
Management Securityholder, any Management Securityholder may Transfer any
Securities held by such Securityholder in accordance with applicable law;
provided, however, that if the Transfer is an Exempt Transfer, then the
transferor of such Security shall first deliver to the Company a written
agreement of the proposed transferee to become a Securityholder and to be
bound by the terms of this Agreement applicable to the Securityholder who
Transferred the Securities. All Management Securities will continue to be
Management Securities in the hands of any transferee who is required to become
a party hereto under this Section 3.2.
3.3 Ownership of Class B Stock. The Company and each holder
of Management Securities covenants that it, he or she will take all actions
within their control to assure that the Management Securities owned by such
holder which are Class B Stock will be owned legally and beneficially only by
such holder, his or her Permitted Holders, and Permitted Option Holders until
such Management Securities are converted into Class A Stock. The Company
further covenants to cause each holder of Management Securities, including
those Persons holding Management Securities as of the closing of the IPO, to
execute this Agreement as a Management Securityholder.
3.4 Transfers in Violation of Agreement. Any Transfer or
attempted Transfer of any Securities in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Securities as the owner of
such Securities for any purpose.
ARTICLE 4
REGISTRATION RIGHTS
4.1 Demand Registrations.
(a) Requests for Registration. At any time after the 180th
day following the closing of the IPO or such earlier date on which the
holdback period imposed with respect to an IPO has terminated (the "Lockup
Termination Date"), the New Partner Majority Holders may request the
registration under the Securities Act of all or any portion of their
Registrable Securities on Form S-1 or any similar long-form registration
("Long-Form Registrations") or on Form S-2 or S-3 or any similar short-form
registration ("Short-Form Registrations") if available. All registrations
requested pursuant to this paragraph 4.1(a) are referred to herein as "Demand
Registrations". Each request for a Demand Registration shall specify the
approximate number of Registrable Securities requested to be registered and
the anticipated per share price range for such offering. Within ten days after
receipt of any such request, the Company shall give written notice of such
requested registration to all other holders of Registrable Securities and
shall include in such registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein within
15 days after the receipt of the Company's notice.
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(b) Long-Form Registrations. The New Partner Majority
Holders shall be entitled to request two Long-Form Registrations and an
unlimited number of Short-Form Registrations ("Company-paid Registrations"),
provided that, in each case, the proceeds from the sale of securities pursuant
to such registrations shall be at least Five Million Dollars ($5,000,000). The
New Partner Majority Holders may demand that any Long-Form Registration shall
be a Shelf Registration (as defined herein) under Rule 415 under the
Securities Act. A registration shall not count as one of the Long-Form Demand
Registrations until it has become effective and unless the Person requesting
such registration is able to register and, provided such Person exercises
commercially reasonable efforts to sell such securities at the price
originally contemplated at the time of the Demand Registration, sell at least
80% of the Registrable Securities requested to be included in such
registration; provided that in any event the Company shall pay all
Registration Expenses in connection with any registration initiated as a
Demand Registration whether or not it has become effective and whether or not
such registration has counted as one of the permitted Company-paid
Registrations.
(c) Priority on Demand Registrations. (i) If the Demand
Registration (A) occurs within the Exclusivity Period or (B) is the last
Long-Form Registration available to the New Partners, the Company shall not
include in such registration any securities which are not New Partner
Securities, or (ii) if clause (i) above does not apply and a Demand
Registration is an underwritten offering and the underwriter advises the
Company that in its opinion the number of Registrable Securities and other
securities requested to be included in such offering exceeds the number of
Registrable Securities and other securities, if any, which can be sold in an
orderly manner in such offering within a price range acceptable to the New
Partner Majority Holders initially requesting such registration, then the
Company shall include in such registration prior to the inclusion or any
securities which are not Registrable Securities the number of Registrable
Securities requested to be included which, in the opinion of such
underwriters, can be sold in an orderly manner within the price range of such
offering without adversely affecting the marketability of the offering, pro
rata among the respective holders thereof on the basis of the amount of
Registrable Securities owned by each such holder.
(d) Restrictions on Demand Registrations. The Company shall
not be obligated to effect any Demand Registration within 180 days after the
effective date of a previous Demand Registration, provided, however, that,
during the Exclusivity Period, such Demand Registration may occur as early as
90 days after such prior effective date. The Company may postpone for up to 90
days the filing or the effectiveness of a registration statement for a Demand
Registration if the Board determines in its reasonable good faith judgment
that such Demand Registration would reasonably be expected to have a material
adverse effect on any proposal or plan by the Company or any of its
Subsidiaries to engage in any acquisition of assets (other than in the
ordinary course of business) or any merger, consolidation, tender offer,
reorganization or similar transaction; provided that in such event, the
holders of Registrable Securities initially requesting such Demand
Registration shall be entitled to withdraw such request and, if such request
is withdrawn, such Demand Registration shall not count as one of the permitted
Demand Registrations hereunder and the Company shall pay all Registration
Expenses in connection with such registration.
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(e) Selection of Underwriters. The holders of a majority of
the Registrable Securities initially requesting registration hereunder shall
have the right to select the investment banker(s) and manager(s) to administer
the offering, subject to the Company's approval which shall not be
unreasonably withheld.
4.2 Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to
register any of its securities under the Securities Act (other than pursuant
to an employee benefit plan or to the extent issued as consideration for an
acquisition of the assets or stock of another entity) and the registration
form to be used may be used for the registration of Registrable Securities (a
"Piggyback Registration"), the Company shall give prompt written notice (in
any event within three business days after its receipt of notice of any
exercise of demand registration rights other than under this Agreement) to all
holders of Registrable Securities of its intention to effect such a
registration and shall include in such registration all Registrable Securities
with respect to which the Company has received written requests for inclusion
therein within 20 days after the receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the
holders of Registrable Securities shall be paid by the Company in all
Piggyback Registrations.
(c) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company
or a Successor, and the managing underwriters advise the Company in writing
that in their opinion the number of securities requested to be included in
such registration exceeds the number which can be sold in such offering
without adversely affecting the marketability of the offering, the Company
shall include in such registration (i) first, the securities the Company
proposes to sell, (ii) second, if such registration occurs during the
Exclusivity Period, the New Partner Securities requested to be included in
such registration, pro rata among the holders of such New Partner Securities
on the basis of the number of shares owned by each such holder, and (iii)
third, the other Registrable Securities requested to be included in such
registration pro rata among the holders of such securities.
(d) Priority on Secondary Registrations. Subject to Section
4.1(c) hereof, if a Piggyback Registration is an underwritten secondary
registration on behalf of holders of the Company's securities, and the
managing underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering without adversely affecting the
marketability of the offering, the Company shall include in such registration
(i) first, the securities requested to be included therein by the holders
requesting such registration and the Registrable Securities requested to be
included in such registration, pro rata among such holders on the basis of the
number of shares owned by each such holder and (ii) second, other securities
requested to be included in such registration.
(e) Other Registrations. If the Company has previously filed
a registration statement with respect to New Partner Securities pursuant to
Section 4.1 hereof or pursuant to this Section 4.2, and if such previous
registration has not been withdrawn or abandoned, the Company
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shall not file or cause to be effected any other registration of any of its
equity securities or securities convertible or exchangeable into or
exercisable for its equity securities under the Securities Act (except on Form
S-8 or any successor form), whether on its own behalf or at the request of any
holder or holders of such securities, until a period of at least 180 days has
elapsed from the effective date of such previous registration, except as
provided in Section 4.1(d). During the Exclusivity Period, without the consent
of the New Partner Majority Holders, the Company shall not file a registration
statement in respect of a secondary offering of Company common stock except as
needed to effect a Demand Registration.
4.3 Holdback Agreements.
(a) The Knafel Holders shall not effect any Public Sale of
equity securities of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior
to and the 90-day period beginning on the effective date of any underwritten
Demand Registration in which Registrable Securities are included (except as
part of such underwritten registration), unless the underwriters managing the
registered public offering otherwise agree.
(b) The Company shall not effect any Public Sale of its
equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and during the
90-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of
such underwritten registration or pursuant to registrations on Form S-8 or any
successor form), unless the underwriters managing the registered public
offering (i.e., the Demand or Piggyback Registration) otherwise agree.
(c) No Knafel Holder shall sell any Management Securities
pursuant to a Public Sale during the Exclusivity Period.
4.4 Registration Procedures. Whenever the holders of
Registrable Securities have requested that any Registrable Securities be
registered pursuant to this Article 4, the Company and the Management
Securityholders shall use their commercially reasonable best efforts to effect
the registration and the sale of such Registrable Securities in accordance
with the intended method of disposition thereof, and pursuant thereto the
Company shall as expeditiously as possible:
(a) prepare and file with the Securities and
Exchange Commission a registration statement with respect to such
Registrable Securities and use its commercially reasonable best
efforts to cause such registration statement to become effective
(provided that before filing a registration statement or prospectus
or any amendments or supplements thereto, the Company shall furnish
to the counsel selected by the holders of a majority of the
Registrable Securities covered by such registration statement copies
of all such documents proposed to be filed, which documents shall be
subject to the review and comment of such counsel);
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(b) notify each holder of Registrable Securities of
the effectiveness of each registration statement filed hereunder and
prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep
such registration statement effective for a period of not less than
180 days and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
registration statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in
such registration statement;
(c) furnish to each seller of Registrable
Securities such number of copies of such registration statement, each
amendment and supplement thereto, the prospectus included in such
registration statement (including each preliminary prospectus) and
such other documents as such seller may reasonably request in order
to facilitate the disposition of the Registrable Securities owned by
such seller;
(d) use its commercially reasonable best efforts to
register or qualify such Registrable Securities under such other
securities or blue sky laws of such jurisdictions as any seller
reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company shall not
be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but
for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any
such jurisdiction);
(e) notify each seller of such Registrable
Securities, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material
fact or omits any fact necessary to make the statements therein not
misleading, and, at the request of any such seller, the Company shall
prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not contain an untrue statement of
a material fact or omit to state any fact necessary to make the
statements therein not misleading;
(f) cause all such Registrable Securities to be
listed on each securities exchange on which similar securities issued
by the Company are then listed and, if not so listed, to be listed on
the NASD automated quotation system and, if listed on the NASD
automated quotation system, use its commercially reasonable best
efforts to secure designation of all such Registrable Securities
covered by such registration statement as a NASDAQ "national market
system security" within the meaning of Rule 11Aa2-1 of the Securities
and Exchange Commission or, failing that, to secure NASDAQ
authorization for such Registrable Securities and, without limiting
the generality of the foregoing, to arrange for at least two market
makers to register as such with respect to such Registrable
Securities with the NASD;
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(g) provide a transfer agent and registrar for all
such Registrable Securities not later than the effective date of such
registration statement;
(h) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other
actions as the holders of a majority of the Registrable Securities
being sold or the underwriters, if any, reasonably request in order
to expedite or facilitate the disposition of such Registrable
Securities (including effecting a stock split or a combination of
shares);
(i) make available for inspection by any seller of
Registrable Securities, any underwriter participating in any
disposition pursuant to such registration statement and any attorney,
accountant or other agent retained by any such seller or underwriter,
all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration
statement;
(j) otherwise use its best efforts to comply with
all applicable rules and regulations of the Securities and Exchange
Commission, and make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period of
at least twelve months beginning with the first day of the Company's
first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
(k) permit any holder of Registrable Securities
which holder, in its sole and exclusive judgment, might be deemed to
be an underwriter or a controlling person of the Company, to
participate in the preparation of such registration or comparable
statement and to require the insertion therein of material, furnished
to the Company in writing, which in the reasonable judgment of such
holder and its counsel should be included; and
(l) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any
order suspending or preventing the use of any related prospectus or
suspending the qualification of any common stock included in such
registration statement for sale in any jurisdiction, the Company
shall use its best efforts promptly to obtain the withdrawal of such
order.
4.5 Shelf Registration.
(a) Filing of Registration Statement. If a Demand
Registration is to be a Shelf Registration (as defined below), the Company
shall, as expeditiously as possible, file with the SEC a registration
statement under the Securities Act on the applicable registration pursuant to
Rule 415 under the Securities Act (the "Shelf Registration"). The Company and
the Management Securityholders shall use their commercially reasonable best
efforts to cause the Shelf Registration to be declared effective under the
Securities Act as soon as practical after filing, and once effective, the
Company shall cause such Shelf Registration to remain effective for a period
ending on the first
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anniversary of the effective date of such Shelf Registration. During the
Exclusivity Period the Company shall not effect a shelf registration of its
equity securities (or of securities convertible into such equity securities)
except pursuant to this Section 4.5(a).
(b) Holdback Agreement. If any holder or holders of
Registrable Securities notify the Company in writing that they intend to
effect the sale of Registrable Securities pursuant to the Shelf Registration
which has been filed under Section 4.5(a) above which constitute at least 10%
of the New Partner Securities as of the closing of the IPO (a "Sale"), the
Company shall not effect any public sale or distribution of its equity
securities, or any securities convertible into, or exchangeable or exercisable
for, its equity securities during the 90-day period beginning on the date such
notice of a Sale is received.
(c) Limitations on Additional Securities. In no event shall
the Company include any securities under the Shelf Registration which are not
New Partner Securities without the prior written consent of the holders of a
majority of New Partner Securities, and any such securities permitted to be
sold under the Shelf Registration shall only be sold in connection with a
Sale. If, in connection with any Sale, the Managing Underwriter (as defined
below) advises the Company that, in its opinion, the number of New Partner
Securities and other securities (if any) requested to be included in such Sale
exceeds the number of New Partner Securities and other securities which can be
sold in such offering without adversely affecting the marketability of the
offering, the Company shall include in such Sale the New Partner Securities
requested to be included in such Sale, pro rata among the holders of such New
Partner Securities on the basis of the number of New Partner Securities owned
by each such holder.
4.6 Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, fees and
disbursements of custodians, and fees and disbursements of counsel for the
Company and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other Persons retained by the
Company (all such expenses being herein called "Registration Expenses"), shall
be borne as provided in this Agreement, except that the Company shall, in any
event, pay its internal expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit or quarterly review, the expense of
any liability insurance and the expenses and fees for listing the securities
to be registered on each securities exchange on which similar securities
issued by the Company are then listed or on the NASD automated quotation
system.
(b) To the extent Registration Expenses are not required to
be paid by the Company, each holder of securities included in any registration
hereunder shall pay those Registration Expenses allocable to the registration
of such holder's securities so included, and any Registration Expenses not so
allocable shall be borne by all sellers of securities included in such
registration in proportion to the aggregate selling price of the securities to
be so registered.
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4.7 Indemnification.
(a) The Company agrees to indemnify, to the extent permitted
by law, each holder of Registrable Securities, its officers and directors and
each Person who controls such holder (within the meaning of the Securities
Act) against all losses, claims, damages, liabilities and expenses caused by
any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by or
contained in any information furnished in writing to the Company by such
holder expressly for use therein or by such holder's failure to deliver a copy
of the registration statement or prospectus or any amendments or supplements
thereto after the Company has furnished such holder with a sufficient number
of copies of the same. In connection with an underwritten offering, the
Company shall indemnify such underwriters, their officers and directors and
each Person who controls such underwriters (within the meaning of the
Securities Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities.
(b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder shall
furnish to the Company in writing such information and affidavits as the
Company reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, shall indemnify
the Company, its directors and officers and each Person who controls the
Company (within the meaning of the Securities Act) against any losses, claims,
damages, liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact contained in the registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, but only
to the extent that such untrue statement or omission is contained in any
information or affidavit so furnished in writing by such holder; provided that
the obligation to indemnify shall be individual, not joint and several, for
each holder and shall be limited to the net amount of proceeds received by
such holder from the sale of Registrable Securities pursuant to such
registration statement.
(c) Any Person entitled to indemnification hereunder shall
(i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification (provided that the failure to give
prompt notice shall not impair any Person's right to indemnification hereunder
to the extent such failure has not prejudiced the indemnifying party) and (ii)
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist with respect to
such claim, permit such indemnifying party to assume the defense of such claim
with counsel reasonably satisfactory to the indemnified party. If such defense
is assumed, the indemnifying party shall not be subject to any liability for
any settlement made by the indemnified party without its consent (but such
consent shall not be unreasonably withheld). An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim shall not be
obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable
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judgment of any indemnified party a conflict of interest may exist between
such indemnified party and any other of such indemnified parties with respect
to such claim.
(d) The indemnification provided for under this Article 4
shall remain in full force and effect regardless of any investigation made by
or on behalf of the indemnified party or any officer, director or controlling
Person of such indemnified party and shall survive the transfer of securities.
The Company also agrees to make such provisions, as are reasonably requested
by any indemnified party, for contribution to such party in the event the
Company's indemnification is unavailable for any reason.
4.8 Participation in Underwritten Registrations. No Person
may participate in any registration hereunder which is underwritten unless
such Person (i) agrees to sell such Person's securities on the basis provided
in any underwriting arrangements approved by the Person or Persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
4.9 No Inconsistent Agreements. The Company shall not
hereafter enter into any other registration agreement with respect to its
securities or any agreement which is inconsistent with or violates the rights
granted to the holders of Registrable Securities in this Article.
4.10 Short-Form Registrations.. The Company shall take all
steps necessary to permit the use of a Short-form Registration under Form S-3
(or successor form for similar registrations) in order to effect the sale of
New Partner Securities.
ARTICLE 5
AMENDMENT AND TERMINATION
5.1 Amendment and Waiver. Except as otherwise provided
herein, no modification, amendment or waiver of any provision of this
Agreement shall be effective against the Company or the Securityholders unless
such modification, amendment or waiver is approved in writing by each of the
Company, the New Partner Majority Securityholders and the Management Majority
Holders. The failure of any party to enforce any of the provisions of this
Agreement shall in no way be construed as a waiver of such provisions and
shall not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
5.2 Termination of Agreement. This Agreement and the Letter
Agreement will terminate in respect of all Securityholders (a) with the
written consent of the Company, the New Partner Majority Holders and the
Management Majority Holders (b) upon the dissolution, liquidation or
winding-up of the Company (other than by way of merger), (c) upon the
consummation of a Sale of the Company (except with respect to the rights under
Sections 4.1 and 4.2 hereof, which shall survive), and (d) when the New
Partner Securities held by Vestar represent less than 10% of the New Partner
Securities held by Vestar as of the closing of the IPO. The termination of
this Agreement will not affect any indemnification or contribution obligations
under Section 4.7 hereof, which shall survive such termination.
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5.3 Termination as to a Party. Any Person who ceases to hold
any Securities shall cease to be a Securityholder and shall have no further
rights or obligations under this Agreement or the Letter Agreement (except
with respect to any indemnification and contribution obligations under Section
4.7 hereof and for any breaches of this Agreement by such Person occurring
while such Person was a Securityholder, which shall survive), provided,
however, that, for purposes of this Section 5.3, Vestar Capital Partners III,
L.P. shall be deemed to own any securities owned by Persons included in the
definition of "Vestar."
ARTICLE 6
MISCELLANEOUS
6.1 Certain Defined Terms. As used in this Agreement, the
following terms shall have the meanings set forth or as referenced below:
"Affiliate" of any particular Person means any other Person
Controlling, Controlled by or under common Control with such particular Person
or, in the case of a natural Person, any other member of such Person's Family
Group.
"Agreement" has the meaning set forth in the preamble hereof.
"Allocable Shares" has the meaning set forth in Section 3.1(b)
hereof.
"Board" has the meaning set forth in the recitals hereof.
"Class B Exempt Transfer" means a Conversion Transfer or a
Transfer to a Permitted Holder.
"Class A Stock" means the Class A Common Stock, par value
$.01, of the Company and any capital stock of the Company into which such
stock may be converted as a result of a recapitalization of the Company which
has no extraordinary voting power.
"Class B Stock" means Class B common stock, par value $.01,
of the Company.
"Common Stock" means, collectively, the common stock, par
value $.01 per share, including Class A and Class B Stock of the Company and
any other class or series of authorized capital stock of the Company which is
not limited to a fixed sum or percentage of par or stated value in respect to
the rights of the holders thereof to participate in dividends or in the
distribution of assets upon any liquidation, dissolution or winding up of the
Company.
"Common Stock Equivalents" means (without duplication with
any Common Stock or other Common Stock Equivalents) rights, warrants, options,
convertible securities, or exchangeable securities or indebtedness, or other
rights, exercisable for or convertible or and exchangeable into, directly or
indirectly, Common Stock or securities exercisable for or convertible or
exchangeable into Common Stock, whether at the time of issuance or upon the
passage of time or the occurrence of some future event.
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"Company" has the meaning set forth in the preamble hereof.
"Company-paid Registrations" has the meaning given such term
in Section 4.1(b).
A "Conversion Transfer" means any Transfer if, prior to or
as a result of such Transfer, the shares of Class B Stock being transferred
are converted into shares of Class A Stock.
"Demand Registrations" has the meaning given such term in
Section 4.1(a) hereof.
"Excluded Securities" has the meaning set forth in Section
3.1(d) hereof.
"Exclusivity Period" means the 365-day period immediately
following the Lockup Termination Date, provided such period shall be extended
by the number of days which any Demand Registrations is deferred under Section
4.1(d) hereof and for 90 days for each primary registration of equity
securities by the Company (other than the initial public offering of the
common stock of the Company and primary registrations effected in connection
with a Demand Registration) and, provided further, that, for purposes of
Section 4.2(e) hereof, the period shall end at the expiration of the 24th
month following the Lockup Termination Date (and shall be subject to same
extensions as in the immediately preceding proviso).
"Exempt Transfer" means a Transfer of Management Securities
(a) upon the death of the holder pursuant to the applicable laws of descent
and distribution or to a conservator appointed to manage the estate of such
holder, (b) to or among such Person's Family Group, or (c) to the Company (i)
incidental to the exercise, conversion or exchange of such securities in
accordance with their terms, any combination of shares (including any reverse
stock split) or (ii) incidental to any recapitalization, reorganization or
reclassification of, or any merger or consolidation involving, the Company,
provided that such transferee complies with the provisions of Section 3.2
hereof.
"Family Group" means, with respect to any individual, such
individual's spouse (including pursuant to any divorce decree) and descendants
(whether natural or adopted), siblings, and any legal entity established and
maintained for the benefit of any of the foregoing Persons.
"Fully-Diluted Shares" means, as of any date of
determination, the number of shares of such Common Stock outstanding plus
(without duplication) all shares of such Common Stock issuable, whether at
such time or upon the passage of time or the occurrence of future events, upon
the exercise, conversion or exchange of all then-outstanding Common Stock
Equivalents.
"IPO" means the consummation of the initial public offering of
the Common Stock of the Company.
"Kelly" has the meaning set forth in the preamble hereof.
"Knafel" has the meaning set forth in the preamble hereof.
"Knafel Holders" has the meaning set forth in the preamble
hereof.
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"Letter Agreement" has the meaning set forth in Section 6.4
hereof.
"Lockup Termination Date" has the meaning set forth in Section
4.1(a) hereof.
"Long-Form Registrations" has the meaning given such term in
Section 4.1(a) hereof.
"Management Majority Holder" means the Persons who own the
majority of the Management Securities.
"Management Securities" means (i) securities of the Company
owned by the Management Securityholders as of the effective date of this
Agreement or other stock received from the Company in respect of such stock or
subsequently acquired by such Persons and (ii) any Class B Stock of the Company
(including Class B Stock issued pursuant to a Permitted Option Plan).
"Management Securityholder" means any Persons identified in
the preamble of this Agreement as such and any Permitted Holder, so long as such
Person holds Management Securities.
"NASD" means the National Association of Securities Dealers.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.
"New Partners" has the meaning given such term in the preamble
hereof.
"New Partner Majority Holders" means Vestar.
"New Partner Securities" means any capital stock of the
Company initially owned by Vestar or other New Partners as a result of their
ownership of Class B Units of Insight Communications Company, L.P., including
any securities of the Company received from the Company in respect of such New
Partner Securities whether by way of recapitalization, stock split, stock
dividend, or similar transactions.
"Offered Securities" has the meaning given such term in
Section 3.1(a) hereof.
"Other Holder" has the meaning given such term in Section
3.1(a) hereof.
"Permitted Holder" means, with respect to any holder of
Management Securities, a Person to whom or which such holder may Transfer shares
in an Exempt Transfer, provided that no Person other than such Permitted Holder
or the Management Securityholder or Permitted Option Holder who Transferred such
stock to the Permitted Holder has the right to control, by contract or
otherwise, the voting power of Class B Stock owned by such Permitted Holder
hereof and, provided further, that, in the case of a legal entity, such Person
shall be a Permitted Holder only if Permitted Holders who are not legal entities
own 100% of the legal and beneficial ownership of such entity.
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"Permitted Option Holders" means Persons who receive stock
pursuant to a Permitted Option Plan and Persons to whom such holders could
Transfer Management Securities in an Exempt Transfer.
"Permitted Option Plan" means an option plan adopted by the
Company which is described in Section 4 of the Letter Agreement.
"Person" means an individual, a partnership, a joint venture,
a corporation, an association, a joint stock company, a limited liability
company, a trust, an unincorporated organization or a government or any
department or agency or political subdivision thereof.
"Piggyback Registration" has the meaning given such term in
Section 4.2(a) hereof.
"Public Offering" means a sale of Common Stock to the public
in an offering pursuant to an effective registration statement filed with the
SEC pursuant to the Securities Act, as then in effect, provided that a Public
Offering shall not include an offering of company securities as part of the
consideration for a business acquisition or combination or made solely in
connection with an employee benefit plan.
"Public Sale" means a sale of Securities pursuant to a Public
Offering or a Rule 144 Sale.
"Registrable Securities" means (i) the Securities, (ii) any
Common Stock issued or issuable with respect to the securities referred to in
clause (i) by way of a conversion right, stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Registrable Securities, such
securities will cease to be Registrable Securities when they have been (i)
Transferred in a Public Sale or (ii) otherwise Transferred and new certificates
not bearing the legend set forth in Section 6.2 hereof shall have been delivered
by the Company and subsequent disposition of such securities shall not require
registration or qualification of such securities under the Securities Act or
such state securities or blue sky laws then in force.
"Registration Expenses" has the meaning given such term in
Section 4.6(a).
"Required Vestar Directors" means two individuals designated
by Vestar so long as Vestar continues to own at least 25% of the outstanding
Common Stock of the Company it owned as of the closing of the IPO and one
individual designated by Vestar so long as Vestar owns at least 10% of the
outstanding Common Stock of the Company it owned as of the closing of the IPO.
For this purpose, the amount owned by Vestar as of the closing of the IPO shall
be adjusted to account for any stock split occurring after the IPO.
"Rule 144" means Rule 144 adopted under the Securities Act (or
any successor rule or regulation).
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"Rule 144 Sale" means a sale of Securities to the public
through a broker, dealer or market-maker pursuant to the provisions of Rule 144
adopted under the Securities Act (or any successor rule or regulation).
"Sale" has the meaning given such term in Section 4.5(b)
hereof.
"Sale of the Company" means the consummation of a transaction,
whether in a single transaction or in a series of related transactions that are
consummated contemporaneously (or consummated pursuant to contemporaneous
agreements), with any Person or Persons (other than an affiliate of the Company)
on an arm's-length basis, pursuant to which such party or parties (i) acquire
(whether by merger, stock purchase, recapitalization, reorganization,
redemption, issuance of capital stock or otherwise) more than 50% of the Fully
Diluted Shares or (ii) acquire assets constituting all or substantially all of
the assets of the Company and its Subsidiaries on a consolidated basis.
"Sale Notice" has the meaning given such term in Section
3.1(b) hereof.
"Sandler" has the meaning given such term in the preamble
hereof.
"Sandler IV" has the meaning given such term in the preamble
hereof.
"Sandler FTE" has the meaning given such term in the preamble
hereof.
"SEC" means the Securities and Exchange Commission.
"Securities" means, collectively, the New Partner Securities
and the Management Securities.
"Securityholder" has the meaning given such term in the
preamble hereof.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Selling Holder" has the meaning given such term in Section
3.1(a) hereof.
"Shelf Registration" has the meaning given such term in
Section 4.5(a) hereof.
"Short-Form Registrations" has the meaning given such term in
Section 4.1(a) hereof.
"Subsidiary" means any corporation with respect to which
another specified corporation has the power to vote or direct the voting of
sufficient securities to elect directors having a majority of the voting power
of the board of directors of such corporation.
"Tag-Along Notice" has the meaning given such term in Section
3.1(b) hereof.
"Tag-Along Transfer" means any Transfer of Management
Securities (or series of related Transfers) by the Knafel Holders or their
Permitted Transferees agreed to within three years
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of the IPO to a single Person and the Affiliates of such Person which results
in the Transfer of more than fifty percent (50%) of the Management Securities
owned by the Knafel Holders at the time of the IPO.
"Transfer" means (in either the noun or the verb form,
including with respect to the verb form, all conjugations thereof within their
correlative meanings) with respect to any security, the gift, sale, assignment,
transfer, pledge, hypothecation or other disposition (whether for or without
consideration, whether directly or indirectly, and whether voluntary,
involuntary or by operation of law) of such Security or any economic or voting
interest therein.
"Vestar" has the meaning given such term in the preamble
hereof but shall include any limited partner of Vestar or any partner, principal
or Affiliate of the General Partner of Vestar.
"Vestar Directors" has the meaning given such term in Section
2.1(a) hereof.
"Willner" has the meaning given such term in the preamble
hereof.
6.2 Legends.
(a) Securityholders Agreement. Each certificate or
instrument evidencing Management Securities and each certificate or instrument
issued in exchange for or upon the Transfer of any such Management Securities
(if such securities remain subject to this Agreement after such Transfer)
shall be stamped or otherwise imprinted with a legend (as appropriately
completed under the circumstances) in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE CONSTITUTE
MANAGEMENT SECURITIES UNDER A CERTAIN SECURITYHOLDERS
AGREEMENT DATED AS OF MAY 11, 1999, AMONG THE ISSUER OF SUCH
SECURITIES (THE "COMPANY") AND CERTAIN OF THE COMPANY'S
SECURITYHOLDERS AND, AS SUCH, ARE SUBJECT TO CERTAIN VOTING
PROVISIONS, PURCHASE RIGHTS AND RESTRICTIONS ON TRANSFER SET
FORTH IN THE SECURITYHOLDERS AGREEMENT. A COPY OF SUCH
SECURITYHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE
BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST."
(b) Registrable Securities. Each instrument or certificate
evidencing Securities and each instrument or certificate issued in exchange or
upon the Transfer of any Securities shall be stamped or otherwise imprinted
with a legend substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND MAY NOT BE OFFERED OR SOLD UNLESS IT
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HAS BEEN REGISTERED UNDER THE SECURITIES ACT OR UNLESS AN
EXEMPTION FROM REGISTRATION IS AVAILABLE (AND, IN SUCH CASE,
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
SHALL HAVE BEEN DELIVERED TO THE COMPANY TO THE EFFECT THAT
SUCH OFFER OR SALE IS NOT REQUIRED TO BE REGISTERED UNDER
THE SECURITIES ACT)."
(c) Removal of Legends. Whenever in the opinion of the
Company and counsel reasonably satisfactory to the Company (which opinion
shall be delivered to the Company in writing) the restrictions described in
any legend set forth above cease to be applicable to any Securities, the
holder thereof shall be entitled to receive from the Company, without expense
to the holder, a new instrument or certificate not bearing a legend stating
such restriction.
6.3 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
6.4 Entire Agreement. Except as otherwise expressly set forth
herein, this document and that certain letter agreement dated May 11, 1999,
among Vestar, the Company and Insight Communications, L.P. (the "Letter
Agreement") embodies the complete agreement and understanding among the parties
hereto with respect to the subject matter hereof and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
6.5 Successors and Assigns. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by the Company and its successors and assigns and the Securityholders and any
subsequent holders of Securities and the respective successors and assigns of
each of them, so long as they hold Securities.
6.6 Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
6.7 Remedies. The Company and the Securityholders shall be
entitled to enforce their rights under this Agreement specifically, to recover
damages by reason of any breach of any provision of this Agreement (including
costs of enforcement) and to exercise all other rights existing in their favor.
The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that the
Company or any Securityholder may in its or his sole discretion apply to any
court of law or equity of competent
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jurisdiction for specific performance or injunctive relief (without posting a
bond or other security) in order to enforce or prevent any violation of the
provisions of this Agreement.
6.8 Notices. Any notice provided for in this Agreement shall
be in writing and shall be either personally delivered, or mailed first class
mail (postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to the Company at the address set forth below and to any other
recipient at the address indicated on the attached Schedule of Securityholders
and to any subsequent holder of Securities subject to this Agreement at such
address as indicated by the Company's records, or at such address or to the
attention of such other person as the recipient party has specified by prior
written notice to the sending party. Notices will be deemed to have been given
hereunder when sent by facsimile (receipt confirmed) delivered personally, five
days after deposit in the U.S. mail and one day after deposit with a reputable
overnight courier service. The Company's address is:
Insight Communications Company, Inc.
126 East 56th Street, 33rd Floor
New York, NY 10022
Attention: Michael S. Willner
A copy of each notice given to the Company shall be given to Vestar (and no
notice to the Company shall be effective until such copy is delivered to
Vestar) at the following address:
Vestar Capital Partners III, L.P.
245 Park Avenue, 41st Floor
New York, New York 10167
Attention: Prakash A. Melwani
Managing Director
6.9 Governing Law. The General Corporation Law of the State
of Delaware shall govern all questions arising under this Agreement concerning
the relative rights of the Company and its stockholders. All other questions
concerning the construction, validity and interpretation of this Agreement
shall be governed by and construed in accordance with the domestic laws of the
State of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New York.
6.10 Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
6.11 Effective Date. This Agreement shall be effective only
upon the consummation of a Qualifying IPO (as that term is defined in the Letter
Agreement).
-23-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Securityholders Agreement on the day and year first above written.
INSIGHT COMMUNICATIONS COMPANY, INC.
By:
--------------------------------------
Name:
Title:
VESTAR CAPITAL PARTNERS III, L.P.
By: Vestar Associates III, L.P.
Its: General Partner
By: Vestar Associates Corporation III
Its: General Partner
By:
--------------------------------------
Name:
Title:
--------------------------------------
Sidney R. Knafel
--------------------------------------
Michael S. Willner
--------------------------------------
Kim D. Kelly
<PAGE>
SANDLER CAPITAL PARTNERS IV, L.P.
By: Sandler Investment Partners, L.P.,
its sole general partner
By: Sandler Capital Management,
its sole general partner
By: MJDM Corp.,
its general partner
By:
--------------------------------------
Name: Edward Grinacoff
Title: President
SANDLER CAPITAL PARTNERS IV FTE, L.P.
By: Sandler Investment Partners, L.P.,
its sole general partner
By: Sandler Capital Management,
its sole general partner
By: MJDM Corp.,
its general partner
By:
--------------------------------------
Name: Edward Grinacoff
Title: President
<PAGE>
May 11, 1999
Insight Communications Company, L.P.
126 East 56th Street, 33rd Floor
New York, NY 10022
Attention: Michael S. Willner
Dear Michael:
This letter agreement sets forth the agreement of the
signatories hereto related to an initial public offering (the "IPO") of common
stock of Insight Communications Company, Inc. ("Insight"), which will be the
transferee of all of the equity interests of Insight Communications Company,
L.P. (the "Partnership").
In order to effectuate the IPO, the parties hereto agree
that the following transaction will occur at or prior to the closing of the
IPO:
1. Effective immediately prior to the closing of the IPO,
Insight will, directly or indirectly, own all of the assets of the Partnership
and will, directly or indirectly, be responsible for all of the liabilities of
the Partnership.
2. Contemporaneously with the closing of the IPO, the
Partnership will distribute to holders of Class B Units of the Partnership, in
proportion to their ownership of Class B Units, that number of shares of common
stock of Insight (the "Common Stock") with a value (based on the price of stock
in the IPO) equal to the "Adjusted Class B Equity Value" (as illustrated in
Appendix A hereto), in exchange for all of the Class B Units held by such
holders and, after such distribution, the holders of such Class B Units shall
have no further rights or obligations under the Partnership Agreement, except
for any rights or obligations arising from any breach of the Partnership
Agreement (as defined below) occurring prior to the date of distribution. The
other partners of the Partnership will receive solely Common Stock identical to
the stock received by the holders of Class B Units of the Partnership, provided
that Management Securityholders and Permitted Holders (as both terms are defined
in the Securityholders Agreement referred to in paragraph 3 hereto) shall be
entitled to receive Class B Stock of Insight, which is identical in all respect
to Class A Stock except with respect to voting power. For purposes of this
agreement, the capitalized terms listed below have the meanings listed opposite
such term:
Adjusted Class B Equity Value Class B Equity Value divided by .97.
Class B Current Ownership The total Class B Units outstanding
(currently 47,215,859) divided by
the total Class A and Class B Units
outstanding (currently 89,179,344)
immediately
<PAGE>
preceding the IPO. (Note: such
ownership percentage is currently
52.9%.)
Class B Equity Value Pre-Option Class B Equity Value less
the General Partner Option Value.
Class B IRR Threshold 25% compounded annually.
Class B IRR Threshold Time Period Three years plus the amount of time
elapsed, if any, from July 28, 1999
until the effective date of the
initial public offering of the
Company's Common Stock.
Class B Minimum Equity Value The product of the Implied IRR
Equity Hurdle (as defined below) and
the Class B Current Ownership.
Class B Residual Equity Value Ownership The product, expressed as a
percentage, of (A) 25 divided by 45
and (B) the Class B Current
Ownership (Note: such ownership
percentage is currently 29.4%).
General Partner Option Value 6.667% of the Pre-Option Class B
Equity Value (as defined below).
Implied IRR Equity Hurdle $50
million divided by the Class B
Current Ownership and multiplied by
1 plus the Class B IRR Threshold
raised to the power of the Class B
IRR Threshold Time Period.
Post-Money Equity Value The IPO offering price per share
multiplied by the pro forma
fully-diluted shares outstanding.
Pre-Option Class B Equity Value The sum of (A) the Class B Minimum
Equity Value and (B) the product of
the Class B Residual Equity Value
Ownership and the Residual Equity
Value.
Residual Equity Value The Residual Equity Value to the
Existing Class A and Class B Holders
less the Implied IRR Equity Hurdle.
-2-
<PAGE>
Residual Equity Value to Existing The Post-Money Equity Value less the
Class A and Class B Holders total value of shares sold in the
IPO.
Except as specifically provided herein, all defined terms
shall have the same meaning as in the Securityholders Agreement (as defined
below).
3. Sidney Knafel, Kim Kelly, Michael Willner, Vestar Capital
Partners III, L.P. ("Vestar"), Insight (and, if they so elect, other holders of
Class B Units), the Knafel Holders and all other Management Securityholders will
execute a securityholders agreement in the form attached hereto as Exhibit B
(the "Securityholders Agreement"). No other partner of the Partnership shall
receive any registration rights from the Company upon the IPO.
4. The certificate of incorporation of Insight shall provide
that Class B Stock shall convert to shares of Class A Stock when such shares are
held by persons other than "Permitted Holders," as that term is defined in the
Securityholders Agreement. Notwithstanding the foregoing, the Company may issue
additional shares of Class B Stock to senior executives of the Company pursuant
to an option plan, provided that (a) the maximum number of Class B shares
issuable and issued pursuant to the exercise of such options shall not exceed
three percent (3%) of the fully-diluted outstanding Common Stock of the Company
on the date that such options are granted, (b) the exercise price for each share
issued pursuant to such option shall be no less than its fair market value on
the date such option is granted and (c) each Person receiving Class B Stock
pursuant to an option must become a party to the Securityholders Agreement as a
Management Securityholder.
5. Insight shall (a) pay all expenses of the holders of Class
B Units incurred in connection with the IPO, including expenses incurred in the
negotiation and preparation of the documents referred to in this letter
agreement, and (b) at all times that directors nominated by Vestar are on the
board of directors of Insight, maintain directors and officers liability
insurance in an amount of at least $10 million, and shall, in good faith,
investigate and consider an amount of coverage of $20 million or more.
6. The parties hereto agree that the IPO shall not be
consummated unless (a) it is consummated prior to January 31, 2000, (b) all of
the documents referred to herein are duly executed by the parties thereto and
all the transactions listed in paragraphs 1-5 above occur on or prior to the
closing of the IPO, and (c) the IPO constitutes a "qualifying IPO." For purposes
of this paragraph, the IPO will be a "qualifying IPO" if (i) the IPO results in
the listing of the Common Stock on NASDAQ or a national securities exchange and
yields gross proceeds to Insight of at least one hundred twenty-five million
dollars ($125,000,000) and (ii) as of the date of the IPO, the value of the
equity of Insight distributed to the holders of Class A Units and Class B Units
of the Partnership and persons who hold interests in the General Partner of the
Partnership, in each case as of the date hereof, based on the price per share of
common stock in the IPO, is at least three hundred million dollars
($300,000,000).
7. Insight will distribute to the holders of Class B Units who
are holders on the date hereof an amount equal to any tax costs, of any kind,
including interest and
-3-
<PAGE>
penalties, incurred by them as a result of (a) the transactions contemplated
herein to occur at or immediately prior to the IPO and (b) any taxable income of
the Partnership incurred during the taxable year of the Partnership in which the
IPO occurs. The Partnership and Insight will (i) use all commercially reasonable
efforts to cause any distributions under this paragraph 7 to be excludable from
the gross income of the recipients and, if such distribution is includable in
gross income, it shall be "grossed up" so that the after-tax distribution is
sufficient to pay the tax costs giving rise to the distribution, (ii) consult
with Vestar prior to finalizing any calculation of tax consequences of the
transaction contemplated hereunder or of the taxable income in the year in which
the IPO occurs and (iii) provide the Form K-1 for the year in which the IPO
occurs as promptly as practicable but in no event later than March 31 of the
following year. If any distribution is made hereunder (a "Section 7
Distribution"), each holder of Units, other than holders of Class B Units, and
the General Partner shall be entitled to a distribution from Insight equal to
the "Pro Rata Amount," and there shall be no other distribution (including by
way of any loan, other than a Qualified Loan, from Insight or the Partnership)
to such holders of Units or the General Partner (or persons who own interests in
the General Partner) relating to the taxable income of the Partnership. For
purposes of this letter, the "Pro Rata Amount" means the amount that would be
distributed to each Class A Partner and the General Partner as a Net Tax
Distribution Shortfall under Section 11.2(B) of the agreement of partnership of
the Partnership (the "Partnership Agreement") if the Section 7 Distribution were
the only Tax Distribution received by the holders of Class B Units. For the
purpose of this paragraph 7, defined terms used herein but otherwise undefined
shall have the same meaning as in the Partnership Agreement. All Section 7
Distributions shall be made, to the extent possible, prior to the date that the
related tax payment must be made, but in any event no later than 30 days after
the date that the amount of the Section 7 Distribution is determined. For
purposes of this paragraph 7, "Qualified Loan" shall mean funds loaned to
members of management of Insight as of the time of the IPO (excluding Sidney
Knafel): (A) with terms and borrowers approved by the board of directors of
Insight; (B) which are used to pay income taxes of the borrower directly
resulting from the transfer of partnership interests of the Partnership to
Insight or from the distribution of stock of Insight to such persons at the time
of the IPO; and (C) which, when added to all other loans made for this purpose,
do not exceed, in the aggregate, $5 million.
8. This letter agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective predecessors, successors,
assigns, heirs, executors, administrators and personal representatives, and each
of them, whether so expressed or not. This letter agreement is not assignable by
any party without the prior written consent of the other parties, and any
attempted assignment of this letter agreement without such prior written consent
shall be void.
9. The parties hereto acknowledge and agree that money damages
may not be an adequate remedy for any breach of the provisions of this letter
agreement, and any party shall be entitled to obtain specific performance and/or
injunctive relief (without posting any bond or other security) in order to
enforce or prevent any violation of the provisions of this letter agreement.
-4-
<PAGE>
10. This letter agreement will be governed by the laws of the
State of New York, without regard to conflict principles.
11. This letter agreement may be executed in any number of
counterparts, each of which shall be an original, and all of which shall
constitute one and the same instrument.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
[SIGNATURE PAGE FOLLOWS]
-5-
<PAGE>
The parties hereto have caused this agreement to be duly
authorized and executed below as evidence of their agreement to be bound by the
terms of this letter agreement.
INSIGHT COMMUNICATIONS COMPANY,
L.P.
By: ICC Associates, L.P.
Its: General Partner
By: Insight Communications, Inc.
Its: General Partner
By:
--------------------------------
Name:
Title:
VESTAR CAPITAL PARTNERS III, L.P.
By: Vestar Associates III, L.P.
Its: General Partner
By: Vestar Associates Corporation III
Its: General Partner
By:
--------------------------------
Name:
Title:
--------------------------------
Sidney R. Knafel
--------------------------------
Michael S. Willner
--------------------------------
Kim D. Kelly
<PAGE>
SANDLER CAPITAL PARTNERS IV, L.P.
By: Sandler Investment Partners, L.P.,
its sole general partner
By: Sandler Capital Management,
its sole general partner
By: MJDM Corp.,
its general partner
By:
--------------------------------
Name: Edward Grinacoff
Title: President
SANDLER CAPITAL PARTNERS IV FTE,
L.P.
By: Sandler Investment Partners, L.P.,
its sole general partner
By: Sandler Capital Management,
its sole general partner
By: MJDM Corp.,
its general partner
By:
--------------------------------
Name: Edward Grinacoff
Title: President
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 31, 1999 pertaining to the financial statements
and schedule of Insight Communications Company, L.P. and our report dated
April 5, 1999 pertaining to the financial statements of Insight Communications
of Central Ohio, LLC in Amendment No 1 to the Registration Statement (Form S-1,
No. 333-78293) and related Prospectus of Insight Communications Company, Inc.
for the registration of its Class A Common Stock.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, New York
June 23, 1999
<PAGE>
Exhibit 23.2(a)
Consent of Independent Auditors
-------------------------------
The Board of Directors and Stockholders
Tele-Communications, Inc.:
We consent to the inclusion in the registration statement on Form S-1 of Insight
Communications Company, Inc. of our report, dated March 5, 1999, relating to the
combined balance sheets of the TCI Insight Systems (as defined in Note 1 to the
combined financial statements) as of October 31, 1998 and December 31, 1997, and
the related combined statements of operations and parent's investment (deficit),
and cash flows for the ten-month period ended October 31, 1998 and for each of
the years in the two-year period ended December 31, 1997, and to the reference
to our firm under the heading "Experts" in the registration statement.
/s/ KPMG LLP
KPMG LLP
Denver, Colorado
June 22, 1999
<PAGE>
Exhibit 23.2(b)
Consent of Independent Auditors
-------------------------------
The Board of Directors and Stockholders
Tele-Communications, Inc:
We consent to the inclusion in the registration statement on Form S-1 of Insight
Communications Company, Inc. of our report, dated May 7, 1999, relating to the
combined balance sheets of the TCI IPVI Systems (as defined in Note 1 to the
combined financial statements) as of April 30, 1998 and December 31, 1997, and
the related combined statements of operations and parent's investment (deficit),
and cash flows for the four-month period ended April 30, 1998 and for each of
the years in the two-year period ended December 31, 1997, and to the reference
to our firm under the heading "Experts" in the registration statement.
/s/ KPMG LLP
KPMG LLP
Denver, Colorado
June 22, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated March 26, 1999, relating to the consolidated financial statements
of InterMedia Capital Partners VI, L.P., which appears in such Registration
Statement. We also consent to the reference to us under the heading "Experts"
in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Francisco, California
June 22, 1999
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated July 17, 1998 pertaining to the financial statements of Central Ohio Cable
System Operations Unit as of December 31, 1997 and for the two years then ended
(and to all references to our Firm) included in this registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Columbus, Ohio,
June 23, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 29,667,000
<SECURITIES> 0
<RECEIVABLES> 6,205,000
<ALLOWANCES> 409,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 218,643,000
<DEPRECIATION> (54,440,000)
<TOTAL-ASSETS> 687,376,000
<CURRENT-LIABILITIES> 41,899,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (3,812,000)
<TOTAL-LIABILITY-AND-EQUITY> 687,376,000
<SALES> 0
<TOTAL-REVENUES> 45,377,000
<CGS> 0
<TOTAL-COSTS> 49,182,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,493,000
<INCOME-PRETAX> 9,951,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,951,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,238,000
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
