<PAGE>
As filed with the Securities and Exchange Commission on July 19, 1999
REGISTRATION NO. 333-78293
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
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. / /
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
We will amend and complete the information in this prospectus. Although 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[el]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.
SUBJECT TO COMPLETION--JULY 19, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
JULY , 1999
[LOGO] (Service Mark)
INSIGHT
COMMUNICATIONS
20,500,000 SHARES OF CLASS A COMMON STOCK
- --------------------------------------------------------------------------------
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 69.7% of our total voting power.
PROPOSED SYMBOL AND MARKET:
o ICCI/Nasdaq National Market
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:
</TABLE>
THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 13.
- --------------------------------------------------------------------------------
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
DLJDIRECT INC.
<PAGE>
[MAP SHOWING INSIGHT'S SERVICE AREA]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 4
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................................... 33
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 35
Industry....................................... 42
Business....................................... 44
Legislation and Regulation..................... 67
<CAPTION>
PAGE
----
<S> <C>
Management..................................... 76
Certain Transactions........................... 81
Principal Stockholders......................... 82
Corporate Structure............................ 84
Description of Recent Transactions............. 85
Description of Certain Indebtedness............ 89
Description of Capital Stock................... 92
Shares Eligible for Future Sale................ 94
Underwriters................................... 96
Legal Matters.................................. 98
Experts........................................ 99
Available Information.......................... 99
Glossary....................................... G-1
Index to Financial Statements.................. F-1
</TABLE>
3
<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, with approximately 1,049,000 customers as of
March 31, 1999, after giving effect to our proposed acquisition of the Kentucky
cable television systems and other recently announced industry acquisitions. 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. Upon completion of our rebuild efforts, which is
expected to occur in 2000, over 96% of our customers will be served from nine
headends 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.We believe that we are
very well positioned to exploit the new business opportunities available to
cable television operators.
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, which we believe would result 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 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 allow us to deliver
more information and entertainment services through our cable systems and to
provide for 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 rebuilt 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.
4
<PAGE>
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 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.
5
<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................................... 43,423,637 shares (1)(2)
Class B................................... 10,009,594 shares(2)
Total................................ 53,433,231 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 69.7% of our
total voting power.
Proposed Nasdaq National Market symbol ..... ICCI
</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 2,250,000 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.
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.
6
<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.
7
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------
PRO FORMA FOR THE THREE
------------------------------------------------------------ MONTHS ENDED
NATIONAL INDIANA KENTUCKY MARCH 31, 1999
SYSTEMS SYSTEMS SYSTEMS(1) PRO FORMA
PERCENTAGE OWNED 100% 50% 50% ADJUSTMENTS(2) TOTAL(3) TOTAL(3)
-------- -------- ---------- -------------- -------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER CUSTOMER DATA)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Revenues.......................... $ 41,314 $138,861 $ 195,507 $ -- $375,682 $ 97,458
Operating expense............... 11,069 39,604 65,328 -- 116,001 30,369
Selling, general and
administrative................ 11,885 24,749 44,416 -- 81,050 21,665
Depreciation and amortization... 19,649 83,401 122,278 -- 225,328 61,750
-------- -------- ---------- -------- -------- --------
Operating income (loss)........... (1,289) (8,893) (36,515) -- (46,697) (16,326)
EBITDA(4)......................... 18,096 74,270 86,994 56,306 235,666 62,483
EBITDA margin(5).................. 43.8% 53.5% 44.5% -- 62.7% 64.1%
Net income (loss)................. $(10,686) $(45,691) $ (80,183) $ 63,440 $(73,120) $(21,887)
Pro forma loss per share.......... (2.22) (0.67)
Net cash provided by operating
activities...................... 11,174 49,878 47,146 -- 108,198 30,053
Net cash used in investing
activities...................... 24,637 45,336 51,069 -- 121,042 43,170
Net cash (used in) provided by
financing activities............ (36,836) (11,600) 6,525 -- (41,911) 26,000
Monthly revenue
per customer(6)................. 32.64 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
---------- ----------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
TECHNICAL DATA:
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(7).................................... 5 1 5 4 1
Number of headends serving 90% of our
customers expected as of December 31,
2000(7).................................... 2 1 3 4 0
OPERATING DATA:
Homes passed(8).............................. 149,399 172,975 495,605 657,361 159,644
Basic customers(9)........................... 86,846 86,620 336,252 425,445 114,262
Basic penetration(10)........................ 58.1% 50.1% 67.8% 64.7% 71.6%
Premium units(11)............................ 96,869 85,526 234,528 351,703 44,381
Premium penetration(12)...................... 111.5% 98.7% 69.7% 82.7% 38.8%
Number of addressable homes(13).............. 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>
- ------------------
(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.
(Footnotes continued on next page)
8
<PAGE>
(Footnotes continued from previous page)
(2) Represents the following:
o AT&T Broadband & Internet Services' share of losses of the Indiana
and Kentucky systems totalling $22.8 million and $40.1 million.
o reduction in interest expense related to the paydown of our debt
from the proceeds of this offering totalling $7.1 million.
o the equity in loss of Insight Ohio totalling $6.6 million.
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. You
should read the historical financial statements and related notes of
Insight Communications of Central Ohio, LLC. which reflect the results of
operations of the Columbus system. The pro forma data exclude:
o 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;
o a one-time $17.1 million non-cash compensation charge associated
with the distribution of incentive shares to management.
(4) Represents earnings (loss) before interest, taxes, depreciation and
amortization. Our management believes that EBITDA 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
our financial statements, including the statements of cash flows, which are
included elsewhere in this prospectus.
(5) Represents EBITDA as a percent of revenues.
(6) 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.
(7) Represents an estimate based on our current rebuild program.
(8) Homes passed are the number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable
system's service area.
(9) 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.
(10) Basic penetration means basic customers as a percentage of total number of
homes passed.
(11) Premium units mean the number of subscriptions to premium services, which
are paid for on an individual basis.
(12) 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.
(13) 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>
STATEMENT OF OPERATIONS DATA:
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).................................................................. $ (0.67)
---------
---------
OTHER FINANCIAL DATA:
EBITDA(3)............................................................. $11,645 $43,470 $ 62,483
EBITDA margin(4)...................................................... 50.3% 95.8% 64.1%
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>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
---------------------------------
PRO FORMA
HISTORICAL AS ADJUSTED(5)
-------------- ---------------
(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>
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)
---------- --------- --------- --------- ---------- ---------
---------- --------- --------- --------- ---------- ---------
Basic income (loss) per share before
extraordinary item................. $ (0.26) $ (0.25) $ (0.24) $ 2.06 $ 6.63 n/a
Diluted income (loss) per share before
extraordinary item................. $ (0.23) $ (0.21) $ (0.24) $ 1.88 $ 4.56 n/a
Basic income (loss) per share......... $ (0.26) $ (0.25) $ (0.26) $ 1.88 $ 6.47
Diluted income (loss) per share....... $ (0.23) $ (0.21) $ (0.26) $ 1.72 $ 4.27
Pro forma loss per share(2)...................................................................... $ (2.22)
---------
---------
</TABLE>
11
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
HISTORICAL
------------------------------------------------------- PRO FORMA
1994 1995 1996 1997 1998 1998(1)
---------- --------- --------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(3)............................. $ 26,010 $ 27,300 $ 31,003 $ 113,212 $ 213,828 $ 235,666
EBITDA margin(4)...................... 49.2% 47.8% 50.1% 167.2% 189.4% 62.7%
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>
- ------------------
(1) Represents the combined results of operations of the national, Indiana and
Kentucky systems, and our equity interest in the Columbus system.
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 32.9 million
common shares outstanding after completion of this offering.
(3) Represents earnings (loss) before interest, taxes, depreciation and
amortization and extraordinary items. Our management believes that EBITDA 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 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) Gives effect to the transactions as if they had each occurred on March 31,
1999.
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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.
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<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
14
<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.
15
<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
16
<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 32,933,231 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
17
<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, persons receiving our shares in
exchange for their partnership interests in Insight Communications Company, L.P.
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 47.2% of the outstanding Class A
common stock. Our directors, executive officers, members of management and
family members will own 100% of the outstanding Class B common stock. As a
result of their stock ownership, such holders of Class B common stock 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:
18
<PAGE>
o discuss our future expectations;
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.
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<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, we will temporarily
eliminate the debt outstanding under our senior revolving credit facility
(approximately $132.6 million) 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.
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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 $ 33,179
-------- --------- ----------
-------- --------- ----------
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, 43,423,637 shares issued and outstanding................. -- 434 434
Class B common stock, $.01 par value; 100,000,000 shares authorized,
10,009,594 shares issued and outstanding............................. -- 100 100
Additional paid-in capital.............................................. -- 489,198 489,198
Accumulated deficit(7).................................................. -- (67,100) (67,100)
-------- --------- ----------
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) 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."
(Footnotes continued on next page)
21
<PAGE>
(Footnotes continued from previous page)
(5) 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."
(6) 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.
(7) Adjusted for 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, 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. The compensation charge relates to a carry agreement in
connection with the Class B units that offers to various members of
management a carry equivalent of 6.67% of the allocation of Class B units at
the initial public offering price. See Note I of Insight Communication
Company, L.P.'s financial statements.
22
<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 $1,374.3
million, as reflected in the Pro Forma Balance Sheet as of March 31, 1999, or
$41.73 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
$952.3 million, or $17.82 per share of Class A and Class B common stock,
representing an immediate decrease in our net negative tangible book value of
$23.91 per share to current stockholders and an immediate dilution of $39.82 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........... $(41.73)
Increase per share attributable to the offering(1)........................ 23.91
-------
Net tangible book value (deficit) per share after the offering(2)......... (17.82)
------
Dilution per share to new investors(2)(3)................................. $39.82
------
------
</TABLE>
- ------------------
(1) After deducting the underwriting discounts and estimated expenses payable by
us in this offering.
(2) Gives effect to the Kentucky acquisition which increased the net negative
tangible book value per share by $16.60.
(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.
23
<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 "Insight (as reported),"
and "Kentucky (as reported)" represent:
o Insight (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; the
operating results of the Indiana systems for the three months ended
March 31, 1999;
o corporate overhead expenses which includes legal fees, salaries,
rent and other management expenses; and
o management fees from Insight Ohio and consulting fees from the
managed Indiana systems.
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 "Insight (as reported),"
"Indiana (as reported)" and "Kentucky (as reported)" represent:
o Insight (as reported):
o the operating results for the Franklin system;
24
<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;
o corporate overhead expenses; and
o management fees from Insight Ohio and consulting fees from the
managed Indiana systems.
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 as of March 31, 1999 under
the column headings "Insight (as reported)," and "Kentucky (as reported)"
represent:
o Insight (as reported):
o the assets and liabilities of the Scottsburg, Portland, Claremont,
Griffin and Rockford systems; and
o the Indiana systems.
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.
25
<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>
INSIGHT KENTUCKY
(AS REPORTED) ADJUSTMENTS(A) SUBTOTAL (AS REPORTED)
------------- ----------------- -------- ----------------
<S> <C> <C> <C> <C>
Revenues..................................... $45,377 $ (845)(B) $46,033 $ 51,425
451 (C)
636 (D)
414 (E)
Costs & expenses:
Programming and other operating costs...... 13,263 (256)(B) 13,329 17,040
126 (C)
196 (D)
Selling, general and administrative........ 10,180 (129)(B) 10,249 11,416
91 (C)
107 (D)
Depreciation and amortization.............. 25,739 (122)(B) 25,905 31,154
86 (C)
202 (D)
------- --------- -------- --------
Operating loss............................... (3,805) 355 (3,450) (8,185)
Other income (expenses):
Gain on cable system exchange.............. 19,762 (19,762)(F) -- 2,312
Interest income (expense).................. (10,493) (1)(C) (10,494) (13,910)
Other income (expense)..................... (7) (58)(D) (65) --
Minority interest............................ 4,494 1,950 (G) 6,444 --
Equity in loss of Insight Ohio............... (2,713) -- (2,713) --
------- --------- -------- --------
Income (loss) from continuing operations..... $ 7,238 $ (17,516) $(10,278) $(19,783)
------- -------- --------
------- --------- -------- --------
---------
Loss from continuing operations per share (K).........................................................................
<CAPTION>
KENTUCKY OTHER
ADJUSTMENTS (AS ADJUSTED) SUBTOTAL ADJUSTMENTS TOTAL
----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
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.............. 4,691 (H) 35,845 61,750 -- 61,750
------- --------- -------- ------- --------
Operating loss............................... (4,691) (12,876) (16,326) -- (16,326)
Other income (expenses):
Gain on cable system exchange.............. (2,312)(F) -- -- -- --
Interest income (expense).................. -- (13,910) (24,404) 1,784(I) (22,620)
Other income (expense)..................... -- -- (65) -- (65)
Minority interest............................ -- -- 6,444 13,393(J) 19,837
Equity in loss of Insight Ohio............... -- -- (2,713) -- (2,713)
------- --------- -------- ------- --------
Income (loss) from continuing operations..... $(7,003) $ (26,786) $(37,064) $15,177 $(21,887)
------- --------- -------- ------- --------
------- --------- -------- ------- --------
Loss from continuing operations per share (K) $ (0.67)
--------
--------
</TABLE>
26
<PAGE>
NOTES TO PRO FORMA STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
1999
(A) 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.
(B) Eliminates the operating results of the Franklin system.
(C) Includes the operating results of the Scottsburg system for the three-month
period ended March 31, 1999.
(D) Includes the operating results of the Portland system for the period ended
March 31, 1999.
(E) 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%).
(F) Eliminates gains from cable system exchanges.
(G) Adjusts AT&T Broadband & Internet Services' minority interest in Insight
Indiana related to the elimination of the cable system exchange gain
pertaining to Indiana of $3.9 million.
(H) 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. The preliminary purchase price has been allocated to
franchise rights. The purchase price allocation will be finalized upon
completion of our acquisition of Kentucky and receipt of appraisal reports.
However, we do not believe that any adjustment resulting from the final
allocation of purchase price will be material.
(I) 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% which represents the effective interest rate under
our credit facility at March 31, 1999.
(J) Includes AT&T Broadband & Internet Services' minority interest in the
Kentucky systems calculated as 50% of $26.8 million loss reported by the
Kentucky systems.
(K) Pro forma loss per share is calculated based on common shares outstanding
of 32.9 million upon completion of this offering. Upon completion of this
offering, options to purchase our common stock will be issued to certain
employees with an exercise price equal to the public offering price.
Accordingly, stock options have no effect on the pro forma loss per share
amounts.
27
<PAGE>
INSIGHT COMMUNICATIONS
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INSIGHT UTAH INDIANA
(AS REPORTED) ADJUSTMENTS(A) SYSTEMS(K) (AS REPORTED)
------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues........................................................ $ 112,902 1,383 (B) $(17,423) $80,357
(3,843)(C)
2,086 (D)
919 (E)
2,329 (F)
1,465 (G)
Costs & expenses:
Programming and other operating costs.......................... 30,376 396 (B) (4,463) 24,375
(1,149)(C)
413 (D)
725 (F)
Selling, general and administrative............................ 24,471 249 (B) (3,030) 14,892
(680)(C)
340 (D)
392 (F)
Depreciation and amortization.................................. 43,849 558 (B) (3,632) 12,223
(431)(C)
330 (D)
763 (F)
--------- --------- --------- -------
Operating income................................................ 14,206 2,433 (6,298) 28,867
Other income (expenses):
Gain on cable system exchange and contribution of cable systems
to joint venture............................................. 156,058 (156,058)(H) -- --
Interest income (expense)...................................... (28,106) -- 2 --
Other income (expense)......................................... (444) (52)(D) 387 (159)
(234)(F)
Minority interest............................................... 3,410 -- -- --
Equity in loss of Insight Ohio.................................. (3,251) 837 (I) -- --
(4,218)(J)
--------- --------- --------- -------
Income (loss) from continuing operations before income taxes.... 141,873 (157,292) (5,909) 28,708
Income taxes.................................................... -- -- -- (9,969)
--------- --------- --------- -------
Income (loss) from continuing operations........................ $ 141,873 $(157,292) $ (5,909) $18,739
--------- --------- --------- -------
--------- --------- --------- -------
Loss from continuing operations per share (S)...................................................................................
<CAPTION>
KENTUCKY
(AS
ADJUSTMENTS SUBTOTAL REPORTED)* ADJUSTMENTS
----------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues........................................................ $ -- $ 180,175 $ 195,507 $ --
Costs & expenses:
Programming and other operating costs.......................... -- 50,673 65,328 --
Selling, general and administrative............................ 36,634 44,416 --
Depreciation and amortization.................................. 49,390 (L) 103,050 103,514 18,764 (P)
--------- --------- --------- ---------
Operating income................................................ (49,390) (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)...................................... (17,589)(M) (45,693) (44,899) --
Other income (expense)......................................... -- (502) 1,231 --
Minority interest............................................... 19,436(O) 22,846 -- --
Equity in loss of Insight Ohio.................................. -- (6,632) -- --
--------- --------- --------- ---------
Income (loss) from continuing operations before income taxes.... (47,543) (40,163) (61,419) (18,764)
Income taxes.................................................... 9,969 (N) -- (1,971) 1,971(N)
--------- --------- --------- ---------
Income (loss) from continuing operations........................ $ (37,574) $ (40,163) $ (63,390) $ (16,793)
--------- --------- --------- ---------
--------- --------- --------- ---------
Loss from continuing operations per share (S)...................
<CAPTION>
KENTUCKY SUB OTHER
(AS ADJUSTED) TOTAL ADJUSTMENTS TOTAL
------------- --------- ----------- ---------
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(Q) (83,458)
Other income (expense)......................................... 1,231 729 -- 729
Minority interest............................................... -- 22,846 40,092(R) 62,938
Equity in loss of Insight Ohio.................................. -- (6,632) -- (6,632)
--------- --------- ------- ---------
Income (loss) from continuing operations before income taxes.... (80,183) (120,346) 47,226 (73,120)
Income taxes.................................................... -- -- -- --
--------- --------- ------- ---------
Income (loss) from continuing operations........................ $ (80,183) $(120,346) $47,226 $ (73,120)
--------- --------- ------- ---------
--------- --------- ------- ---------
Loss from continuing operations per share (S)................... $ (2.22)
---------
---------
</TABLE>
- ------------------
* 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.
28
<PAGE>
NOTES TO PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1998
(A) 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.
(B) Includes operating results of the Rockford system from January 1, 1998 to
January 21, 1998.
(C) Eliminates the operating results of the Franklin system.
(D) Includes the operating results of the Scottsburg system.
(E) Includes the Insight Ohio management fee from January 1, 1998 to August 21,
1998.
(F) Includes the full year's operating results of the Portland system.
(G) 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%).
(H) Eliminates gains from cable system exchange and gain on contribution of
systems to Insight Indiana.
(I) Records our 75% non-voting equity interest in Insight Ohio for the period
from January 1, 1998 through August 21, 1998.
(J) Includes the amortization of the difference between our investment in
Insight Ohio and Insight Ohio's underlying members deficit for the period
from January 1, 1998 through August 21, 1998, 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.
(K) Eliminates operating results of the Utah systems for ten months.
(L) Includes additional depreciation and amortization related to step-up in
value of the Insight Indiana systems for ten months which is based upon
the purchase price allocation and is calculated as follows: Step
up -- $245.2 million divided by 5 year average remaining useful life of
assets multiplied by ten-twelfths. Such amortization schedule is applied
based upon the state of the upgrades of the systems and the remaining
terms of the franchise agreements. See Notes C and D of our consolidated
financial statements.
(M) 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%,
which is the effective interest rate of Indiana's credit facility, as if
such contribution had occurred on January 1, 1998.
(N) 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. After the completion of this offering and the exchange of
limited partnership interests in Insight Communications Company, L.P. for
our common stock, our operating results will be included in our corporate
income tax returns. However, due to our pro forma combined net loss, no
income tax provision has been recorded.
(O) Adjustment to reflect AT&T Broadband & Internet Services' minority
interest in Insight Indiana, calculated as 50% of the $45.7 million in
losses of the Indiana systems.
(P) Includes additional amortization related to step-up in value of fixed and
intangible assets pertaining to the Kentucky systems of $281.4 million
over a period of fifteen years based upon a preliminary purchase price
allocation. Such amortization schedule is applied based upon the state of
the upgrades of the systems and the remaining terms of the franchise
agreements. The purchase allocation will be finalized upon completion of
our acquisition of Kentucky and receipt of appraisal reports. However, we
do not believe that any adjustment resulting from the final allocation of
purchase price will be material.
(Q) 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% which is the effective interest rate under our
credit facility.
(R) Includes AT&T Broadband & Internet Services' minority interest in the
Kentucky systems, calculated as 50% of the $80.2 million in losses of the
Kentucky systems.
(S) Pro forma loss per share is calculated based on common shares outstanding
of 32.9 million upon completion of this offering. Upon completion of this
offering, options to purchase our common stock will be issued to certain
employees with an exercise price equal to the public offering price.
Accordingly, stock options have no effect on the pro forma loss per share
amounts.
29
<PAGE>
INSIGHT COMMUNICATIONS PRO FORMA BALANCE SHEET
MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INSIGHT KENTUCKY
(AS REPORTED) ADJUSTMENTS(A) SUBTOTAL (AS REPORTED) ADJUSTMENTS(B)
------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents......................... $ 29,667 $ -- $ 29,667 $ 3,512 --
Trade accounts receivable, net of allowance....... 5,796 -- 5,796 14,451 --
Due from related parties.......................... 136 -- 136 8,385 --
Prepaid expenses & other current assets........... 3,469 -- 3,469 1,058 --
Investment in Insight Ohio........................ 4,036 -- 4,036 -- --
Fixed assets, net................................. 164,203 -- 164,203 248,041 --
Intangible assets, net............................ 480,069 -- 480,069 613,430 281,441
Other assets...................................... -- -- -- 2,862 --
--------- ---------- --------- ----------- ----------
Total assets...................................... $ 687,376 $ -- $ 687,376 $ 891,739 281,441
--------- ---------- --------- ----------- ----------
LIABILITIES & PARTNERS' CAPITAL
Accounts payable.................................. $ 30,378 -- $ 30,378 $ 22,634 $ --
Accrued expenses and other liabilities............ 4,943 -- 4,943 -- --
Due to affiliates................................. 790 -- 790 3,196 --
Interest payable.................................. 5,788 -- 5,788 -- --
Accrued interest.................................. -- -- -- 5,899 --
Deferred revenue.................................. -- -- -- 19,027 --
Other............................................. -- -- -- 866 --
-- -- -- -- --
Deferred income taxes............................. -- 50,000 50,000 -- --
Debt.............................................. 592,663 -- 592,663 733,000 --
--------- ---------- --------- ----------- ----------
Total liabilities................................. 634,562 50,000 684,562 784,622 --
Minority interest................................. 2,182 -- 2,182 -- --
Redeemable Class B units.......................... 54,444 -- 54,444 -- --
Partners' (deficiency)/equity..................... (3,812) (3,812) 107,117 281,441
-- -- -- -- --
Stockholders' equity:
Common Stock...................................... -- -- -- -- --
Paid-in-capital................................... -- -- -- -- --
Retained earnings (deficit)....................... -- (50,000) (50,000) -- --
--------- ---------- --------- ----------- ----------
$ 687,376 $ -- $ 687,376 $ 891,739 $ 281,441
--------- ---------- --------- ----------- ----------
--------- ---------- --------- ----------- ----------
<CAPTION>
KENTUCKY SUB OTHER
(AS ADJUSTED) TOTAL ADJUSTMENTS(C) TOTAL
------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents......................... $ 3,512 $ 33,179 $ -- $ 33,179
Trade accounts receivable, net of allowance....... 14,451 20,247 -- 20,247
Due from related parties.......................... 8,385 8,521 -- 8,521
Prepaid expenses & other current assets........... 1,058 4,527 -- 4,527
Investment in Insight Ohio........................ -- 4,036 -- 4,036
Fixed assets, net................................. 248,041 412,244 -- 412,244
Intangible assets, net............................ 894,871 1,374,940 -- 1,374,940
Other assets...................................... 2,862 2,862 -- 2,862
----------- ---------- ---------- ----------
Total assets...................................... $ 1,173,180 $1,860,556 $ -- $1,860,556
----------- ---------- ---------- ----------
LIABILITIES & PARTNERS' CAPITAL
Accounts payable.................................. $ 22,634 $ 53,012 $ -- $ $53,012
Accrued expenses and other liabilities............ -- 4,943 -- 4,943
Due to affiliates................................. 3,196 3,986 -- 3,986
Interest payable.................................. -- 5,788 -- 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 -- 50,000
Debt.............................................. 733,000 1,325,663 (87,000) 1,238,663
----------- ---------- ---------- ----------
Total liabilities................................. 784,622 1,469,184 (87,000) 1,382,184
Minority interest................................. -- 2,182 53,558 55,740
Redeemable Class B units.......................... -- 54,444 (54,444) --
Partners' (deficiency)/equity..................... 388,558 384,746 (388,558) --
-- -- 3,812 --
Stockholders' equity:
Common Stock...................................... -- -- 534 534
Paid-in-capital................................... -- -- 489,198 489,198
Retained earnings (deficit)....................... -- (50,000) (17,100) (67,100)
----------- ---------- ---------- ----------
$ 1,173,180 $1,860,556 $ -- $1,860,556
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
30
<PAGE>
NOTES TO PRO FORMA BALANCE SHEET
(A) 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.
(B) 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. The preliminary purchase price has been
allocated to franchise rights. The purchase price allocation will be
finalized upon completion of our acquisition of Kentucky and receipt of
appraisal reports. However, we do not believe that any adjustment resulting
from the final allocation of purchase price will be material.
(C) 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 $107.1 million, which is the historical equity of Kentucky. Because
AT&T Broadband & Internet Services did not sell any portion of its
interest in Kentucky, its minority interest in Kentucky has been
calculated based upon the historical equity of Kentucky;
o reduction of our debt of $87 million;
o elimination of the partners' deficit upon the exchange of 41,974,421 Class
A limited partnership units in Insight Communications Company, L.P. into
16,750,467 shares of our common stock and the exchange of the general
partners' interest into 4,964,897 shares of our common stock.
o includes a one-time $17.1 million non-cash compensation charge associated
with the distribution of incentive shares to management. The compensation
charge relates to a carry agreement in connection with the Class B units
(See Note I of Insight Communications Company, L.P.'s financial
statements) that offers to various members of management a carry
equivalent to 6.67% of the allocation of Class B units at the initial
public offering price; and
o exchange of redeemable Class B units into 11,217,866 shares of our common
stock.
o The calculation of the adjustment to additional paid in capital consists
of $421.5 million of net proceeds from the offering ($422 million less
$.5 million allocated to Class A and Class B Common Stock); the
$17.1 million non-cash compensation charge and the $50 million deferred
tax liability discussed in A above.
31
<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;
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
------------------------------------------------------------------
MANAGED
NATIONAL COLUMBUS INDIANA KENTUCKY INDIANA TOTAL
SYSTEMS SYSTEM SYSTEMS SYSTEMS SYSTEMS SYSTEMS
------- -------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Homes passed.................................... 149,399 172,975 495,605 657,361 159,644 1,634,984
Basic customers................................. 86,846 86,620 336,252 425,445 114,262 1,049,425
Basic penetration............................... 58.1% 50.1% 67.8% 64.7% 71.6% 64.2%
Premium units................................... 96,869 85,526 234,528 351,703 44,381 813,007
Premium penetration............................. 111.5% 98.7% 69.7% 82.7% 38.8% 77.5%
</TABLE>
32
<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
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Basic income (loss) per share before
extraordinary item........................ $ (0.26) $ (0.25) $ (0.24) $ 2.06 $ 6.63 $ -- $ 0.43
Diluted income (loss) per share before
extraordinary item........................ $ (0.23) $ (0.21) $ (0.24) $ 1.88 $ 4.56 $ -- $ 0.15
Basic income (loss) per share............... $ (0.26) $ (0.25) $ (0.26) $ 1.88 $ 6.47 -- $ 0.43
Diluted income (loss) per share............. $ (0.23) $ (0.21) $ (0.26) $ 1.72 $ 4.27 -- $ 0.15
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(1)................................... $ 26,010 $ 27,300 $ 31,003 $113,212 $213,828 $ 11,645 $ 43,470
EBITDA margin(2)............................ 49.2% 47.8% 50.1% 167.2% 189.4% 50.3% 95.8%
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 and extraordinary items. Our management believes that EBITDA 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.
34
<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 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 1998
----------------------- ----------------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenue.................................................. $ 61,839 $ 67,698 $ 112,902
Costs and expenses:
Programming and other operating costs.................. 16,774 18,397 30,376
Selling, general and administrative.................... 14,062 15,020 24,471
Depreciation and amortization.......................... 15,694 18,125 43,849
--------- --------- ---------
46,530 51,542 98,696
--------- --------- ---------
Operating income (loss).................................. 15,309 16,156 14,206
EBITDA................................................... 31,003 113,212 213,828
Interest expense......................................... (17,644) (15,962) (28,106)
Net income (loss)........................................ (2,815) 73,882 138,606
Net cash provided by operating activities................ 15,976 10,436 44,760
Net cash used in investing activities.................... 16,589 27,981 142,190
Net cash provided by financing activities................ 870 17,891 116,250
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------------------
1998 1999
--------------- ---------------
<S> <C> <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)
EBITDA................................................... 11,645 43,470
Interest expense......................................... (5,771) (10,493)
Net income (loss)........................................ 73 7,238
Net cash provided by operating activities................ 7,992 18,453
Net cash used in investing activities.................... 91,405 27,688
Net cash provided by financing activities................ 85,506 19,000
</TABLE>
35
<PAGE>
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 273% to $43.5 million for the three months ended
March 31, 1999 as compared to the three months ended March 31, 1998 reflecting
acquisitions, a gain in 1999 on cable systems exchanges of $19.8 million and
AT&T Broadband & Internet Services' share of losses of Insight Indiana of
$4.5 million, plus the results of the items described above. EBITDA represents
earnings (loss) before interest, taxes, depreciation and amortization. Our
management believes that EBITDA 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 Statement of Cash Flows for Insight Communications Company,
L.P. for an analysis of net cash provided by operating activities, used in
investing activities and provided from financing activities.
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.
36
<PAGE>
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.
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 88.9% to $213.8 million for the year ended December 31,
1998 as compared to the prior year reflecting gains on cable systems exchanges
and a contribution of cable systems to a joint venture which together accounted
for $77.1 million or 76.6% of this increase, plus acquisitions and the results
of the items described above. EBITDA represents earnings (loss) before interest,
taxes, depreciation and amortization. Our management believes that EBITDA 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
Statement of Cash Flows for Insight Communications Company,
37
<PAGE>
L.P. for an analysis of net cash provided by operating activities, used in
investing activities and provided from financing activities.
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 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 265% to $113.2 million for the year ended December 31,
1997 as compared to the prior year reflecting the results of the items described
above. In addition, $78.9 million or 96.0% of the increase in EBITDA was
attributable to a gain on a cable system exchange in 1997. EBITDA represents
earnings (loss) before interest, taxes, depreciation and amortization. Our
management believes that EBITDA 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 Statement of Cash Flows for Insight Communications Company,
L.P. for an analysis of net cash provided by operating activities, used in
investing activities and provided from financing activities.
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.
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<PAGE>
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, 1999,
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 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
39
<PAGE>
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.
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,
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<PAGE>
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.
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.
41
<PAGE>
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 57.2
million basic customers in the United States in 1993 to approximately 66.1
million in 1998, a compound annual growth rate of 3.0%. 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.
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 39 channels in 1992. 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 16.0% of the total number of households with televisions.
During this period, cable television has increased its penetration to 69.1% of
the homes passed from 63.1% 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 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.
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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 4.9% of basic customers 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 24.6% of basic customers 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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<PAGE>
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>
CONSOLIDATION OF THE NATIONAL,
INDIANA AND KENTUCKY SYSTEMS
AND OUR EQUITY INTEREST IN THE
COLUMBUS SYSTEM
------------------------------
(IN MILLIONS)
<S> <C>
For the year ended December 31, 1998:
Revenues........................................................ $ 375.7
EBITDA*......................................................... 235.7
Loss from operations............................................ (46.7)
Net loss........................................................ (73.1)
Cash provided by operating activities........................... 116.0
Cash used in investing activities............................... 110.4
Cash used in financing activities............................... 40.0
For the three months ended March 31, 1999:
Revenues........................................................ $ 97.5
EBITDA*......................................................... 62.5
Loss from operations............................................ (16.3)
Net loss........................................................ (21.9)
Cash provided by operating activities........................... 30.1
Cash used in investing activities............................... 43.2
Cash provided by financing activities........................... 26.0
</TABLE>
- ------------------
* See the discussion of EBITDA in "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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
44
<PAGE>
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
services, our customers would have an increased choice of services at a reduced
cost, which we believe would result 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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<PAGE>
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
---------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
TECHNICAL DATA:
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 n/a(5)
EBITDA(3)...................................... 5,034 5,015 17,356 22,969 n/a
EBITDA margin(4)............................... 48.4% 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
Cash provided by (used in) operating
activities................................... (2,351) 8,506 21,065 9,392 n/a
Cash used in investing activities.............. 8,041 6,148 19,647 15,482 n/a
Cash provided by (used in) financing
activities................................... 13,000 (6,796) 6,000 7,000 n/a
FINANCIAL DATA FOR THE YEAR ENDED
DECEMBER 31, 1998:
Revenues....................................... $ 41,314 $ 47,956 $138,861 $195,507 n/a(5)
EBITDA(3)...................................... 18,096 13,017 74,270 86,994 n/a
EBITDA margin(4)............................... 43.8% 27.1% 53.5% 44.5% 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
Cash provided by operating activities.......... 11,174 14,399 49,878 47,146 n/a
Cash used in investing activities.............. 24,637 6,679 45,336 (51,069) n/a
Cash provided by (used in) financing
activities................................... (36,836) (1,585) (11,600) 6,525 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. Our management believes that EBITDA 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 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) We receive a consulting fee for managing the managed Indiana systems equal
to 3% of revenues. For the year ended December 31, 1998 and the three months
ended March 31, 1999, revenues for the managed Indiana systems were $48,800
and $13,800.
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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 entered into letters of intent or agreements with several industry
leaders, including a letter of intent with AT&T and an agreement with @Home. See
"--Products and Services--New and Enhanced Products and Services--High-Speed
Data" and "--Telephony."
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
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communities we serve. We sponsor local charities and community causes through
staged events and 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.
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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 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 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.
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We have entered into an agreement 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 Fox News, 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. We are unable at this time to estimate the dollar amount of this
investment as there are a number of variables involved, including timing of the
launch of the telephony services, the actual percentage to be bought in the
joint venture and customer penetration. 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
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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 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 56,000
customers for systems in Evansville and Jasper, Indiana serving
approximately 63,000 customers. Simultaneously with this transaction, we
contributed approximately 160,000 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. We believe
Southern Indiana Gas and Electric Co. is currently offering cable service to an
estimated 7,500 homes in our service
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area and is 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 $46.86, while the
number of customers decreased from approximately 91,100 to 87,600. 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 $10.55, 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.
On November 24, 1997, we purchased the limited partnership interest held by
Media One for $2,562,500 in cash and issued a two-year senior subordinated note
payable of $7,687,500. 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. We
believe that future programming expenses may increase as compared to historical
programming costs but due to our increased size, such increase would be
immaterial.
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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 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 March 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% 933,735 100.0%
------ ----- ------- -----
------ ----- ------- -----
</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, Secretary 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 Harvard Business School.
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
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Vision Cable's Bergen County, New Jersey cable television system from 1975 to
1977. Currently, 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 is a graduate of Cambridge University and Harvard
Business School.
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 the Yale University School of Management.
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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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. Subsequent to the expiration
or termination of applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, we, Mr. Knafel and parties related to
Mr. Knafel, Mr. Willner, Ms. Kelly and all of the members of management listed
above holding shares of Class B common stock 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 $1,615
Chairman of the Board
Michael S. Willner ............................................ 1998 465,616 1,646
President and Chief Executive Officer
Kim D. Kelly .................................................. 1998 411,927 3,828
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 Chairman of
the Board, Sidney R. Knafel, 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. Knafel 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 at an exercise price equal to the
public offering price set forth on the cover page of this prospectus, 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
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option price per share cannot be less than 110% of the fair market value per
share and the term of the 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>
PERCENT OF VOTE
CLASS A COMMON STOCK AS A SINGLE CLASS(1)
---------------------------------------------- --------------------
CLASS B BEFORE AFTER
BEFORE OFFERING AFTER OFFERING COMMON STOCK OFFERING OFFERING
--------------------- --------------------- --------------------- -------- --------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sidney R. Knafel(2)....... -- -- -- -- 3,864,814 38.6 31.4 26.9
Michael S. Willner(3)..... -- -- -- -- 1,485,328 14.8 12.1 10.4
Kim D. Kelly(4)........... -- -- -- -- 818,894 8.2 6.7 5.7
Thomas L. Kempner(5)...... 3,838,478 16.7 3,838,478 8.8 -- -- 3.1 2.7
James S. Marcus........... -- -- -- -- 131,478 1.3 1.1 *
Prakash A. Melwani(6)..... 10,096,079 44.3 10,096,079 23.3 -- -- 8.2 7.0
Daniel S. O'Connell(6).... 10,096,079 44.3 10,096,079 23.3 -- -- 8.2 7.0
Vestar Capital
Partners III,
L.P.(6)................. 10,096,079 44.3 10,096,079 23.3 -- -- 8.2 7.0
Loeb Investors Co.(5)..... 3,838,478 16.7 3,838,478 8.8 -- -- 3.1 2.7
Andrew G. Knafel, Joshua
Rubenstein and William
L. Scherlis, as trustees
under Trusts F/B/O
Knafel children(7)...... 44,925 * 44,925 * 2,939,243 2.9 23.9 20.5
All executive officers,
directors and nominees
as a group
(7 persons)............. 13,934,557 60.8 13,934,557 32.1 6,170,520 61.6 61.5 52.7
</TABLE>
- ------------------
* Less than 1%.
(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) Represents 3,443,032 shares held by ICI Communications, Inc., of which
Mr. Knafel is the sole stockholder, and 421,782 shares held by the estate of
Mr. Knafel's deceased wife. All of the indicated shares are subject to an
agreement with Vestar not to sell any such shares during the 18-month period
following the closing of this offering. We will hold all of the indicated
shares in escrow pending expiration or termination of applicable waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. 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 this offering.
(3) Includes 6,386 shares of Class B common stock held by his minor children. We
will hold all of the indicated shares in escrow pending expiration or
termination of applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976. Does not include 843,750 shares of
Class B common
(Footnotes continued on next page)
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(Footnotes continued from previous page)
stock underlying options granted pursuant to the Stock Option Plan, as they
will not be exercisable within 60 days after the closing of this offering.
(4) 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 this offering.
(5) Represents 2,125,512 shares held by Loeb Investors Co. LIX and 1,712,966
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.
(6) 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. We will hold all of the indicated shares in escrow
pending expiration or termination of applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. Vestar's address is
245 Park Avenue, 41st floor, New York, New York 10167.
(7) Also includes 382,627 shares of Class B common stock held individually by
Andrew G. Knafel and 44,925 shares of Class A common stock held individually
by William L. Scherlis. The indicated shares are subject to the agreement
with Vestar discussed in footnote (2) above. Sidney Knafel expressly
disclaims beneficial ownership of the shares.
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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 customers(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.
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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 plus
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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. After giving
effect to this offering, a July 1, 1999 amendment to the Insight credit facility
reduces the permitted ratio to 6.0:1.0.
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
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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 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
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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 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, 22,923,637 shares of Class A common
stock will be outstanding, and 10,009,594 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 6% 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 53,433,231 shares of
common stock issued and outstanding. All outstanding shares of common stock
other than those issued in this offering 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 43,423,637 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
We, as well as our officers, our directors, persons receiving our shares in
exchange for their partnership interests in Insight Communications Company, L.P.
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., Deutsche Bank Securities Inc. and
DLJdirect 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................................................
DLJdirect 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. An electronic
prospectus is available on the website maintained by DLJdirect Inc.
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 $ .
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We and the underwriters have agreed to indemnify each other against certain
civil liabilities, including liabilities under the Securities Act.
We, as well as our officers, our directors, persons receiving our shares in
exchange for their partnership interests in Insight Communications Company, L.P.
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 "ICCI." 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.
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."
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
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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. 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, 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.......................... The number of single residence homes, apartments and condominium units
passed by the cable distribution network in a cable system's service area.
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>
[This page intentionally left blank]
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INSIGHT COMMUNICATIONS COMPANY, L.P.
Report of Independent Auditors--Ernst & Young LLP........................................................ F-3
Insight Communications Company, L.P. Consolidated Balance Sheets at December 31, 1997 and 1998........... F-4
Insight Communications Company, L.P. Consolidated Statements of Operations for the years ended
December 31, 1996, 1997, and 1998..................................................................... F-5
Insight Communications Company, L.P. Consolidated Statements of Changes in Partners' Deficiency for the
years ended December 31, 1996, 1997, and 1998......................................................... F-6
Insight Communications Company, L.P. Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997, and 1998..................................................................... F-7
Insight Communications Company, L.P Notes to Consolidated Financial Statements........................... F-8
INSIGHT COMMUNICATIONS COMPANY, L.P.
Insight Communications Company, L.P. Condensed Consolidated Balance Sheet at March 31, 1999.............. F-20
Insight Communications Company, L.P. Condensed Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1999......................................................................... F-21
Insight Communications Company, L.P. Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1999......................................................................... F-22
Insight Communications Company, L.P. Notes to Condensed Consolidated Financial Statements................ F-23
INTERMEDIA CAPITAL PARTNERS, VI, L.P.
Report of Independent Accountants--PricewaterhouseCoopers LLP............................................ F-25
InterMedia Capital Partners VI, L.P. Consolidated Balance Sheet at December 31, 1998..................... F-26
InterMedia Capital Partners VI, L.P. Consolidated Statement of Operations for the period April 30, 1998
(commencement of operations) to December 31, 1998..................................................... F-27
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-28
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-29
InterMedia Capital Partners VI, L.P. Notes to Consolidated Financial Statements.......................... F-30
INTERMEDIA CAPITAL PARTNERS, VI, L.P.
InterMedia Capital Partners VI, L.P. Consolidated Balance Sheet at December 31, 1998 and March 31,
1999.................................................................................................. F-40
InterMedia Capital Partners VI, L.P. Consolidated Statement of Operations for the three months ended
March 31, 1999........................................................................................ F-41
InterMedia Capital Partners VI, L.P. Consolidated Statement of Changes in Partners' Capital at March 31,
1999.................................................................................................. F-42
InterMedia Capital Partners VI, L.P. Consolidated Statement of Cash Flows for the three months ended
March 31, 1999........................................................................................ F-43
InterMedia Capital Partners VI, L.P. Notes to Condensed Consolidated Financial Statements................ F-44
TCI IPVI
Report of Independent Auditors--KPMG LLP................................................................. F-51
TCI IPVI Combined Balance Sheets at December 31, 1997 and April 30, 1998................................. F-52
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-53
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-54
TCI IPVI Notes to Combined Financial Statements.......................................................... F-55
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TCI IPVI
TCI IPVI Combined Statement of Operations and Parent's Investment for the three month period ended
March 31, 1998........................................................................................ F-62
TCI IPVI Combined Statement of Cash Flows for the three month period ended March 31, 1998................ F-63
TCI IPVI Notes to Combined Financial Statements.......................................................... F-64
TCI INSIGHT SYSTEMS
Report of Independent Auditors--KPMG LLP................................................................. F-68
TCI Insight Systems Combined Balance Sheets as of October 31, 1998 and December 31, 1997................. F-69
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-70
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-71
TCI Insight Systems Notes to Combined Financial Statements............................................... F-72
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
Report of Independent Auditors--Ernst & Young LLP........................................................ F-78
Insight Communications of Central Ohio, LLC Balance Sheet at December 31, 1998........................... F-79
Insight Communications of Central Ohio, LLC Statement of Operations and Changes in Members' Deficit for
the year ended December 31, 1998...................................................................... F-80
Insight Communications of Central Ohio, LLC Statement of Cash Flows for the year ended December 31,
1998.................................................................................................. F-81
Insight Communications of Central Ohio, LLC Notes to Financial Statements................................ F-82
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
Insight Communications of Central Ohio, LLC Condensed Balance Sheet at March 31, 1999.................... F-87
Insight Communications of Central Ohio, LLC Condensed Statement of Operations for the three months ended
March 31, 1999........................................................................................ F-88
Insight Communications of Central Ohio, LLC Condensed Statement of Cash Flows for the three months ended
March 31, 1999........................................................................................ F-89
Insight Communications of Central Ohio, LLC Notes to Financial Statements................................ F-90
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>
Note--Upon completion of this offering and the exchange of limited partnership
interests in Insight Communications Company L.P. for our common stock, Insight
Communications Company L.P. will become a wholly-owned subsidiary of us. Prior
to such time, Insight Communications Company, Inc. had no assets, liabilities,
contingent liabilities or operations.
F-2
<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, except for Note N
as to which the date is July 13, 1999
F-3
<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-4
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<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
--------- ---------
--------- ---------
Basic income (loss) per share before extraordinary item....................... $ (0.24) $ 2.06
Diluted income (loss) per share before extraordinary item..................... $ (0.24) $ 1.88
Basic income (loss) per share................................................. $ (.026) $ 1.88
Diluted income (loss) per share............................................... $ (.026) $ .72
Pro forma loss per share (unaudited)........................................................................................
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
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
---------
---------
Basic income (loss) per share before extraordinary item....................... $ 6.63
Diluted income (loss) per share before extraordinary item..................... $ 4.56
Basic income (loss) per share................................................. $ 6.47
Diluted income (loss) per share............................................... $ 4.27
Pro forma loss per share (unaudited).......................................... $ (2.22)
---------
---------
</TABLE>
See accompanying notes.
F-5
<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-6
<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>
YEARS ENDED DECEMBER 31,
------------------------
1998
------------------------
<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-7
<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-8
<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-9
<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. In connection
with the Lafayette system acquisition, no non-current assets or non-current
liabilities were acquired. 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. In connection
with the Rockford acquisition, no non-current assets or non-current liabilities
were acquired. 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,
F-10
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
C. ACQUISITIONS AND GAIN ON CABLE SYSTEM EXCHANGES--(CONTINUED)
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 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. In connection with the
Evansville and Jasper systems exchange, no non-current assets or non-current
liabilities were acquired. 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 current and non-current 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>
F-11
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
D. INSIGHT INDIANA--(CONTINUED)
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.
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.
Such period takes into account the amortization periods related to the fair
value 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-12
<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-13
<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 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-14
<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
1,671,303 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. The warrants
contained a put option (the "option") whereby the holders of the warrants could
require the Partnership to purchase the warrants from the holders at an
appraised value, as defined, less the exercise price. The warrants were
exerciseable between February 28, 1998 and March 31, 1998. The exercise of the
warrants' put-feature was restricted by certain covenants under the
Partnership's credit facility, and the Partnership was entitled to postpone such
purchase of the warrants, upon the exercise of the warrant put if such purchase
was restricted. 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 1996, no adjustment to the carrying value of the warrants was required as
their fair value was unchanged from that of the prior year. 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 exercised 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.
F-15
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
J. FINANCIAL INSTRUMENTS--(CONTINUED)
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.
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
F-16
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
L. 401(K) PLAN--(CONTINUED)
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.
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. EARNINGS (LOSS) PER SHARE
Earnings per share is calculated in accordance with FASB Statement No. 128
"Earnings Per Share". The partnership is in the process of completing an initial
public offering and reorganizing as a corporation. The following table sets
forth the computation of basic and diluted earnings (loss) per share. The
anticipated exchange of limited partnership units for common stock are included
at an exchange ratio of .399 shares per partnership unit and .238 shares for
each redeemable Class B unit from their issuance date on January 29, 1998. The
general partners' interest is reflected as outstanding in all periods. The
warrants are included when dilutive. The accretion to redemption value of
preferred limited units is treated as a reduction of earnings available to
Common holders.
F-17
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
N. EARNINGS (LOSS) PER SHARE --(CONTINUED)
Basic earnings per share is computed using average shares outstanding during the
period. Diluted earnings per share is basic earnings per share adjusted for the
dilutive effects of the warrants.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Numerator
Net income (loss) from before extraordinary item............................ $ (2,335) $ 79,125 $141,873
Accretion of redeemable Class B units....................................... (5,729)
Accretion of redeemable preferred limited units............................. (5,421) (15,275)
-------- -------- --------
Numerator for basic earnings (loss) per share................................. (7,756) 63,850 136,144
Effect of dilutive securities................................................. -- -- 5,729
-------- -------- --------
Numerator for diluted earnings (loss) per share............................... (7,756) 63,850 141,873
Denominator for basic income (loss) per share
Weighted average Class A units and general partner's interest................. 32,001 31,635 20,287
Effect of dilutive securities
Redeemable Class B units.................................................... -- -- 10,285
Warrants.................................................................... -- 2,519 621
-------- -------- --------
Potential dilutive securities................................................. -- 2,519 10,906
-------- -------- --------
Denominator for income (loss) per share....................................... 32,001 34,154 31,193
-------- -------- --------
-------- -------- --------
Basic income (loss) per share before extraordinary item....................... $(.24) $2.02 $6.71
Diluted income (loss) per share before extraordinary item..................... $(.24) $1.87 $4.55
Basic income (loss) per share ................................................ $(.26) $1.86 $6.54
Diluted income (loss) per share .............................................. $(.26) $1.79 $4.60
</TABLE>
Pro forma loss per share has been calculated based upon the Partnership's
pro forma loss for the year ended December 31, 1998 and the number of shares of
common stock that will be outstanding excluding the number of shares to be sold
in the aforementioned IPO. The pro forma loss for the year ended December 31,
1998 of $73.1 million (unaudited) includes the Partnership's net income for the
year ended December 31, 1998 adjusted, principally to exclude the gain on cable
system exchange and the gain on contribution of cable systems to the joint
venture and to include the operations of Insight Indiana and the Intermedia VI
Partnership as if they had been formed/acquired as of January 1, 1998. The
number of pro forma shares of common stock outstanding of 32.9 million
(unaudited) considers, the exercise of warrants as if they had been exercised as
of the beginning of the year, the conversion of limited partnership units, the
conversion of general partner's interest in the Partnership and the conversion
of redeemable Class B units into shares of common stock. Options issuable upon
completion of the IPO have not been included in the calculation of pro forma
loss per share as they will be issued at the IPO price and, accordingly, would
not impact pro forma loss per share.
Upon completion of the IPO and reorganization as a corporation the
authorized capitalization will consist 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.
O. 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
F-18
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
O. SUBSEQUENT EVENTS--(CONTINUED)
costs of $8.6 million. Other assets and liabilities acquired in connection with
the Scottsburg and Portland system acquisition were not significant. 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 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-19
<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>
F-20
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1998 1999
------- --------
<S> <C> <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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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:
YEARS
------
Cable television plant............................................. 5-10
Buildings and improvements......................................... 10
Furniture and fixtures............................................. 3-7
Equipment and other................................................ 3-10
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-31
<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-32
<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:
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
--------
--------
The Partnership's allocation of costs related to the contributed systems is
as follows:
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
--------
--------
4. INTANGIBLE ASSETS
Intangible assets as of December 31, 1998 consist of the following:
Franchise rights.............................................. $528,073
Programming agreement......................................... 150,000
Debt issue costs.............................................. 7,395
Other......................................................... 26
--------
685,494
Accumulated amortization...................................... (53,492)
--------
$632,002
--------
--------
F-33
<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:
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
--------
--------
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities as of December 31, 1998 consist of
the following:
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
--------
--------
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-34
<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-35
<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:
1999.......................................................... $ --
2000.......................................................... 52,000
2001.......................................................... 3,562
2002.......................................................... 4,750
2003.......................................................... 4,750
Thereafter.................................................... 660,938
--------
$726,000
--------
--------
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-36
<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-37
<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:
1999............................................................. $ 641
2000............................................................. 558
2001............................................................. 274
2002............................................................. 129
2003............................................................. 100
Thereafter....................................................... 156
------
$1,858
------
------
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-38
<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-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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-54
<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 including amounts due to TCI are referred to as "Parent's
Investment (Deficit)."
TCI's ownership interests 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-55
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)--(CONTINUED)
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
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 based on an analysis of undiscounted cash flows,
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 and
pay-per-view programming 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-56
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)--(CONTINUED)
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
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-57
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)--(CONTINUED)
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
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-58
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)--(CONTINUED)
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
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-59
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)--(CONTINUED)
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
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 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.
F-60
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)--(CONTINUED)
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
6. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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-61
<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-62
<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-63
<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 including amounts due to TCI 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 interests 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-64
<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-65
<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-66
<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-67
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors:
Tele-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-68
<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 Tele-Communications, Inc. ("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-69
<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.................................................. (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-70
<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 TCI.................................................... (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-71
<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 TCI's
cable television systems and three related advertising sales offices serving
certain subscribers within Indiana (collectively, the "TCI Insight Systems").
The TCI Insight Systems were indirectly wholly-owned by TCI in all periods
presented herein. All significant inter-entity accounts and transactions have
been eliminated in combination. The combined net assets of TCI Insight Systems
including amounts due to TCI are referred to as "Parent's Investment."
The TCI Insight Systems were acquired through a series of transactions
whereby TCI 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 TCI'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, TCI and Insight Communications L.P. ("Insight")
executed a transaction under a Contribution and Purchase Agreement, whereby TCI
contributed and exchanged certain cable television systems and advertising sales
offices to a newly formed Limited Liability Company between TCI 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 TCI 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-72
<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 based on an analysis of undiscounted cash flows,
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, and
pay-per-view programming 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 TCI 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 TCI. 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
F-73
<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)
financial statements approximate the amounts that would have been reported if
the TCI Insight Systems would have filed a separate income tax return.
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-74
<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 TCI........................................................ $ 93,231 $ 77,892
Retained earnings (deficit)....................................... 47,857 (163,404)
-------- ---------
$141,088 $ (85,512)
-------- ---------
-------- ---------
</TABLE>
The amount due to TCI 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 TCI.
On September 30, 1998, TCI caused the TCI Insight Systems to effect a
dividend from the TCI Insight Systems to TCI aggregating $230,000,000 (the
"Dividend"). The Dividend resulted in an increase to the intercompany notes owed
to TCI and a corresponding decrease to retained earnings.
As a result of TCI's 100% ownership of the TCI Insight 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 Insight Systems purchase, at TCI's cost, substantially all of their
pay television and other programming from affiliates of TCI. 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 TCI 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-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
4. PARENT'S INVESTMENT (DEFICIT)--(CONTINUED)
The intercompany advances and expense allocation activity in amounts due to
TCI 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
payments are delinquent constitutes an invalid liquidated damage provision, a
breach of contract, and violates
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
5. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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 TCI'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 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-77
<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-78
<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-79
<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-80
<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-81
<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-82
<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>
CATV systems............................................. 10 to 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-83
<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-84
<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-85
<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-86
<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-87
<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-88
<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-89
<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-90
<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-91
<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-92
<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-93
<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-94
<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-95
<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:
YEARS
-------
Franchise rights..................................................... 7 to 15
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-96
<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-97
<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-98
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[LOGO] (Service mark)
INSIGHT
COMMUNICATIONS
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............................ $ 150,739
NASDAQ listing fee.............................. 95,000
NASD filing fee................................. 30,500
Blue sky fees and expenses...................... 7,500
Printing and engraving expenses................. 600,000*
Legal fees and expenses......................... 700,000*
Accounting fees and expenses.................... 900,000*
Transfer Agent fees............................. 3,000
Miscellaneous expenses.......................... 13,261*
------------
Total...................................... $ 2,500,000*
------------
------------
</TABLE>
- ------------------
* Estimated.
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 -- Certificate of Incorporation, as amended, prior to the effective
date of this registration statement
3.2 -- Form of Restated Certificate of Incorporation of Registrant to be
filed on the effective date of this registration statement
3.3 -- 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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
<S> <C>
10.1 -- 1999 Stock Option Plan
10.2(a) -- 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 (the "Insight Credit
Facility") 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(1)
10.2(b) -- Waiver No. 3 and Consent No. 1 to the Insight Credit Facility
10.2(c) -- Amendment No. 3 to the Insight Credit Facility
10.3 -- Credit Agreement, dated as of October 30, 1998, among Insight
Indiana, several lenders and The Bank of New York(1)
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(1)
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(1)
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(1)
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(a) -- 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 (the "Letter Agreement")(1)
10.14(b) -- Amendment, dated July 16, 1999 to the Letter Agreement
10.15 -- Confirmation of Distributions, dated July 7, 1999, by ICI
Communications, Inc.
21.1 -- Subsidiaries of the Registrant
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
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
<S> <C>
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.(1)
</TABLE>
- ------------------
(1) Previously filed as an exhibit to this Registration Statement.
(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) To provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to
each purchaser.
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 18TH DAY OF JULY, 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 July 18, 1999
- ------------------------
Sidney R. Knafel
/s/ Michael S. Willner President, Chief Executive Officer July 18, 1999
- ------------------------ and Director (Principal Executive
Michael S. Willner Officer)
/s/ Kim D. Kelly Executive Vice President, Chief July 18, 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 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 -- Certificate of Incorporation, as amended, prior to the
effective date of this registration statement
3.2 -- Form of Restated Certificate of Incorporation of
Registrant to be filed on the effective date of this
registration statement
3.3 -- 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(a) -- 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 (the "Insight Credit Facility") 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(1)
10.2(b) -- Waiver No. 3 and Consent No. 1 to the Insight Credit
Facility
10.2(c) -- Amendment No. 3 to the Insight Credit Facility
10.3 -- Credit Agreement, dated as of October 30, 1998, among
Insight Indiana, several lenders and The Bank of New
York(1)
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(1)
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(1)
10.6 -- Management Agreement by and between Insight Indiana
and Insight Communications Company, L.P., dated as of
October 30, 1998(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- --------------------------------------------------------- ----------
<S> <C> <C>
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(1)
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(a) -- 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 (the "Letter
Agreement")(1)
10.14(b) -- Amendment, dated July 16, 1999 to the Letter Agreement
10.15 -- Confirmation of Distributions, dated July 7, 1999, by
ICI Communications, Inc.
21.1 -- Subsidiaries of the Registrant
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.(1)
</TABLE>
- ------------------
(1) Previously filed as an exhibit to this Registration Statement.
(b) Financial Statement Schedule.
S-1 Report of Independent Auditors on Financial Statement Schedule.
S-2 Schedule II--Valuation and Qualifying Accounts.
<PAGE>
Exhibit 1.1
20,500,000 Shares
INSIGHT COMMUNICATIONS COMPANY, INC.
Class A Common Stock
UNDERWRITING AGREEMENT
July __, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO. INCORPORATED
CIBC WORLD MARKETS CORP.
DEUTSCHE BANK SECURITIES INC.
DLJDIRECT INC.
As representatives of the several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs and Madams:
Insight Communications Company, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell 20,500,000 shares of its Class A Common
Stock, par value $.01 per share (the "Firm Shares"), to the several underwriters
named in Schedule I hereto (the "Underwriters"). The Company also proposes to
issue and sell to the several Underwriters not more than an additional 3,075,000
shares of its Class A Common Stock, par value $.01 per share (the "Additional
Shares"), if requested by the Underwriters as provided in Section 2 hereof. The
Firm Shares and the Additional Shares are hereinafter referred to collectively
as the "Shares." The shares of Class A Common Stock of the Company to be
outstanding after giving effect to the sales contemplated hereby are hereinafter
referred to as the "Common Stock."
Immediately prior to the Closing Date (as hereinafter defined) of the
Firm Shares, the Company will exchange (the "Exchange") shares of its Common
Stock, along with shares of its Class B Common Stock, for all outstanding
limited partnership interests in Insight Communications Company, L.P. (the
"Partnership"). Immediately following the Exchange, the Partnership will be a
wholly owned subsidiary of the Company. All references herein to "Subsidiaries"
shall be deemed to include the Partnership and each of the other Subsidiaries
listed on Schedule II hereto, at all times prior to and after the Exchange.
1
<PAGE>
SECTION 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-1, including a
prospectus, relating to the Shares. The registration statement, as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430A under the Act, is hereinafter referred to as the "Registration Statement;"
and the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "Prospectus." If the Company has filed or is
required pursuant to the terms hereof to file a registration statement pursuant
to Rule 462(b) under the Act registering additional shares of Common Stock (a
"Rule 462(b) Registration Statement"), then, unless otherwise specified, any
reference herein to the term "Registration Statement" shall be deemed to include
such Rule 462(b) Registration Statement.
SECTION 2. Agreements to Sell and Purchase and Lock-Up Agreements. On
the basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, the Company agrees to issue and sell, and
each Underwriter agrees, severally and not jointly, to purchase from the Company
at a price per Share of $______ (the "Purchase Price") the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to _______ Additional Shares from the
Company at the Purchase Price. Additional Shares may be purchased solely for the
purpose of covering over-allotments made in connection with the offering of the
Firm Shares. The Underwriters may exercise their right to purchase Additional
Shares in whole or in part from time to time by giving written notice thereof to
the Company within 30 days after the date of this Agreement. You shall give any
such notice on behalf of the Underwriters and such notice shall specify the
aggregate number of Additional Shares to be purchased pursuant to such exercise
and the date for payment and delivery thereof, which date shall be a business
day (i) no earlier than two business days after such notice has been given (and,
in any event, no earlier than the Closing Date) and (ii) no later than ten
business days after such notice has been given. If any Additional Shares are to
be purchased, each Underwriter, severally and not jointly, agrees to purchase
from the Company the number of Additional Shares (subject to such adjustments to
eliminate fractional shares as you may determine) which bears the same
proportion to the total number of Additional Shares to be purchased from the
Company as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I bears to the total number of Firm Shares.
The Company hereby agrees not to (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, 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
(ii) 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
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other
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securities, in cash or otherwise), except to the Underwriters pursuant to this
Agreement, for a period of 180 days after the date of the Prospectus without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"). Notwithstanding the foregoing, during such period (i) the Company may
grant stock options pursuant to the Company's existing stock option plan and
(ii) the Company may issue shares of Common Stock upon the exercise of an option
or warrant or the conversion of a security outstanding on the date hereof. The
Company also agrees not to file any registration statement with respect to any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock for a period of 180 days after the date of the
Prospectus without the prior written consent of DLJ. The Company shall, prior to
or concurrently with the execution of this Agreement, deliver an agreement
executed by (i) each of the directors and executive officers of the Company and
(ii) each stockholder listed on Annex I hereto to the effect that such person
will not, during the period commencing on the date such person signs such
agreement and ending 180 days after the date of the Prospectus, without the
prior written consent of DLJ, (A) engage in any of the transactions described in
the first sentence of this paragraph or (B) 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 or exchangeable for Common Stock.
The Company hereby confirms its engagement of DLJ as, and DLJ hereby
confirms its agreement with the Company to render services as, a "qualified
independent underwriter", within the meaning of Section (b)(15) of Rule 2720 of
the National Association of Securities Dealers, Inc. with respect to the
offering and sale of the Shares. DLJ, solely in its capacity as the qualified
independent underwriter and not otherwise, is referred to herein as the "QIU".
As compensation for the services of the QIU hereunder, the Company agrees to pay
the QIU $5,000 on the Closing Date. The price at which the Shares will be sold
to the public shall not be higher than the maximum price recommended by the QIU.
SECTION 3. Terms of Public Offering. The Company is advised by you that
the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
SECTION 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations and
registered in such names as DLJ shall request no later than two business days
prior to the Closing Date or the applicable Option Closing Date (as defined
below), as the case may be. The Company shall deliver the Shares, with any
transfer taxes thereon duly paid by the Company, to DLJ through the facilities
of The Depository Trust Company ("DTC"), for the respective accounts of the
several Underwriters, against payment to the Company of the Purchase Price
therefore by wire transfer of Federal or other funds immediately available in
New York City. The certificates representing the Shares shall be made available
for inspection not later than 9:30 A.M., New York City time, on the business day
prior to the Closing Date or the applicable Option Closing Date, as the case may
be, at the office of DTC or its designated custodian (the "Designated Office").
The time and date of delivery and payment for the Firm Shares shall be 9:00
A.M., New York City time, on ________ __, 1999 or such other time on the same or
such other date as DLJ and the Company shall agree in writing. The
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time and date of delivery and payment for the Firm Shares are hereinafter
referred to as the "Closing Date." The time and date of delivery and payment for
any Additional Shares to be purchased by the Underwriters shall be 9:00 A.M.,
New York City time, on the date specified in the applicable exercise notice
given by you pursuant to Section 2 or such other time on the same or such other
date as DLJ and the Company shall agree in writing. The time and date of
delivery and payment for any Additional Shares are hereinafter referred to as
the "Option Closing Date."
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 9 of this Agreement
shall be delivered at the offices of Latham & Watkins, 885 Third Avenue, New
York, New York and the Shares shall be delivered at the Designated Office, all
on the Closing Date or such Option Closing Date, as the case may be.
SECTION 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will use
its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish to you five signed copies of the Registration Statement
as first filed with the Commission and of each amendment to it, including all
exhibits, and to furnish to you and each Underwriter designated by you such
number of conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall be
satisfactory to you, and to file the Prospectus in such form with the Commission
within the applicable period specified in Rule 424(b) under the Act; during the
period specified in Section 5(d) below, not to file any further amendment to the
Registration Statement and not to make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to which you
shall reasonably object after being so advised; and, during such period, to
prepare and file with the Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or amendment or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
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(d) Prior to 10:00 A.M., New York City time, on the first business day
after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
as such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall
occur or condition shall exist as a result of which, in the opinion of counsel
for the Underwriters, it becomes necessary to amend or supplement the Prospectus
in order to make the statements therein, in the light of the circumstances when
the Prospectus is delivered to a purchaser, not misleading, or if, in the
opinion of counsel for the Underwriters, it is necessary to amend or supplement
the Prospectus to comply with applicable law, forthwith to prepare and file with
the Commission an appropriate amendment or supplement to the Prospectus so that
the statements in the Prospectus, as so amended or supplemented, will not, in
the light of the circumstances when it is so delivered, be misleading, or so
that the Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any dealer as many copies thereof as such Underwriter or
dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such registration or qualification in effect so
long as required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided, however, that the Company shall
not be required in connection therewith to qualify as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other than
as to matters and transactions relating to the Prospectus, the Registration
Statement, any preliminary prospectus or the offering or sale of the Shares, in
any jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as soon as
practicable an earnings statement covering the twelve-month period ending June
30, 2000 that shall satisfy the provisions of Section 11(a) of the Act and Rule
158 promulgated thereunder, and to advise you in writing when such statement has
been so made available.
(h) During the period of three years after the date of this Agreement,
to furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such other publicly available
information concerning the Company and its subsidiaries listed on Schedule II
hereto (collectively, the "Subsidiaries") as you may reasonably request.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the Company's obligations under this
Agreement, including: (i) the fees, disbursements and
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expenses of the Company's counsel and the Company's accountants in connection
with the registration and delivery of the Shares under the Act and all other
fees and expenses in connection with the preparation, printing, filing and
distribution of the Registration Statement (including financial statements and
exhibits), any preliminary prospectus, the Prospectus and all amendments and
supplements to any of the foregoing, including the mailing and delivering of
copies thereof to the Underwriters and dealers in the quantities specified
herein, (ii) all costs and expenses related to the transfer and delivery of the
Shares to the Underwriters, including any transfer or other taxes payable
thereon, (iii) all costs of printing or producing this Agreement and any other
agreements or documents in connection with the offering, purchase, sale or
delivery of the Shares, (iv) all expenses in connection with the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of the several states and all costs of printing or producing any
Preliminary and Supplemental Blue Sky Memoranda in connection therewith
(including the filing fees and fees and disbursements of counsel for the
Underwriters in connection with such registration or qualification and memoranda
relating thereto), (v) the filing fees and disbursements of counsel for the
Underwriters in connection with the review and clearance of the offering of the
Shares by the National Association of Securities Dealers, Inc., (vi) all fees
and expenses in connection with the preparation and filing of the registration
statement on Form 8-A relating to the Common Stock and all costs and expenses
incident to the listing of the Shares on the Nasdaq National Market, (vii) the
cost of printing certificates representing the Shares, (viii) the costs and
charges of any transfer agent, registrar and/or depositary, (ix) the fees and
expenses of the QIU (including the fees and disbursements of counsel to the
QIU), which shall not exceed $5,000, and (x) all other costs and expenses
incident to the performance of the obligations of the Company hereunder for
which provision is not otherwise made in this Section.
(j) To use its best efforts to list for quotation the Shares on the
Nasdaq National Market and to maintain the listing of the Shares on the Nasdaq
National Market or the New York Stock Exchange for a period of three years after
the date of this Agreement.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company, prior to
the Closing Date or any Option Closing Date, as the case may be, and to satisfy
all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of
this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission registering the Shares not so covered
in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
SECTION 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any
Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement); any
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Rule 462(b) Registration Statement filed after the effectiveness of this
Agreement will become effective no later than 10:00 P.M., New York City time, on
the date of this Agreement; and no stop order suspending the effectiveness of
the Registration Statement is in effect, and, to the Company's knowledge, no
proceedings for such purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement), when it became effective, did not contain and, as amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement (other than
any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement) and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the Act,
(iii) if the Company is required to file a Rule 462(b) Registration Statement
after the effectiveness of this Agreement, such Rule 462(b) Registration
Statement and any amendments thereto, when they become effective (A) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (B) will comply in all material respects with the Act and (iv)
the Prospectus does not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in any
preliminary prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(d) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of its jurisdiction of incorporation
and has the corporate power and authority to carry on its business as described
in the Prospectus and to own, lease and operate its properties, and is duly
qualified and is in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
business, prospects, financial condition or results of operations of the Company
and its Subsidiaries, taken as a whole (a "Material Adverse Effect").
(e) Each of the Subsidiaries has been duly formed and is validly
existing as a limited liability company or limited partnership, as the case may
be, in good standing under the laws of its jurisdiction of organization and has
the power and authority to carry on its business as described in
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the Prospectus and to own, lease and operate its properties, and each is duly
qualified and is in good standing as a foreign limited liability company or
limited partnership, as the case may be, authorized to do business in each
jurisdiction in which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect.
(f) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens granted or issued by
the Company or any of its Subsidiaries, relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock or other equity
interests of the Company or any of its Subsidiaries, except as otherwise
disclosed in the Registration Statement.
(g) All the shares of capital stock of the Company outstanding on the
Closing Date will have been duly authorized and validly issued and be fully
paid, non-assessable and not subject to any preemptive or similar rights; and
the Shares to be issued and sold by the Company have been duly authorized and,
when issued and delivered to the Underwriters against payment therefor as
provided by this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
(h) All the outstanding shares of capital stock or other securities
evidencing equity ownership of each of the Company's Subsidiaries have been duly
authorized and validly issued and are fully paid and (except in the case of
limited partnership interests, except to the extent that the provisions of the
applicable limited partnership act requiring partners to return distributions
may be deemed to constitute assessability) non-assessable, and, other than as
set forth in the Prospectus, are owned by the Partnership, and after giving
effect to the Exchange, other than as set forth in the Prospectus, will be owned
by the Company, directly or indirectly through one or more Subsidiaries, free
and clear of any security interest, claim, lien, encumbrance or adverse interest
of any nature.
(i) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(j) Neither the Company nor any of its Subsidiaries is in violation of
its respective charter, by-laws, limited partnership agreement or other
organizational documents, or in default in the performance of any obligation,
agreement, covenant or condition contained in any indenture, loan agreement,
mortgage, lease or other agreement or instrument that is material to the Company
and its Subsidiaries, taken as a whole, to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries or
their respective property is bound.
(k) The execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may have been obtained or
may be required under the securities or Blue Sky laws of the various states),
(ii) conflict with or constitute a breach of any of the terms or provisions of,
or a default under, the charter, by-laws, limited partnership agreement or other
organizational documents of the Company
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or any of its Subsidiaries, or any indenture, loan agreement, mortgage, lease or
other agreement or instrument that is material to the Company and its
Subsidiaries, taken as a whole, to which the Company or any of its Subsidiaries
is a party or by which the Company or any of its Subsidiaries or their
respective property is bound, (iii) violate or conflict with any applicable law
or any rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over the Company, any of its
Subsidiaries or their respective property or (iv) result in the suspension,
termination or revocation of any Authorization (as defined below) of the Company
or any of its Subsidiaries, or any other material impairment of the rights of
the holder of any such Authorization.
(l) There are no legal or governmental proceedings pending to which the
Company or any of its Subsidiaries is a party or to which any of their
respective property is subject or, to the Company's knowledge, threatened to
which the Company or any of its Subsidiaries could be a party or to which any of
their respective property could be subject that are required to be described in
the Registration Statement or the Prospectus and are not so described; nor are
there any statutes, regulations, contracts or other documents that are required
to be described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement that are not so described or filed as
required.
(m) Neither the Company nor any of its Subsidiaries, has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a Material Adverse Effect.
(n) Each of the Company and its Subsidiaries has such permits,
licenses, consents, exemptions, franchises, authorizations and other approvals
(each, an "Authorization") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a Material Adverse Effect. Each such
Authorization is valid and in full force and effect and each of the Company and
its Subsidiaries is in compliance with all the terms and conditions thereof and
with the rules and regulations of the authorities and governing bodies having
jurisdiction with respect thereto; and no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow, revocation,
suspension or termination of any such Authorization or results or, after notice
or lapse of time or both, would result in any other impairment of the rights of
the holder of any such Authorization; and such Authorizations contain no
restrictions that are burdensome to the Company or any of its Subsidiaries;
except where such failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a Material Adverse
Effect.
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(o) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any Authorization, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a Material Adverse Effect.
(p) Other than as set forth in the Prospectus (including those matters
referred to therein relating to general rulemakings and similar matters relating
generally to the cable television industry), there are no legal or governmental
proceedings pending to which the Company or any of its Subsidiaries, is a party
or of which any property of the Company or any of its Subsidiaries is the
subject which, if determined adversely to the Company or any of its
Subsidiaries, would individually or in the aggregate have a Material Adverse
Effect and, to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or by others; and except
with respect to general rulemakings and similar matters relating generally to
the cable television industry, during the time the Systems (as defined below)
have been owned or managed by the Company or a Subsidiary (i) there has been no
adverse judgment, order, or decree issued by the United States Federal
Communications Commission (the "FCC") relating to any of the Systems that has
not been disclosed in the Prospectus that would be required to be disclosed in
the Prospectus or the Registration Statement; (ii) there are no actions, suits,
proceedings, inquiries or investigations by the FCC pending or threatened in
writing against or affecting the Company, any of its Subsidiaries or any System;
and (iii) to the Company's knowledge, after due inquiry, there is no reasonable
basis for any such action, suit, proceeding or investigation.
(q) Except for matters covered by paragraph (l) above or with respect
to matters that would not individually or in the aggregate have a Material
Adverse Effect, (i) the Company and its Subsidiaries have made all material
filings, recordings and registrations with, and possess all validations or
exemptions, approvals, orders, authorizations, consents, licenses, certificates
and permits from, the FCC, applicable public utilities and other federal, state
and local regulatory or governmental bodies and authorities or any subdivision
thereof, including, without limitation, cable television franchises, pole
attachment agreements, and cable antenna relay service, broadcast auxiliary,
earth station, business radio, microwave or special safety radio service
licenses issued by the FCC (collectively, the "FCC Authorizations") necessary or
appropriate to own, operate and construct the cable communication systems owned
or managed by them (the "Systems") or otherwise for the operation of their
businesses and are not in violation thereof; (ii) all such FCC Authorizations
are in full force and effect, and no event has occurred that permits, or after
notice or lapse of time could permit, the revocation, termination or
modification of any FCC Authorization which is necessary or appropriate to own,
operate and construct the Systems or otherwise for the operation of any such
business; (iii) none of the Company or any of its Subsidiaries is in breach or
violation of, or in default under, any duty or obligation required by any of the
terms, conditions or provisions of the United States Communications Act of 1934,
as amended (the "Communications Act"), or any FCC rule, regulation or policy
applicable to the operation of any portion of any of the Systems; (iv) none of
the Company or any of its Subsidiaries, is in violation of any duty or
obligation required by state or local laws, or local rules or regulations
applicable to the operation of any portion of any of the Systems; (v) there is
not pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened, any action by the FCC or state or local regulatory authority to
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modify, revoke, cancel, suspend or refuse to renew any FCC Authorization; (vi)
other than as described in the Prospectus, there is not now issued or
outstanding or, to the knowledge of the Company or any of its Subsidiaries,
threatened, any notice of any hearing, material violation or material complaint
against the Company or any of its Subsidiaries, with respect to the operation of
any portion of the Systems and none of the Company or its Subsidiaries has any
knowledge that any person intends to contest renewal of any material FCC
Authorization.
(r) (i) (A) The Company and its Subsidiaries have entered into, or have
rights under, all required programming agreements (including, without
limitation, all non-broadcast affiliation agreements under which the Company and
its Subsidiaries are accorded retransmission rights relating to programming that
the Systems provide to their customers) that are material to the conduct of
their business as described in the Prospectus; and (B) all such material
agreements are in full force and effect and none of the Company, any of its
Subsidiaries or any of its affiliates has received any written notice of
revocation or material modifications of such material agreements; and (ii) (A)
either the Company or its Subsidiaries has entered into agreements with the
television stations that have notified the Company or its Subsidiaries that such
station's respective consent is required to carry such stations on the Systems
or has ceased carrying such stations; (B) all such agreements grant the Company
or one of its Subsidiaries retransmission consent in exchange for various
non-cash consideration; and (C) all such agreements are in full force and effect
and are not subject to revocation (except in the case of material breach by the
Company or its Subsidiaries) or material modifications, and no event has
occurred that permits, or after notice or lapse of time could permit, the
revocation, termination or material modification of any such agreement, except
where the failure of such agreements to be in full force and effect or such
revocation would not, in either case, individually or in the aggregate have a
Material Adverse Effect.
(s) Except for matters that would not individually or in the aggregate
have a Material Adverse Effect, (i) all registration statements and all other
documents (including but not limited to annual reports) required by the FCC in
connection with the operation of the Systems have been filed with the FCC; (ii)
all frequencies within the restricted aeronautical and navigational bands (i.e.,
108-136 MHz and 225-400 MHz) which are currently being used in connection with
the operation of the Systems have been authorized for such use by the FCC; (iii)
each of the Systems subject to Equal Employment Opportunity Commission ("EEO")
compliance certification by the FCC has been certified by the FCC for annual EEO
compliance during the time such Systems have been owned by the Company or its
Subsidiaries; and (iv) all towers associated with the Systems are in compliance
with the rules and regulations of the United States Federal Aviation
Administration.
(t) (i) Except for matters that would not individually or in the
aggregate have a Material Adverse Effect, all statements of accounts and any
other filings that are required under Section 111 of the United States Copyright
Act of 1976, as amended, in connection with the retransmission of any broadcast
television and radio signals on the Systems have been timely filed with the
United States Copyright Office and indicated royalty payments have been made for
each System for each accounting period during which such Systems have been owned
or managed by the Company or its Subsidiaries; (ii) none of the Company, any of
its Subsidiaries or any System has received any inquiry or request from the
United States Copyright Office or from any other party challenging or
questioning any such statements of account or royalty payments; and (iii) no
claim of copyright
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infringement has been made or threatened in writing against the Company, any of
its Subsidiaries or any System.
(u) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby or by the Prospectus under
"Use of Proceeds," nor compliance with the terms, conditions and provisions
hereof and thereof by the Company, will conflict with the Communications Act or
the rules, regulations or policies of the FCC thereunder, or will cause any
suspension, revocation, impairment, forfeiture, nonrenewal or termination of any
material license, permit, franchise, certificate, consent, authorization,
designation, declaration, filing, registration or qualification.
(v) This Agreement has been duly and validly authorized, executed and
delivered by the Company and is the legally valid and binding agreement of the
Company, enforceable against it in accordance with its terms, except insofar as
indemnification and contribution provisions may be limited by applicable law or
equitable principles and subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity.
(w) (i) Ernst & Young LLP ("E&Y") are independent public accountants
with respect to the Partnership, the Company and Insight Communications of
Central Ohio, LLC ("Insight Ohio"); (ii) KPMG LLP ("KPMG") are independent
public accountants with respect to (A) the cable systems and related advertising
sales offices serving certain customers in Indiana, which are now held by
Insight Communications of Indiana, LLC (the "TCI Insight Systems"), and (B) the
cable systems in Kentucky in which the Company will own a 50% equity interest
and serve as manager (the "Kentucky Systems"); (iii) Arthur Andersen LLP ("AA")
are independent public accountants with respect to Central Ohio Cable System
Operating Unit, an operating unit within Coaxial Communications of Central Ohio,
Inc. (the "Ohio System"); and (iv) PricewaterhouseCoopers LLP ("PWC") are
independent public accountants with respect to the Kentucky Systems, each as
required by the Act.
(x) The consolidated financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), together
with related schedules and notes, present fairly in all material respects the
consolidated financial position, results of operations and changes in financial
position of the Partnership and its subsidiaries on the basis stated therein at
the respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; the supporting schedules, if any,
included in the Registration Statement present fairly in accordance with
generally accepted accounting principles the information required to be stated
therein; and the other financial and statistical information and data set forth
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto) are, in all material respects, accurately presented and
prepared on a basis consistent with such financial statements and the books and
records of the Partnership and the Company. The pro forma financial statements
included in the Registration Statement and the Prospectus have been prepared on
a basis consistent with such historical statements, except for the pro forma
adjustments specified therein, and give effect to
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assumptions made on a reasonable basis and present fairly the historical and
proposed transactions contemplated by this Agreement and as set forth in the
Prospectus; and such pro forma financial statements comply as to form in all
material respects with the requirements applicable to pro forma financial
statements included in registration statements on Form S-1 under the Securities
Act. The other historical and pro forma financial and statistical information
and data included in the Prospectus and the Registration Statement are
accurately presented in all material respects and prepared on a basis consistent
with the financial statements, historical and pro forma, included in the
Registration Statement, the Prospectus and the books and records of the
Partnership and the Company, the Subsidiaries or the entities or businesses
acquired or to be acquired by the Partnership, the Company and the Subsidiaries
included in the Prospectus and the Registration Statement.
(y) Neither the Partnership nor the Company is, and after giving effect
to the offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, neither of them will be, an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended.
(z) Except as disclosed in the Registration Statement and the
Prospectus, there are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement.
(aa) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and its
Subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock, other equity interests or long-term debt of the Company or any of
its Subsidiaries, and (iii) neither the Company and any of its Subsidiaries has
incurred any material liability or obligation, direct or contingent.
(bb) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be deemed to
be a representation and warranty by the Company to the Underwriters as to the
matters covered thereby.
SECTION 7. Indemnification. (a) The Company, the Partnership and
Insight Holdings of Ohio, LLC ("Insight Ohio") agree, jointly and severally, to
indemnify and hold harmless each Underwriter, its directors, its officers and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), from and against any and all losses, claims, damages,
liabilities and judgments (including, without limitation, any legal or other
expenses incurred in connection with investigating or defending any matter,
including any action, that could give rise to any such losses, claims, damages,
liabilities or judgments) caused by any untrue statement or alleged untrue
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statement of a material fact contained in the Registration Statement (or any
amendment thereto), the Prospectus (or any amendment or supplement thereto) or
any preliminary prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein; provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter who failed to deliver a Prospectus (as then
amended or supplemented, provided by the Company to the several Underwriters in
the requisite quantity and on a timely basis to permit proper delivery on or
prior to the Closing Date) to the person asserting any losses, claims, damages
and liabilities and judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, if
such material misstatement or omission or alleged material misstatement or
omission was cured in such Prospectus and such Prospectus was required by law to
be delivered at or prior to the written confirmation of sale to such person.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from the Company and the Subsidiaries to such
Underwriter but only with reference to information relating to such Underwriter
furnished in writing to the Company by such Underwriter through you expressly
for use in the Registration Statement (or any amendment thereto), the Prospectus
(or any amendment or supplement thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 7(a) and 7(b), the Underwriter shall not be required to assume
the defense of such action pursuant to this Section 7(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or
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additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by DLJ, in the case
of parties indemnified pursuant to Section 7(a), and by the Company, in the case
of parties indemnified pursuant to Section 7(b). The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action (i) effected with its written consent or (ii) effected without its
written consent if the settlement is entered into more than twenty business days
after the indemnifying party shall have received a request from the indemnified
party for reimbursement for the fees and expenses of counsel (in any case where
such fees and expenses are at the expense of the indemnifying party) and, prior
to the date of such settlement, the indemnifying party shall have failed to
comply with such reimbursement request. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section 7 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause 7(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 7(d)(i) above but also the
relative fault of the Company or its Subsidiaries on the one hand and the
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or judgments, as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other hand
shall be deemed to be in the same proportion as the total net proceeds from the
offering (after deducting underwriting discounts and commissions, but before
deducting expenses) received by the Company, and the total underwriting
discounts and commissions received by the Underwriters, bear to the total price
to the public of the Shares, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault of the Company on the one hand and
the Underwriters on the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the
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Company or the Underwriters and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price discounts and commissions received by such Underwriter with respect
to the Shares underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 7(d) are several in proportion to the respective number of Shares
purchased by each of the Underwriters hereunder and not joint.
(e) The remedies provided for in this Section 7 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
Section 8. Indemnification of QIU. (a) The Company, the Partnership and
Insight Ohio agree, jointly and severally, to indemnify and hold harmless the
QIU, its directors, its officers and each person, if any, who controls the QIU
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
from and against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) related to, based upon or arising out of (i) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), the Prospectus (or any amendment or
supplement thereto) or any preliminary prospectus, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) the QIU's
activities as QIU under its engagement pursuant to Section 2 hereof, except in
the case of this clause (ii) insofar as any such losses, claims, damages,
liabilities or judgments are found in a final judgment by a court of competent
jurisdiction, not subject to further appeal, to have resulted solely from the
willful misconduct or gross negligence of the QIU.
(b) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) (the "QIU
Indemnified Party"), the QIU Indemnified Party shall promptly notify the Company
in writing and the Company shall assume the
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defense of such action, including the employment of counsel reasonably
satisfactory to the QIU Indemnified Party and the payment of all fees and
expenses of such counsel, as incurred. Any QIU Indemnified Party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of the QIU Indemnified Party unless (i) the employment of such counsel
shall have been specifically authorized in writing by the Company, (ii) the
Company shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the QIU Indemnified Party or (iii) the named parties
to any such action (including any impleaded parties) include both the QIU
Indemnified Party and the Company, and the QIU Indemnified Party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the Company
(in which case the Company shall not have the right to assume the defense of
such action on behalf of the QIU Indemnified Party). In any such case, the
Company shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all QIU Indemnified Parties, which firm shall be designated by the
QIU, and all such fees and expenses shall be reimbursed as they are incurred.
The Company shall indemnify and hold harmless the QIU Indemnified Party from and
against any and all losses, claims, damages, liabilities and judgments by reason
of any settlement of any action (i) effected with its written consent or (ii)
effected without its written consent if the settlement is entered into more than
twenty business days after the Company shall have received a request from the
QIU Indemnified Party for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the Company) and,
prior to the date of such settlement, the Company shall have failed to comply
with such reimbursement request. The Company shall not, without the prior
written consent of the QIU Indemnified Party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action in respect of which the QIU Indemnified Party is or could
have been a party and indemnity or contribution may be or could have been sought
hereunder by the QIU Indemnified Party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the QIU Indemnified Party from
all liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the QIU Indemnified Party.
(c) To the extent the indemnification provided for in this Section 8 is
unavailable to a QIU Indemnified Party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then the Company,
in lieu of indemnifying such QIU Indemnified Party, shall contribute to the
amount paid or payable by such QIU Indemnified Party as a result of such losses,
claims, damages, liabilities and judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the QIU on the other hand from the offering of the Shares or (ii) if
the allocation provided by clause 8(c)(i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause 8(c)(i) above but also the relative fault of the
Company on the one hand and the QIU on the other hand in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the QIU on the
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other hand shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
as set forth in the table on the cover page of the Prospectus, and the fee
received by the QIU pursuant to Section 2 hereof, bear to the sum of such total
net proceeds and such fee. The relative fault of the Company on the one hand and
the QIU on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the QIU and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission and whether the QIU's activities as QIU under its engagement pursuant
to Section 2 hereof involved any willful misconduct or gross negligence on the
part of the QIU.
The Company and the QIU agree that it would not be just and equitable
if contribution pursuant to this Section 8(c) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by a QIU Indemnified Party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such QIU Indemnified Party
in connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(d) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
QIU Indemnified Party at law or in equity.
SECTION 9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by Michael S. Willner and Kim D. Kelly, in their capacities
as the Chief Executive Officer and Chief Operating and Financial Officer of the
Company, respectively, confirming the matters set
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forth in Sections 6(aa), 9(a) and 9(b) and that the Company has complied with
all of the agreements and satisfied all of the conditions herein contained and
required to be complied with or satisfied by the Company on or prior to the
Closing Date.
(d) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its Subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock, other equity interests or long-term
debt of the Company or any of its Subsidiaries and (iii) neither the Company nor
any of its Subsidiaries shall have incurred any liability or obligation, direct
or contingent, the effect of which, in any such case described in clause
9(d)(i), 9(d)(ii) or 9(d)(iii), in your judgment, is material and adverse and,
in your judgment, makes it impracticable to market the Shares on the terms and
in the manner contemplated in the Prospectus.
(e) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Cooperman Levitt Winikoff Lester & Newman, P.C., counsel for the Company and
its Subsidiaries, to the effect that:
(i) each of the Company and its Subsidiaries has been duly
incorporated or organized, as appropriate, is validly existing as a
corporation, a limited liability company or a limited partnership, as
appropriate, in good standing under the laws of its jurisdiction of
incorporation or organization, as appropriate, and has the corporate,
limited liability company or partnership, as appropriate, power and
authority to carry on its business and to own, lease and operate its
properties, in each case as described in the Prospectus;
(ii) each of the Company and its Subsidiaries is duly
qualified and is in good standing as a foreign corporation, limited
liability company or partnership, as appropriate, authorized to do
business in the jurisdictions set forth on Schedule II hereto. Based
solely on a certificate of an officer of the Company as to where the
Company and the Subsidiaries presently own, lease or operate property,
or carry on business, such counsel knows of no other jurisdiction where
the failure to be so qualified or be in good standing would have a
Material Adverse Effect;
(iii) all the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully
paid, non-assessable and not subject to any preemptive or similar
rights under the Company's Certificate of Incorporation, any agreement
filed as an exhibit to the Registration Statement, any other agreement
known to such counsel or the Delaware General Corporation Law;
(iv) the Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor as provided by
this Agreement, will be validly issued, fully paid and non-assessable,
and the issuance of such Shares will not be subject to any preemptive
or similar rights under the Company's Certificate of Incorporation, any
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agreement filed as an exhibit to the Registration Statement, any other
agreement known to such counsel or the Delaware General Corporation
Law;
(v) all of the outstanding shares of capital stock or other
securities evidencing equity ownership of each of the Company's
Subsidiaries have been duly authorized and validly issued and are fully
paid and (except in the case of limited partnership interests, except
to the extent that the provisions of the applicable limited partnership
act requiring partners to return distributions may be deemed to
constitute assessability) non-assessable, and, other than as set forth
in the Prospectus, are owned by the Company, directly or indirectly
through one or more Subsidiaries, free and clear of any security
interest, claim, lien or encumbrance;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) the authorized capital stock of the Company conforms as
to legal matters in all material respects to the description thereof
contained in the Prospectus;
(viii) the Registration Statement has become effective under
the Act, no stop order suspending its effectiveness has been issued and
no proceedings for that purpose are, to the best of such counsel's
knowledge after due inquiry, pending before or contemplated by the
Commission;
(ix) the statements under the captions "Description of Recent
Transactions," "Description of Certain Indebtedness," "Description of
Capital Stock," "Certain Transactions" and "Management -- 1999 Stock
Option Plan" in the Prospectus and Items 14 and 15 of Part II of the
Registration Statement, insofar as such statements constitute a summary
of the legal matters, documents or proceedings referred to therein,
fairly present in all material respects the information called for with
respect to such legal matters, documents and proceedings and the
statements under the caption "Underwriting" in the Prospectus, insofar
as such statements constitute a summary of the terms of this Agreement,
fairly present, in all material respects, the information called for
with respect to such terms;
(x) to the best of such counsel's knowledge after due inquiry,
neither the Company nor any of its Subsidiaries is in violation of its
respective charter, by-laws, limited partnership agreement or other
organizational documents and neither the Company nor any of its
Subsidiaries is in default in the performance of any obligation,
agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is
material to the Company and its Subsidiaries, taken as a whole, to
which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries or their respective property is
bound;
(xi) the execution, delivery and performance of this Agreement
by the Company, the compliance by the Company with all the provisions
hereof and the consummation of the transactions contemplated hereby
will not (A) require any consent, approval, authorization or other
order of, or qualification with, any court or governmental body or
agency (except
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such as may have been obtained or may be required under the securities
or Blue Sky laws of the various states), (B) conflict with or
constitute a breach of any of the terms or provisions of, or a default
under, the charter, by-laws, limited partnership agreement or other
organizational documents of the Company or any of its Subsidiaries,
any agreement filed as an exhibit to the Registration Statement or any
other agreement known to such counsel that is material to the Company
and its Subsidiaries, taken as a whole, to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or their respective property is bound, (C) violate or
conflict with any applicable law, rule or regulation or, to such
counsel's knowledge, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over the Company, any
of its Subsidiaries or their respective property or (D) result in the
suspension, termination or revocation of any Authorization of the
Company or any of its Subsidiaries or any other impairment of the
rights of the holder of any such Authorization except where the
suspension, termination or revocation of any such Authorization or
other impairment of the rights of the holder of any such Authorization
would not, individually or in the aggregate, have a Material Adverse
Effect;
(xii) after due inquiry, such counsel does not know of any
legal or governmental proceedings pending or threatened to which the
Company or any of its Subsidiaries is a party or to which any of their
respective property is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described, or
of any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not so described or filed as required;
(xiii) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be, an "investment
company" as such term is defined in the Investment Company Act of 1940,
as amended;
(xiv) to the best of such counsel's knowledge after due
inquiry, except as disclosed in the Registration Statement or the
Prospectus, there are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement;
(xv) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for the financial statements,
schedules and other financial data included therein as to which no
opinion need be expressed) comply as to form in all material respects
with the Act; and
(xvi) we have no reason to believe that the Registration
Statement, as of its effective date, contained any untrue statement of
a material fact or omitted to state any material fact required to be
stated therein or necessary in order to make the statements
21
<PAGE>
therein not misleading or that the Prospectus contains any untrue
statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
in each case we express no belief with respect to the financial
statements, schedules or other financial data contained in the
Registration Statement or the Prospectus.
The opinion of Cooperman, Levitt, Winikoff, Lester & Newman described
in Section 9(e) above shall be rendered to you at the request of the Company and
shall so state therein.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Fleischman & Walsh, L.L.P., special regulatory counsel for the Company and
its Subsidiaries to the effect that:
(i) The communities listed in Section A of Attachment 1 to the
opinion have been registered with the FCC in connection with the
operation of the Systems. The filing of a registration statement
constitutes initial FCC authorization for the commencement of cable
television operations in the community registered;
(ii) The Company and the Subsidiaries hold certain FCC
licenses, as that term is defined below ("FCC Licenses"). All FCC
Licenses and receive-only earth station registrations held by the
Company and the Subsidiaries in connection with the operation of the
Systems are listed on Attachment 1 to the opinion. To the best of our
knowledge, all such FCC Licenses have been validly issued or assigned
to the present licensee and are currently in full force and effect. We
have no knowledge of any event which would allow, or after notice or
lapse of time which would allow, revocation or termination of any FCC
License held by the Company and the Subsidiaries or would result in any
other material impairment of the rights of the holder of such license.
To the best of our knowledge, no other FCC Licenses are required in
connection with the operation of the Systems by the Subsidiaries in the
manner we have been advised they are presently being operated. For the
purposes of this opinion, an FCC License is defined as an
authorization, or renewal thereof, issued by the FCC authorizing the
transmission of radio energy through the airways;
(iii) Other than proceedings affecting the cable television
industry generally, and other than rate proceedings, there is no
action, suit or proceeding pending before or, to the best of our
knowledge, threatened by the FCC which is reasonably likely to have a
materially adverse impact upon the cable television operations of the
Company and its Subsidiaries, taken as a whole;
(iv) To the best of our knowledge after due inquiry, the
Company and the Subsidiaries have filed all FCC forms 320, 395-A, and
159 required under the Communications Act, as amended, and under the
rules and regulations of the FCC;
(v) The Company and the Subsidiaries hold all Authorizations
and/or have filed all notifications required by the FCC in connection
with their operation on all frequencies in the 108-137 and 225-400 MHz
bands which we have been advised are currently being
22
<PAGE>
utilized on the Systems. The geographic and technical parameters with
respect to the authorized use of these frequencies are listed on
Attachment 1 hereto;
(vi) The employment units covered by the Systems and operated
by the Company and the Subsidiaries have been certified, where
required, by the FCC for compliance with EEO requirements in each of
calendar years 1992 through 1998 in which such Systems have been owned,
operated and/or managed by the Company or the Subsidiaries. Employment
certification records for the years prior to 1992 have been purged from
the FCC's database and are therefore outside of the scope of this
opinion;
(vii) Statements of Account required by Section 111 of the
Copyright Act of 1976, as amended have been filed, together with
royalty payments accompanying said Statements of Account, with the U.S.
Copyright Office for the Systems covering each of the accounting
periods beginning with January 1 through June 30, 1996 accounting
period and ending with the July 1 through December 31, 1998 accounting
period during which such Systems have been operated by the Company and
the Subsidiaries. We have not reviewed the information or calculations
contained in these statements, and express no opinion with respect to
the accuracy thereof. To the best of our knowledge, there are no
currently outstanding inquiries received from the U.S. Copyright Office
or any other party which question the copyright filings or payments
made by the Company or the Subsidiaries with respect to the Systems. It
is possible that there may be matters pending before the U.S. Copyright
Office relating to the Systems, the Company or the Subsidiaries of
which we do not have knowledge because such matters have not yet been
incorporated into the available public files of the U.S. Copyright
Office. However, we are not aware of any pending or threatened claim,
action or demand for copyright infringement or for non-payment of
royalties with respect to the Statements of Account or related royalty
payments filed by the Company and the Subsidiaries for the Systems;
(viii) The Company has obtained all consents and approvals of
the FCC and FCC Authorizations, if any, required for the consummation
of the transactions contemplated in this Underwriting Agreement where
the failure to obtain the consents, approval, Authorizations, licenses,
certificates, permits or orders would reasonably be expected to have a
materially adverse impact on the Company or the Subsidiaries;
(ix) Neither the execution and delivery of the this
Underwriting Agreement nor the offering of the Shares contemplated
hereby will conflict with or result in a violation of any order or
regulation of the FCC applicable to the Company and the Subsidiaries,
the conflict with or the violation of which would reasonably be
expected to have a materially adverse impact on the Company or the
Subsidiaries. However, we call your attention to the following:
(A) Under the Communications Act as now in effect,
the sale or other disposition of certain pledged collateral
and the exercise of certain other rights and remedies
conferred upon you by any agreement or by applicable law might
constitute an assignment of an FCC license or transfer of
control of an FCC license,
23
<PAGE>
requiring for its consummation the prior consent of the FCC
granted upon an appropriate application therefor;
(B) Under the Communications Act as now in effect,
and as now interpreted by the FCC, no valid security interest
may be granted in an FCC license. To the extent that this
Underwriting Agreement and/or related financing documents
purport to grant to you a security interest in any FCC
licenses, such security interest may not be legally
enforceable;
(x) In the course of our representation of the Company and its
Subsidiaries, no matters have come to our attention, other than matters
affecting the cable television industry generally, which would
reasonable be expected to have a materially adverse impact upon the
cable television operations of the Company and the Subsidiaries, taken
as a whole; and
(xi) In our opinion, the statements in the Prospectus under
the headings "Risk Factors -- Our business has been and continues to be
subject to extensive governmental legislation and regulation," "Risk
Factors -- We operate in a very competitive business environment,"
"Legislation and Regulation" and "Business -- Competition" insofar as
the purport to describe the provisions of the law referred to therein,
are accurate, complete and fair in all material respects.
(g) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Latham & Watkins, counsel for the Underwriters, as to the
matters referred to in Sections 9(e)(iv), 9(e)(vi) (but only with respect to the
Company), 9(e)(ix) (but only with respect to the statements under the caption
"Description of Capital Stock" and "Underwriting") and 9(e)(xvii).
(h) You shall have received, on each of the date hereof and the Closing
Date, letters dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from each of (i) E&Y with respect to the
Company, the Partnership and Insight Ohio; (ii) KPMG with respect to (A) the TCI
Insight Systems and (B) the Kentucky Systems; (iii) AA with respect to the Ohio
System; and (iv) PWC with respect to the Kentucky Systems, each independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(i) The Exchange shall have been consummated on the terms described in
the Prospectus.
(j) The Company shall have delivered to you the agreements specified in
Section 2 hereof which agreements shall be in full force and effect on the
Closing Date.
(k) The Shares shall have been duly listed for quotation on the Nasdaq
National Market.
(l) The Company shall not have failed on or prior to the Closing Date
to perform or comply with any of the agreements herein contained and required to
be performed or complied with by the Company on or prior to the Closing Date.
24
<PAGE>
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
SECTION 10. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Company if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each
non-defaulting Underwriter shall be obligated severally, in the proportion which
the number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Firm Shares or Additional
Shares, as the case may be, which any Underwriter has agreed to purchase
pursuant to Section 2 hereof be increased pursuant to this Section 10 by an
amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default
25
<PAGE>
occurs is more than one-tenth of the aggregate number of Firm Shares to be
purchased by all Underwriters and arrangements satisfactory to you and the
Company for purchase of such Firm Shares are not made within 48 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case which does not
result in termination of this Agreement, either you or the Company shall have
the right to postpone the Closing Date, but in no event for longer than seven
days, in order that the required changes, if any, in the Registration Statement
and the Prospectus or any other documents or arrangements may be effected. If,
on an Option Closing Date, any Underwriter or Underwriters shall fail or refuse
to purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased on such date, the non-defaulting
Underwriters shall have the option to (i) terminate their obligation hereunder
to purchase such Additional Shares or (ii) purchase not less than the number of
Additional Shares that such non-defaulting Underwriters would have been
obligated to purchase on such date in the absence of such default. Any action
taken under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any default of any such Underwriter under this
Agreement.
SECTION 11. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company, to Insight
Communications Company, Inc., 126 East 56th Street, New York, New York 10022 and
(ii) if to any Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette
Securities Corporation, 277 Park Avenue, New York, New York 10172, Attention:
Syndicate Department, or in any case to such other address as the person to be
notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company and the several Underwriters set
forth in or made pursuant to this Agreement shall remain operative and in full
force and effect, and will survive delivery of and payment for the Shares,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter, any QIU Indemnified Party, the officers
or directors of any Underwriter, any person controlling any Underwriter, the
Company, the officers or directors of the Company or any person controlling the
Company, (ii) acceptance of the Shares and payment for them hereunder and (iii)
termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of the
Company as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 10), the Company agrees to reimburse the several
Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by them. Notwithstanding any termination of
this Agreement, the Company shall be liable for all expenses which it has agreed
to pay pursuant to Section 5(i) hereof. The Company also agrees to reimburse the
several Underwriters, their directors and officers, any persons controlling any
of the Underwriters and the QIU Indemnified Parties for any and all fees and
expenses (including, without limitation, the fees disbursements of counsel)
incurred by them in connection with enforcing their rights hereunder (including,
without limitation, pursuant to Section 7 hereof).
26
<PAGE>
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the
Underwriters, the Underwriters' directors and officers, any controlling persons
referred to herein, the QIU Indemnified Parties, the Company's directors and the
Company's officers who sign the Registration Statement and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
27
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Underwriters.
Very truly yours,
INSIGHT COMMUNICATIONS COMPANY, INC.
By:
-----------------------------------
Title:
INSIGHT COMMUNICATIONS COMPANY, L.P..
By:
-----------------------------------
Title:
INSIGHT HOLDINGS OF OHIO, LLC
By:
-----------------------------------
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO. INCORPORATED
CIBC WORLD MARKETS CORP.
DEUTSCHE BANK SECURITIES INC.
DLJDIRECT INC.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By
-----------------------------------
28
<PAGE>
SCHEDULE I
Number of Firm Shares
Underwriters to be Purchased
Donaldson, Lufkin & Jenrette
Securities Corporation
Morgan Stanley & Co. Incorporated
CIBC World Markets Corp.
Deutsche Bank Securities Inc.
DLJdirect Inc.
Total
<PAGE>
SCHEDULE II
Subsidiaries of the Company
Insight Communications of Central Ohio, LLC, a Delaware limited liability
company
Insight Communications of Indiana, LLC, a Delaware limited liability company
Insight Communications Company, L.P., a Delaware limited partnership
Insight Holdings of Ohio, LLC, a Delaware limited liability company
ICC Holdings, LLC, a Delaware limited liability company
<PAGE>
Annex I
[Insert names of stockholders of the Company who will be required to sign lock
ups]
<PAGE>
Exhibit 3.1A
CERTIFICATE OF INCORPORATION
OF
INSIGHT COMMUNICATIONS COMPANY, INC.
The undersigned, acting as the incorporator of the corporation hereby
being formed under the General Corporation Law of the State of Delaware,
certifies that:
FIRST: The name of the corporation is
INSIGHT COMMUNICATIONS COMPANY, INC.
SECOND: The address, including the street, number, city and county, of
the registered office of the corporation in the State of Delaware is 30 Old
Rudnick Lane, Suite 100, Dover, Delaware 19901, County of Kent; and the name of
the registered agent of the corporation in the State of Delaware at such address
is LEXIS Document Services Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares which the corporation shall have
authority to issue is 100, all of which are of a par value of $0.01 each. All
such shares are of one class and are shares of Common Stock.
FIFTH: The name and address of the incorporator are as follows:
Name Mailing Address
Elliot Brecher Cooperman Levitt Winikoff
Lester & Newman, P.C.
800 Third Avenue
New York, NY 10022
SIXTH: The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by the provisions of paragraph
(7) of subsection (b) of Section 102 of the General Corporation Law of the State
of Delaware, as the same may be amended and supplemented.
SEVENTH: The corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be
<PAGE>
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any Bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Signed on March 4, 1999
-----------------------------------
Elliot Brecher, Incorporator
<PAGE>
Exhibit 3.1B
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
INSIGHT COMMUNICATIONS COMPANIES, INC.
Pursuant to Section 241 of the General Corporation Law of the State of
Delaware
Insight Communications Companies, Inc. (the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: The Sole Incorporator of the Corporation duly adopted a
resolution setting forth a proposed amendment to the Certificate of
Incorporation of the Corporation. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that Section FIRST of the Certificate of
Incorporation of the Corporation be amended to read in its entirety as
follows:
FIRST: The name of the Corporation is
INSIGHT COMMUNICATIONS COMPANY, INC.
SECOND: The Corporation has not received any payment for any of its
stock.
THIRD: The Sole Incorporator has duly adopted this Certificate of
Amendment and the amendment to the Certificate of Incorporation contained herein
in accordance with Section 241 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned has hereunto signed this
Certificate on the 10th day of March, 1999.
---------------------------------
Elliot Brecher, Sole Incorporator
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
INSIGHT COMMUNICATIONS COMPANY, INC.
Insight Communications Company, Inc., a corporation organized and
existing under the Delaware General Corporation Law (the "Corporation"), does
hereby certify:
1. The Corporation has not received any payment for any of its stock.
2. The Corporation's original certificate of incorporation was filed on
March 9, 1999 with the Secretary of State of the State of Delaware under the
name Insight Communications Companies, Inc.
3. The following amendment and restatement of the Corporation's
Certificate of Incorporation was approved and duly adopted by a majority of the
Corporation's Board of Directors in accordance with the provisions of Sections
241 and 245 of the Delaware General Corporation Law:
"ARTICLE ONE
NAME
The name of the corporation (hereinafter the "Corporation") is
INSIGHT COMMUNICATIONS COMPANY, INC.
ARTICLE TWO
REGISTERED OFFICE
The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 30 Old Rudnick
Lane, Suite 100, Dover, Delaware 19901 County of Kent; and the name of the
registered agent of the Corporation in the State of Delaware at such address is
LEXIS Document Services Inc.
ARTICLE THREE
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
<PAGE>
Page 2
ARTICLE FOUR
CAPITAL STRUCTURE
The total number of shares of capital stock which the Corporation shall
have the authority to issue is 500,000,000 shares, consisting of three classes
of capital stock:
(a) 300,000,000 shares of Class A Common Stock, par value $0.01 per
share (the "Class A Common Stock");
(b) 100,000,000 shares of Class B Common Stock, par value $0.01 per
share (the "Class B Common Stock," and together with the Class A Common Stock,
the "Common Stock"); and
(c) 100,000,000 shares of Preferred Stock, par value $0.01 per share
(the "Preferred Stock").
ARTICLE FIVE
COMMON STOCK
5.1 Identical Rights. Except as otherwise set forth in this ARTICLE
FIVE, each share of Common Stock shall be identical, including, without
limitation, the right to participate ratably in dividends and other
distributions (including distributions upon liquidation, dissolution or other
winding up of the Corporation), payable in cash, stock or property, except that
in the case of dividends or distributions payable in shares of a class of Common
Stock, only shares of Class A Common Stock may be distributed with respect to
Class A Common Stock and only shares of Class B Common Stock may be distributed
with respect to Class B Common Stock, and the number of shares of Common Stock
payable per share will be equal for each class. In addition, neither the shares
of Class A Common Stock nor the shares of Class B Common Stock may be
subdivided, consolidated, reclassified or otherwise changed unless concurrently
the shares of the other class of Common Stock are subdivided, consolidated,
reclassified or otherwise changed in the same proportion and the same manner.
The Corporation may not make any dividend or distribution with respect to any
class of Common Stock unless at the same time the Corporation makes a ratable
dividend or distribution with respect to each outstanding share of Common Stock
regardless of class. The rights of holders of Class A Common Stock and Class B
Common Stock are subject to the rights of holders of shares of any series of
Preferred Stock that the Corporation may designate and issue from time to time.
5.2 Voting Rights. The holders of the Common Stock shall vote as a
single class on all matters submitted to a vote of the stockholders to which the
holders of Common Stock are entitled to vote, except as may be required by the
Delaware General Corporation Law or as otherwise expressly specified in this
Restated Certificate of Incorporation. Each share of Class A Common Stock shall
be entitled to one vote and each share of Class B Common Stock shall be entitled
to ten votes. The Corporation, by action of its Board of Directors and the
affirmative vote
<PAGE>
Page 3
of the holders of a majority of the voting power of the capital stock of the
Corporation entitled to vote, may increase or decrease the number of authorized
shares of Common Stock or Preferred Stock of the Corporation (but not below the
number of shares of Common Stock or Preferred Stock, respectively, then
outstanding or reserved for issuance upon the conversion of shares of Class B
Common Stock) irrespective of the provisions of Section 242(b)(2) of the
Delaware General Corporation Law; provided, however, that any increase or
decrease to the number of authorized shares of Class B Common Stock shall in
addition to the foregoing, require the affirmative vote of the holders of a
majority of the voting power of the Class B Common Stock, voting as a separate
class.
5.3 Holders of Class B Common Stock. Shares of Class B Common Stock
from time to time outstanding shall be held of record by members of the
Management Group (as defined below), and by no other person or persons. For
purposes of this Section 5.3, the term "Management Group" shall mean (a) such
persons who may be permitted to hold shares of Class B Common Stock pursuant to
the provisions of that certain Securityholders Agreement (the "Securityholders
Agreement") dated May 11, 1999 among the Corporation, Vestar Capital Partners
III, L.P. and the several other parties thereto, or (b) at all times subsequent
to the termination of the Securityholders Agreement in accordance with its
terms, any and all persons designated by the Board of Directors of the
Corporation from time-to-time as members of the Management Group, which members
shall be limited to directors and officers of the Corporation or a subsidiary of
the Corporation, other persons serving the Corporation or a subsidiary of the
Corporation in a management capacity and such affiliates, family members and
other associates of the foregoing persons as may be designated from time to time
by the Board of Directors of the Corporation.
5.4 Conversion Rights.
(a) Voluntary Conversion of Class B Common Stock. Each share of Class B
Common Stock is convertible into one fully paid and non-assessable share of
Class A Common Stock at any time at the option of the holder. In order to
exercise the conversion privilege, the holder of any shares of Class B Common
Stock to be converted shall present and surrender the certificate or
certificates representing such shares during usual business hours at the
principal executive offices of the Corporation, or if any agent for the
registration of transfer of shares of Class B Common Stock is then duly
appointed and acting (said agent being hereinafter called the "Transfer Agent"),
then at the office of the Transfer Agent, accompanied by written notice that the
holder elects to convert the shares of Class B Common Stock represented by such
certificate or certificates, to the extent specified in such notice. Such notice
shall also state the name or names (with addresses) in which the certificate or
certificates for shares of Class A Common Stock which shall be issuable on such
conversion shall be issued. If required by the Corporation, any certificate for
shares of Class B Common Stock surrendered for conversion shall be accompanied
by instruments of transfer, in form satisfactory to the Corporation and the
Transfer Agent, duly executed by the holder of such shares or his or her duly
authorized representative. As promptly as practicable after the receipt of such
notice and the surrender of the certificate or certificates representing such
shares of Class B Common Stock as aforesaid, the Corporation shall issue and
<PAGE>
Page 4
deliver at such office to such holder, or on his or her written order, a
certificate or certificates for the number of full shares of Class A Common
Stock issuable upon the conversion of such shares. Each conversion of shares of
Class B Common Stock shall be deemed to have been effected on the date on which
such notice shall have been received by the Corporation or the Transfer Agent,
as applicable, and the certificate or certificates representing such shares
shall have been surrendered (subject to receipt by the Corporation or the
Transfer Agent, as applicable, within thirty (30) days thereafter of any
required instruments of transfer as aforesaid), and the person or persons in
whose name or names any certificate or certificates for shares of Class A Common
Stock shall be issuable upon such conversion shall be deemed to have become on
said date the holder or holders of record of the shares represented thereby.
(b) Automatic Conversion of Class B Common Stock. Upon any transfer of
shares of Class B Common Stock to any person other than a member of the
Management Group, said shares shall be deemed automatically to convert,
effective as of the date of transfer thereof, into the same number of shares of
Class A Common Stock.
(c) Unconverted Shares. If less than all of the shares of Class B
Common Stock evidenced by a certificate or certificates surrendered to the
Corporation (in accordance with such procedures as the Board of Directors of the
Corporation may determine) are converted, the Corporation shall execute and
deliver to or upon the written order of the holder of such certificate or
certificates a new certificate or certificates evidencing the number of shares
of Class B Common Stock which are not converted without charge to the holder.
(d) No Conversion Rights of Class A Common Stock. The Class A Common
Stock has no conversion rights.
5.5 Reservation. The Corporation hereby reserves, and shall at all
times reserve and keep available, out of its authorized and unissued shares of
Class A Common Stock, for the purposes of effecting conversions, such number of
duly authorized shares of Class A Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Class B Common
Stock. The Corporation covenants that all the shares of Class A Common Stock so
issuable shall, when so issued, be duly and validly issued, fully paid and
non-assessable. The Corporation shall take all such action as may be necessary
to assure that all such shares of Class A Common Stock may be so issued without
violation of any applicable law or regulation.
5.6 Merger. Upon the merger or consolidation of the Corporation,
holders of each class of Common Stock will be entitled to receive equal per
share payments or distributions, except that in any transaction in which shares
of capital stock are distributed, such shares may differ to the extent that the
Class A Common Stock and the Class B Common Stock differ as provided in this
Restated Certificate of Incorporation.
5.7 Liquidation. Upon any dissolution or liquidation of the
Corporation, the holders of the Class A Common Stock and Class B Common Stock
will be entitled to receive ratably all assets of the Corporation available for
distribution to stockholders, subject to any preferential rights of any then
outstanding shares of Preferred Stock.
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ARTICLE SIX
PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time in one or
more series, each of such series to have such terms as stated in the resolution
or resolutions providing for the establishment of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Except as
otherwise expressly stated in the resolution or resolutions providing for the
establishment of a series of Preferred Stock, any shares of Preferred Stock
which may be redeemed, purchased or acquired by the Corporation may be reissued
except as otherwise expressly provided by law.
Authority is hereby expressly granted to the Board of Directors of the
Corporation to issue, from time to time, shares of Preferred Stock in one or
more series, and, in connection with the establishment of any such series by
resolution or resolutions, to determine and fix such voting powers, full or
limited, or no voting powers, and such other powers, designations, preferences
and relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions thereof, if any including, without
limitation, dividend rights, conversion rights, redemption and sinking fund
privileges, and liquidation preferences, as shall be stated in such resolution
or resolutions, all to the fullest extent permitted by the Delaware General
Corporation Law. Without limiting the generality of the foregoing, the
resolution or resolutions providing for the establishment of any series of
Preferred Stock may, to the extent permitted by law, provide that such series
shall be superior to, rank equally with or be junior to the Preferred Stock of
any other series. Except as otherwise expressly provided in the resolution or
resolutions providing for the establishment of any series of Preferred Stock, no
vote of the holders of shares of Preferred Stock or Common Stock shall be a
prerequisite to the issuance of any shares of any series of the Preferred Stock
authorized by and complying with the conditions of this Restated Certificate of
Incorporation.
ARTICLE SEVEN
BOARD OF DIRECTORS
(a) The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of subsection
(b) of Section 102 of the Delaware General Corporation Law, as the same may be
amended and supplemented.
(b) The Corporation shall, to the fullest extent permitted by Section
145 of the Delaware General Corporation Law, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to
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be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(c) If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
(d) No amendment to or repeal of this ARTICLE SEVEN shall apply to or
have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
ARTICLE EIGHT
CORPORATE GOVERNANCE
The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation and for the further
definition of the powers of the Corporation and its directors and stockholders:
(a) The Board of Directors shall have the power to adopt, amend or
repeal the by-laws of the Corporation.
(b) The stockholders may adopt, amend or repeal the by-laws of the
Corporation only with, in addition to any other vote required by-law, the
affirmative vote of the holders of not less than 66 2/3% of the total voting
power of all outstanding securities of the Corporation then entitled to vote
generally in the election of directors, voting together as a single class.
(c) Elections of directors need not be by written ballot unless the
by-laws of the Corporation so provide.
(d) Special meetings of stockholders may be called by the Board of
Directors, the Chairman of the Board of Directors or the President of the
Corporation and may not be called by any other person. Notwithstanding the
foregoing, whenever holders of one or more series of Preferred Stock shall have
the right, voting separately as a series, to elect directors, such holders may
call special meetings of such holders pursuant to the certificate of designation
for such series.
ARTICLE NINE
AMENDMENT
The Corporation reserves the right at any time, and from time to time,
to amend, alter, change or repeal any provision contained in this Restated
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or
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inserted, in the manner now or hereafter prescribed by law; and all rights,
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this Restated
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the rights reserved in this ARTICLE NINE; provided that at
all times as the Securityholders Agreement shall be in effect and shall not have
been terminated in accordance with its terms, no amendment may be made to the
provisions of this Article Nine or to the provisions of Sections 5.2 or 5.3
hereof except as otherwise permitted pursuant to the provisions of the
Securityholders Agreement."
IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which
restates and amends the provisions of the Certificate of Incorporation of the
Corporation, and which has been duly adopted in accordance with Sections 241 and
245 of the General Corporation Law, has been executed by its duly authorized
officer this ____ day of July, 1999.
INSIGHT COMMUNICATIONS COMPANY, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
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<PAGE>
Exhibit 3.3
BY-LAWS
OF
INSIGHT COMMUNICATIONS COMPANY, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE I. OFFICES............................................................1
Section 1. REGISTERED OFFICES......................................1
Section 2. OTHER OFFICES...........................................1
ARTICLE II. MEETINGS OF STOCKHOLDERS.........................................1
Section 1. PLACE OF MEETINGS.......................................1
Section 2. ANNUAL MEETING OF STOCKHOLDERS..........................1
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF...........1
Section 4. VOTING..................................................1
Section 5. PROXIES.................................................2
Section 6. SPECIAL MEETINGS........................................2
Section 7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS..........2
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST..........3
ARTICLE III. DIRECTORS........................................................3
Section 1. THE NUMBER OF DIRECTORS.................................3
Section 2. VACANCIES...............................................3
Section 3. REMOVAL.................................................4
Section 4. POWERS..................................................4
Section 5. PLACE OF DIRECTORS' MEETINGS............................4
Section 6. REGULAR MEETINGS........................................4
Section 7. SPECIAL MEETINGS........................................4
Section 8. QUORUM..................................................4
Section 9. ACTION WITHOUT MEETING..................................5
Section 10. TELEPHONIC MEETINGS.....................................5
Section 11. COMMITTEES OF DIRECTORS.................................5
Section 12. MINUTES OF COMMITTEE MEETINGS...........................5
Section 13. COMPENSATION OF DIRECTORS...............................5
ARTICLE IV. OFFICERS.........................................................6
Section 1. OFFICERS................................................6
Section 2. ELECTION OF OFFICERS....................................6
Section 3. SUBORDINATE OFFICERS....................................6
Section 4. COMPENSATION OF OFFICERS................................6
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES...................6
Section 6. CHAIRMAN OF THE BOARD...................................6
Section 7. PRESIDENT...............................................7
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Section 8. VICE PRESIDENTS.........................................7
Section 9. SECRETARY...............................................7
Section 10. ASSISTANT SECRETARY.....................................7
Section 11. CHIEF FINANCIAL OFFICER OR TREASURER....................7
Section 12. ASSISTANT CHIEF FINANCIAL OFFICER OR TREASURER..........8
ARTICLE V. INDEMNIFICATION OF DIRECTORS AND OFFICERS.........................8
ARTICLE VI. INDEMNIFICATION OF EMPLOYEES AND AGENTS.........................10
ARTICLE VII. CERTIFICATES OF STOCK..........................................11
Section 1. CERTIFICATES...........................................11
Section 2. SIGNATURES ON CERTIFICATES.............................11
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES.....11
Section 4. LOST CERTIFICATES......................................11
Section 5. TRANSFERS OF STOCK.....................................12
Section 6. FIXED RECORD DATE......................................12
Section 7. REGISTERED STOCKHOLDERS................................12
ARTICLE VIII. GENERAL PROVISIONS............................................12
Section 1. DIVIDENDS..............................................12
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES................12
Section 3. CHECKS.................................................13
Section 4. FISCAL YEAR............................................13
Section 5. CORPORATE SEAL.........................................13
Section 6. MANNER OF GIVING NOTICE................................13
Section 7. WAIVER OF NOTICE.......................................13
ARTICLE IX. AMENDMENTS......................................................13
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS.................13
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ARTICLE I
OFFICES
Section 1. REGISTERED OFFICES. The registered office of the
corporation shall be in the City of Dover, County of Kent, State of Delaware.
Section 2. OTHER OFFICES. The corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of stockholders shall
be held at any place within or outside the State of Delaware designated by the
Board of Directors. In the absence of any such designation, stockholders'
meetings shall be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING OF STOCKHOLDERS. The annual meeting
of stockholders shall be held each year on a date and a time designated by the
Board of Directors.
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A
majority of the voting power of the shares of capital stock of the corporation
issued and outstanding and entitled to vote at any meeting of stockholders, the
holders of which are present in person or represented by proxy, shall
constitute a quorum for the transaction of business except as otherwise
provided by law, by the Certificate of Incorporation, as amended or restated,
or by these By-Laws. A quorum, once established, shall not be broken by the
withdrawal of enough votes to leave less than a quorum and the votes present
may continue to transact business until adjournment. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, a
majority of the voting power of the shares of capital stock represented in
person or by proxy at such meeting may adjourn the meeting from time to time,
without notice other than announcement at the meeting of the time and place of
the adjourned meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote thereat.
Section 4. VOTING. When a quorum is present at any meeting,
in all matters other than the election of directors, the vote of the holders of
stock representing a majority of the voting
<PAGE>
power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of the Certificate of Incorporation, as amended or restated, or these
By-Laws, or any rule, regulation or statutory provision applicable to the
corporation, a different vote is required in which case such express provision
shall govern and control the decision of such question. Directors shall be
elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors.
Section 5. PROXIES. At each meeting of the stockholders, each
stockholder having the right to vote may vote in person or may authorize
another person or persons to act for him/her by proxy appointed by an
instrument in writing subscribed by such stockholder and bearing a date not
more than three years prior to said meeting, unless said instrument provides
for a longer period. All proxies must be filed with the Secretary of the
corporation at the beginning of each meeting in order to be counted in any vote
at the meeting.
Section 6. SPECIAL MEETINGS. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation, as amended or restated, may be
called by the Chairman of the Board or the President and shall be called by the
President or the Secretary at the request in writing of the Board of Directors.
Business transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice.
Section 7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(1) Nominations of persons for election to the Board of
Directors of the corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (a) pursuant
to the corporation's notice of meeting, (b) by or at the direction of the Board
of Directors or (c) by any stockholder of the corporation who was a stockholder
of record at the time of giving of notice provided for in this By-Law, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this By-Law.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(1) of this By-Law, the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the corporation not later than the close of business on
the 60th day nor earlier than the close of business on the 90th day prior to
the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is not within 30
days before or after such anniversary date, notice by the stockholder to be
timely must be so delivered not earlier than the close of business on the 90th
day prior to such annual meeting and not later than the close of business on
the later of the 60th day prior to such annual meeting or the 10th day
following the earlier of (i) the day on which notice of the meeting was mailed
or (ii) the date public announcement of the date of such meeting is first made
by the corporation. In no event shall the public announcement of an adjournment
of
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an annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or
re-election as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
in an election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the nomination or
proposal is made; and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder and of such beneficial owner, as
they appear on the corporation's books, and (ii) the class and number of shares
of the corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST.
The officer who has charge of the stock ledger of the corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
Section 1. THE NUMBER OF DIRECTORS. The number of directors
(other than directors elected by one or more series of Preferred Stock) which
shall constitute the entire Board shall be a number to be determined from time
to time solely by resolution adopted by the affirmative vote of a majority of
the directors. The directors need not be stockholders. The directors shall be
elected at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each director elected shall hold office until
his/her successor is duly elected and qualified.
Section 2. VACANCIES. Vacancies on the Board of Directors by
reason of death, resignation, removal, or otherwise, and newly created
directorships resulting from any increase in the number of directors may be
filled (other than directors elected by one or more series of Preferred Stock)
solely by a majority of the directors then in office (although less than a
quorum) or by a sole
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<PAGE>
remaining director. Each director so chosen shall hold office until such
director's successor shall have been duly elected and qualified or until such
director's earlier death, resignation, disqualification or removal. If, at the
time of filling any vacancy or any newly created directorship, the directors
then in office shall constitute less than a majority of the entire Board (as
constituted immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. REMOVAL. No director (other than directors elected
by one or more series of Preferred Stock) may be removed from office by the
stockholders except for cause and, in addition to any other vote required by
law, upon the affirmative vote of the holders of not less than 66 2/3% of the
total voting power of all outstanding securities of the corporation then
entitled to vote generally in the election of directors, voting together as a
single class.
Section 4. POWERS. The property and business of the
corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these By-Laws expressly
conferred upon them, the Board may exercise all such powers of the corporation
and do all such lawful acts and things as are not directed or required by
statute, by the Certificate of Incorporation, as amended or restated, or by
these By-Laws to be exercised or done by the stockholders.
Section 5. PLACE OF DIRECTORS' MEETINGS. The directors may
hold their meetings and have one or more offices, and keep the books of the
corporation outside of the State of Delaware.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from time
to time be determined by the Board of Directors.
Section 7. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President on
forty-eight hours' notice to each director, either personally or by mail,
telecopier, or other means of electronic transmission at the address of such
director on the books and records of the corporation; special meetings shall be
called by the President or the Secretary in like manner and on like notice on
the written request of two directors.
Section 8. QUORUM. At all meetings of the Board of Directors
a majority of the then authorized number of directors shall be necessary and
sufficient to constitute a quorum for the transaction of business, and the vote
of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, by the Certificate of Incorporation, as
amended or restated, or by these ByLaws. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement
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at the meeting, until a quorum shall be present.
Section 9. ACTION WITHOUT MEETING. Unless otherwise
restricted by the Certificate of Incorporation, as amended or restated, or
these By-Laws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the Board of Directors or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee.
Section 10. TELEPHONIC MEETINGS. Unless otherwise restricted
by the Certificate of Incorporation, as amended or restated, or these By-Laws,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at such
meeting.
Section 11. COMMITTEES OF DIRECTORS. The Board of Directors
may, by resolution passed by a majority of the entire Board of Directors,
designate one or more committees, each such committee to consist of one or more
of the directors of the corporation. The Board of Directors may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence
or disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he/she
or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, as amended or restated, adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the By-Laws of the corporation; and,
unless the resolution or the Certificate of Incorporation, as amended or
restated, expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock.
Section 12. MINUTES OF COMMITTEE MEETINGS. Each committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors when required.
Section 13. COMPENSATION OF DIRECTORS. Unless otherwise
restricted by the Certificate of Incorporation, as amended or restated, or
these By-Laws, the Board of Directors shall have the authority to fix the
compensation of directors. The directors may be paid their
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expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The officers of this corporation shall
be chosen by the Board of Directors and shall include a Chairman of the Board
of Directors or a President, or both, and a Secretary. The corporation may also
have at the discretion of the Board of Directors such other officers as are
desired, including a Vice-Chairman of the Board of Directors, a Chief Executive
Officer, a Chief Operating Officer, a Chief Financial Officer or Treasurer, one
or more Vice Presidents, one or more Assistant Secretaries and Assistant Chief
Financial Officers or Treasurers, and such other officers as may be appointed
in accordance with the provisions of Section 3 hereof. In the event there are
two or more Vice Presidents, then one or more may be designated as an Executive
Vice President, Senior Vice President or other similar or dissimilar title. At
the time of the election of officers, the directors may by resolution determine
the order of their rank. Any number of offices may be held by the same person,
unless the Certificate of Incorporation, as amended or restated, or these
By-Laws otherwise provide.
Section 2. ELECTION OF OFFICERS. The Board of Directors, at
its first meeting after each annual meeting of stockholders, shall choose the
executive officers of the corporation.
Section 3. SUBORDINATE OFFICERS. The Board of Directors may
appoint, or grant to the executive officers the power to appoint, such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board.
Section 4. COMPENSATION OF OFFICERS. The salaries of all
executive officers of the corporation shall be fixed by the Board of Directors.
The salaries of all other officers and agents of the corporation shall be fixed
by the executive officers of the corporation.
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES. The
officers of the corporation shall hold office until their successors are chosen
and qualify in their stead. Any officer elected or appointed by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the members of the Board of Directors. If the office of any officer or officers
becomes vacant for any reason, the vacancy shall be filled by the Board of
Directors.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board,
if such an officer be elected, shall, if present, preside at all meetings of
the Board of Directors and exercise and
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perform such other powers and duties as may be from time to time assigned to
him/her by the Board of Directors or prescribed by these By-Laws. If there is
no President, the Chairman of the Board shall in addition be the Chief
Executive Officer of the corporation and shall have the powers and duties
prescribed in Section 7 of this Article IV.
Section 7. PRESIDENT. Subject to such supervisory powers, if
any, as may be given by the Board of Directors to the Chairman of the Board, if
there be such an officer, the President shall be the Chief Executive Officer of
the corporation and shall, subject to the control of the Board of Directors,
have general supervision, direction and control of the business and officers of
the corporation. He/she shall preside at all meetings of the stockholders and,
in the absence of the Chairman of the Board, or if there be none, at all
meetings of the Board of Directors. He/she shall be an ex-officio member of all
committees and shall have the general powers and duties of management usually
vested in the office of President and Chief Executive Officer of corporations,
and shall have such other powers and duties as may be prescribed by the Board
of Directors or these By-Laws.
Section 8. VICE PRESIDENTS. In the absence or disability of
the President, the Vice Presidents in order of their rank as fixed by the Board
of Directors, or if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other duties as from time to
time may be prescribed for them, respectively, by the Board of Directors.
Section 9. SECRETARY. The Secretary shall attend all sessions
of the Board of Directors and all meetings of the stockholders and record all
votes and the minutes of all proceedings in a book to be kept for that purpose;
and shall perform like duties for the standing committees when required by the
Board of Directors. He/she shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or these
By-Laws. He/she shall keep in safe custody the seal of the corporation, and
when authorized by the Board, affix the same to any instrument requiring it,
and when so affixed it shall be attested by his/her signature or by the
signature of an Assistant Secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his/her signature.
Section 10. ASSISTANT SECRETARY. The Assistant Secretary, or
if there be more than one, the Assistant Secretaries in the order determined by
the Board of Directors, or if there be no such determination, the Assistant
Secretary designated by the Board of Directors, shall, in the absence or
disability of the Secretary, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
Section 11. CHIEF FINANCIAL OFFICER OR TREASURER. The Chief
Financial Officer or Treasurer shall have the custody of the corporate funds
and securities and shall keep full
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and accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation, in such depositories as may be designated
by the Board of Directors. He/she shall disburse the funds of the corporation
as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his/her
transactions as Chief Financial Officer or Treasurer and of the financial
condition of the corporation. If required by the Board of Directors, he/she
shall give the corporation a bond, in such sum and with such surety or sureties
as shall be satisfactory to the Board of Directors, for the faithful
performance of the duties of his/her office and for the restoration to the
corporation, in case of his/her death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his/her possession or under his/her control belonging to the
corporation.
Section 12. ASSISTANT CHIEF FINANCIAL OFFICER OR TREASURER.
The Assistant Chief Financial Officer or Treasurer, or if there shall be more
than one, the Assistant Chief Financial Officers or Treasurers in the order
determined by the Board of Directors, or if there be no such determination, the
Assistant Chief Financial Officer or Treasurer designated by the Board of
Directors, shall, in the absence or disability of the Chief Financial Officer
or Treasurer, perform the duties and exercise the powers of the Chief Financial
Officer or Treasurer and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he/she is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by
him/her in connection with such action, suit or proceeding if he/she acted in
good faith and in a manner he/she reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his/her conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he/she reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his/her conduct was
unlawful.
(b) The corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the
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<PAGE>
corporation to procure a judgment in its favor by reason of the fact that
he/she is or was a director or officer of the corporation, or is or was serving
at the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by
him/her in connection with the defense or settlement of such action or suit if
he/she acted in good faith and in a manner he/she reasonably believed to be in
or not opposed to the best interests of the corporation except that no such
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent
of the corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in paragraphs (a) and (b) of this
Article V, or in defense of any claim, issue or matter therein, he/she shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him/her in connection therewith.
(d) Any indemnification under paragraphs (a) and (b) of this
Article V (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director or officer is proper in the circumstances because he/she has met
the applicable standard of conduct set forth in paragraphs (a) and (b) of this
Article V. Such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorney's fees) incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that he/she is not entitled to
be indemnified by the corporation as authorized in this Article V. Such
expenses (including attorney's fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
(f) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other paragraphs of this Article V shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any ByLaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
his/her official capacity and as to action in another capacity while holding
such office.
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<PAGE>
(g) The Board of Directors may authorize, by a vote of a
majority of a quorum of the Board of Directors, the corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him/her and incurred by him/her in any such
capacity, or arising out of his/her status as such, whether or not the
corporation would have the power to indemnify him/her against such liability
under the provisions of this Article V.
(h) For the purposes of this Article V, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article V with respect to the resulting or surviving corporation as he/she
would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he/she reasonably believed to be in the best interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the corporation"
as referred to in this section.
(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Article V shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE VI
INDEMNIFICATION OF EMPLOYEES AND AGENTS
The corporation may, at its option, indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he/she is or was an
employee or agent of the corporation or, while an employee or agent of the
corporation, is or was
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<PAGE>
serving at the request of the corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him/her in connection with such
action, suit or proceeding, to the extent permitted by Section 145 of the
General Corporation Law of the State of Delaware.
ARTICLE VII
CERTIFICATES OF STOCK
Section 1. CERTIFICATES. Every holder of stock of the
corporation shall be entitled to have a certificate signed by, or in the name
of the corporation by, the Chairman or Vice Chairman of the Board of Directors,
or the President or a Vice President, and by the Secretary or an Assistant
Secretary, or the Chief Financial Officer or Treasurer or an Assistant Chief
Financial Officer or Treasurer of the corporation, certifying the number of
shares represented by the certificate owned by such stockholder in the
corporation.
Section 2. SIGNATURES ON CERTIFICATES. Any or all of the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he/she were such officer, transfer
agent, or registrar at the date of issue.
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES,
PRIVILEGES. If the corporation shall be authorized to issue more than one class
of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock; provided that, except as
otherwise provided in section 202 of the General Corporation Law of the State
of Delaware, in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the corporation shall issue to
represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 4. LOST CERTIFICATES. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
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<PAGE>
certificate or certificates, or his/her legal representative, to advertise the
same in such manner as it shall require and/or to give the corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 5. TRANSFERS OF STOCK. Upon surrender to the
corporation, or the transfer agent of the corporation, of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignation or authority to transfer, it shall be the duty of the corporation
to issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
Section 6. FIXED RECORD DATE. In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of the stockholders, or any adjournment thereof, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled
to exercise any rights in respect of any change, conversion or exchange of
stock or for the purpose of any other lawful action, the Board of Directors may
fix a record date which shall not be more than 60 nor less than ten days before
the date of such meeting, nor more than 60 days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
Section 7. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, save as
expressly provided by the laws of the State of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, as
amended or restated, if any, may be declared by the Board of Directors at any
regular or special meeting, pursuant to law. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation, as amended or restated.
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES. Before
payment of any dividend there may be set aside out of any funds of the
corporation available for dividends such sum or sums as the directors from time
to time, in their absolute discretion, think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the directors shall
think conducive to the interests of the corporation, and the directors may
abolish any such reserve.
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<PAGE>
Section 3. CHECKS. All checks or demands for money and notes
of the corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of the corporation
shall be fixed by resolution of the Board of Directors.
Section 5. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
Section 6. MANNER OF GIVING NOTICE. Whenever, under the
provisions of the Certificate of Incorporation, as amended or restated, or of
these By-Laws, or any rule, regulation or statutory provision applicable to the
corporation, notice is required to be given to any director or stockholder, it
shall not be construed to mean personal notice, but such notice may be given
(unless otherwise provided) in writing, by mail, addressed to such director or
stockholder, at his/her address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by mail, telecopier, or other means
of electronic transmission at the address of such director on the books and
records of the corporation.
Section 7. WAIVER OF NOTICE. Whenever any notice is required
to be given under the provisions of the Certificate of Incorporation, as
amended or restated, or of these ByLaws, or any rule, regulation or statutory
provision applicable to the corporation, a waiver thereof in writing, signed by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS. These
ByLaws may be amended or repealed or new By-Laws may be adopted by the Board of
Directors, when such power is conferred upon the Board of Directors by the
Certificate of Incorporation, as amended or restated, or by the affirmative
vote of not less than 66 2/3% of the total voting power of all outstanding
securities of the corporation then entitled to vote generally in the election
of directors, voting together as a single class, at any regular meeting of the
Board of Directors or of the stockholders or at any special meeting of the
Board of Directors or of the stockholders if notice of such amendment or repeal
or adoption of new By-Laws be contained in the notice of such special meeting.
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<PAGE>
NUMBER SHARES
IC INSIGHT COMMUNICATIONS COMPANY, INC.
INCORPORATED UNDER THE LAWS OF DELAWARE
CLASS A COMMON STOCK CUSIP 45768V 10 8
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF ONE
CENT ($.01) PER SHARE OF THE CLASS A COMMON STOCK OF
Insight Communications Company, Inc. (hereinafter referred to as the
"Corporation"), transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to all provisions of the Certificate
of Incorporation and By-Laws of the Corporation and any amendments thereto, to
all of which the holder of this Certificate by acceptance hereof assents. This
Certificate is not valid unless countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the
fascimile signatures of its duly authorized officers.
Dated:
[SEAL]
Secretary President
Countersigned:
By The Bank of New York Transfer Agent
Authorized Signature
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, INC.
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof of the
Corporation and the qualifications, limitations, or restrictions of such
preferences and/or rights. Such request may be made to the Corporation or the
Transfer Agent.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties ---------------- ----------------
JT TEN - as joint tenants with right (Cust) (Minor)
of survivorship and not as under Uniform Gifts to Minors
tenants in common Act
-----------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the Class A Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
---------------------------------------------
- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated
---------------------------
NOTICE:
---------------------------------------------------
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
--------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 5.1
[Letterhead of]
Cooperman Levitt Winikoff Lester & Newman, P.C.
800 Third Avenue
New York, New York 10022
July 16, 1999
Insight Communications Company, Inc.
126 East 56th Street
New York, New York 10022
Re: Registration Statement on Form S-1
Under the Securities Act of 1933
Ladies and Gentlemen:
In our capacity as counsel to Insight Communications Company, Inc., a
Delaware corporation (the "Company"), we have been asked to render this opinion
in connection with a Registration Statement on Form S-1, as amended (File
Number: 333-78293), heretofore filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Registration Statement"), covering up to 23,575,000 shares of Class A Common
Stock (the "Shares").
In that connection, we have examined the Restated Certificate of
Incorporation and the ByLaws of the Company, the Registration Statement,
corporate proceedings of the Company relating to the issuance of the Shares and
such other instruments and documents as we have deemed relevant under the
circumstances.
In making the aforesaid examinations, we have assumed the genuineness
of all signatures and the conformity to original documents of all copies
furnished to us as original or photostatic copies. We have also assumed that
the corporate records furnished to us by the Company include all corporate
proceedings taken by the Company to date.
Based upon and subject to the foregoing, we are of the opinion that:
(1) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of
Delaware.
(2) The Shares have been duly and validly authorized and, when issued
and paid for as described in the Registration Statement, will be duly
and validly issued, fully paid and non-assessable.
We hereby consent to the use of our opinion as herein set forth as an
exhibit to the
<PAGE>
Insight Communications Company, Inc.
July 9, 1999
Page 2
Registration Statement and to the use of our name under the caption "Legal
Matters" in the prospectus forming a part of the Registration Statement.
Very truly yours,
COOPERMAN LEVITT WINIKOFF
LESTER & NEWMAN, P.C.
By: /s/ Elliot E. Brecher
---------------------
A Member of the Firm
<PAGE>
Exhibit 10.1
INSIGHT COMMUNICATIONS COMPANY, INC.
1999 STOCK OPTION PLAN
1. Purpose of the Plan.
The purpose of the Insight Communications Company, Inc. 1999 Stock
Option Plan (the "Plan") is to promote the interests of Insight Communications
Company, Inc., a Delaware corporation (the "Company"), and its stockholders by
strengthening the Company's ability to attract and retain competent employees,
to make service on the Board of Directors of the Company (the "Board") more
attractive to present and prospective non-employee directors of the Company and
to provide a means to encourage stock ownership and proprietary interest in the
Company by officers, non-employee directors and valued employees and other
individuals upon whose judgment, initiative and efforts the financial success
and growth of the Company largely depend. The Plan became effective on June 24,
1999, by resolution of the Board, subject to ratification of the Plan by a
majority vote of the stockholders of the Company.
2. Stock Subject to the Plan.
(a) The total number of shares of the authorized but unissued or
treasury shares of Common Stock, $0.01 par value per share, of the Company
("Common Stock") for which options and stock appreciation rights ("SARs") may
be granted under the Plan shall be 5,000,000 subject to adjustment as provided
in Section 14 hereof, which shares may be of any class of Common Stock;
provided, however, that such number of shares may from time to time be reduced
to the extent that a corresponding number of issued and outstanding shares of
Common Stock are purchased by the Company and set aside for issue upon the
exercise of options.
(b) If an option granted or assumed hereunder shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject thereto shall again be available for subsequent option grants
under the Plan; provided, however, that shares as to which an option has been
surrendered in connection with the exercise of a related SAR will not again be
available for subsequent option or SAR grants under the Plan.
(c) Stock issuable upon exercise of an option or SAR granted under the
Plan may be subject to such restrictions on transfer, repurchase rights or
other restrictions as shall be determined by the Board.
3. Administration of the Plan.
The Plan shall be administered by the Board. No member of the Board
shall act upon any matter exclusively affecting an option or SAR granted or to
be granted to himself or herself under the Plan. A majority of the members of
the Board shall constitute a quorum, and any action may be taken by a majority
of those present and voting at any meeting. The decision of the Board as to all
questions of interpretation and application of the Plan shall be final, binding
and conclusive on all persons. The Board may, in its sole discretion, grant
options to purchase shares of Common Stock, grant SARs and issue shares upon
exercise of such options and SARs, as provided in the Plan. The
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<PAGE>
Board shall have authority, subject to the express provisions of the Plan, to
construe the respective option and SAR agreements and the Plan, to prescribe,
amend and rescind rules and regulations relating to the Plan, to determine the
terms and provisions of the respective option and SAR agreements, which may but
need not be identical, and to make all other determinations in the judgment of
the Board necessary or desirable for the administration of the Plan. The Board
may correct any defect or supply any omission or reconcile any inconsistency in
the Plan or in any option or SAR agreement in the manner and to the extent it
shall deem expedient to carry the Plan into effect and shall be the sole and
final judge of such expediency. No director shall be liable for any action or
determination made in good faith. The Board may, in its discretion, delegate
its power, duties and responsibilities to a committee, consisting of two or
more members of the Board, all of whom are "Non-Employee Directors" (as
hereinafter defined). If a committee is so appointed, all references to the
Board herein shall mean and relate to such committee, unless the context
otherwise requires. For the purposes of the Plan, a director or member of such
committee shall be deemed to be a "Non-Employee Director" only if such person
qualified as a "Non-Employee Director" within the meaning of paragraph
(b)(3)(i) of Rule 16b-3 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as such term is interpreted from time to time.
4. Type of Options.
Options granted pursuant to the Plan shall be authorized by action of
the Board (or a committee designated by the Board) and may be designated as
either incentive stock options meeting the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified
options which are not intended to meet the requirements of Section 422 of the
Code, the designation to be in the sole discretion of the Board. Options
designated as incentive stock options that fail to continue to meet the
requirements of Section 422 of the Code shall be redesignated as non-qualified
options automatically on the date of such failure to continue to meet the
requirements of Section 422 of the Code without further action by the Board.
5. Eligibility.
Options designated as incentive stock options may be granted only to
officers and key employees of the Company or of any subsidiary corporation
(herein called "subsidiary" or "subsidiaries"), as defined in Section 424 of
the Code and the Treasury Regulations promulgated thereunder (the
"Regulations"). Directors who are not otherwise employees of the Company or a
subsidiary shall not be eligible to be granted incentive stock options pursuant
to the Plan. SARs and options designated as non-qualified options may be
granted to (i) officers and key employees of the Company or of any of its
subsidiaries, or (ii) agents and directors of and consultants to the Company,
whether or not otherwise employees of the Company.
In determining the eligibility of an individual to be granted an
option or SAR, as well as in determining the number of shares to be optioned to
any individual, the Board shall take into account the recommendation of the
Company's Chairman of the Board, the position and responsibilities of the
individual being considered, the nature and value to the Company or its
subsidiaries of his or her service and accomplishments, his or her present and
potential contribution to the success of the
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<PAGE>
Company or its subsidiaries, and such other factors as the Board may deem
relevant.
6. Restrictions on Incentive Stock Options.
Incentive stock options (but not non-qualified options) granted under
this Plan shall be subject to the following restrictions:
(a) Limitation on Number of Shares. The aggregate fair market value of
the shares of Common Stock with respect to which incentive stock options are
granted, determined as of the date the incentive stock options are granted,
exercisable for the first time by an individual during any calendar year shall
not exceed $100,000. If an incentive stock option is granted pursuant to which
the aggregate fair market value of shares with respect to which it first
becomes exercisable in any calendar year by an individual exceeds such $100,000
limitation, the portion of such option which is in excess of the $100,000
limitation, and any such options issued subsequently in the same calendar year,
shall be treated as a non-qualified option pursuant to section 422(d)(1) of the
Code. In the event that an individual is eligible to participate in any other
stock option plan of the Company or any parent or subsidiary of the Company
which is also intended to comply with the provisions of Section 422 of the
Code, such $100,000 limitation shall apply to the aggregate number of shares
for which incentive stock options may be granted under this Plan and all such
other plans.
(b) Ten Percent (10%) Stockholder. If any employee to whom an
incentive stock option is granted pursuant to the provisions of this Plan is on
the date of grant the owner of stock (as determined under Section 424(d) of the
Code) possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any parent or subsidiary of the Company,
then the following special provisions shall be applicable to the incentive
stock options granted to such individual:
(i) The option price per share subject to such incentive
stock options shall be not less than 110% of the fair market value of the stock
determined at the time such option was granted. In determining the fair market
value under this clause (i), the provisions of Section 8 hereof shall apply.
(ii) The incentive stock option shall have a term expiring
not more than five (5) years from the date of the granting thereof.
7. Option Agreement.
Each option and SAR shall be evidenced by an agreement (the
"Agreement") duly executed on behalf of the Company and by the grantee to whom
such option or SAR is granted, which Agreement shall comply with and be subject
to the terms and conditions of the Plan. The Agreement may contain such other
terms, provisions and conditions which are not inconsistent with the Plan as
may be determined by the Board, provided that options designated as incentive
stock options shall meet all of the conditions for incentive stock options as
defined in Section 422 of the Code. No option or SAR shall be granted within
the meaning of the Plan and no purported grant of any option
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or SAR shall be effective until the Agreement shall have been duly executed on
behalf of the Company and the optionee. More than one option and SAR may be
granted to an individual.
8. Option Price.
(a) The option price or prices of shares of Common Stock for options
designated as non-qualified stock options shall be as determined by the Board.
(b) Subject to the conditions set forth in Section 6(b) hereof, the
option price or prices of shares of Common Stock for options designated as
incentive stock options shall be at least the fair market value of such Common
Stock at the time the option is granted as determined by the Board in
accordance with clause (c) below.
(c) If the Common Stock is then listed on any national securities
exchange, the fair market value shall be the mean between the high and low
sales prices, if any, on the largest such exchange on the date of the grant of
the option or, if none, shall be determined by taking a weighted average of the
means between the highest and lowest sales on the nearest date before and the
nearest date after the date of grant in accordance with Regulations Section
25.2512-2. If the Common Stock is not then listed on any such exchange, the
fair market value shall be the mean between the closing "Bid" and the closing
"Ask" prices, if any, as reported in the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") for the date of the grant of the
option, or, if none, shall be determined by taking a weighted average of the
means between the highest and lowest sales on the nearest date before and the
nearest date after the date of grant in accordance with Regulations Section
25.2512-2. If the Common Stock is not then either listed on any such exchange
or quoted in NASDAQ, the fair market value shall be the mean between the
average of the "Bid" prices, if any, as reported in the National Daily
Quotation Service for the date of the grant of the option, or, if none, shall
be determined by taking a weighted average of the means between the highest and
lowest sales on the nearest date before and the nearest date after the date of
grant in accordance with Regulations Section 25.2512-2. If the fair market
value of the Common Stock cannot be determined under the preceding three
sentences, it shall be determined in good faith by the Board in accordance with
the Regulations promulgated under Section 422 of the Code.
9. Manner of Payment; Manner of Exercise.
(a) Options granted under the Plan may provide for the payment of the
exercise price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such options, (ii) shares
of Common Stock owned by the optionee having a fair market value equal in
amount to the exercise price of such options, or (iii) any combination of (i)
and (ii); provided, however, that payment of the exercise price by delivery of
shares of Common Stock owned by such optionee may be made only upon the
condition that such payment does not result in a charge to earnings for
financial accounting purposes as determined by the Board, unless such condition
is waived by the Board. The fair market value of any shares of Common Stock
which may be delivered upon exercise of an option shall be determined by the
Board in accordance with Section 8 hereof.
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(b) To the extent that the right to purchase shares under an option
has accrued and is in effect, options may be exercised in full at one time or
in part from time to time, by giving written notice, signed by the person or
persons exercising the option, to the Company, stating the number of shares
with respect to which the option is being exercised, accompanied by payment in
full for such shares as provided in subparagraph (a) above. Upon such exercise,
delivery of a certificate for paid-up non-assessable shares shall be made at
the principal office of the Company to the person or persons exercising the
option at such time, during ordinary business hours, after three (3) days but
not more than ninety (90) days from the date of receipt of the notice by the
Company, as shall be designated in such notice, or at such time, place and
manner as may be agreed upon by the Company and the person or persons
exercising the option.
10. Exercise of Options and SARs.
Each option and SAR granted under the Plan shall, subject to Section
11(b) and Section 13 hereof, be exercisable at such time or times and during
such period as shall be set forth in the Agreement; provided, however, that no
option or SAR granted under the Plan shall have a term in excess of ten (10)
years from the date of grant. To the extent that an option or SAR is not
exercised when it becomes initially exercisable, it shall not expire but shall
be carried forward and shall be exercisable, on a cumulative basis, until the
expiration of the exercise period. No partial exercise may be made for less
than one hundred (100) full shares of Common Stock. The exercise of an option
shall result in the cancellation of the SAR to which it relates with respect to
the same number of shares of Common Stock as to which the option was exercised.
11. Term of Options and SARs; Exercisability.
(a) Term.
(i) Each option shall expire not more than ten (10) years
from the date of the granting thereof, except as (a) otherwise provided
pursuant to the provisions of Section 6(b) hereof, and (b) earlier termination
as herein provided.
(ii) Except as otherwise provided in this Section 11, an
option or SAR granted to any grantee who ceases to perform services for the
Company or one of its subsidiaries shall terminate three months after the date
such grantee ceases to perform services for the Company or one of its
subsidiaries, or on the date on which the option or SAR expires by its terms,
whichever occurs first.
(iii) If the grantee ceases to perform services for the
Company because of dismissal for cause or because the grantee is in breach of
any employment agreement, such option or SAR will terminate on the date the
grantee ceases to perform services for the Company or one of its subsidiaries.
(iv) If the grantee ceases to perform services for the
Company because the grantee has become permanently disabled (within the meaning
of Section 22(e)(3) of the Code), such option or SAR shall terminate twelve
months after the date such grantee ceases to perform services for the
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Company, or on the date on which the option or SAR expires by its terms,
whichever occurs first.
(v) In the event of the death of any grantee, any option or
SAR granted to such grantee shall terminate twelve months after the date of
death, or on the date on which the option or SAR expires by its terms,
whichever occurs first.
(b) Exercisability.
(i) Except as provided below, an option or SAR granted to a
grantee who ceases to perform services for the Company or one of its
subsidiaries shall be exercisable only to the extent that such option or SAR
has accrued and is in effect on the date such grantee ceases to perform
services for the Company or one of its subsidiaries.
(ii) An option or SAR granted to a grantee who ceases to
perform services for the Company or one of its subsidiaries because he or she
has become permanently disabled (as defined above) shall be exercisable with
respect to the full number of shares covered thereby, whether or not under the
provisions of Section 10 hereof the grantee was entitled to do so at the date
he or she became permanently disabled, and may be exercised by a legal
representative on behalf of the grantee.
(iii) In the event of the death of any grantee, the option or
SAR granted to such grantee may be exercised with respect to the full number of
shares covered thereby, whether or not under the provisions of Section 10
hereof the grantee was entitled to do so at the date of his or her death, by
the estate of such grantee, or by any person or persons who acquired the right
to exercise such option or SAR by bequest or inheritance or by reason of the
death of such grantee.
12. Options Not Transferable.
The right of any grantee to exercise any option or SAR granted to him
or her shall not be assignable or transferable by such grantee other than by
will or the laws of descent, and any such option or SAR shall be exercisable
during the lifetime of such grantee only by him; provided, that the Board may
permit a grantee, by expressly so providing in the related Agreement, to assign
or transfer, without consideration (and only without consideration), the right
to exercise any option or SAR granted to him or her to his or her children,
grandchildren or spouse, to trusts for the benefit of such family members and
to partnerships in which such family members are the only partners. Any option
or SAR granted under the Plan shall be null and void and without effect upon
the bankruptcy of the grantee to whom the option is granted, or upon any
attempted assignment or transfer except as herein provided, including without
limitation, any purported assignment, whether voluntary or by operation of law,
pledge, hypothecation or other disposition, attachment, trustee process or
similar process, whether legal or equitable, upon such option or SAR.
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13. Terms and Conditions of SARs.
(a) An SAR may be granted separately or in connection with an option
(either at the time of grant or at any time during the term of the option).
(b) The exercise of an SAR granted in connection with an option shall
result in the cancellation of the option to which it relates with respect to
the same number of shares of Common Stock as to which the SAR was exercised.
(c) An SAR granted in connection with an option shall be exercisable
or transferable only to the extent that such related option is exercisable or
transferable.
(d) Upon the exercise of an SAR related to an option, the holder will
be entitled to receive payment of an amount determined by multiplying:
(i) the difference obtained by subtracting the purchase price
of a share of Common Stock specified in the related option from the fair market
value of a share of Common Stock on the date of exercise of such SAR (as
determined by the Board in accordance with Section 8 hereof), by
(ii) the number of shares as to which such SAR is exercised.
(e) An SAR granted without relationship to an option shall be
exercisable as determined by the Board, but in no event after ten years from
the date of grant.
(f) An SAR granted without relationship to an option will entitle the
holder, upon exercise of the SAR, to receive payment of an amount determined by
multiplying:
(i) the difference obtained by subtracting the fair market
value of a share of Common Stock on the date the SAR was granted from the fair
market value of a share of Common Stock on the date of exercise of such SAR (as
determined by the Board in accordance with Section 8 hereof), by
(ii) the number of shares as to which such SAR is exercised.
(g) Notwithstanding subsections (d) and (f) above, the Board may limit
the amount payable upon exercise of an SAR. Any such limitation shall be
determined as of the date of grant and noted on the instrument evidencing the
SAR granted.
(h) At the discretion of the Board, payment of the amount determined
under subsections (d) and (f) above may be made either in whole shares of
Common Stock valued at their fair market value on the date of exercise of the
SAR (as determined by the Board in accordance with Section 8 hereof), or solely
in cash, or in a combination of cash and shares. If the Board decides to make
full payment in shares of Common Stock and the amount payable results in a
fractional share, payment for the fractional share shall be made in cash.
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(i) Neither an SAR nor an option granted in connection with an SAR
granted to a person subject to Section 16(b) of the Exchange Act may be
exercised before six months after the date of grant.
14. Recapitalization, Reorganization and the Like.
In the event that the outstanding shares of Common Stock are changed
into or exchanged for a different number or kind of shares or other securities
of the Company or of another corporation by reason of any reorganization,
merger, consolidation, recapitalization, reclassification, stock split-up,
combination of shares, or dividends payable in capital stock, appropriate
adjustment shall be made in accordance with Section 424(a) of the Code in the
number and kind of shares as to which options and SARs may be granted under the
Plan and as to which outstanding options and SARs or portions thereof then
unexercised shall be exercisable, to the end that the proportionate interest of
the grantee shall be maintained as before the occurrence of such event; such
adjustment in outstanding options and SARs shall be made without change in the
total price applicable to the unexercised portion of such options and SARs and
with a corresponding adjustment in the exercise price per share.
In addition, unless otherwise determined by the Board in its sole
discretion, in the case of any (i) sale or conveyance to another entity of all
or substantially all of the property and assets of the Company or (ii) Change
in Control (as hereinafter defined) of the Company, the purchaser(s) of the
Company's assets or stock may, in his, her or its discretion, deliver to the
optionee the same kind of consideration that is delivered to the stockholders
of the Company as a result of such sale, conveyance or Change in Control, or
the Board may cancel all outstanding options and SARs in exchange for
consideration in cash or in kind which consideration in both cases shall be
equal in value to the value of those shares of stock or other securities the
optionee would have received had the option been exercised (to the extent then
exercisable) and no disposition of the shares acquired upon such exercise been
made prior to such sale, conveyance or Change in Control, less the exercise
price therefor. Upon receipt of such consideration, the options and SARs shall
immediately terminate and be of no further force and effect. The value of the
stock or other securities the grantee would have received if the option had
been exercised shall be determined in good faith by the Board, and in the case
of shares of Common Stock, in accordance with the provisions of Section 8
hereof.
The Board shall also have the power and right to accelerate the
exercisability of any options or SARs, notwithstanding any limitations in this
Plan or in the Agreement upon such a sale, conveyance or Change in Control.
Upon such acceleration, any options or portion thereof originally designated as
incentive stock options that no longer qualify as incentive stock options under
Section 422 of the Code as a result of such acceleration shall be redesignated
as non-qualified stock options.
A "Change in Control" shall be deemed to have occurred if any person,
or any two or more persons acting as a group, and all affiliates of such person
or persons, who prior to such time owned less than fifty percent (50%) of the
then outstanding Common Stock, shall acquire such additional shares of Common
Stock in one or more transactions, or series of transactions, such that
following such transaction or transactions, such person or group and affiliates
beneficially own fifty percent
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(50%) or more of the Common Stock outstanding.
If by reason of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization, or liquidation, the Board shall
authorize the issuance or assumption of a stock option or stock options in a
transaction to which Section 424(a) of the Code applies, then, notwithstanding
any other provision of the Plan, the Board may grant an option or options upon
such terms and conditions as it may deem appropriate for the purpose of
assumption of the old option, or substitution of a new option for the old
option, in conformity with the provisions of such Section 424(a) of the Code
and the Regulations thereunder, and any such option shall not reduce the number
of shares otherwise available for issuance under the Plan.
No fraction of a share shall be purchasable or deliverable upon the
exercise of any option or SAR, but in the event any adjustment hereunder in the
number of shares covered by the option or SAR shall cause such number to
include a fraction of a share, such fraction shall be adjusted to the nearest
smaller whole number of shares.
15. No Special Employment Rights.
Nothing contained in the Plan or in any option or SAR granted under
the Plan shall confer upon any grantee any right with respect to the
continuation of his or her employment by the Company (or any subsidiary) or
interfere in any way with the right of the Company (or any subsidiary), subject
to the terms of any separate employment agreement to the contrary, at any time
to terminate such employment or to increase or decrease the compensation of the
grantee from the rate in existence at the time of the grant of an option or
SAR. Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined in accordance with Regulations Section 1.421-7(h)(2).
16. Withholding.
The Company's obligation to deliver shares upon the exercise of any
non-qualified option or SAR granted under the Plan shall be subject to the
option holder's satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements. The Company and optionee may agree
to withhold shares of Common Stock purchased upon exercise of an option or SAR
to satisfy the above-mentioned withholding requirements; provided, however,
that no such agreement may be made by a grantee who is an "officer" or
"director" within the meaning of Section 16 of the Exchange Act, except
pursuant to a standing election to so withhold shares of Common Stock purchased
upon exercise of an option, such election to be made not less than six months
prior to such exercise and which election may be revoked only upon six months
prior written notice.
17. Restrictions on Issuance of Shares.
(a) Notwithstanding the provisions of Section 9 hereof, the Company
may delay the issuance of shares covered by the exercise of an option or SAR
and the delivery of a certificate for such
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shares until one of the following conditions shall be satisfied:
(i) The shares with respect to which such option or SAR has
been exercised are at the time of the issue of such shares effectively
registered or qualified under applicable Federal and state securities acts now
in force or as hereafter amended; or
(ii) Counsel for the Company shall have given an opinion,
which opinion shall not be unreasonably conditioned or withheld, that such
shares are exempt from registration and qualification under applicable Federal
and state securities acts now in force or as hereafter amended.
(b) It is intended that all exercises of options and SARs shall be
effective, and the Company shall use its best efforts to bring about compliance
with the above conditions, within a reasonable time, except that the Company
shall be under no obligation to qualify shares or to cause a registration
statement or a post-effective amendment to any registration statement to be
prepared for the purpose of covering the issue of shares in respect of which
any option may be exercised, except as otherwise agreed to by the Company in
writing.
18. Purchase for Investment; Rights of Holder on Subsequent Registration.
Unless the shares to be issued upon exercise of an option or SAR
granted under the Plan have been effectively registered under the Securities
Act of 1933, as amended (the "1933 Act"), the Company shall be under no
obligation to issue any shares covered by any option or SAR unless the person
who exercises such option, in whole or in part, shall give a written
representation and undertaking to the Company which is satisfactory in form and
scope to counsel for the Company and upon which, in the opinion of such
counsel, the Company may reasonably rely, that he or she is acquiring the
shares issued pursuant to such exercise of the option or SAR for his or her own
account as an investment and not with a view to, or for sale in connection
with, the distribution of any such shares, and that he or she will make no
transfer of the same except in compliance with any rules and regulations in
force at the time of such transfer under the 1933 Act, or any other applicable
law, and that if shares are issued without such registration, a legend to this
effect may be endorsed upon the securities so issued.
In the event that the Company shall, nevertheless, deem it necessary
or desirable to register under the 1933 Act or other applicable statutes any
shares with respect to which an option or SAR shall have been exercised, or to
qualify any such shares for exemption from the 1933 Act or other applicable
statutes, then the Company may take such action and may require from each
grantee such information in writing for use in any registration statement,
supplementary registration statement, prospectus, preliminary prospectus or
offering circular as is reasonably necessary for such purpose and may require
reasonable indemnity to the Company and its officers and directors from such
holder against all losses, claims, damages and liabilities arising from such
use of the information so furnished and caused by any untrue statement of any
material fact therein or caused by the omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made.
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19. Loans.
At the discretion of the Board, the Company may loan to the optionee
some or all of the purchase price of the shares acquired upon exercise of an
option granted under the Plan.
20. Modification of Outstanding Options and SARs.
Subject to limitations contained herein, the Board may authorize the
amendment of any outstanding option or SAR with the consent of the grantee when
and subject to such conditions as are deemed to be in the best interests of the
Company and in accordance with the purposes of the Plan.
21. Approval of Stockholders.
The Plan shall be subject to approval by a majority vote of the
stockholders of the Company voting in person or by proxy. The Plan became
effective on June 24, 1999 by resolution of the Board. The Board may grant
options and SARs under the Plan prior to such stockholder approval, but any
such option shall become effective as of the date of grant only upon such
approval and, accordingly, no such option may be exercisable prior to such
approval.
22. Termination and Amendment of Plan.
Unless sooner terminated as herein provided, the Plan shall terminate
on June 23, 2009. The Board may at any time terminate the Plan or make such
modification or amendment thereof as it deems advisable; provided, however,
that (i) the Board may not, without approval by a majority vote of the
stockholders of the Company, increase the maximum number of shares for which
options and SARs may be granted or change the designation of the class of
persons eligible to receive options and SARs under the Plan, and (ii) any such
modification or amendment of the Plan shall be approved by a majority vote of
the stockholders of the Company to the extent that such stockholder approval is
necessary to comply with applicable provisions of the Code, rules promulgated
pursuant to Section 16 of the Exchange Act, applicable state law, or applicable
National Association of Securities Dealers, Inc. or exchange listing
requirements. Termination or any modification or amendment of the Plan shall
not, without the consent of an optionee, affect his or her rights under an
option or SAR theretofore granted to him or her.
23. Limitation of Rights in the Underlying Shares.
A holder of an option or SAR shall not be deemed for any purpose to be
a stockholder of the Company with respect to such option or SAR except to the
extent that such option or SAR shall have been exercised with respect thereto
and, in addition, a stock certificate shall have been issued theretofore and
delivered to the holder.
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24. Notices.
Any communication or notice required or permitted to be given under
the Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: Chairman, and, if to the holder of an option or SAR, to the address
as appearing on the records of the Company.
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Exhibit 10.2(b)
WAIVER NO. 3 AND CONSENT NO. 1
WAIVER NO. 3 AND CONSENT NO. 1, dated as of June 30, 1999 (this
"Waiver"), 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
Capitalized terms used herein and not defined herein shall have the
meanings assigned to such terms in the Credit Agreement.
The Borrower was in default of its obligations under Section 7.11(c)
of the Credit Agreement during the period from and including April 1, 1999,
through and including June 30, 1999 (the "7.11(c) Default"). The Borrower has
requested that the Agent agree to waive the 7.11(c) Default and any Event of
Default arising solely therefrom.
The Borrower has also requested the consent of the Agent to allow the
Leverage Ratio to exceed the maximum permitted levels therefor set forth in
Section 7.11(c).
The Agent is willing to agree to the waiver and grant the consent
referred to above.
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 agree as follows:
The Agent waives the 7.11(c) Default and any Event of Default arising
solely therefrom.
The Agent agrees that during the period commencing on July 1, 1999 and
ending on August 9, 1999, the Leverage Ratio may exceed the maximum permitted
levels therefor set forth in Section 7.11(c), provided that the Leverage Ratio
does not exceed 7.25:1.00 during such period.
Paragraphs 1 and 2 hereof shall not be effective until such time as
Required Lenders and each of the Guarantors shall have consented hereto in
writing.
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 Waiver, no Event of 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 in all material respects 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
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Waiver No. 3 and Consent No. 1 - Insight Communications Company, L.P.
earlier date, in which case such representations and warranties shall have been
true and correct on and as of such earlier date.
In all other respects, the Loan Documents shall remain in full force
and effect, and no waiver or consent in respect of any term or condition of any
Loan Document shall be deemed to be a waiver or consent in respect of any other
term or condition contained in any Loan Document.
This Waiver may be executed in any number of counterparts all of
which, when taken together, shall constitute one agreement. In making proof of
this Waiver, it shall only be necessary to produce the counterpart executed and
delivered by the party to be charged.
THIS WAIVER IS BEING EXECUTED AND DELIVERED IN, AND IS INTENDED TO BE
PERFORMED IN, THE STATE OF NEW YORK AND SHALL BE 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.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver 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:
2
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Waiver No. 3 and Consent No. 1 - Insight Communications Company, L.P.
THE BANK OF NEW YORK,
individually, as Issuing Bank and as Agent
By:
Name:
Title:
3
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Waiver No. 3 and Consent No. 1 - Insight Communications Company, L.P.
CIBC INC.,
individually and as Co-Agent
By:
Name:
Title: Executive Director,
CIBC Oppenheimer Corp.,
As Agent
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Waiver No. 3 and Consent No. 1 - Insight Communications Company, L.P.
FLEET BANK, N.A.,
individually and as Co-Agent
By:
Name:
Title:
5
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Waiver No. 3 and Consent No. 1 - Insight Communications Company, L.P.
BANK OF MONTREAL
By:
Name:
Title:
6
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Waiver No. 3 and Consent No. 1 - Insight Communications Company, L.P.
BANKBOSTON, N.A.
By:
Name:
Title:
7
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Waiver No. 3 and Consent No. 1 - Insight Communications Company, L.P.
PNC BANK, NATIONAL ASSOCIATION
By:
Name:
Title:
8
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Waiver No. 3 and Consent No. 1 - Insight Communications Company, L.P.
BANKERS TRUST COMPANY
By:
Name:
Title:
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Waiver No. 3 and Consent 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:
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AMENDMENT NO. 3
AMENDMENT NO. 3, dated as of July 1, 1999 (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 or 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 proposed to engage in a series of transactions as
follows:
A. Corporate Restructuring. The Borrower will undergo a
corporate restructuring pursuant to which holders of partnership
interests in the Borrower would exchange those interests for shares of
common stock of Insight Communications Company, Inc., a Delaware
corporation ("Insight Holdings"), resulting in the Borrower being a
direct or indirect wholly-owned subsidiary of Insight Holdings
(collectively, the "Corporate Restructuring").
B. IPO. Immediately after or concurrently with the Corporate
Restructuring, Insight Holdings will consummate an initial public
offering of shares of its common stock (the "IPO").
C. Employee Loans. The Borrower has represented to the Agent
and the Lenders that it has existing, non-contingent obligations to
certain of its employees (the "Vested Employees"). Substantially
simultaneously with the Corporate Restructuring and the IPO, the
Vested Employees will be given shares of common stock of Insight
Holdings in satisfaction of such obligations. The Borrower has
represented to the Agent and the Lenders that the Vested Employees
will have to treat the receipt of such shares as "ordinary income" for
income tax purposes. The Borrower desires to give each Vested Employee
the option of obtaining a loan from the Borrower in an amount up to
the federal, state and local income tax liability of such Vested
Employee attributable to its receipt of such shares.
III. In connection with the foregoing, 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:
<PAGE>
Insight Communications Company, L.P. - Amendment No.3
1. Section 1.1 of the Credit Agreement is amended by adding the
following paragraph to the end thereof:
Each of the following terms shall have the meaning set forth
in Amendment No. 3, dated as of July 1, 1999, to the Credit Agreement
("Amendment No. 3"):
"Corporate Restructuring"
"Insight Holdings"
"IPO"
2. Section 1.1 of the Credit Agreement is amended by adding the
following defined terms thereto in alphabetical order:
"Control Group": collectively, Knafel and his Family Group,
Willner and his Family
Group and Kim D. Kelly and her Family Group.
"Knafel": as defined in Section 9.1(n).
"Willner": as defined in Section 9.1(n).
3. On the fourth business day following the IPO, each of the following
shall occur both simultaneously and automatically:
(a) 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:
2
<PAGE>
Insight Communications Company, L.P. - Amendment No.3
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%
------------------------------------------------------------
(b) 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 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.
(c) Section 7.11(c) of the Credit Agreement is amended and
restated in its entirety 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 June 30, 2000 6.00:1.00
-------------------------------------------------------------
-------------------------------------------------------------
July 1, 2000 through December 31, 2000 5.50:1.00
-------------------------------------------------------------
3
<PAGE>
Insight Communications Company, L.P. - Amendment No.3
-------------------------------------------------------------
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
-------------------------------------------------------------
4. Section 8.5(d) of the Credit Agreement is amended and restated in
its entirety as follows:
(d) the following:
(i) loans to Vested Employees, in an aggregate
principal amount not in excess of $20,000,000 at any one time
outstanding, provided that (A) no such loan to a Vested Employee shall
be in a sum in excess of an amount equal to the number of shares of
common stock of Insight Holdings received by such Vested Employee at
the time of the IPO multiplied by the offering price per share thereof
in the IPO multiplied by 45.0%, and (B) each such loan shall at all
times be (1) evidenced by a promissory note of the relevant Vested
Employee, and (2) made and maintained in accordance with Regulation U
of the Board of Governors of the Federal Reserve System, and
(ii) expense advances on behalf of Affiliates (other
than Insight Holdings and its subsidiaries), in an aggregate
outstanding principal amount not to exceed $5,000,000 at any one time;
5. Section 9.1(n) of the Credit Agreement is amended by inserting the
following immediately before the phrase "any one or more of the following shall
occur":
(T) the IPO shall not have occurred within one business day after the
Corporate Restructuring, (U) at any time after the Corporate
Restructuring, the Borrower shall cease to be, directly or indirectly,
a wholly-owned Subsidiary of Insight Holdings, (V) any of the shares
of capital stock of the Borrower shall be subject to any Lien (other
than Liens by operation of law in the ordinary course of business of
Insight Holdings), (W) Insight Holdings shall not have contributed at
least $70,000,000 to the Borrower, in the form of equity capital from
the proceeds of the IPO, on or before the fourth business day
following the IPO, (X) the Borrower shall not have prepaid the Loans
by at least $70,000,000 on or before the fourth business day following
the IPO, (Y) at any time after the Corporate Restructuring, the
Control Group shall fail to (1) beneficially own shares of the issued
and outstanding common stock of Insight Holdings representing at least
51.0% of the voting interests of all shareholders of Insight Holdings,
voting as a single class, free and clear of all Liens (other than by
operation of law) or (2) have the ability to elect a majority of the
board of directors of Insight Holdings (subject to existing
obligations of the Control Group to Vestar Capital Partners III, L.P.)
to cause the election of not fewer than two directors thereof
designated by Vestar Capital Partners III, L.P., or (Z) at any time
before the Corporate Restructuring
4
<PAGE>
Insight Communications Company, L.P. - Amendment No.3
6. Paragraphs 1 through 5 hereof shall not be effective until such
time as (a) the Borrower shall have paid to the Agent, for the account of each
Lender that executes and delivers this Amendment to the Agent on a timely
basis, an amendment fee in an amount equal to 0.05% of the Commitment Amount of
such Lender, and (b) Required Lenders and each of the Guarantors shall have
consented hereto in writing.
7. 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 Event of 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 in all material respects 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.
8. 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.
9. 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.
10. THIS AMENDMENT IS BEING EXECUTED AND DELIVERED IN, AND IS INTENDED
TO BE PERFORMED IN, THE STATE OF NEW YORK AND SHALL BE 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.
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:
5
<PAGE>
Insight Communications Company, L.P. - Amendment No.3
Name:
Title:
6
<PAGE>
Insight Communications Company, L.P. - Amendment No.3
THE BANK OF NEW YORK,
individually, as Issuing Bank and as Agent
By:
Name:
Title:
7
<PAGE>
Insight Communications Company, L.P. - Amendment No.3
CIBC WORLD MARKETS CORP.,
individually and as Co-Agent
By:
Name:
Title:
8
<PAGE>
Insight Communications Company, L.P. - Amendment No.3
FLEET BANK, N.A.,
individually and as Co-Agent
By:
Name:
Title:
9
<PAGE>
Insight Communications Company, L.P. - Amendment No.3
BANK OF MONTREAL
By:
Name:
Title:
10
<PAGE>
Insight Communications Company, L.P. - Amendment No.3
BANKBOSTON, N.A.
By:
Name:
Title:
11
<PAGE>
Insight Communications Company, L.P. - Amendment No.3
PNC BANK, NATIONAL ASSOCIATION
By:
Name:
Title:
12
<PAGE>
Insight Communications Company, L.P. - Amendment No.3
BANKERS TRUST COMPANY
By:
Name:
Title:
13
<PAGE>
Insight Communications Company, L.P. - Amendment No.3
acknowledged and consented to:
INSIGHT FINANCE CORPORATION
By:
Name:
Title:
INSIGHT HOLDINGS OF OHIO, LLC
By:
Name:
Title:
14
<PAGE>
Page 1
July 16, 1999
Insight Communications Company, L.P.
126 East 56th Street, 33rd Floor
New York, NY 10022
Attention: Michael S. Willner
Dear Michael:
Reference is hereby made to that certain letter agreement (the
"Letter Agreement") and Securityholders Agreement (the "Securityholders
Agreement" and, together with the Letter Agreement, the "Prior Agreements") each
dated May 11, 1999 among the parties listed below as signatories to this letter.
Capitalized terms used but not otherwise defined herein shall have the
respective meanings ascribed thereto in the Letter Agreement. By signing this
letter below, the parties hereby agree as follows:
1. By its execution below, Insight hereby joins as a party to
the Letter Agreement and agrees to be bound by the terms and provisions thereof.
The other parties hereto hereby consent to such joinder of the Letter Agreement
by Insight.
2. The first sentence of paragraph 2 of the Letter Agreement is
hereby modified to the extent that the shares of Common Stock will be issued by
Insight directly to the holders of Class B Units of the Partnership, rather than
being distributed by the Partnership to such holders.
3. Paragraph 4 of the Letter Agreement is hereby amended by
deleting the words "three percent (3%)" and inserting in lieu thereof the words
"six percent (6%)".
4. Section 1.4 of the Securityholders Agreement contemplates
modification of Exhibit A thereto immediately prior to the closing of the IPO.
Accordingly, Exhibit A hereto shall modify and supersede the existing said
Exhibit A to the Securityholders Agreement. As the Securityholders Agreement
reflects the persons listed on said Exhibit A as parties to the Securityholders
Agreement, the attached Exhibit A has been signed by each of such persons who
thereby join as party to the Securityholders Agreement and agree to be bound by
the terms and provisions thereof. The other parties hereto hereby consent to
such joinder of the Securityholders Agreement by such persons.
5. Section 1.2(d) of the Securityholders Agreement is hereby
amended by inserting the following immediately prior to the period at the end
thereof: "; and the Company shall have filed on the closing date of the IPO with
the Secretary of State of the State of Delaware a Restated Certificate of
Incorporation in substantially the form attached hereto as Exhibit B, and
<PAGE>
Page 2
the Company may not amend the provisions of Article Nine or the provisions of
Sections 5.2 or 5.3 thereof without the prior written consent of Vestar." The
Securityholders Agreement is hereby further amended to attach Exhibit B hereto
as said Exhibit B to the Securityholders Agreement.
6. The parties understand that in connection with the exchange
of shares of Common Stock for Class B Units contemplated by the Letter
Agreement, Vestar and certain other parties hereto (collectively, the "H-S-R
Filers") have made certain filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "Act"). Any shares of Common Stock to
be issued to an H-S-R Filer pursuant to the exchange shall be held by Insight
until such time as (i) such H-S-R Filer or its counsel notifies you of its
reasonable satisfaction that such H-S-R Filer's acquisition of shares of Common
Stock (the "Shares") is not reportable under the Act, (ii) the applicable
waiting period(s) under the Act have expired or been terminated without the
entry of any order, decree or injunction (an "Order") that prohibits such H-S-R
Filer from holding the Shares, or (iii) such an Order has been entered and such
H-S-R Filer has made arrangements to dispose of the Shares in accordance
therewith. Pending the occurrence of one of the events referred to in the
preceding sentence, (a) an H-S-R Filer will not be permitted to exercise any
right of ownership in respect of the Shares (including without limitation the
right to vote the Shares), with Vestar's rights under Article II of the
Securityholders Agreement to be inoperative and of no force and effect, and (b)
any and all dividends or other distributions in respect of the Shares will be
held by Insight for the benefit of such H-S-R Filer and will be distributed to
such H-S-R Filer upon the occurrence of one of the events referred to in the
preceding sentence. Notwithstanding the foregoing, an H-S-R Filer or its counsel
may notify Insight of its reasonable satisfaction that such H-S-R Filer's
acquisition of a specified portion of the Shares is not reportable under the
Act, in which event such H-S-R Filer may arrange with Insight for the release of
the specified portion of the Shares.
7. Except as so modified, the terms and provisions of the Prior
Agreement shall remain unchanged and shall continue to be in full force and
effect.
8. This letter agreement will be governed by the laws of the
State of New York, without regard to conflict principles.
9. 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]
<PAGE>
Page 3
The parties hereto have caused this letter 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, INC.
By:
Name:
Title:
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
<PAGE>
Page 4
Michael S. Willner
Kim D. Kelly
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
<PAGE>
Page 5
By:
Name: Edward Grinacoff
Title: President
<PAGE>
Page 6
EXHIBIT A
Name No. of Shares Signature
SENIOR MANAGEMENT SECURITYHOLDERS
Sidney R. Knafel................... -------------------
Michael S. Willner................. -------------------
Kim D. Kelly....................... -------------------
James S. Marcus.................... -------------------
Steven E. Sklar.................... -------------------
James A. Stewart................... -------------------
E. Scott Cooley.................... -------------------
Pamela Euler Halling............... -------------------
Charles E. Dietz................... -------------------
Daniel Mannino..................... -------------------
Gregory B. Graff................... -------------------
Colleen Quinn...................... -------------------
William Gilbert.................... -------------------
Susane Newell...................... -------------------
<PAGE>
Page 7
Elizabeth Grier.................... -------------------
EXHIBIT A (CONTINUED)
Judy Poole......................... -------------------
Mary E. Rhodes..................... -------------------
Heather Wright..................... -------------------
Laurie Urias Gehris................ -------------------
Robert L. Winikoff, Trustee of the Matthew
S. Willner 1998 Trust U/A 11/2/98
Robert L. Winikoff, Trustee of the Danielle
A. Willner 1998 Trust U/A 11/2/98
KNAFEL ENTITIES:
ICI Communications, Inc.................. -------------------
The Estate of Susan R. Knafel ........... -------------------
Andrew G. Knafel ........................ -------------------
Andrew G. Knafel, Joshua Rubenstein and William L.
Scherlis, Trustees U/A 11/6/83 FBO Douglas R. Knafel. -------------------
Andrew G. Knafel, Joshua Rubenstein and William L.
Scherlis, Trustees U/A 9/13/78 FBO Andrew G. Knafel. -------------------
Andrew G. Knafel, Joshua Rubenstein and William L.
Scherlis, Trustees U/A 9/13/78 FBO Douglas R. Knafel. -------------------
Andrew G. Knafel, Joshua Rubenstein and William L.
<PAGE>
Page 8
Scherlis, Trustees U/A 7/16/76 FBO Andrew G. and
Douglas Knafel.......................... -------------------
<PAGE>
Exhibit 10.15
CONFIRMATION OF DISTRIBUTIONS
Confirmation of Distributions made as of the 7th day of July, 1999 by
ICI Communications, Inc. ("ICI"), having an office at 126 East 56th Street, New
York, New York 10022.
RECITALS
ICI is the sole general partner of ICC Associates, L.P. ("ICC"), a
Delaware limited partnership; and
ICC is the sole general partner of Insight Communications Company,
L.P. ("Insight L.P."), a Delaware limited partnership; and
Insight Communications Company, Inc. ("ICCI"), a Delaware corporation,
has commenced an offer to exchange shares of its common stock, $.01 per value
(the "Common Stock") for outstanding partnership interests in Insight L.P. for
purposes of facilitating an initial public offering (the "IPO") of ICCI; and
In connection with the IPO, ICC will receive Common Stock in exchange
for its partnership interests in Insight L.P.; and
The parties listed on Exhibits A, B and C hereto have partnership
interests in ICC and/or are parties to written or oral agreements with ICI and
Michael S. Willner, President of ICI, pursuant to which such parties are
entitled to receive shares of the Common Stock to be received by ICC upon the
Closing of the IPO; and
The parties listed on Exhibits A, B and C hereto collectively are
entitled to all of the shares of Common Stock to be received by ICC upon the
Closing of the IPO; and
ICI desires to confirm the number of shares of Common Stock
distributable to all of the parties as listed on Exhibits A, B and C, in
satisfaction of all of their respective interests as described in the fifth
recital above, upon the Closing of the IPO, provided such Closing occurs prior
to January 31, 2000.
CONFIRMATION
ICI hereby confirms to each of the parties listed on Exhibits A, B and
C that:
1. Each of the parties listed on Exhibit A hereto are
entitled to receive, and shall receive, upon the Closing of the IPO,
that number of shares of Common Stock set forth next to such party's
name, such shares of Common Stock being the shares to be received by
ICC in
<PAGE>
connection with the IPO attributable to ICC's general partnership
interest in Insight L.P. (other than (i) shares of Common Stock to be
received by ICC attributable to Class A Units (as such terms is
defined in the partnership agreement of Insight L.P.) and (ii) shares
of Common Stock to be received by ICC attributable to Class B Units
(as such term is defined in the partnership agreement of Insight
L.P.).
2. The parties listed on Exhibit B hereto are entitled to
receive, and shall receive, upon the Closing of the IPO, that number
of shares of Common Stock set forth next to such party's name, such
shares of Common Stock being shares to be received by ICC in
connection with the IPO attributable to Class B Units (as such term is
defined in the partnership agreement of Insight L.P.).
3. The party listed on Exhibit C hereto is entitled to
receive, and shall receive, upon the Closing of the IPO, that number
of shares of Common Stock set forth next to its name, such shares of
Common Stock being shares to be received by ICC in connection with the
IPO attributable to Class A Units (as such term is defined in the
partnership agreement of Insight L.P.).
4. ICI acknowledges that, prior to the Closing of the IPO,
the number of shares of Common Stock determined to be distributable to
ICC may change as a result of a change in the valuation of Insight
L.P. ICI confirms that , in such event, ICI will amend Exhibits A, B
and C to reflect to revised number of shares of Common Stock
distributable to the parties listed on Exhibit A, B and C hereof, as a
result of such change.
IN WITNESS WHEREOF, this Confirmation of Distributions has been
executed by ICI as of the date and year first above written.
ICI COMMUNICATIONS, INC.
By:
-----------------------
Its:
-----------------------
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
Insight Communications Company, L.P., a Delaware limited partnership - Insight
Communications Company, L.P. will become a subsidiary of Registrant upon the
closing of Registrant's initial public offering
Insight Holdings of Ohio, LLC, a Delaware limited liability company -
Registrant directly owns 100% of the common equity of Insight Holdings of Ohio,
LLC
Insight Communications of Central Ohio, LLC, a Delaware limited liability
company - Registrant indirectly owns 75% of the non-voting common equity of
Insight Communications of Central Ohio, LLC
Insight Communications of Indiana, LLC, a Delaware limited liability company -
Registrant directly owns 50% of the common equity and has management control
of Insight Communications of Indiana, LLC
ICI Holdings, LLC, a Delaware limited liability company - Registrant directly
owns 100% of the common equity of ICI Holdings, LLC
<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
July 13, 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
July 13, 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
July 13, 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
July 13, 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,
July 13, 1999.
<PAGE>
Exhibit 23.6
CONSENT
The undersigned hereby consents to being named a nominee to become a
member of the board of directors of Insight Communications Company, Inc.
("Insight") upon the completion of Insight's public offering in Insight's
Registration Statement on Form S-1 (File No.: 333-78293).
/s/ Thomas L. Kempner
-------------------------
Name: Thomas L. Kempner
Dated: July 8, 1999
<PAGE>
Exhibit 23.7
CONSENT
The undersigned hereby consents to being named a nominee to become a
member of the board of directors of Insight Communications Company, Inc.
("Insight") upon the completion of Insight's public offering in Insight's
Registration Statement on Form S-1 (File No.: 333-78293).
/s/ James S. Marcus
---------------------------
Name: James S. Marcus
Dated: July 12, 1999
<PAGE>
Exhibit 23.8
CONSENT
The undersigned hereby consents to being named a nominee to become a
member of the board of directors of Insight Communications Company, Inc.
("Insight") upon the completion of Insight's public offering in Insight's
Registration Statement on Form S-1 (File No.: 333-78293).
/s/ Daniel S. O'Connell
----------------------------
Name: Daniel S. O'Connell
Dated: July 9, 1999
<PAGE>
Exhibit 23.9
CONSENT
The undersigned hereby consents to being named a nominee to become a
member of the board of directors of Insight Communications Company, Inc.
("Insight") upon the completion of Insight's public offering in Insight's
Registration Statement on Form S-1 (File No.: 333-78293).
/s/ Prakash A. Melwani
--------------------------
Name: Prakash A. Melwani
Dated: July 8, 1999
