<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 11, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Class A Common Stock, $.01 par value per share.......................... $517,500,000.00 $143,865
</TABLE>
(1) Estimated pursuant to Rule 457(o) under the Securities Act of 1933 solely
for the purpose of calculating the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 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--MAY 11, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
, 1999
INSIGHT COMMUNICATIONS COMPANY, INC.
[LOGO]
,000,000 SHARES OF CLASS A COMMON STOCK
- --------------------------------------------------------------------------------
INSIGHT COMMUNICATIONS COMPANY, INC.:
o Based on customers served, we are currently the 10th largest cable television
system operator in the United States 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.
o We own, operate and manage cable television systems serving approximately
1,046,000 customers in six states, with approximately 98% of our customers
clustered in Indiana, Kentucky, Ohio and Illinois, on a pro forma basis.
o We operate a state-of-the-art, highly clustered set of cable television
systems that allows us to offer our customers an array of entertainment,
information and telecommunication services on a bundled basis.
o Insight Communications Company, Inc.
126 East 56th Street
New York, New York 10022
(212) 371-2266
PROPOSED SYMBOL & MARKET:
o ICCIA/Nasdaq National Market
THE OFFERING:
o We are offering ,000,000 shares of our Class A common stock.
o The underwriters have an option to purchase an additional ,000,000 shares
from us to cover over-allotments.
o We currently estimate that the price of the shares will be between $ and
$ .
o This is our initial public offering and no public market currently exists for
our shares.
o We intend to use the net proceeds from this offering to finance: (a) the
acquisition of the Kentucky cable television systems; (b) the introduction of
new and enhanced products and services for our customers; (c) an equity
investment in our telephone joint venture with AT&T; (d) other strategic
acquisitions; and (e) general corporate activities.
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 % of our total voting power.
<TABLE>
<CAPTION>
<S> <C> <C>
PER SHARE TOTAL
Public offering price: $ $
Underwriting fees:
Proceeds to Insight:
THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 12.
</TABLE>
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
MORGAN STANLEY DEAN WITTER
CIBC WORLD MARKETS
DEUTSCHE BANK SECURITIES
The undersigned is facilitating Internet distribution.
DLJDIRECT INC.
<PAGE>
[MAP SHOWING INSIGHT'S SERVICE AREA]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 12
Use of Proceeds................................ 19
Dividend Policy................................ 19
Capitalization................................. 20
Dilution....................................... 22
Pro Forma Financial Statements................. 23
Selected Consolidated Historical Financial and
Other Data................................... 29
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 31
Industry....................................... 37
Business....................................... 39
Legislation and Regulation..................... 61
<CAPTION>
PAGE
----
<S> <C>
Management..................................... 70
Certain Transactions........................... 75
Principal Stockholders......................... 75
Corporate Structure............................ 76
Description of Recent Transactions............. 77
Description of Certain Indebtedness............ 81
Description of Capital Stock................... 84
Shares Eligible for Future Sale................ 86
Underwriters................................... 88
Legal Matters.................................. 91
Experts........................................ 91
Available Information.......................... 91
Glossary....................................... 92
Index to Financial Statements.................. F-1
</TABLE>
------------------------
As used in this prospectus,
o "National Systems" refers to the cable television systems wholly-owned and
operated by us, which consist of the Rockford, Illinois system, the Griffin,
Georgia system, the Claremont, California system, the Scottsburg, Indiana
system and the Portland, Indiana system;
o "Columbus System" refers to the cable television system of Insight
Communications of Central Ohio, LLC ("Insight Ohio"), in which we own a 75%
non-voting equity interest and serve as manager;
o "Indiana Systems" refers to the cable television systems of Insight
Communications of Indiana, LLC ("Insight Indiana"), in which we own a 50%
equity interest and serve as manager;
o "Kentucky Systems," refers to the TCI IPVI Systems prior to April 30, 1998 and
to the cable television systems of InterMedia Capital Partners VI, L.P.
("InterMedia VI") 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 (the "Kentucky Acquisition"); and
o "Managed Indiana Systems" refers to the cable television systems in Indiana
which are being acquired by an affiliate of AT&T Broadband & Internet Services
("AT&T BIS") and for which we will provide certain consulting services,
subject to the ultimate control of AT&T BIS.
All references to our performance "on a pro forma basis" give effect to our
systems, the Kentucky Acquisition and, except in the technical discussion of
headends, network miles, fiber nodes, network capacity and density, the
provision of consulting services to the Managed Indiana Systems as if acquired
or serviced at the beginning of the related period or as of the applicable date,
and to adjustments made to our historical financial statements that present our
financial information as if shares of common stock, rather than limited
partnership interests, were outstanding and as if we were taxed as a C
corporation in all periods presented.
"Pro forma proportional basis revenues" and "pro forma proportional basis
EBITDA" represent our ownership interest in the National, Columbus, Indiana and
Kentucky Systems as if acquired at the beginning of the applicable period or as
of the applicable date. Pro forma proportional basis revenues and pro forma
proportional basis EBITDA are not intended to be performance measures that
should be regarded as an alternative to, or more meaningful than our net income
as determined in accordance with generally accepted accounting principles. We
have included pro forma proportional basis revenues and pro forma proportional
basis EBITDA as we believe that some analysts will find such information useful
in evaluating us.
Unless otherwise specified, all cable television industry statistical data
in this prospectus are from Paul Kagan & Associates, a leading cable television
industry publisher.
<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 consummation 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 10th largest cable television system operator in the United
States based on customers served, with approximately 1,046,000 customers as of
December 31, 1998, on a pro forma basis. 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, high-speed data access and telephony 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.
As of December 31, 1998, on a pro forma basis, our systems:
o passed 1,624,477 homes
o served 1,045,612 customers
For the year ended December 31, 1998, we had:
on a pro forma basis:
o revenues of $375.7 million
o EBITDA of $178.6 million
on a pro forma proportional basis:
o revenues of $244.5 million
o EBITDA of $112.2 million
Cable companies, including ours, currently are expanding their channel
offerings, adding digital video services, offering high-speed data services for
access to the Internet and beginning to offer voice telephony to residential and
business customers. Each of these businesses represents a significant
opportunity to increase the number of customers, and the revenues and cash flows
generated over the cable platform. For the United States cable industry, as
reported by Paul Kagan & Associates, the number of digital service customers is
projected to increase to approximately 44.1 million by 2008 (representing a
penetration of 42.2% of the homes passed). The number of high-speed data
customers is projected to increase to approximately 15.2 million by 2008
(representing a penetration of 18.0% of the homes that have been marketed this
service). The number of residential telephony customers is projected to increase
to approximately 19.6 million by 2008 (representing a penetration of 24.0% of
the homes that have been marketed this service). Revenues from the combined,
advanced broadband network services are estimated to increase to $42.4 billion,
representing 43.8% of the cable industry's revenues in 2008, up from $910
million, or 2.8%, in 1998.
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 resulting in higher customer satisfaction, higher penetration and reduced
churn. 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.
3
<PAGE>
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 penetration 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 bandwidth with two-way active capability. We have rebuilt approximately 28%
of our network miles as of March 31, 1999 on a pro forma basis and intend to
have approximately 71% of our network at or above 750 MHz by the end of 1999. We
intend to complete our network rebuild in 2000 having invested a total of
approximately $233.8 million.
BUSINESS STRATEGY
Our management team developed and is executing a clear strategy to become a
competitive, full-service provider of entertainment, information and
telecommunication services. We developed this strategy because we recognize the
opportunities presented by new technology, the strength of our market
characteristics and favorable changes in the regulatory environment.
Our operating strategy is centered on the development of new and enhanced
products and services for the communities served by our networks and consists of
the following elements:
o Focus on operating clusters with attractive technical and demographic
profiles;
o Expeditiously rebuild our broadband 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.
BUSINESS BACKGROUND
Sidney R. Knafel and Michael S. Willner co-founded Insight in 1985 as a
partnership with a small group of investors, including 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 BIS, 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 BIS 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, LP 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.
Our management team has significant experience in the cable television
industry, with senior management averaging 21 years of experience in the
industry. This senior management team will collectively own approximately %
of the common stock after this offering. Besides its experience in domestic
cable operations, our management team also has the benefit of an extensive
involvement with the deployment of bundled telecommunications services including
cable telephony in the United Kingdom. Messrs. Knafel and Willner formed Insight
Communications Company UK, L.P. in 1989, which at the time of its merger with a
predecessor of NTL, had approximately 1.4 million homes under franchise. NTL is
currently one of the three largest operators of local broadband
telecommunications systems in the United Kingdom with over 5 million homes in
its franchised areas. Messrs. Knafel and Willner are active board members of
NTL.
4
<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 and for the
year ended December 31, 1998 (except as otherwise indicated). See "--Summary Pro
Forma Combined Financial and Other Data."
SELECTED TECHNICAL, OPERATING AND FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MANAGED
NATIONAL COLUMBUS INDIANA KENTUCKY INDIANA
SYSTEMS(1) SYSTEM(2) SYSTEMS(3) SYSTEMS(4) SYSTEMS(5)
---------- ----------- -------- -------- --------
TECHNICAL DATA:
<S> <C> <C> <C> <C> <C>
Network miles.......................... 1,727 2,644 7,422 8,052
Number of headends..................... 5 1 45 18
Number of headends expected as of March
31, 2000(6)......................... 5 1 11 4
Number of headends serving 90% of our
customers expected as of March 31,
2000(6)............................. 2 1 3 4
OPERATING DATA:
Homes passed........................... 148,864 171,753 493,482 650,734 159,644
Basic customers........................ 86,917 87,637 334,026 424,215 112,817
Basic penetration...................... 58.4% 51.0% 67.7% 65.2% 70.7%
Premium units.......................... 92,521 90,032 231,372 347,005 44,596
Premium penetration.................... 106.4% 102.7% 69.3% 81.8% 39.5%
Number of addressable homes............ 30,532 73,362 75,850 130,799 22,000
FINANCIAL DATA:
Revenues............................... $41,314 $47,956 $138,861 $195,507 $ 48,800
EBITDA(7).............................. 18,360 18,261 74,508 85,763
EBITDA margin.......................... 44.4% 38.1% 53.7% 43.9%
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) Represents the National Systems, including the Rockford system, which was
acquired on January 22, 1998. Includes the financial data of the Scottsburg
system and the Portland system, which are wholly-owned by us. The technical,
operating and other data of the Scottsburg and Portland systems are included
with the Indiana Systems since they are managed by Insight Indiana.
(2) Represents the Columbus System, which was acquired by Insight Ohio on
August 21, 1998. The results of operations of the Columbus System are not
consolidated since we do not have voting control. See "Description of Recent
Transactions--The Transactions to Acquire the Columbus System."
(3) Represents the Indiana Systems, which were contributed to Insight Indiana on
October 31, 1998. Also includes the technical, operating and other data of
the Scottsburg system, which was acquired on March 22, 1999, and the
Portland system, which was acquired on March 31, 1999, since they are
managed by Insight Indiana. The financial data of the Scottsburg and
Portland systems are included with the National Systems since they are
wholly-owned by us. See "Description of Recent Transactions--The
Transactions to Acquire the Indiana Systems."
(4) Represents the Kentucky Systems, in which we expect to acquire our ownership
interest during the second half of 1999. There can be no assurance that the
Kentucky Acquisition will be consummated. See "Description of Recent
Transactions--The Transactions to Acquire the Kentucky Systems."
(5) Represents the Managed Indiana Systems, to which we expect to provide
consulting services commencing in the fourth quarter of 1999. There can be
no assurance that this transaction will be consummated. See "Business--The
Systems--The Indiana Systems--The Managed Indiana Systems."
(6) Represents an estimate based on our current rebuild program.
(7) Represents earnings (loss) before interest, taxes, depreciation and
amortization and with respect to the Columbus System, before severance and
transaction structure costs of $4.8 million associated with the contribution
of the Columbus System to Insight Ohio.
5
<PAGE>
RECENT DEVELOPMENTS
THE KENTUCKY ACQUISITION
In April 1999, we entered into an agreement with certain affiliates of
Blackstone Capital Partners III Merchant Banking Fund L.P. (collectively,
"Blackstone Capital"), certain affiliates of InterMedia Capital Management, LLC
(collectively, "ICM") and a subsidiary and related party of AT&T BIS to purchase
their combined 50% interest in InterMedia VI for $327.2 million, subject to
adjustment, which was calculated based upon the total outstanding debt of
InterMedia VI, which was $730.4 million, including accrued interest thereon, as
of February 28, 1999. We also entered into an agreement with AT&T BIS, whereby
upon consummation of the Kentucky Acquisition we will each own a 50% interest,
and we will manage and operate the Kentucky Systems.
InterMedia VI was formed by AT&T BIS, Blackstone Capital and ICM to acquire
cable television systems which, as of December 31, 1998, on a pro forma basis,
served approximately 424,000 basic customers and passed approximately 651,000
homes primarily in four operating clusters in the State of Kentucky. InterMedia
VI 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 consistent with our operating strategy to
own highly clustered properties. For the year ended December 31, 1998, the
Kentucky Systems had revenues of $195.5 million and EBITDA of $85.8 million.
The Kentucky Systems are near the end of a major rebuild program. As of
December 31, 1998, approximately 49% of the network miles had 750 MHz capacity
and we intend to complete this rebuild to 750 MHz capacity by the end of 1999
covering substantially all of our customers. In addition, after completion of
the rebuilds 100% of the customers will be served by four headends. The
consummation of the Kentucky Acquisition is subject to several conditions
including (a) receipt (or waiver) of all necessary material consents from third
parties, (b) absence of any material adverse changes in the conditions,
properties or business of the Kentucky Systems and (c) notification, approval
and compliance with the requirements of appropriate governmental agencies,
including, without limitation, transfer of cable television franchises. We
anticipate that the acquisition will be consummated during the second half of
1999. There can be no assurance that the Kentucky Acquisition will be
consummated on the terms described in this prospectus, or at all. This offering
is not contingent or in any way dependent on the Kentucky Acquisition.
MANAGED INDIANA SYSTEMS
We expect to enter into a five-year agreement with AT&T BIS to provide
consulting services to cable television systems being acquired by AT&T BIS,
which systems as of December 31, 1998 passed approximately 160,000 homes and
served approximately 113,000 customers in the State of Indiana. AT&T BIS will
acquire these systems from Charter Communications as part of a series of swaps
between AT&T BIS, Charter and InterMedia Partners IV, L.P. We anticipate that
the acquisition of these systems by AT&T BIS will be consummated 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 approximately
$48.8 million. Nearly all of the Managed Indiana Systems are contiguous to the
Indiana Systems.
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.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A common stock offered................ shares(1)
Common stock to be outstanding after this
offering:
Class A................................... shares (1)(2)
Class B................................... shares(2)
Total................................ shares (1)(2)
Use of proceeds............................. We intend to use the net proceeds of $ million from this
offering to finance: (a) the Kentucky Acquisition; (b) the
introduction of new and enhanced products and services for our
customers; (c) an equity investment in our telephone joint venture
with AT&T; (d) other strategic acquisitions; and (e) 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 % of
our total voting power.
Proposed Nasdaq National Market symbol ..... ICCIA
</TABLE>
- ------------------
(1) Excludes 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 shares of Class A common stock and shares of Class B
common stock issuable upon exercise of stock options outstanding
upon completion of the exchange of partnership interests for common
stock, of which options to purchase shares of Class A common
stock and
shares of Class B common stock will be then exercisable.
o 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 $ 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.
7
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL AND OTHER DATA
The following table sets forth Summary Pro Forma Combined Financial and
Other Data of the National, Columbus, Indiana and Kentucky Systems and 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 (the "Transactions") as if they had
occurred on January 1, 1998: (a) the acquisition by us of the Rockford system on
January 22, 1998; (b) the acquisition of the Columbus System by Insight Ohio on
August 21, 1998; (c) the formation of Insight Indiana and related contributions
of systems by AT&T BIS and us on October 31, 1998; (d) the systems exchanged on
March 22, 1999 between Falcon Cablevision ("Falcon") and us, whereby we swapped
our Franklin system in exchange for Falcon's Scottsburg system and cash;
(e) the acquisition by us of the Portland system on March 31, 1999; (f) the
proposed acquisition by us of the Kentucky Systems, which is expected to be
completed in the second half of 1999; (g) the proposed provision of consulting
services to the Managed Indiana Systems, which is expected to commence during
the fourth quarter of 1999; (h) the exchange of limited partnership interests in
Insight Communications Company, L.P. ("Insight L.P.") for our common stock; and
(i) 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 Transactions been completed on the dates
indicated or to project our results of operations for any future date. 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 BIS), Insight Ohio, TCI IPVI Systems (which are the
Kentucky Systems prior to April 30, 1998) and Intermedia VI (which are the
Kentucky Systems subsequent to April 30, 1998) which are included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------------
PRO FORMA
-----------------------------------------------------------------------------
NATIONAL COLUMBUS INDIANA KENTUCKY
SYSTEMS(1) SYSTEM(2) SYSTEMS(3) SYSTEMS(4)
PERCENTAGE OWNED 100% 75% 50% 50% ADJUSTMENTS(5) TOTAL
----------- ----------- ---------- ----------- -------------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER CUSTOMER DATA)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Revenues......................... $ 41,314 $ 47,956 $138,861 $ 195,507 $(47,956) $ 375,682
Operating expense.............. 11,069 17,431 39,604 65,328 (17,431) 116,001
Selling, general and
administrative............... 11,885 17,086 24,749 44,416 (17,086) 81,050
Depreciation and amortization.. 19,649 5,311 83,401 121,084 (5,311) 224,134
--------- --------- -------- --------- -------- ----------
Operating income (loss).......... (1,289) 8,128 (8,893) (35,321) (8,128) (45,503)
EBITDA(6)........................ 18,360 18,261 74,508 85,763 (18,261) 178,631
EBITDA margin(7)................. 44.4% 38.1% 53.7% 43.9% 47.6%
System cash flow(8).............. $ 20,653 $ 20,124 $ 77,774 $ 89,148 $(20,124) $ 187,575
Monthly revenue
per customer(9)................ 32.64 44.52 36.00 38.62 36.92
OTHER DATA:
Homes passed..................... 148,864 171,753 493,482 650,734 159,644 1,624,477
Basic customers.................. 86,917 87,637 334,026 424,215 112,817 1,045,612
Basic penetration................ 58.4% 51.0% 67.7% 65.2% 70.7% 64.4%
Premium units.................... 92,521 90,032 231,372 347,005 44,596 805,526
Premium penetration.............. 106.5% 102.7% 69.3% 81.8% 39.5% 77.0%
</TABLE>
8
<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. The Summary Statement of Operations Data for the years
ended December 31, 1994, 1995, 1996, 1997 and 1998 and the Balance Sheet Data as
of December 31, 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 and December 31, 1998 for the Balance Sheet
Data.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
HISTORICAL
------------------------------------------------------- PRO FORMA
1994 1995 1996 1997(10) 1998 1998(11)
---------- --------- --------- --------- ---------- ---------
(IN THOUSANDS)
<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 43,849 224,134
---------- --------- --------- --------- ---------- ---------
Operating income........................ 10,996 14,178 15,309 16,156 14,206 (45,503)
Other income (expense):
Gain on cable systems exchange........ -- -- -- 78,931 111,746 --
Gain on contribution of cable systems
to joint venture................... -- -- -- -- 44,312 --
Equity in losses of Insight Ohio...... -- -- -- -- (3,251) (6,632)
Costs related to pursuance of sale of
assets............................. -- (763) -- -- -- --
Interest expense, net................. (17,031) (17,965) (17,644) (15,962) (28,106) (82,902)
Other income (expense)................ 365 (52) -- -- (444) 729
---------- --------- --------- --------- ---------- ---------
Income (loss) before income taxes,
extraordinary item and minority
interest.............................. (5,670) (4,602) (2,335) 79,125 138,463 (134,208)
Extraordinary loss from early
extinguishment of debt................ -- -- (480) (5,243) (3,267) --
---------- --------- --------- --------- ---------- ---------
Income (loss) before income taxes and
minority interest..................... (5,670) (4,602) (2,815) 73,882 135,196 (134,208)
Minority interest....................... -- -- -- -- 3,410 62,341
---------- --------- --------- --------- ---------- ---------
Net income (loss) before income taxes... (5,670) (4,602) (2,815) 73,882 138,606 (71,867)
Income taxes.......................... -- -- -- -- -- --
---------- --------- --------- --------- ---------- ---------
Net income (loss)....................... (5,670) (4,602) (2,815) 73,882 138,606 (71,867)
Accretion of redeemable Class B common
units................................. -- -- -- -- (5,729) (5,729)
Accretion to redemption value of
preferred limited units............... (2,500) (2,604) (5,421) (15,275) -- --
---------- --------- --------- --------- ---------- ---------
Net income (loss) applicable to common
units................................. $ (8,170) $ (7,206) $ (8,236) $ 58,607 $ 132,877 $ (77,596)
---------- --------- --------- --------- ---------- ---------
---------- --------- --------- --------- ---------- ---------
Pro forma loss per share(12)..................................................................... $
---------
---------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
HISTORICAL
------------------------------------------------------- PRO FORMA
1994 1995 1996 1997 1998 1998(11)
---------- --------- --------- --------- ---------- ---------
(IN THOUSANDS)
OTHER FINANCIAL DATA:
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by operating
activities......................... $ 12,557 $ 13,337 $ 15,976 $ 10,436 $ 44,760 $ --
EBITDA(6)............................. 25,645 28,115 31,003 34,281 58,055 178,631
EBITDA margin(7)...................... 48.6% 49.2% 50.1% 50.6% 51.4% 47.5%
System cash flow(8)................... $ 29,172 $ 31,691 $ 34,601 $ 38,228 $ 62,732 $ 187,575
Capital expenditures.................. 12,492 15,154 16,414 27,981 44,794 --
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
---------------------------------
PRO FORMA
HISTORICAL AS ADJUSTED(13)
-------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................... $ 19,902 $ 22,327
Property, plant and equipment, net........................................... 155,412 401,830
Total assets................................................................. 659,837 1,831,312
Total debt................................................................... 573,663 1,204,663
Partners' deficit............................................................ 7,928 --
Stockholders' equity......................................................... -- 369,072
</TABLE>
- ------------------
(1) Represents the National Systems, including the Rockford system which was
acquired on January 22, 1998. Includes the financial data of the Scottsburg
system and the Portland system, which are wholly-owned by us. The other
data of the Scottsburg and Portland systems are included with the Indiana
Systems since they are managed by Insight Indiana.
(2) Represents the Columbus System, which was acquired by Insight Ohio on
August 21, 1998. We account for the Columbus System using the equity method
of accounting due to our 75% non-voting equity interest. See "Description
of Recent Transactions--The Transactions to Acquire the Columbus System."
(3) Represents the Indiana Systems, which were contributed to Insight Indiana
on October 31, 1998. We own 50% of Insight Indiana but control its
operations and, therefore, consolidate the operating results. We also
include the other data of the Scottsburg system, which was acquired on
March 22, 1999, and the Portland system, which was acquired on March 31,
1999, with the Indiana Systems since these systems are managed by Insight
Indiana. The financial data of the Scottsburg and Portland systems are
included with the National Systems since they are wholly-owned by us. See
"Description of Recent Transactions--The Transactions to Acquire the
Indiana Systems."
(4) Represents the Kentucky Systems, in which we expect to acquire a 50%
ownership interest during the second half of 1999. It is contemplated 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 consummated. See "Description
of Recent Transactions--The Transactions to Acquire the Kentucky Systems."
(5) Represents the elimination of the operating results of the Columbus System,
which is not consolidated by us. See "Pro Forma Financial Statements."
(6) Represents earnings (loss) before interest, taxes, depreciation and
amortization and with respect to the Columbus System, before severance and
transaction structure costs of $4.8 million associated with the
contribution of the Columbus System to Insight Ohio. We believe that EBITDA
is a meaningful
(Footnotes continued on next page)
10
<PAGE>
(Footnotes continued from previous page)
measure of performance as it is commonly used in the cable television
industry to analyze and compare cable television companies on the basis of
operating performance, leverage and liquidity. However, EBITDA is not
intended to be a performance measure that should be regarded as an
alternative to, or more meaningful than, either operating income or net
income as an indicator of operating performance or cash flows as a measure
of liquidity, as determined in accordance with generally accepted
accounting principles. EBITDA is not necessarily comparable to similarly
titled amounts of other companies. See our financial statements, including
the Statements of Cash Flows, which are combined later in this prospectus.
(7) Represents EBITDA as a percent of total revenues.
(8) Represents EBITDA (as defined above) before corporate overhead and
management fees. We believe that system cash flow is a meaningful measure
of performance as it is commonly used in the cable television industry to
analyze and compare cable television companies on the basis of operating
performance, leverage and liquidity. However, system cash flow is not
intended to be a performance measure that should be regarded as an
alternative to, or more meaningful than, either operating income or net
income as an indicator of operating performance or cash flows as a measure
of liquidity, as determined in accordance with generally accepted
accounting principles. System cash flow is not necessarily comparable to
similarly titled amounts of other companies. See our financial statements,
including the Statements of Cash Flows, which are included later in this
prospectus.
(9) 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.
(10) 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.
(11) Represents the combined results of operations of the National, Indiana and
Kentucky Systems, and our equity interest in the Columbus System.
Based upon our ownership interest in the National, Columbus and Indiana
Systems, and our interest in the Kentucky Systems which is expected to be
acquired in the second half of 1999, pro forma revenues, pro forma monthly
revenue per customer and pro forma system cash flow approximated $244.5
million, $37.38 and $119.7 million, respectively, for the year ended
December 31, 1998. Pro forma revenues, pro forma monthly revenue per
customer and pro forma system cash flow are not intended to be performance
measures that should be regarded as alternatives to, or more meaningful
than other measures in accordance with generally accepted accounting
principles. The pro forma data exclude a one-time non-recurring charge to
earnings to record a net deferred tax liability at December 31, 1998 of
approximately $45 million that would have been recognized upon the exchange
of limited partnership interests in Insight L.P. for our common stock.
(12) Pro forma loss per share is calculated based on weighted average common
shares outstanding of for the year ended December 31, 1998.
(13) Gives effect to the Transactions as if they had each occurred on
January 1, 1998.
11
<PAGE>
RISK FACTORS
Before you invest in our Class A common stock, you should be aware that
there are various risks, including those described below. 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 WILL EXPERIENCE NET LOSSES IN THE FUTURE
We reported net loss applicable to the common units of $8.2 million,
$7.2 million and $8.2 million for the years ended December 31, 1994, 1995 and
1996, respectively. We reported net income applicable to the common units of
$58.6 million and $132.9 million for the years ended December 31, 1997 and 1998,
respectively, 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
WHICH MAKES IT DIFFICULT FOR YOU TO COMPLETELY EVALUATE OUR PERFORMANCE
We have grown rapidly since December 1997 having completed on a pro forma
basis three acquisitions, three asset swaps and two joint ventures of cable
television systems. The Indiana joint venture with AT&T BIS, 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, increased the number of customers served by systems we own, operate and
manage on a pro forma basis from approximately 180,000 to approximately
1,046,000. With only approximately 15% of our existing customers having been
served by us for in excess of one year, we are still in the process of
integrating our new systems. Furthermore, as a result of these recent
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.
THE KENTUCKY ACQUISITION MAY NOT BE CONSUMMATED AND IF NOT CONSUMMATED, OUR
MANAGEMENT WILL HAVE BROAD DISCRETION WITH RESPECT TO THE USE OF THE PROCEEDS
ALLOCATED FOR THE ACQUISITION
In April 1999, we entered into an agreement to purchase a 50% interest in
InterMedia VI for $327.2 million, subject to adjustment, which was calculated
based upon InterMedia's total outstanding debt. The consummation 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,
transfer of cable television franchises.
If these conditions are not met, the Kentucky Acquisition will not be
consummated. There can be no assurance that the Kentucky Acquisition will be
consummated 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 consummated, a significant portion of
the net proceeds from this offering will not be designated for a specific use.
Therefore, our management will have broad discretion with respect to the use of
such proceeds.
12
<PAGE>
OUR ABILITY TO FURTHER DEVELOP CERTAIN OF OUR SYSTEMS MAY BE RESTRICTED BY THE
RIGHTS OF OTHER EQUITY OWNERS
The Indiana Systems and the Columbus System are not, and the Kentucky
Systems will not be, wholly-owned by us. Pursuant to the respective operating
agreements between us and the other equity owners, the other equity owners have
approval rights for certain significant actions which may be taken with respect
to our systems. Such approval rights may interfere with our future operating
strategies.
Commencing on October 30, 2003, AT&T BIS has the right to require us to
redeem its 50% interest in Insight Indiana. If the Kentucky Acquisition is
consummated, AT&T BIS will have a similar right with respect to its 50% interest
in the proposed joint venture for the Kentucky Systems. If AT&T BIS 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. 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
Our cable programming services are dependent upon our ability to procure
programming that is attractive to our customers at reasonable rates. 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, respectively. 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%, respectively,
excluding costs of new channel additions during such periods. This increase in
programming costs was partially offset by the increased availability to us of
advertising inserts on these channels and the increased value of all advertising
inserts. This escalation in programming costs may continue and we may not be
able to pass programming cost increases on to our customers.
WE COULD LOSE OUR CURRENT ACCESS TO FAVORABLE PROGRAMMING SERVICE RATES
Because of our relationship with AT&T BIS, we have the right to purchase
programming services for the Indiana Systems and, upon consummation of the
Kentucky Acquisition, for the Kentucky Systems, at AT&T BIS' cost plus a small
administrative surcharge. We believe that the cost of AT&T BIS' programming
services is lower than the cost we would incur if we purchased such programming
services independently. If AT&T BIS were 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 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.
WE ARE SUBJECT TO RISKS AS WE INTEGRATE NEW CABLE SYSTEMS
Since December 1997, we have completed on a pro forma basis three
acquisitions, three asset swaps and two joint ventures of cable systems.
Approximately 85% of our customers on a pro forma basis were acquired through
acquisitions and other transactions consummated since that date. We expect to
continue to
13
<PAGE>
acquire and enter into swaps and joint ventures with respect to cable systems as
an element of our business strategy. The integration of these new cable systems
will place significant demands on our management and our operational, financial
and marketing resources. 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.
WE ARE SUBJECT TO THE RISKS OF INTRODUCING NEW AND ENHANCED PRODUCTS AND
SERVICES
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 telephony
services. Introduction of new and enhanced products and services includes
various risks. 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. In addition,
many of the new and enhanced products and services we intend to offer may also
be offered by well established competitors that have substantially greater
financial resources and market presence than us. 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.
WE ARE DEPENDENT ON OUR PERSONNEL
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. If any member of our senior management team becomes
unable or unwilling to participate in the business and operations of Insight,
our future business and operations could be materially and adversely effected.
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 have a material adverse effect on our
business, results of operations, prospects and financial condition.
WE OPERATE IN A VERY COMPETITIVE BUSINESS ENVIRONMENT
We face competition from:
o Alternative methods of receiving and distributing television signals and
satellite delivered programs, including direct broadcast satellite
television systems ("DBS");
o Multipoint multichannel distribution systems ("MMDS"), master antenna
television ("MATV") systems and satellite master antenna television
("SMATV") systems;
o Facilities-based distributors, such as utility and telephone companies,
commonly referred to as overbuilders;
o Other sources of news, information and entertainment such as off-air
television broadcast programming, newspapers, movie theaters, live
sporting events and home video products, including videotape cassette
recorders and digital video disc players; and
14
<PAGE>
o Data transmission and Internet service providers.
Competition in geographic areas where a secondary franchise is obtained and
a cable network is constructed pursuant to the terms of the franchise is called
"overbuilding." A cable subsidiary of Ameritech Corporation ("Ameritech"), 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 affiliated
with Southern Indiana Gas and Electric Co. ("SIGECO") 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.
The impact from competition, particularly from DBS and companies that
overbuild in our market areas, has resulted in a decrease in customer growth
rates, an increase in customers subscribing to the basic only level of service
and a decrease in our premium customers. 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. You should read
"Business--Competition" for additional information.
OUR NON-EXCLUSIVE FRANCHISES ARE SUBJECT TO NON-RENEWAL OR TERMINATION IN
CERTAIN CIRCUMSTANCES
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 business, results of
operations, prospects and financial condition. 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
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 (the "1992 Cable Act"), resulted in
significant reductions in our pricing which reduced operating cash flow and our
ability to support capital rebuild programs. The Telecommunications Act of 1996
(the "1996 Telecom Act") materially altered federal, state and local laws and
regulations pertaining to cable television, telecommunications and other related
services. In particular, the 1996 Telecom Act substantially amends the
Communications Act of 1934 (the "Communications Act") to restrict the ability of
the FCC and, in certain instances, franchising authorities, to regulate rates
under the 1992 Cable Act. 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 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.
15
<PAGE>
WE HAVE A SIGNIFICANT AMOUNT OF INDEBTEDNESS AND SUCH INDEBTEDNESS RESTRICTS US
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 December 31, 1998 on a pro forma basis, our consolidated
indebtedness totaled approximately $1.3 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 Limitations on investments, loans and other payments, certain
transactions with affiliates and certain mergers and acquisitions; and
o A requirement to maintain specified financial ratios and meet certain
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.
WE MAY NEED ADDITIONAL FINANCING
Our capital investment program may not generate projected results and we
may need to obtain additional financing to provide for, among other things:
o Planned capital expenditures;
o Unanticipated expenses and cost overruns;
o Technologies and services which may be introduced in the future; and
o Other events which we cannot predict at this time.
There can be no guarantee that we will be able to issue additional debt or
sell stock or other additional equity on satisfactory terms, or at all, to meet
our future financing needs. Our failure to raise additional financing could have
a material adverse effect on our business, results of operations, prospects and
financial condition.
16
<PAGE>
THERE HAS BEEN NO PRIOR MARKET FOR OUR CLASS A COMMON STOCK
Prior to this offering, there was no market for our Class A common stock.
The initial public offering price of the Class A common stock will be determined
by negotiations among us and the representatives of the underwriters. You should
read the discussion under "Underwriting--Pricing of the Offering" for additional
information.
We will apply to list the Class A common stock on The Nasdaq National
Market. The NMS listing does not, however, guarantee that a trading market for
the Class A common stock will develop or, if a market does develop, the depth of
the trading market for the Class A common stock.
THERE IS A POTENTIAL FOR VOLATILITY OF THE MARKET PRICE OF OUR CLASS A COMMON
STOCK
The market price of the shares of our Class A common stock may be
significantly affected by various factors including:
o Actual or anticipated fluctuations in our operating results;
o New products or services or new contracts by us or our competitors;
o Legislative and regulatory developments;
o Conditions and trends in the telecommunications industry;
o Failure to meet analysts' expectations;
o General market conditions; and
o Other factors beyond our control.
In addition, the stock market has, from time to time, experienced
significant price and volume fluctuations that have particularly affected the
market prices for the common stock of telecommunications companies and that have
often been unrelated to the operating performance of particular companies. These
broad market fluctuations may also adversely affect the market price of our
Class A common stock.
EXISTING STOCKHOLDERS MAY SELL THEIR COMMON STOCK
Upon completion of the exchange of partnership interests for common stock
and without giving effect to this offering, there will be shares of
common stock outstanding. At any time commencing six months after this offering,
Vestar, who will hold of such shares of common stock, will be
entitled to demand registration of their shares under the Securities Act of 1933
at our expense. All of the shares of 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 affiliates.
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. We, as well as our officers and directors
and certain of our affiliates who in the aggregate will own shares of
common stock upon completion of the exchange of partnership interests for common
stock, 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 DISPROPORTIONATE CONTROL
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 % of the outstanding Class A
common stock and our directors and executive officers will own % of the
outstanding Class A common stock. Our directors and executive officers will own
100% of the outstanding Class B common stock. As a result of their stock
ownership, our directors and executive officers will have
17
<PAGE>
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.
WE MAY BE ADVERSELY AFFECTED BY THE YEAR 2000 PROBLEM
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 including addressable controllers 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.
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
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: (a) discuss our
future expectations; (b) contain projections of our future results of operations
or of our financial condition; or (c) 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.
18
<PAGE>
USE OF PROCEEDS
The estimated net proceeds from the sale of the shares of Class A
common stock offered by us will be approximately $ million (approximately
$ 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: (a) the
Kentucky Acquisition; (b) the introduction of new and enhanced products and
services for our customers; (c) an equity investment in our telephone joint
venture with AT&T; (d) other strategic acquisitions; and (e) general corporate
activities. 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."
Pending our use of the net proceeds of this offering, approximately
$ million will temporarily reduce the debt outstanding under our senior
revolving credit facility (the "Insight Credit Facility") and the remainder will
be invested in short-term investment grade investments. We expect that the
Kentucky Acquisition will be consummated during the second half of 1999. There
can be no assurance that the Kentucky Acquisition will be consummated 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 consummated, 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 consummated and if not consummated, our management will
have broad discretion with respect to the use of the proceeds allocated for the
acquisition."
As of December 31, 1998, there was approximately $111.1 million outstanding
under the Insight Credit Facility which has a final maturity in December 2005.
For the year ended December 31, 1998, the interest rates for loans outstanding
under the Insight Credit Facility ranged from approximately 7.3% to 9.8% and the
weighted average interest rate as of December 31, 1998 was 8.84%. 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.
19
<PAGE>
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents
and capitalization as of December 31, 1998, and as adjusted to give effect to:
o Our receipt of the net proceeds from our sale of shares of
Class A common stock at an assumed initial public offering price of
$ 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>
DECEMBER 31, 1998
-------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
-------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................................... $ 19,902 $ $
-------- --------- --------
-------- --------- --------
Total debt:
Insight Credit Facility................................................... $111,100 $ (1) $ (2)
Insight Indiana Credit Facility(3)........................................ 460,000
Kentucky Credit Facilities(4)............................................. --
Note payable to MediaOne.................................................. 2,563
-------- --------- --------
Total debt(5).......................................................... 573,663
Redeemable Class B common units............................................. 51,319
Partners' deficit........................................................... (7,928)
Total stockholders' equity:(6)
Class A common stock, $.01 par value; shares authorized;
shares issued and outstanding (as adjusted,
shares issued and outstanding).........................................
Class B common stock, $.01 par value; shares issued and
outstanding............................................................
Additional paid-in capital................................................
Accumulated deficit.......................................................
Total stockholders' equity.............................................
Total capitalization........................................................
</TABLE>
- ------------------
(1) As adjusted, there was approximately $ million of unused credit
commitments, of which approximately $ 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 $ million of unused credit
commitments, of which approximately $ 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 $90.0 million of unused credit commitments, of which
approximately $49.6 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 $126.0 million of unused credit commitments, of
which approximately $103.5 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)
20
<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 December 31, 1998. There was
approximately $25 million of unused credit commitments, of which
approximately $25 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 (the "Senior Notes") issued by Coaxial
Communications of Central Ohio, Inc. ("Coaxial") and Phoenix Associates, an
affiliate of Coaxial ("Phoenix"), and approximately $55.9 million aggregate
principal amount at maturity of 12 7/8% Senior Discount Notes due 2008 (the
"Senior Discount Notes") 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 L.P. for our common stock upon consummation of this offering.
21
<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 December 31, 1998, our net tangible book value was a deficit of
$423.7 million, or $ per share of Class A and Class B common stock. After
giving effect to the sale of shares of our Class A common stock at
an assumed initial public offering price of $ per share (the midpoint 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
December 31, 1998 would have been $ , or $
per share of Class A and Class B common stock, representing an immediate
decrease in our net negative tangible book value of $ per share to current
stockholders and an immediate dilution of $ per share to new investors. The
following table illustrates the foregoing information as of December 31, 1998
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.......... $
Net tangible book value (deficit) per share before the offering............
------
Increase per share attributable to the offering(1)......................... $
Net tangible book value (deficit) per share after the offering(2)..........
------
Dilution per share to new investors(2)(3).................................. $
------
------
</TABLE>
- ------------------
(1) After deducting the underwriting discounts and estimated expenses payable by
us in this offering.
(2) Does not give effect to the Kentucky Acquisition which is expected to
further increase the net negative tangible book value per share
to $ .
(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:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
----------------- ----------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................................. % $ % $
New Investors.........................................
------ ----- ------ -----
Total................................................. % $ %
------ ----- ------ -----
------ ----- ------ -----
</TABLE>
These computations do not give effect to either of the following:
o shares of Class A common stock and shares of
Class B common stock issuable upon exercise of stock options outstanding
upon completion of the exchange of partnership interests for common
stock, of which options to purchase shares of Class A common
stock and shares of Class B common stock will be then exercisable
o 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.
22
<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, 1998: (a) the acquisition by us of the Rockford system on
January 22, 1998; (b) the acquisition of the Columbus System by Insight Ohio on
August 21, 1998; (c) the formation of Insight Indiana and related contribution
of systems by AT&T BIS and us; (d) the systems exchange on March 22, 1999
between Falcon and us, whereby we swapped our Franklin system in exchange for
Falcon's Scottsburg system and cash; (e) the acquisition by us of the Portland
system on March 31, 1999; (f) the proposed acquisition by us of the Kentucky
Systems, which is expected to be completed in the second half of 1999; (g) the
proposed provision of consulting services to the Managed Indiana Systems, which
is expected to commence during the fourth quarter of 1999; (h) the exchange of
limited partnership interests in Insight L.P. for our common stock; and (i) the
receipt of approximately $372.0 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 consulting fees from
the Kentucky Systems. 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 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 BIS), Insight Ohio, TCI IPVI Systems
(which are the Kentucky Systems prior to April 30, 1998) and InterMedia VI
(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 of
approximately $45.0 million that would have been recognized upon the exchange of
limited partnership interests in Insight L.P. for our common stock.
23
<PAGE>
INSIGHT COMMUNICATIONS
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NATIONAL NATIONAL COLUMBUS COLUMBUS
(AS REPORTED)(1) ADJUSTMENTS(2),(3) (AS ADJUSTED) (AS REPORTED)(14) ADJUSTMENTS(15) (AS ADJUSTED)
---------------- ------------------ ------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues............. $112,902 $ (75,927)(5) $ 41,314 $47,956 $ (47,956) $ --
1,383 (6)
(1,757)(7)
919 (8)
2,329 (9)
1,465 (10)
Costs & expenses:
Programming and
other operating
costs............. 30,376 (19,692)(5) 11,069 17,431 (17,431) --
396 (6)
(736)(7)
725 (9)
Selling, general and
administrative.... 24,471 (12,887)(5) 11,885 17,086 (17,086) --
249 (6)
(340)(7)
392 (9)
Depreciation and
amortization...... 43,849 (25,420)(5) 19,649 5,311 (5,311) --
558 (6)
(101)(7)
763 (9)
-------- ---------- --------- ------- --------- -------
Operating income..... 14,206 (15,495) (1,289) 8,128 (8,128) --
Other income
(expenses):
Gain on cable system
exchange and
contribution of
cable systems to
joint venture..... 156,058 (156,058)(11) -- -- -- --
Equity in loss of
Insight Ohio...... (3,251) 3,251 (13) -- -- 837 837
Interest income
(expense)......... (28,106) 5,820 (5) (9,133) 59 (59) --
13,153 (12)
Other income
(expense)......... (444) 466 (5) (264) (421) 421 --
(52)(7)
(234)(9)
-------- ---------- --------- ------- --------- -------
Income (loss) before
extraordinary item
and minority
interest and income
taxes............... 138,463 (149,149) (10,686) 7,766 (6,929) 837
Extraordinary loss
from early
extinguishment of
debt................ (3,267) 3,267 (11) -- -- -- --
Minority interest.... 3,410 (3,410)(13) -- -- -- --
-------- ---------- --------- ------- --------- -------
Net income (loss)
before income
taxes............... 138,606 (149,292) (10,686) 7,766 (6,929) 837
Income taxes......... -- -- -- -- -- --
-------- ---------- --------- ------- --------- -------
Net income (loss).... 138,606 (149,292) (10,686) 7,766 (6,929) 837
-------- ---------- --------- ------- --------- -------
Accretion of
redeemable Class B
common stock
units............... (5,729) -- (5,729) -- -- --
Preferred interest... -- -- -- (6,649) 6,649 --
-------- ---------- --------- ------- --------- -------
Net income (loss)
applicable to common
units............... $132,877 $ (149,292) $ (16,415) $ 1,117 $ (280) $ 837
-------- ---------- --------- ------- --------- -------
-------- ---------- --------- ------- --------- -------
Net income (loss) per
share
<CAPTION>
INDIANA INDIANA KENTUCKY
(AS REPORTED)(16) ADJUSTMENTS (AS ADJUSTED) ADJUSTMENTS(4) SUBTOTAL (AS REPORTED)(23) ADJUSTMENTS
----------------- ----------- ------------- -------------- --------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $80,357 $ 58,504(17) $ 138,861 $ -- $ 180,175 $ 195,507 $ --
Costs & expenses:
Programming and
other operating
costs............. 24,375 15,229(17) 39,604 -- 50,673 65,328 --
Selling, general and
administrative.... 14,892 9,857(17) 24,749 -- 36,634 44,416 --
Depreciation and
amortization...... 12,223 21,788(17) 83,401 -- 103,050 103,514 17,570(24)
49,390(18)
------- --------- --------- -------- --------- --------- ---------
Operating income..... 28,867 (37,760) (8,893) -- (10,182) (17,751) (17,570)
Other income
(expenses):
Gain on cable system
exchange and
contribution of
cable systems to
joint venture..... -- -- -- -- -- -- --
Equity in loss of
Insight Ohio...... -- -- -- (7,469)(21) (6,632) -- --
Interest income
(expense)......... -- (5,818)(19) (36,560) -- (45,693) (44,899) --
(13,153)(12)
(17,589)(19)
Other income
(expense)......... (159) (79)(17) (238) -- (502) 1,231 --
------- --------- --------- -------- --------- --------- ---------
Income (loss) before
extraordinary item
and minority
interest and income
taxes............... 28,708 (74,399) (45,691) (7,469) (63,009) (61,419) (17,570)
Extraordinary loss
from early
extinguishment of
debt................ -- -- -- -- -- -- --
Minority interest.... -- -- -- 22,846 (22) 22,846 -- --
------- --------- --------- -------- --------- --------- ---------
Net income (loss)
before income
taxes............... 28,708 (74,399) (45,691) 15,377 (40,163) (61,419) (17,570)
Income taxes......... (9,969) 9,969(20) -- -- -- (1,971) 1,971(25)
------- --------- --------- -------- --------- --------- ---------
Net income (loss).... 18,739 (64,430) (45,691) 15,377 (40,163) (63,390) (15,599)
------- --------- --------- -------- --------- --------- ---------
Accretion of
redeemable Class B
common stock
units............... -- -- -- -- (5,729) -- --
Preferred interest... -- -- -- -- -- -- --
------- --------- --------- -------- --------- --------- ---------
Net income (loss)
applicable to common
units............... $18,739 $ (64,430) $ (45,691) $ 15,377 $ (45,892) $ (63,390) $ (15,599)
------- --------- --------- -------- --------- --------- ---------
------- --------- --------- -------- --------- --------- ---------
Net income (loss) per
share
<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...... 121,084 224,134 -- 224,134
--------- --------- ------- ---------
Operating income..... (35,321) (45,503) -- (45,503)
Other income
(expenses):
Gain on cable system
exchange and
contribution of
cable systems to
joint venture..... -- -- -- --
Equity in loss of
Insight Ohio...... -- (6,632) -- (6,632)
Interest income
(expense)......... (44,899) (90,592) 7,790(26) (82,802)
Other income
(expense)......... 1,231 729 -- 729
--------- --------- ------- ---------
Income (loss) before
extraordinary item
and minority
interest and income
taxes............... (78,989) (141,998) 7,790 (134,208)
Extraordinary loss
from early
extinguishment of
debt................ -- -- -- --
Minority interest.... -- 22,846 39,495(27) 62,341
--------- --------- ------- ---------
Net income (loss)
before income
taxes............... (78,989) (119,152) 47,285 (71,867)
Income taxes......... -- -- -- --
--------- --------- ------- ---------
Net income (loss).... (78,989) (119,152) 47,285 (71,867)
--------- --------- ------- ---------
Accretion of
redeemable Class B
common stock
units............... -- (5,729) -- (5,729)
Preferred interest... -- -- -- --
--------- --------- ------- ---------
Net income (loss)
applicable to common
units............... $ (78,989) $(124,881) $47,285 $ (77,596)
--------- --------- ------- ---------
--------- --------- ------- ---------
Net income (loss) per
share
</TABLE>
24
<PAGE>
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
(1) Includes: (a) the full year's operating results for the Franklin, Claremont
and Griffin systems; (b) ten months of operating results of our Utah
systems which were swapped for the Evansville and Jasper systems; (c) the
full year's operating results of the Indiana systems contributed by us to
Insight Indiana; (d) two months of the operating results of the TCI Insight
Systems (which are the systems contributed to Insight Indiana by AT&T BIS);
(e) the operating results of the Rockford system since January 22, 1998;
and (f) corporate overhead expenses.
(2) Does not include management fees received by us from Insight Indiana and
consulting fees received by us from the Kentucky Systems in the amount of
3% of revenues.
(3) 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.
(4) These adjustments are included in order to combine the full year's results
of operations of the National, Columbus and Indiana Systems.
(5) Eliminates operating results of: (a) the systems contributed by us to
Insight Indiana for ten months; (b) the Utah systems for ten months; and
(c) Insight Indiana for two months.
(6) Includes operating results of the Rockford system from January 1, 1998 to
January 21, 1998.
(7) Eliminates the operating results of the Franklin system and includes the
operating results of the Scottsburg system.
(8) Includes the Insight Ohio management fee from January 1, 1998 to
August 21, 1998.
(9) Includes the full year's operating results of the Portland system.
(10) Includes the Managed Indiana Systems' consulting fee for the full year.
(11) Eliminates extraordinary item and gains from cable system exchange and gain
on contribution of systems to Insight Indiana.
(12) Adjusts interest expense to reflect our contribution of debt to Insight
Indiana.
(13) Eliminates AT&T BIS' minority interest in Insight Indiana and our equity in
losses of Insight Ohio.
(14) Includes the full year's operating results of the Columbus System which we
have owned since August 21, 1998.
(15) Eliminates 100% of Insight Ohio's operating results as reported (which does
not reflect our cost structure prior to August 21, 1998) and records our
75% non-voting equity interest.
(16) Includes 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 BIS.
(17) Includes ten months of operating results of our systems contributed to
Insight Indiana and two months of operating results of Insight Indiana.
(18) Includes additional depreciation and amortization related to step-up in
value of the Insight Indiana Systems for ten months. See Notes C and D of
our consolidated financial statements.
(19) Adjusts interest expense related to contributed debt of AT&T BIS as if such
contribution had occurred on January 1, 1998.
(20) Eliminates income tax provision due to pro forma combined net loss.
(21) Includes the amortization of the difference between our investment in
Insight Ohio and Insight Ohio's underlying equity.
(22) Includes AT&T BIS' minority interest in Insight Indiana.
(23) Includes 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 VI for the period from April 30, 1998 through December 31, 1998.
(24) Includes additional amortization related to step-up in value of the
Kentucky Systems over a period of ten years.
(25) Eliminates income tax provision due to pro forma combined net loss.
(26) Includes reduction in interest expense related to the paydown of
$95 million of debt.
(27) Includes AT&T BIS' minority interest in the Kentucky Systems.
25
<PAGE>
INSIGHT COMMUNICATIONS PRO FORMA BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
NATIONAL NATIONAL INSIGHT OHIO INSIGHT OHIO
(AS REPORTED)(1) ADJUSTMENTS (AS ADJUSTED) (AS REPORTED)(7) ADJUSTMENTS (AS ADJUSTED)
---------------- ----------- ------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents....... $ 19,902 $ (19,493)(2) $ 232 $ 6,709 $ (6,709)(8) $ --
(177)(3)
Trade accounts
receivable, net of
allowance......... 7,988 (6,701)(2) 1,205 2,706 (2,706)(8) --
(82)(3)
Due from related
parties........... -- -- -- 149 (149)(8) --
Due from TCI....... -- 522 (2) 522 -- -- --
Due from Insight
Ohio.............. 1,039 -- 1,039 -- -- --
Prepaid expenses &
other current
assets............ 1,598 (203)(2) 1,380 166 (166)(8) --
(15)(3)
Investment in
Insight Ohio...... 6,749 (6,749)(4) -- -- 6,749 (4) 6,749
Investments........ -- -- -- -- -- --
Fixed assets,
net............... 155,412 (129,776)(2) 28,954 31,900 (31,900)(8) --
(1,352)(3)
1,765 (3)
2,905 (5)
Intangible assets,
net............... 467,149 (370,711)(2) 96,381 337 (337)(8) --
(57)(3)
Other assets....... -- -- -- -- -- --
-------- --------- --------- -------- --------- ---------
Total assets....... $659,837 $(530,124) $ 129,713 $ 41,967 $ (35,218) $ 6,749
-------- --------- --------- -------- --------- ---------
-------- --------- --------- -------- --------- ---------
LIABILITIES &
PARTNERS' CAPITAL
Accounts payable... $ 24,290 $ (12,467)(2) $ 10,332 $ 3,230 $ (3,230)(8) $ --
(239)(3)
(1,252)(3)
Accrued expenses
and other
liabilities....... 4,068 (3,876)(2) -- 6,807 (6,807)(8) --
(192)(3)
Due to
affiliates........ 88 -- 88 -- -- --
Interest payable... 7,661 (5,824)(2) 1,837 -- -- --
Dividend payable... -- -- -- 6,649 (6,649)(8) --
Accrued interest... -- -- -- -- -- --
Deferred interest
payable........... -- -- -- -- -- --
Deferred revenue... -- -- -- -- -- --
Other.............. -- 1,765 (3) 4,670 -- -- --
-- 2,905 (5) -- -- -- --
Deferred income
taxes............. -- 45,000 (6) 45,000 -- -- --
Debt............... 573,663 (460,000)(2) 113,663 -- -- --
-------- --------- --------- -------- --------- ---------
Total
liabilities....... 609,770 (434,180) 175,590 16,686 (16,686) --
Minority
interest.......... 6,676 -- 6,676 -- -- --
Preferred
interest.......... -- -- -- 170,000 (170,000)(8) --
Common limited
units............. 51,319 -- 51,319 -- -- --
Partners'
(deficiency)/equity.. (7,928) (44,195)(2) (58,872) (144,719) 144,719 6,749
-- (6,749)(4) -- -- 6,749 (4) --
Stockholders'
equity............ -- (45,000)(6) (45,000) -- -- --
-------- --------- --------- -------- --------- ---------
$659,837 $(530,124) $ 129,713 $ 41,967 $ (35,218) $ 6,749
-------- --------- --------- -------- --------- ---------
-------- --------- --------- -------- --------- ---------
<CAPTION>
INDIANA INDIANA KENTUCKY KENTUCKY SUB
(AS REPORTED) ADJUSTMENTS(9) (AS ADJUSTED) (AS REPORTED)(10) ADJUSTMENTS (AS ADJUSTED) TOTAL
------------- -------------- ------------- ----------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents....... $ -- $ 19,493 $ 19,493 $ 2,602 $ -- $ 2,602 $ 22,327
Trade accounts
receivable, net of
allowance......... -- 6,701 6,701 15,160 -- 15,160 23,066
Due from related
parties........... -- -- -- 7,532 -- 7,532 7,532
Due from TCI....... -- (522) (522) -- -- -- --
Due from Insight
Ohio.............. -- -- -- -- -- -- 1,039
Prepaid expenses &
other current
assets............ -- 651 651 1,049 -- 1,049 3,080
Investment in
Insight Ohio...... -- -- -- -- -- -- 6,749
Investments........ -- -- -- -- -- -- --
Fixed assets,
net............... -- 129,776 129,776 243,100 -- 243,100 401,830
Intangible assets,
net............... -- 370,711 370,711 632,002 -- 632,002 1,099,094
Other assets....... -- -- -- 3,045 -- 3,045 3,045
--------- ---------- --------- --------- --------- --------- ----------
Total assets....... $ -- $ 526,810 $ 526,810 $ 904,490 $ -- $ 904,490 $1,567,762
--------- ---------- --------- --------- --------- --------- ----------
--------- ---------- --------- --------- --------- --------- ----------
LIABILITIES &
PARTNERS' CAPITAL
Accounts payable... $ -- $ 12,467 $ 12,467 $ 1,387 $ -- $ 1,387 $ 24,186
Accrued expenses
and other
liabilities....... -- 4,324 4,324 22,154 -- 22,154 26,478
Due to
affiliates........ -- -- -- 2,913 -- 2,913 3,001
Interest payable... -- 5,824 5,824 -- -- -- 7,661
Dividend payable... -- -- -- -- -- -- --
Accrued interest... -- -- -- 5,529 -- 5,529 5,529
Deferred interest
payable........... -- -- -- -- -- -- --
Deferred revenue... -- -- -- 19,196 -- 19,196 19,196
Other.............. -- -- -- 411 -- 411 5,081
-- -- -- -- -- -- --
Deferred income
taxes............. -- -- -- -- -- -- 45,000
Debt............... -- 460,000 460,000 726,000 -- $ 726,000 1,299,663
--------- ---------- --------- --------- --------- --------- ----------
Total
liabilities....... -- 482,615 482,615 777,590 -- 777,590 1,435,795
Minority
interest.......... -- -- -- -- -- -- 6,676
Preferred
interest.......... -- -- -- -- -- -- --
Common limited
units............. -- -- -- -- -- -- 51,319
Partners'
(deficiency)/equity -- 44,195 44,195 126,900 -- 126,900 118,972
-- -- -- -- -- -- --
Stockholders'
equity............ -- -- -- -- -- -- (45,000)
--------- ---------- --------- --------- --------- --------- ----------
$ -- $ 526,810 $ 526,810 $ 904,490 $ -- $ 904,490 $1,567,762
--------- ---------- --------- --------- --------- --------- ----------
--------- ---------- --------- --------- --------- --------- ----------
<CAPTION>
OTHER
ADJUSTMENTS(11) TOTAL
--------------- ----------
<S> <C> <C>
ASSETS
Cash and cash
equivalents....... $ -- $ 22,327
Trade accounts
receivable, net of
allowance......... -- 23,066
Due from related
parties........... -- 7,532
Due from TCI....... -- --
Due from Insight
Ohio.............. -- 1,039
Prepaid expenses &
other current
assets............ -- 3,080
Investment in
Insight Ohio...... -- 6,749
Investments........ -- --
Fixed assets,
net............... -- 401,830
Intangible assets,
net............... 263,550 1,362,644
Other assets....... -- 3,045
--------- ----------
Total assets....... $ 263,550 $1,831,312
--------- ----------
--------- ----------
LIABILITIES &
PARTNERS' CAPITAL
Accounts payable... $ -- $ 24,186
Accrued expenses
and other
liabilities....... -- 26,478
Due to
affiliates........ -- 3,001
Interest payable... -- 7,661
Dividend payable... -- --
Accrued interest... -- 5,529
Deferred interest
payable........... -- --
Deferred revenue... -- 19,196
Other.............. -- 5,081
-- --
Deferred income
taxes............. -- 45,000
Debt............... (95,000) 1,204,663
--------- ----------
Total
liabilities....... (95,000) 1,340,795
Minority
interest.......... 63,450 70,126
Preferred
interest.......... -- --
Common limited
units............. -- 51,319
Partners'
(deficiency)/equity (126,900) --
7,928 --
Stockholders'
equity............ 414,072 369,072
--------- ----------
$ 263,550 $1,831,312
--------- ----------
--------- ----------
</TABLE>
26
<PAGE>
NOTES TO PRO FORMA BALANCE SHEET
(1) Includes assets and liabilities of the Franklin, Claremont, Griffin and
Rockford systems and the Indiana Systems.
(2) Eliminates assets and liabilities of the systems Insight contributed to
Insight Indiana.
(3) Eliminates assets of the Franklin system and includes the fixed assets of
the Scottsburg system, including net working capital adjustment on the
exchange of systems.
(4) Eliminates our investment in Insight Ohio and reflects investment in
Insight Ohio at Insight Ohio.
(5) Reflects the fixed assets of the Portland system.
(6) Includes deferred tax liability that would have been recognized upon the
exchange of limited partnership interests in Insight L.P. for our common
stock.
(7) Includes assets and liabilities of Insight Ohio which was formed on
August 21, 1998.
(8) Eliminates 100% of Insight Ohio's assets and liabilities.
(9) Includes assets and liabilities contributed to Insight Indiana by AT&T BIS
which includes the Evansville and Jasper systems acquired by Insight
Indiana from AT&T BIS in October 1998.
(10) Reflects the assets and liabilities of InterMedia VI.
(11) Reflects the following assumptions: (a) receipt of net proceeds from the
offering of $422 million; (b) acquisition of the Kentucky Systems for
$327 million; (c) reduction of our debt of $95 million; and
(d) elimination of the partners' deficit upon the exchange of limited
partnership interests in Insight L.P. for our common stock.
27
<PAGE>
INSIGHT COMMUNICATIONS PRO FORMA OPERATING DATA
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
---------------------------------------------------------------------------------------------
MANAGED
NATIONAL COLUMBUS INDIANA KENTUCKY INDIANA TOTAL TOTAL SYSTEMS
SYSTEMS(1) SYSTEM(2) SYSTEMS(3) SYSTEMS(4) SYSTEMS(5) SYSTEMS(6) PROPORTIONAL(7)
---------- -------- ---------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Homes passed................... 148,864 171,753 493,482 650,734 159,644 1,624,477 849,787
Basic customers................ 86,917 87,637 334,026 424,215 112,817 1,045,612 531,766
Basic penetration.............. 58.4% 51.0% 67.7% 65.2% 70.7% 64.4% 62.6%
Premium units.................. 92,521 90,032 231,372 347,005 44,596 805,526 449,234
Premium penetration............ 106.4% 102.7% 69.3% 81.8% 39.5% 77.0% 84.5%
</TABLE>
NOTES TO OPERATING DATA
(1) Represents the National Systems, including the Rockford system which was
acquired on January 22, 1998. 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.
(2) Represents the Columbus System, which was acquired by Insight Ohio on
August 21, 1998. See "Description of Recent Transactions--The Transactions
to Acquire the Columbus System."
(3) Represents the 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."
(4) Represents the 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 consummated. See "Description of
Recent Transactions--The Transactions to Acquire the Kentucky Systems."
(5) Represents the Managed Indiana Systems, to which we expect to provide
consulting services commencing in the fourth quarter of 1999. There can be
no assurance this transaction will be consummated.
(6) Represents the National Systems, the Columbus System, the Indiana Systems,
the Kentucky Systems and the Managed Indiana Systems.
(7) Represents the National Systems (equity ownership 100%), the Columbus System
(equity ownership 75%), the Indiana Systems (equity ownership 50%), the
Kentucky Systems (equity ownership 50%) and the Managed Indiana Systems
(equity ownership 0%), giving effect only to our pro forma percentage equity
ownership in such systems.
28
<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. 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 herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
HISTORICAL
--------------------------------------------------------
1994 1995 1996 1997(1) 1998
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................ $ 52,820 $ 57,108 $ 61,839 $ 67,698 $112,902
Costs and expenses:
Programming and other operating costs............ 13,852 15,364 16,774 18,397 30,376
Selling, general and administrative.............. 13,323 13,629 14,062 15,020 24,471
Depreciation and amortization.................... 14,649 13,937 15,694 18,125 43,849
-------- -------- -------- -------- --------
41,824 42,930 46,530 51,542 98,696
-------- -------- -------- -------- --------
Operating income.................................... 10,996 14,178 15,309 16,156 14,206
Other income (expense):
Gain on cable systems exchange................... -- -- -- 78,931 111,746
Gain on contribution of cable systems to Joint
Venture........................................ -- -- -- -- 44,312
Equity in losses of Insight Ohio................. (3,251)
Costs related to pursuance of sale of assets..... -- (763) -- -- --
Interest expense, net............................ (17,031) (17,965) (17,644) (15,962) (28,106)
Other income (expense)........................... 365 (52) (444)
-------- -------- -------- -------- --------
(16,666) (18,780) (17,644) 62,969 124,257
Income (loss) before income taxes, extraordinary
item, and minority interest...................... (5,670) (4,602) (2,335) 79,125 138,463
Extraordinary loss from early extinguishment of
debt............................................. -- -- (480) (5,243) (3,267)
-------- -------- -------- -------- --------
Income (loss) before income taxes and minority
interest......................................... (5,760) (4,602) (2,815) 73,882 135,196
Minority interest................................... -- -- -- -- 3,410
-------- -------- -------- -------- --------
Net income (loss) before income taxes............... (5,760) (4,602) (2,815) 73,882 138,606
Income taxes........................................ -- -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)................................... (5,670) (4,602) (2,815) 73,882 138,606
Accretion of redeemable Class B common units........ -- -- -- -- (5,729)
Accretion to redemption value of preferred limited
units............................................ (2,500) (2,604) (5,421) (15,275) --
-------- -------- -------- -------- --------
Net income (loss) applicable to common units........ $ (8,170) $ (7,206) $ (8,236) $ 58,607 $132,877
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Pro forma loss per share............................ -- -- -- -- $
--------
--------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
HISTORICAL
--------------------------------------------------------
1994 1995 1996 1997(1) 1998
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Net cash provided by operating activities........... $ 12,557 $ 13,337 $ 15,976 $ 10,436 $ 44,760
EBITDA(2)........................................... 25,645 28,115 31,003 34,281 58,055
EBITDA margin(3).................................... 48.6% 49.2% 50.1% 50.6% 51.4%
System cash flow(4)................................. $ 29,172 $ 31,691 $ 34,601 $ 38,228 $ 62,732
Capital expenditures................................ 12,492 15,154 16,414 27,981 44,794
BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 662 $ 479 $ 738 $ 1,082 $ 19,902
Property, plant and equipment, net.................. 24,322 30,190 36,079 63,842 155,412
Total assets........................................ 63,428 64,510 68,574 158,103 659,837
Total debt.......................................... 170,236 172,975 178,327 207,488 573,663
Partners' deficit................................... 160,808 169,601 177,837 127,982 7,928
</TABLE>
- ------------------
(1) 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.
(2) Represents earnings (loss) before interest, taxes depreciation and
amortization. We believe that EBITDA is a meaningful measure of performance
as it is commonly used in the cable television industry to analyze and
compare cable television companies on the basis of operating performance,
leverage and liquidity. However, EBITDA is not intended to be a performance
measure that should be regarded as an alternative to, or more meaningful
than, either operating income or net income as an indicator of operating
performance or cash flows as a measure of liquidity, as determined in
accordance with generally accepted accounting principles. EBITDA, as
computed by management is not necessarily comparable to similarly titled
amounts of other companies. See the financial statements, including the
Statements of Cash Flows, which are included later in this prospectus.
(3) Represents EBITDA as a percent of total revenues.
(4) Represents EBITDA (as defined above) before home office expenses and
management fees. We believe that system cash flow is a meaningful measure of
performance as it is commonly used in the cable television industry to
analyze and compare cable television companies on the basis of operating
performance, leverage and liquidity. However, system cash flow is not
intended to be a performance measure that should be regarded as an
alternative to, or more meaningful than, either operating income or net
income as an indicator of operating performance or cash flows as a measure
of liquidity, as determined in accordance with generally accepted accounting
principles. System cash flow, as computed by management is not necessarily
comparable to similarly titled amounts of other companies. See the financial
statements, including the Statements of Cash Flows, which are included later
in this prospectus.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Because of the recently consummated and pending corporate transactions,
including the contribution agreement with AT&T BIS 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 BIS, we exchanged our Utah systems for AT&T BIS' Evansville, Indiana system
and simultaneously contributed all of our Indiana systems including Evansville
and AT&T BIS 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 BIS since October 31, 1998, and Columbus System management fees since
August 21, 1998. Because of the timing of these corporate transactions, coupled
with the expected close of the Kentucky Acquisition in the second half of 1999,
our future operating results are likely to be substantially different from what
is presented in the following analysis.
GENERAL
Substantially all of our historical revenues were earned from customer fees
for cable television programming services including premium and pay-per-view
services and ancillary services (such as rental of converters and remote control
devices and installations) and from selling advertising. In addition, we earn
revenues from commissions for products sold through home shopping networks and,
since August 21, 1998, from management fees for managing Insight Ohio.
We have generated increases in revenues and EBITDA for each of the past
three fiscal years primarily through internal customer growth, increases in
monthly revenue per customer and growth in advertising and specifically in 1998
from acquisitions, swaps and a joint venture.
RESULTS OF OPERATIONS
The following table is derived for the periods presented from our
consolidated financial statements that are included in this prospectus and sets
forth certain statement of operations data for our consolidated operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1996 1997(1) 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................................ 15,309 16,156 14,206
EBITDA.......................................... 31,003 34,281 58,055
Interest expense................................ (17,644) (15,962) (28,106)
Net income (loss)............................... (2,815) 73,882 138,606
</TABLE>
- ------------------------
(1) 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.
31
<PAGE>
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 consummated an exchange and contribution agreement with
AT&T BIS. Our 1998 results include revenue from our Utah systems, which were
exchanged as part of the joint venture with AT&T BIS, for the first ten months
and for Insight Indiana for the last two months. The incremental revenue
generated from AT&T BIS' 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.
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 BIS, these costs
increased by 17.9% to $21.7 million, primarily as a result of increased
programming costs and additional programming carried by our systems.
Selling, general and administrative expenses increased 62.9% to
$24.5 million for the year ended December 31, 1998 as compared to the prior year
primarily reflecting increased marketing activity associated with new product
introductions and increased corporate expenses.
Depreciation and amortization expense increased 141.9% to $43.8 million for
the year ended December 31, 1998 as compared to the prior year. This increase
was primarily due to the acquisitions and additional capital expenditures
associated with the rebuilds of our systems.
Operating income for the year ended December 31, 1998 was $14.2 million, a
12.1% decrease over the prior year, as a result of the items discussed above.
EBITDA increased 69.4% to $58.1 million for the year ended December 31,
1998 as compared to the prior year reflecting the acquisitions plus the results
of the items described above.
Interest expense increased 76.1% to $28.1 million for the year ended
December 31, 1998 compared to the prior year. The increase was primarily due to
higher average outstanding indebtedness related to acquisitions. Average debt
outstanding during 1998 was $344.0 million at an average interest rate of 8.2%.
Net income increased 87.6% to $138.6 million for the year ended
December 31, 1998 primarily reflecting gains related to system swaps aggregating
$156 million. Excluding these one-time gains we generated a net loss totaling
$17.4 million.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues increased 9.5% to $67.7 million during the year ended
December 31, 1997 as compared to the prior year, due primarily to internal
customer growth and, to a lesser extent, rate increases. Increases in customers
served accounted for 49.6% of the total increase in revenues. During 1997, we
gained 7,879 basic customers representing an annual increase of 4.6%. The
average monthly revenue per customer for 1997 was approximately $32.22, as
compared to approximately $30.76 for the prior year. The average monthly basic
revenue per customer, which accounts for 75% of total average monthly revenue
per customer, increased 6.9% to $24.31 during the year, reflecting rate
increases associated with rebuilds and annual rate increases implemented
primarily during the fourth quarter.
32
<PAGE>
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.
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.
EBITDA increased 10.6% to $34.3 million for the year ended December 31,
1997 as compared to the prior year. This increase reflects the results of the
items described above.
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.
During 1998, we spent $44.8 million in capital expenditures largely to
support our plant rebuild, digital converter purchases and to a lesser extent
plant extensions. Cash from operations totaled $44.7 million which together with
borrowing under our credit facilities, funded capital expenditures totaling
$44.8 million. We also had digital converter purchases totaling $8.0 million
associated with the contribution agreement with AT&T BIS relating to the Indiana
Systems.
It is anticipated that during 1999, we will have approximately
$123 million of capital expenditures. Included in the planned 1999 capital
expenditures is $89.0 million for the upgrading of certain of our 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.
33
<PAGE>
At December 31, 1998, we had aggregate indebtedness of $573.7 million,
which consisted of borrowings totaling $571.1 million under senior bank credit
facilities and a note payable to MediaOne due November 1999 in the amount of
$2.6 million. The senior bank facilities consisted of:
o $140.0 million eight year reducing revolver credit facility, which
supports our National Systems, of which $111.1 million was outstanding at
December 31, 1998.
o $550.0 million eight year revolving credit/term loan which supports our
Indiana Systems, of which $460.0 million was borrowed.
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 $730
million as of February 28, 1998. 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 (53%) of our borrowings under our Insight
Credit Facility and Insight Indiana Credit Facility. Accordingly, a hypothetical
100 basis point increase in interest rates along the entire interest rate yield
curve would increase our annual interest expense by approximately $2.7 million.
As of December 31, 1998, our interest rate swap and collar agreements expire in
varying amounts through 2003.
The fair market value of our long-term debt approximates its carrying value
as it bears interest at floating rates of interest. As of December 31, 1998, the
estimated fair value of our interest rate swap and collar agreements was
approximately $1.2 million, which amount represents the amount required to enter
into offsetting contracts with similar remaining maturities based on quoted
market prices.
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;
34
<PAGE>
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 April 30, 1999, the status of our Year 2000 compliance program was as
follows: Phase 1 was substantially complete, with an expected completion date of
May 31, 1999. Phases 2, 3, 4 and 5 were underway with expected completion by
September 30, 1999. We are working on contingency plans at this time, which will
include customer notification and plans for additional personnel.
The completion dates set forth above are based on current expectations. Due
to uncertainties inherent in Year 2000 remediation, however, no assurances can
be given as to whether such projects will be completed on such dates.
COSTS
To date, costs incurred that were directly related to addressing the Year
2000 problem have not been material. We have reviewed our cable systems to
inventory our equipment and have sent letters to our programming suppliers and
other vendors. We have not used a consultant but have worked closely with AT&T
BIS, 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, all of these critical third parties have been contacted,
and we have not been made aware of any Year 2000 compliance problems.
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.
35
<PAGE>
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.
36
<PAGE>
INDUSTRY
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 65.9 million customers, representing a penetration of 69.0% of the
homes passed. The cable industry has grown steadily from approximately 57.0
million basic customers in the United States in 1992 to approximately 65.9
million in 1998, a compound annual growth rate of 2.6%. 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 HDTV programming and two-way interactive services. It is
estimated that 56% of all homes with cable television are passed by activated
digital two-way cable network (with an estimated increase to 86% by the end of
1999), allowing for the deployment by cable television operators of digital,
interactive, high-speed data access and telecommunication products.
According to the National Cable Television Association, in 1998, the
channel capacity of cable television systems increased to an average of 61
channels, up from 53 channels in 1997. As cable continues to expand its channel
capacity, we expect that the industry's competitive position relative to DBS and
other multichannel video providers should be further enhanced.
The core businesses of cable television are subject to increasing
competition. Satellite, wireless and wireline competitors are increasing their
market share in the delivery of multichannel programming. During the past five
years, alternative providers have increased their share of the multichannel
market to nearly 13.0% of the total number of households with televisions.
During this period, cable television has increased its market share to 69.0% of
the homes passed from 61.5% as the overall market has increased due to
population growth as well as increased awareness of multichannel distribution.
Meanwhile, cable operators are rebuilding their networks in order to begin
competing in other telecommunications and entertainment services. A brief
explanation of some of the major new businesses under development is described
below.
DIGITAL VIDEO
Cable companies are using their rebuilt digital networks to offer a wide
array of new broadband video services to customers. Through the use of
compressed digital video technology, which converts, on average, one analog
channel into a digital format and compresses such signal into 8 to 12 digital
channels, cable operators are able to greatly increase their channel offerings.
The digitally compressed signal is uplinked to a satellite, which sends the
signal back down to a cable system's headend to be distributed, via optical
fiber and coaxial cable, to the customer's home. At the home, a set-top video
terminal converts the digital signal 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 niche programming.
An estimated 1.5 million homes currently subscribe to a digital cable
service. The number of digital service customers is expected to increase
approximately seven times to 9.8 million homes by the end of 2000
37
<PAGE>
(representing a penetration of 10.0% of the homes passed) and to approximately
44.1 million homes by 2008 (representing a penetration of 42.2% of the homes
passed).
HIGH-SPEED DATA
The broad bandwidth of cable network enables data to be transmitted at a
significantly faster speed than traditional telephone lines (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 48.3 million homes will be
passed by cable systems offering high-speed, residential cable Internet
services, which is projected to increase to approximately 63.5 million homes by
2000, and to more than 104.6 million homes by 2008.
Over 500,000 cable customers currently subscribe to cable access to the
Internet. The number of cable high-speed data service customers is expected to
increase more than 6.6 times to approximately 3.3 million homes by the end of
2000 (representing a penetration of 9.1% of the homes that will have been
marketed this service). It is further expected that data service customers will
increase to approximately 15.2 million homes by the end of 2008 (representing a
penetration of 18.0% of the homes that will have been marketed this service).
The cable industry also has developed standards so that inter-operable,
non-proprietary cable modems will be made available in retail outlets beginning
in the second half of 1999. Such availability will allow customers to use their
modems in different systems while decreasing our need to maintain an inventory
of such equipment. In March 1998, the Data Over Cable Service Interface
Specifications ("DOCSIS") created by Cable Television Laboratories, Inc.
("CableLabs") 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. For example, Cablevision
Systems Corporation and Cox Communications are each now offering packages of
local, regional and long distance service to homes and businesses at prices
averaging 15% below those offered by the incumbent telephone companies in their
respective distribution areas. Penetration rates are running as high as 15% to
20% of the homes that have been marketed this service. Other operators who have
launched this service include MediaOne Group, Inc. and Jones Intercable, Inc.
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 1.9 million homes by the end
of 2000 (representing a penetration of 10.0% of the homes that will have been
marketed this service) and approximately 19.6 million homes by 2008
(representing a penetration of 24.0% of the homes that will have been marketed
this service).
38
<PAGE>
BUSINESS
GENERAL
We are the 10th largest cable television system operator in the United
States based on customers served, with approximately 1,046,000 customers as of
December 31, 1998, on a pro forma basis. 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, high-speed data access and telephony 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 has
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.
As of December 31, 1998, on a pro forma basis, our systems:
o passed 1,624,477 homes
o served 1,045,612 customers
For the year ended December 31, 1998, we had:
on a pro forma basis:
o revenues of $375.7 million
o EBITDA of $178.6 million
on a pro forma proportional basis:
o revenues of $244.5 million
o EBITDA of $112.2 million
Recognizing the opportunities presented by newly available products and
services, the strength of our market characteristics and favorable changes in
the regulatory environment, our management team developed and executed a
strategy to become a competitive, full service provider of entertainment,
information and telecommunication services for the communities served by our
networks. We intend to capitalize on our highly clustered cable television
systems to economically rebuild the technological capabilities of our broadband
networks in order to deploy enhanced new services. We believe that an integrated
package of existing multi-channel video, new and enhanced products and services,
such as interactive digital video (including video-on-demand or near
video-on-demand), high-speed Internet access and telephone services, coupled
with our commitment to locally focused customer service, will enhance our
ability to acquire and retain customers in a competitive environment while
increasing revenues per customer. To augment this growth, we will continue to
seek strategic acquisitions that fit our clustering and operating strategy.
Our marketing strategy is designed to capitalize on these trends by
offering our customers an array of entertainment, information and
telecommunication services on a bundled basis. By bundling our products and
services, our customers would have an increased choice of services at a reduced
cost resulting in higher customer satisfaction, higher penetration and reduced
churn. 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
39
<PAGE>
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 penetration 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 bandwidth with two-way active capability. We have rebuilt approximately 28%
of our network miles as of March 31, 1999 on a pro forma basis 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.
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 and for the
year ended December 31, 1998 (except as otherwise indicated).
SELECTED TECHNICAL, OPERATING AND FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MANAGED
NATIONAL COLUMBUS INDIANA KENTUCKY INDIANA
SYSTEMS(1) SYSTEM(2) SYSTEMS(3) SYSTEMS(4) SYSTEMS(5)
---------- ----------- -------- -------- --------
TECHNICAL DATA:
<S> <C> <C> <C> <C> <C>
Network miles............................... 1,727 2,644 7,422 8,052
Number of headends.......................... 5 1 45 18
Number of headends expected as of March 31,
2000(6).................................. 5 1 11 4
Number of headends serving 90% of
our customers expected as of
March 31, 2000(6)........................ 2 1 3 4
OPERATING DATA:
Homes passed................................ 148,864 171,753 493,482 650,734 159,644
Basic customers............................. 86,917 87,637 334,026 424,215 112,817
Basic penetration........................... 58.4% 51.0% 67.7% 65.2% 70.7%
Premium units............................... 92,521 90,032 231,372 347,005 44,596
Premium penetration......................... 106.5% 102.7% 69.3% 81.8% 39.5%
Number of addressable homes................. 30,532 73,362 75,850 130,799 22,000
FINANCIAL DATA:
Revenues.................................... $41,314 $47,956 $138,861 $195,507 $48,800
EBITDA(7)................................... 18,360 18,261 74,508 85,763
EBITDA margin............................... 44.4% 38.1% 53.7% 43.9%
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) Represents the National Systems, including the Rockford system, which was
acquired on January 22, 1998. Includes the financial data of the Scottsburg
system and the Portland system, which are wholly-owned by us. The technical,
operating and other data of the Scottsburg and Portland systems are included
with the Indiana Systems since they are managed by Insight Indiana.
(Footnotes continued on next page)
40
<PAGE>
(Footnotes continued from previous page)
(2) Represents the Columbus System, which was acquired by Insight Ohio on
August 21, 1998. The results of operations of the Columbus System are not
consolidated since we do not have voting control. See "Description of Recent
Transactions--The Transactions to Acquire the Columbus System."
(3) Represents the Indiana Systems, which were contributed to Insight Indiana on
October 31, 1998. Also includes the technical, operating and other data of
the Scottsburg system, which was acquired on March 22, 1999, and the
Portland system, which was acquired on March 31, 1999, since they are
managed by Insight Indiana. The financial data of the Scottsburg and
Portland systems are included with National Systems since they are
wholly-owned by us. See "Description of Recent Transactions--The
Transactions to Acquire the Indiana Systems."
(4) Represents the Kentucky Systems, in which we expect to acquire our ownership
interest during the second half of 1999. There can be no assurance that the
Kentucky Acquisition will be consummated. See "Description of Recent
Transactions--The Transactions to Acquire the Kentucky Systems."
(5) Represents the Managed Indiana Systems, to which we expect to provide
consulting services commencing in the fourth quarter of 1999. There can be
no assurance that this transaction will be consummated. See "Business--The
Systems--The Indiana Systems--The Managed Indiana Systems."
(6) Represents an estimate based on our current rebuild program.
(7) Represents earnings (loss) before interest, taxes, depreciation and
amortization and with respect to the Columbus System, before severance and
transaction structure costs of $4.8 million associated with the contribution
of the Columbus System to Insight Ohio.
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
41
<PAGE>
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 DBS, and incumbent telephone companies. To accelerate
the deployment of these services, we have partnered with several industry
leaders, including AT&T, @Home and 3Com.
LEVERAGE STRONG LOCAL PRESENCE TO ENHANCE CUSTOMER AND COMMUNITY RELATIONS
Strong customer service is a key element of our business strategy. We are
dedicated to quality customer service and seek a high level of customer
satisfaction by employing localized customer care, extensively using market
research and providing customers with an attractively priced product offering.
Approximately 40% of our customers visit their local office on a monthly basis
providing us the opportunity to demonstrate and sell our new and enhanced
products and services. Our localized customer care initiatives create
substantial marketing and promotion opportunities which we believe will be
effective in the deployment of interactive and high-speed data products. In
addition, we are dedicated to fostering strong relations in the communities we
serve. We sponsor local charities and community causes through staged events and
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 DBS 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 certain
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.
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 BIS, 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 December 31, 1998 on a pro forma basis, cable television systems
serving approximately 1,046,000 customers with approximately 98% of our
customers clustered in the State of Indiana; Rockford, Illinois; Columbus, Ohio;
and the State of Kentucky.
42
<PAGE>
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 December 31, 1998 on a pro forma basis, our systems were comprised of
approximately 19,850 miles of network passing approximately 1,465,000 homes
resulting in a density of approximately 74 homes per mile. As of that date, our
systems on a pro forma basis were made up of an aggregate of 70 headends. We
intend to continue our strategy of consolidating headends by eliminating
approximately 54 headends by March 31, 2000, at which point 96% of our customers
will be served by nine headends. As of December 31, 1998 on a pro forma basis,
approximately 29% of our network was at 450-550 MHz, while approximately 30% 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 December 31, 1998, an average of approximately
1,500 homes were being served by each fiber node. We have designed the fiber
system to be capable of subdividing the nodes if traffic on the network requires
additional capacity.
We believe that active use of fiber optic technology as a supplement to
coaxial cable will play a major role in expanding channel capacity and improving
the performance of our systems. Fiber optic strands are 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 December 31, 1998 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................ 39.9% 32.3% 27.8% 35.8%
As of December 31, 1999*................................. 7.6 21.0 71.4 74
As of December 31, 2000*................................. 2.3 7.0 90.7 94
</TABLE>
- ------------------
* Estimate based on our current rebuild program. There can be no assurance that
our current rebuild program will be achieved.
43
<PAGE>
PRODUCTS AND SERVICES
TRADITIONAL CABLE TELEVISION SERVICES
We offer our customers a full array of traditional cable television
services and programming offerings. All of our customers receive a basic service
of up to 17 channels of television programming. Approximately 94% of our
customers choose to pay an additional amount to receive up to 50 additional
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 December 31, 1998 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.
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 DBS competition. 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.
44
<PAGE>
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. ("Source
Media") 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.
We have signed a letter of intent with DIVA Systems Corporation ("DIVA"),
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 initially
intend to launch DIVA's video-on-demand product in Rockford, Illinois, in July
1999 and later this year in Columbus, Ohio and Bloomington, Indiana. A
video-on-demand launch is also being considered for Evansville, 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
45
<PAGE>
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 will 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 BIS digital product to our
interactive digital product. Additionally, in 2000, we expect to convert the
Kentucky Systems from the InterMedia VI digital product to our interactive
digital product. While the AT&T BIS and InterMedia VI digital products were
targeted to fill programming voids and compete with DBS, 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 BIS 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 10% penetration within four months of launch with
incremental revenue per digital customer of over $16.00 per month.
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 at a significantly faster speed than traditional
telephone lines (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 and our small system
markets, we are considering separate distribution agreements with @Home,
RoadRunner and other Internet service providers.
In addition to being an Internet service provider, @Home offers its own
content. @Home aggregates high quality web sites for customers to explore and
also offers various chat rooms, newsgroups, on-line stores, gaming channels, on
demand CNN, NBA and MTV video clips, and easy to use search engines and tip
wizards. We expect to offer our customers content of local interest, including
community information, local news, sports, entertainment, and weather, through
our local home page.
46
<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 will also offer remote access and multiple computer access
for an additional charge. 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 premium services, such as dial-up access, 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.
While we will initially lease cable modems to customers, we expect a
significant portion of our customers to purchase a cable modem once the DOCSIS
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
certain small business customers under the "AT&T" brand name over our cable
infrastructure (the "Telephony Joint Venture"). The Telephony 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
certain other network services from AT&T. We believe there is significant
potential for the Telephony Joint Venture based both on our management's
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 Telephony Joint Venture, and we
expect to invest up to 49% of the equity capital for the joint venture on terms
to be negotiated. Under the Telephony 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 Telephony 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.
47
<PAGE>
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 affiliated
entity, Insight Communications Company UK, L.P., our management and certain of
our affiliates 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 affiliate. 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 BIS in October 1998. Prior
to December 31, 1997, our systems had approximately 180,000 customers with the
two largest concentrations in Utah and Indiana, which together represented less
than half of our customers. We believe that we have successfully transformed our
assets so that today on a pro forma basis we own, operate and manage a cable
television network serving approximately 1,046,000 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 BIS our
Utah systems serving approximately 56,200 customers for systems in
Evansville and Jasper, Indiana serving approximately
48
<PAGE>
63,000 customers. Simultaneously with this transaction, we contributed
approximately 157,000 of our Indiana customers and AT&T BIS contributed
approximately 162,000 of its Indiana customers to a newly formed joint
venture in which AT&T BIS 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, ICM and a subsidiary and related party of AT&T BIS to
purchase, subject to certain conditions, their combined 50% interest in
InterMedia VI, which serves approximately 426,000 basic customers
throughout Kentucky. Pursuant to 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 consummated 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 BIS,
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 BIS 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.
THE SYSTEMS
Our operations are conducted through the Indiana Systems, the National
Systems and the Columbus System, and will also be conducted upon the
consummation of the Kentucky Acquisitions through the Kentucky Systems.
THE INDIANA SYSTEMS
As of December 31, 1998 on a pro forma basis for the Scottsburg and
Portland systems, the Indiana Systems passed approximately 493,500 homes and
served approximately 334,000 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 BIS 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 BIS, including (a) substantial programming discounts for the Indiana
Systems and (b) participation in AT&T BIS 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 17,600 homes and served
approximately 10,500 customers as of December 31, 1998. 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.
49
<PAGE>
The Indiana Systems are organized in five management districts:
The Bloomington District
As of December 31, 1998, the Bloomington District passed approximately
77,400 homes and served approximately 58,400 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.
Interactive digital video was launched in Bloomington by AT&T BIS 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 December 31, 1998 on a pro forma basis, the Evansville District
passed approximately 121,600 homes and served 73,200 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.
An affiliate of SIGECO is overbuilding a portion of our Evansville system.
SIGECO has obtained franchises to provide cable television service in the City
of Evansville and neighboring areas and commenced service in April 1999. SIGECO
is currently offering cable service to an estimated 3,000 customers in our
service 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 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 during the third 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 December 31, 1998, the Jeffersonville District passed approximately
41,500 homes and served approximately 24,600 customers, including the Scottsburg
system, which passed 7,200 homes and served approximately 4,500 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 December 31, 1998, the Lafayette District passed approximately
102,500 homes and served approximately 77,100 customers, including the Lafayette
District is the Portland system, which passed approximately 11,100 homes and
served approximately 6,400 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.
50
<PAGE>
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 BIS
launched a digital service in the Kokomo market in late 1998. 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.
The Anderson District
As of December 31, 1998, the Anderson District passed approximately 150,500
homes and served approximately 100,800 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.
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 BIS launched a Digital
Gateway 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.
The Managed Indiana Systems
We expect to enter into a five-year agreement with AT&T BIS to provide
consulting services to cable television systems being acquired by AT&T BIS,
which systems as of December 31, 1998 passed approximately 159,600 homes and
served approximately 112,800 customers in the State of Indiana. AT&T BIS will
acquire these systems from Charter Communications as part of a series of swaps
between AT&T BIS, Charter and InterMedia Partners IV, L.P. We anticipate that
the acquisition of these systems by AT&T BIS will be consummated 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.
THE NATIONAL SYSTEMS
The National Systems passed approximately 148,900 homes and served
approximately 86,900 customers on a pro forma basis as of December 31, 1998. 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 December 31, 1998, the Rockford system passed approximately 99,700
homes and served approximately 65,200 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 third quarter of
1999. We plan to complete the rebuild of the Rockford system by the end of 1999.
51
<PAGE>
Griffin, Georgia
As of December 31, 1998, the Griffin system passed approximately 19,200
homes and served approximately 12,700 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 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 December 31, 1998, the Claremont systems passed approximately 30,000
homes and served approximately 9,000 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 December 31, 1998, the Columbus System passed approximately 171,800
homes and served approximately 87,600 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 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, and thereby have
effective control of the management and affairs of Coaxial, 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, which we
believe is one of the highest levels in the cable television industry for a
major cable system.
52
<PAGE>
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 June 1999. We will begin
launching our Digital Gateway service, including DIVA's video-on-demand service
and the LocalSource interactive information service, during the second quarter
of 1999. We expect to launch a high-speed data service during the fourth quarter
of 1999.
When we acquired the Columbus System, we implemented a strategy to end deep
discounting as a defense against Ameritech. We believed that a relatively small
customer loss, caused by discontinuing discounts, would be preferable in
exchange for increasing the average monthly revenue per customer. As a result of
this strategy, from June 30, 1998 to December 31, 1998, the average monthly
revenue per customer increased from approximately $43.30 to $46.85, while the
number of customers decreased from approximately 91,100 to 88,600. Ameritech
seems to have responded to this strategy by recently announcing a $1.75 increase
in the price of their standard cable service and a $0.26 increase in the price
of pay-per-view movies.
As with our National, Indiana and Kentucky Systems, we intend to launch a
voice telephony alternative to Ameritech through our joint venture with AT&T.
Time Warner, the other major cable television provider in the market, also has
announced a joint venture agreement with AT&T.
THE KENTUCKY SYSTEMS
In April 1999, we entered into an agreement with Blackstone Capital, ICM
and a subsidiary and related party of AT&T BIS to purchase their combined 50%
interest in InterMedia VI for $327.2 million, subject to adjustment, which was
calculated based upon InterMedia's total outstanding debt, which was $730.4
million as of February 28, 1999. We also entered into an agreement with AT&T
BIS, whereby upon consummation of the Kentucky Acquisition we will each own a
50% interest, and we will manage and operate the Kentucky Systems. InterMedia VI
was formed by AT&T BIS, Blackstone Capital and ICM to acquire cable television
systems which, as of December 31, 1998, served approximately 424,000 basic
customers and passed approximately 651,000 homes primarily in four operating
clusters in the State of Kentucky. InterMedia VI 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
On a pro forma basis, as of December 31, 1998, the Louisville system passed
approximately 362,400 homes and served approximately 234,800 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.
53
<PAGE>
InterMedia VI 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 December 31, 1998, the Lexington system passed approximately 115,700
homes and served approximately 79,900 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
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 VI launched its digital service in Lexington in
October of 1998 and has achieved penetration levels of 16% in the areas where
digital is available. The Lexington system has launched the @Home service.
Covington
As of December 31, 1998, the Covington system passed approximately 119,200
homes and served approximately 71,300 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.
There is a small overbuild by FrontierVision of the Covington system relating to
approximately 7,400 homes in Boone County. Pursuant to an agreement with
FrontierVision, we will aquire the FrontierVision Covington customers, including
those located in the overbuild.
Bowling Green
As of December 31, 1998, the Bowling Green system passed approximately
31,900 homes and served approximately 21,800 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. We plan to launch our Digital Gateway service in 2000 and migrate
those customers currently served by the existing digital service to our Digital
Gateway service.
Other Kentucky Systems
InterMedia VI has entered into an agreement to exchange the Danville
system, which passes 21,500 homes and serves 16,500 customers, for
FrontierVision's Carrollton, Kentucky system. Consummation of this exchange
agreement is subject to various conditions.
CUSTOMER RATES
Monthly customer rates for services vary from market to market. As of
December 31, 1998, our average monthly basic service rate for residential
customers was $8.76, 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
December 31, 1998, the weighted average revenue (including special promotions)
for our monthly combined basic and classic service was approximately $24.00,
which is below the national average of $27.43 as reported by Paul Kagan &
Associates.
54
<PAGE>
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.
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 the Telephony Joint
Venture we intend to aggressively pursue co-marketing campaigns with AT&T. We
expect to launch a campaign in Evansville, Indiana whereby customers subscribing
to the digital service who are also AT&T long distance customers will realize
savings off of their cable and long distance provided they remain customers of
us and AT&T. We expect to rollout similar programs in other systems until we are
able to provide the complete package of entertainment, information and telephony
products on a bundled basis.
PROGRAMMING SUPPLY
Most cable companies purchase their programming product directly from the
program networks by entering into a contractual relationship with the program
supplier. The vast majority of these program suppliers offer the cable operator
license fee rate cards with size-based volume discounts and other financial
incentives, such as launch and marketing support and cross-channel advertising.
Due to our different strategic partnerships, we have had the benefit of
securing our programming from a variety of sources. Since 1986, our partnership
with MediaOne has enabled us to purchase our core program product, for both our
National Systems and the Columbus System, at MediaOne's cost. While these rates
have been more favorable due to MediaOne's overall size, we have been very
aggressive in successfully negotiating additional programming deals directly
with our suppliers, depending upon our respective systems' needs and location.
In anticipation of redeeming MediaOne's interest in Insight, we have
continued to secure competitive programming agreements, independent of our
current MediaOne partnership. While it is expected that certain product license
fees will incur increases (e.g., sports) 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
55
<PAGE>
MSO alliances and the utilization of programming co-operatives, such as
Tele-synergy and the National Cable Television Cooperative, we will be able to
secure rates which will be consistent with the cable industry average. No
assurance can be given that we will be able to secure such rates. Programming
co-operatives leverage their cable members' total service customer size to
maximize volume discounts to purchase programming at reduced license fees.
Currently there are over 130 cable networks competing for carriage on our
analog and digital platforms. We have continued to leverage both our systems'
analog rebuilds and newly deployed digital packages as an 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 BIS, we will have the right to
purchase programming services for the Indiana Systems and, upon consummation of
the Kentucky Acquisition, for the Kentucky Systems, directly through AT&T BIS'
programming supplier Satellite Services, Inc. ("SSI"). We believe that SSI 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, certain 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 DBS 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 certain 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
56
<PAGE>
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.
FRANCHISES
Cable television systems are constructed and operated under fixed-term
non-exclusive franchises or other types of operating authorities (collectively
referred to herein as "franchises") 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 certain other public institutions;
o The maintenance of insurance and indemnity bonds; and
o The payment of fees to communities.
Certain provisions of these local franchises are subject to limits imposed by
federal law.
As of January 31, 1999 on a pro forma basis, we held 392 franchises in the
aggregate, consisting of 158 in the Indiana Systems, 15 in the National Systems,
28 in the Columbus System and 191 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 January 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*................................. 6 1.0% 20,576 2.2%
1999..................................... 10 3.5 12,218 1.3
2000..................................... 21 9.5 39,624 4.3
2001..................................... 13 5.0 21,842 2.4
2002..................................... 22 10.4 50,536 5.5
After 2002............................... 320 70.6 781,512 84.3
------ ----- ------- -----
Total.................................... 392 100.0% 926,308 100.0%
------ ----- ------- -----
------ ----- ------- -----
</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 VI'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.
57
<PAGE>
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.
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 certain of our
cable communications systems. Currently, our most significant wireline
competition is from an affiliate 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.
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 SMATV system operators)
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 DBS 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.
DBS systems use digital video compression technology to increase the
channel capacity of their systems. DBS programming is currently available to
individual households, condominiums and apartment and office complexes through
conventional, medium and high-power satellites. High-power DBS services are
currently being provided by DIRECTV, Inc. and EchoStar Communications
Corporation, and medium-power service is being provided by PrimeStar, Inc.
Recently announced transactions would result in DIRECTV and EchoStar obtaining
additional high-power DBS channel capacity through the acquisition of other DBS
facilities. In addition, DIRECTV has acquired PrimeStar's medium-power DBS
business. 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. DBS has certain 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,
commonly known as MMDS, which use microwave frequencies to transmit video
programming over-the-air to customers. There are MMDS operators who are
authorized to provide or are providing broadcast and satellite programming to
customers in areas served by our cable systems. Additionally, the FCC adopted
regulations allocating frequencies in the 28 GHz band for a new service called
local multipoint distribution service, commonly known as LMDS, that can be used
to provide video services similar to MMDS. The FCC held spectrum auctions for
LMDS licenses in February-March 1998, and scheduled a further auction which
commenced in April 1999.
58
<PAGE>
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 DBS
operators, MMDS operators and direct wireline overbuilders.
o DBS has more channels and better picture and sound quality over cable
operators who have not rebuilt their systems nor added digital. However,
DBS does not offer locally produced programming, nor does it have a
significant local presence in the community. In addition, DBS is more
expensive than cable, especially if it is desired to be on more than one
TV in the household. Finally, DBS does 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 MMDS offers a lower cost alternative to DBS, but serious transmission
limitations caused by the need to have line of sight access to customers
have hampered its growth. MMDS 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 certain 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.
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.
59
<PAGE>
We own and lease parcels of real property for signal reception sites
(antenna towers and headends), microwave complexes and business offices
(including our principal executive offices). In addition, we own our cable
systems' distribution networks, various office fixtures, test equipment and
certain 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 BIS in exchange for systems in
Indiana have been named in class actions concerning late fee charges and
practices. 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 BIS and Insight states that the
litigation will remain a liability of Insight.
Some of the systems AT&T BIS contributed to Insight Indiana have been named
in class actions concerning late fee charges and practices. 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 BIS and Insight states that the litigation will remain a liability
of AT&T BIS.
We believe there are no other pending or threatened legal proceedings that,
if adversely determined, would have a material adverse effect on us.
60
<PAGE>
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 DBS. 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 ("CPST") (other than per-channel or per-program
services) in response to complaints filed by franchising authorities and/or
cable customers; prohibited cable television systems from requiring basic
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
61
<PAGE>
boxes and additional outlets; and allowed the FCC to impose restrictions on the
retiering and rearrangement of cable services under certain limited
circumstances. The 1996 Telecom Act limited the class of complainants regarding
CPST rates to franchising authorities only, after first receiving two rate
complaints from local customers, and ended FCC regulation of CPST 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 (e.g., converter boxes and remote control
devices) and installation services be unbundled from the provision of cable
service and based upon actual costs plus a reasonable profit. The regulations
also provide that future rate increases may not exceed an inflation-indexed
amount, plus increases in certain costs beyond the cable operator's control,
such as taxes, franchise fees and increased programming costs. Cost-based
adjustments to these capped rates can also be made in the event a cable
television operator adds or deletes channels. 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" (the "small system rules"). A "small system" is defined
as a cable television system which has, on a headend basis, 15,000 or fewer
basic 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 (i.e., a larger cable television company does not own more
than a 20 percent equity share or exercise de jure control). This small system
rate-setting methodology almost always results in rates which exceed those
produced by the cost-of-service rules applicable to larger cable television
operators. Once the initial rates are set they can be adjusted periodically for
inflation and external cost changes as described above. When an eligible "small
system" grows larger than 15,000 basic 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 consummation of the AT&T BIS 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 consummation of the
AT&T BIS 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 (i.e., the system is located in the station's Area of Dominant Influence)
to elect every three years whether to require the cable television system to
carry the station, subject to certain exceptions, or whether the cable
television system will have to negotiate for "retransmission consent" to carry
the station. The next election between must-carry and retransmission consent
will be October 1, 1999. A cable television system is generally required to
devote up to one-third of
62
<PAGE>
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" (i.e., commercial satellite-delivered independent stations such
as WGN). To date, compliance with the "retransmission consent" and "must carry"
provisions of the 1992 Cable Act has not had a material effect on 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.
63
<PAGE>
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 ("LECs") providing video programming directly to customers within their
local exchange telephone service areas. Consequently, the 1996 Telecom Act
permits telephone companies to compete directly with operations of cable
television systems. Under the 1996 Telecom Act and FCC rules adopted to
implement the 1996 Telecom Act, LECs may provide video service as broadcasters,
common carriers, or cable operators. In addition, LECs and others may also
provide video service through "open video systems" ("OVS"), a regulatory regime
that may give them more flexibility than traditional cable television systems.
OVS operators (including LECs) 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, OVS operators must make
their systems available to programming providers on rates, terms and conditions
that are reasonable and nondiscriminatory. Where carriage demand by programming
providers exceeds the channel capacity of an OVS, two-thirds of the channels
must be made available to programmers unaffiliated with the OVS operator.
The 1996 Telecom Act generally prohibits LECs from purchasing cable
television systems (i.e, any ownership interest exceeding 10%) located within
the LEC's telephone service area, prohibits cable operators from purchasing LECs
whose service areas are located within the cable operator's franchise area, and
prohibits joint ventures between operators of cable television systems and LECs
operating in overlapping markets. There are some statutory exceptions, including
a rural exemption that permits buyouts in which the purchased cable television
system or LEC serves a non-urban area with fewer than 35,000 inhabitants, and
exemptions for the purchase of small cable television systems located in
non-urban areas. Also, the FCC may grant waivers of the buyout provisions in
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 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.
64
<PAGE>
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.
Technical Requirements
The FCC has imposed technical standards applicable to all classes of
channels which carry downstream National Television System Committee ("NTSC")
video programming. The FCC also has adopted additional standards applicable to
cable television systems using frequencies in the 108 to 137 MHz and 225 to 400
MHz bands in order to prevent harmful interference with aeronautical navigation
and safety radio services and has also established limits on cable television
system signal leakage. Periodic testing by cable television
65
<PAGE>
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
("MVPD"). Pursuant to those rules, consumers are given the right to attach
compatible equipment to the facilities of their MVPD so long as the equipment
does not harm the network, does not interfere with the services purchased by
other customers and is not used to receive unauthorized services. As of July 1,
2000, MVPDs (other than DBS operators) are required to separate security from
non-security functions in the customer premises equipment which they sell or
lease to their customers and offer their customers the option of using component
security modules obtained from the MVPD with set-top units purchased or leased
from retail outlets. As of January 1, 2005, MVPDs will be prohibited from
distributing new set-top equipment integrating both security and non-security
functions to their customers.
Pursuant to the 1992 Cable Act, the FCC has adopted rules implementing an
Emergency Alert System ("EAS"). The rules require all cable television systems
to provide an audio and video EAS message on at least one programmed channel and
a video interruption and an audio alert message on all programmed channels. The
audio alert message is required to state which channel is carrying the full
audio and video EAS message. The FCC rules permit cable television systems
either to provide a separate means of alerting persons with hearing disabilities
of EAS messages, such as a terminal that displays EAS messages and activates
other alerting mechanisms or lights, or to provide audio and video EAS messages
on all channels. Cable television systems with 10,000 or more basic customers
per headend were required to install EAS equipment capable of providing audio
and video EAS messages on all programmed channels by December 31, 1998. Cable
television systems with 5,000 or more but fewer than 10,000 basic 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 EAS message on all programmed
channels or installing EAS equipment capable of providing audio alert messages
on all programmed channels, a video interrupt on all channels, and an audio and
video EAS message on one programmed channel. This must be accomplished by
October 1, 2002.
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 ("MDU") service contract to
sell, abandon, or remove "home run" wiring that was installed by the cable
operator in a MDU 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 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 MDUs, such as on roofs. This new order may
limit the extent to which MDU owners and Insight may enforce certain aspects of
MDU agreements which otherwise would prohibit, for example, placement of DBS
receive antennae in MDU areas (such as apartment balconies or patios) under the
exclusive occupancy of a renter.
66
<PAGE>
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.
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 ("ASCAP") and BMI, Inc. ("BMI"),
the two major performing rights organizations in the United States. Both ASCAP
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
67
<PAGE>
announcements, must be obtained by the cable television operator. Cable
television industry negotiations with ASCAP, BMI and SESAC, Inc. (a smaller
performing rights organization) are in progress.
STATE AND LOCAL REGULATION
Cable television systems generally are operated pursuant to nonexclusive
franchises, permits or licenses granted by a municipality or other state or
local government entity. The terms and conditions of franchises vary materially
from jurisdiction to jurisdiction, and even from city to city within the same
state, historically ranging from reasonable to highly restrictive or burdensome.
Franchises generally contain provisions governing fees to be paid to the
franchising authority, length of the franchise term, renewal, sale or transfer
of the franchise, territory of the franchise, design and technical performance
of the system, use and occupancy of public streets and number and types of cable
television services provided. The terms and conditions of each franchise and the
laws and regulations under which it was granted directly affect the
profitability of the cable television system. The 1984 Cable Act places certain
limitations on a franchising authority's ability to control the operation of a
cable television system. The 1992 Cable Act prohibits exclusive franchises, and
allows franchising authorities to exercise greater control over the operation of
franchised cable television systems, especially in the area of customer service
and rate regulation. The 1992 Cable Act also allows franchising authorities to
operate their own multichannel video distribution system without having to
obtain a franchise and permits states or local franchising authorities to adopt
certain restrictions on the ownership of cable television systems. Moreover,
franchising authorities are immunized from monetary damage awards arising from
regulation of cable television systems or decisions made on franchise grants,
renewals, transfers and amendments. The 1996 Telecom Act prohibits a franchising
authority from either requiring or limiting a cable television operator's
provision of telecommunications services.
Various proposals have been introduced at the state and local levels with
regard to the regulation of cable television systems, and a number of states
have adopted legislation subjecting cable television systems to the jurisdiction
of centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. To date, none of the states in
which Insight currently operates has enacted state level regulation.
The foregoing does not purport to describe all present and proposed
federal, state and local regulations and legislation relating to the cable
television industry. Other existing federal regulations, copyright licensing
and, in many jurisdictions, state and local franchise requirements, currently
are the subject of a variety of judicial proceedings, legislative hearings and
administrative and legislative proposals which could change, in varying degrees,
the manner in which cable television systems operate. Neither the outcome of
these proceedings nor their impact upon the cable television industry or 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 (referred to as
"Internet Service Providers" or "ISPs"). ISPs 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 ISPs
asked the FCC as well as local authorities to require cable companies offering
Internet access services over their broadband facilities to allow access to
those facilities on an unbundled basis to other ISPs. 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 ISPs that it condition its approval of
the merger of AT&T and TCI (now known as AT&T BIS) on a requirement that those
companies allow access by ISPs to their broadband facilities. Several local
jurisdictions also are reviewing this issue.
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
68
<PAGE>
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.
69
<PAGE>
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.............................. 46 President, Chief Executive Officer and Director
Kim D. Kelly.................................... 42 Executive Vice President, Chief Operating and
Financial Officer and Director
Thomas L. Kempner............................... 71 Director Nominee
James S. Marcus................................. 69 Director Nominee
Prakash A. Melwani.............................. 40 Director Nominee
Daniel S. O'Connell............................. 45 Director Nominee
Other key employees include:
Steven E. Sklar................................. 35 Senior Vice President of Finance and Business
Development
James A. Stewart................................ 47 Senior Vice President of Operations
E. Scott Cooley................................. 38 Senior Vice President, Insight Communications of
Indiana
Pamela Euler Halling............................ 51 Senior Vice President of Marketing and
Programming
Charles E. Dietz................................ 51 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
William Gilbert................................. 48 Vice President of Advertising Sales
Susane Newell................................... 37 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
</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 Incorporated, General American Investors Company, Inc. and IGENE
Biotechnology, Inc. as well as several private companies. Mr. Knafel is a
graduate of Harvard College and the Harvard Graduate School of Business
Administration.
Michael S. Willner co-founded and has served as President of Insight since
1985. Previously, Mr. Willner served as Executive Vice President and Chief
Operating Officer of Vision Cable from 1979 through 1985, Vice President of
Marketing for Vision Cable from 1977 to 1979 and General Manager of Vision
Cable's Bergen County, New Jersey cable television system from 1975 to 1977.
Currently, 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 ("NCTA") where he chairs the association's State
and Local
70
<PAGE>
Government Committee. Mr. Willner graduated from 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
NCTA Subcommittee for Telecommunications Policy, as well as the NCTA
Subcommittees for Accounting. She also serves on the boards of CATA, Cable in
the Classroom and CAB. 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 consummation of this offering. He is and has been Chairman and Chief
Executive Officer of Loeb Partners Corporation, investment bankers, 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., and
Roper Starch Worldwide, Inc. Mr. Kempner graduated from Yale University.
James S. Marcus is a nominee to become a member of the board of directors
upon the consummation of this offering. He is a limited partner of Goldman,
Sachs & Co., 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 consummation 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 is a
director of International AirParts Corporation, McHugh Software International,
Inc. and Pinnacle Automation, Inc., all companies in which Vestar has a
significant equity interest. Mr. Melwani graduated from Cambridge University
with a B.A. degree and received a graduate degree from Harvard University.
Daniel S. O'Connell is a nominee to become a member of the board of
directors upon the consummation of this offering. He was the founder in 1988 of
Vestar Capital Partners. He is currently the Chief Executive Officer of Vestar.
He 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 graduated from Brown University and received a
graduate degree from Yale University.
Steven E. Sklar joined Insight in 1998 as Senior Vice President of Finance
and Business Development. From 1996 through 1998, Mr. Sklar was with Encore
Media Group, most recently as Division Vice President. He previously held the
position of VP--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.
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 BIS 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 BIS' southern Indiana, Illinois and
Missouri systems serving 260,000 customers. In 1997, he received AT&T BIS'
Manager of the Year award.
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
71
<PAGE>
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.
Charles E. Dietz joined Insight as Senior Vice President, Engineering in
1996. From 1973 to 1995, Mr. Dietz was employed by Vision Cable 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 as Vice President, Marketing and
Sales in 1995. Prior to joining Coaxial, Mr. Graff was Director of Marketing for
KBLCOM's Paragon Cable operation in San Antonio, Texas. He began his cable
television career in 1984 with Continental Cablevision.
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, 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.
All directors hold office until the next annual meeting of stockholders and
until their successors have been elected and qualify. All executive officers
serve at the discretion of the Board of Directors. We and certain members of
management 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 (i) recommend the appointment of independent accountants,
(ii) review the arrangements for and scope of the audit by independent
accountants, (iii) review the independence of the independent accountants,
(iv) consider the adequacy of the system of internal accounting controls and
review any proposed corrective actions, (v) review and monitor our policies
regarding business ethics and conflicts of interest, (vi) discuss with
management and the independent accountants our draft annual financial statements
and key accounting and reporting matters, and (vii) review the activities and
recommendations of our accounting department.
72
<PAGE>
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 (the "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 and
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.
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 (collectively, the "Named Executives"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
- ------------------------------------------------------------------------ ---- -------- --------
<S> <C> <C> <C>
Sidney R. Knafel ....................................................... 1998 $250,000 $ --
Chairman of the Board
Michael S. Willner ..................................................... 1998 500,000 100,000
President and Chief Executive Officer
Kim D. Kelly ........................................................... 1998 450,000 90,000
Executive Vice President and Chief Financial and Operating Officer
</TABLE>
1999 STOCK OPTION PLAN
The Board of Directors adopted our Plan on , 1999. We have
reserved 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
73
<PAGE>
account the recommendations of our President, Michael S. Willner, the position
and responsibilities of the individual being considered, the nature and value to
Insight or its subsidiaries of his or her service or accomplishments, his or her
present or potential contribution to the success of Insight or its subsidiaries,
the number and terms of options and SARs already held by an individual and such
other factors as the stock option committee may deem relevant. In making
recommendations to the stock option committee, Mr. Willner focuses upon
individuals who would be motivated by a direct economic stake in the equity of
Insight. Options may provide for their exercise into shares of any class of our
common stock, Class A or Class B.
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 the exchange of partnership interests for common stock,
options for an aggregate of shares will have been granted, subject
to stockholder approval, to various individuals, including
. The Plan contains certain limitations
applicable only to ISOs granted thereunder. To the extent that the aggregate
fair market value, as of the date of grant, of the shares to which ISOs become
exercisable for the first time by an optionee during the calendar year exceeds
$100,000, the option will be treated as a nonqualified option. In addition, if
an optionee owns more than 10% of the total voting power of all classes of
Insight's capital stock at the time the individual is granted an ISO, the option
price per share cannot be less than 110% of the fair market value per share and
the term of the ISO cannot exceed five years. No option or SAR may be granted
under the Plan after , 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.
74
<PAGE>
CERTAIN TRANSACTIONS
On July 29, 1998, we entered into a letter of intent with Interactive
Channel, Inc. ("ICI"), a subsidiary of Source Media, Inc., for the distribution
and marketing of ICI'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 ICI 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 ICI, 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."
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;
o each of our Named Executives; and
o all directors and executive officers as a group.
Unless otherwise indicated, the address of each person named in the table
below is Insight Communications Company, Inc., 126 East 56th Street, New York,
New York 10022. The amounts and percentage of common stock beneficially owned
are reported on the basis of regulations of the SEC governing the determination
of beneficial ownership of securities. Under the rules of the SEC, a person is
deemed to be a "beneficial owner" of a security if that person has or shares
"voting power," which includes the power to vote or to direct the voting of such
security, or "investment power," which includes the power to dispose of or to
direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities of which that person has a right to acquire
beneficial ownership within 60 days. Under these rules, more than one person may
be deemed a beneficial owner of the same securities and a person may be deemed
to be a beneficial owner of securities as to which such person has no economic
interest. The information set forth in the following table excludes any shares
purchased in the offering by the respective beneficial owner:
<TABLE>
<CAPTION>
CLASS A COMMON STOCK(1)
---------------------------------------- PERCENT OF VOTE
CLASS B AS A SINGLE CLASS(1)
BEFORE OFFERING AFTER OFFERING COMMON STOCK(2) --------------------
------------------ ------------------ ------------------ BEFORE AFTER
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT OFFERING OFFERING
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sidney R. Knafel(3).............
Michael S. Willner..............
Kim D. Kelly....................
Thomas L. Kempner...............
James S. Marcus.................
Prakash A. Melwani..............
Daniel S. O'Connell.............
All executive officers,
directors and nominees as a
group (7 persons).............
</TABLE>
- ------------------
* Percentage of common stock beneficially owned does not exceed one percent.
(1) Holders of Class A common stock are entitled to one vote per share and
holders of Class B common stock are entitled to ten votes per share. Holders
of both classes of common stock will vote together as a single class on all
matters presented for a vote, except as otherwise required by law.
(2) No shares of Class B common stock will be sold in this offering.
(3) Includes shares held by ICI Communications, Inc., of which
Mr. Knafel is the sole stockholder. Mr. Knafel and certain persons and
entities associated with Mr. Knafel holding an aggregate of shares of
common stock have agreed with Vestar not to sell any shares during the
18-month period following the closing of the offering.
75
<PAGE>
CORPORATE STRUCTURE
The following chart sets forth our pro forma corporate structure:
[Chart of corporate structure]
76
<PAGE>
DESCRIPTION OF RECENT TRANSACTIONS
THE TRANSACTIONS TO ACQUIRE THE COLUMBUS SYSTEM
GENERAL
Insight Ohio, which owns the Columbus System, was formed as a Delaware
limited liability company. On August 21, 1998, a series of transactions were
consummated to facilitate, among other things, the acquisition by Insight Ohio
of the Columbus System. Pursuant to these transactions:
o Coaxial contributed to Insight Ohio substantially all of the assets
comprising the Columbus System for which Coaxial 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
(together, the "Preferred Interests");
o Insight Holdings of Ohio, LLC, a wholly-owned subsidiary of Insight
("IHO"), 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 and Phoenix effected a private offering of the Senior Notes;
o Coaxial LLC, which is a 67.5% shareholder of Coaxial, and Coaxial
Financing Corp. effected a private offering of the Senior Discount Notes;
and
o IHO became the manager of Insight Ohio, Coaxial LLC and the two other
shareholders of Coaxial, which are Coaxial DJM LLC and Coaxial DSM LLC
(Coaxial LLC, Coaxial DJM LLC and Coaxial DSM LLC referred to as the
"Individual LLCs") and IHO thereby has effective control of the
management and affairs of Insight Ohio, Coaxial and the three Individual
LLCs.
As a result of these transactions, we indirectly own 75% of the non-voting
common membership interest in Insight Ohio and Coaxial owns the remaining 25%
non-voting common membership interest and the voting Preferred Interests in
Insight Ohio. Since Coaxial is owned by the three Individual LLCs, 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 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 IHO and Coaxial in an
amount equal to an estimate of certain of their respective tax liabilities.
Insight Ohio will then distribute to IHO a management fee equal to 3% of gross
revenues. Thereafter, distributions to IHO and Coaxial 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 (together, the
"Indentures") 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 IHO's 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 the sole members of each of the three Individual LLCs
(who together are referred to as the "Principals").
The Series B Preferred Interests have an initial liquidation preference of
$30 million. Subject to IHO's agreement to use its commercially reasonable
efforts to obtain a refinancing proposal, Insight Ohio will be
77
<PAGE>
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 Principals. 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 IHO. IHO may not resign as the
manager without the consent of Coaxial and the consent of the Principals (except
in the case of a permitted transfer of all of IHO's membership interest to a
successor, who will then become the manager). If Coaxial and the Principals
consent to IHO's resignation as manager, Insight Ohio will dissolve unless the
members of Insight Ohio and the Principals elect to continue the business of
Insight Ohio and agree to a successor manager.
IHO is entitled to reimbursement from Insight Ohio for certain 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 the Individual LLCs. However, IHO is not entitled to reimbursement
from Insight Ohio for corporate overhead.
TRANSFER OF INTERESTS
IHO and Coaxial 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 Principals, subject to a number of significant exceptions.
In addition, IHO may elect at any time, by delivering written notice of its
election to Coaxial and the Principals, to require that a person designated by
the Principals purchase all of IHO's membership interest, for a nominal purchase
price. IHO would cease to manage Insight Ohio and the Individual LLCs upon
consummation of the sale.
INDIVIDUAL LLCS' MANAGEMENT AGREEMENTS
All of the issued and outstanding capital stock of Coaxial is held by the
Individual LLCs. Each Individual LLC has entered into a management agreement
with IHO. Except for certain events, each Individual LLC has delegated to IHO
all rights and powers of the member of such Individual LLC with respect to the
management and conduct of the Individual LLC's activities and operation insofar
as they relate to the ownership of shares of Coaxial and any Discount Notes. IHO
is not entitled to any compensation from any Individual 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 any Individual LLC. IHO is
not deemed a member of any Individual LLC.
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
consummated to facilitate, among other things, the capitalization of Insight
Indiana. Pursuant to these transactions:
o We exchanged our Utah systems for systems owned by affiliates of AT&T BIS
in Evansville and Jasper, Indiana (the "TCI Exchange Systems");
78
<PAGE>
o We contributed to Insight Indiana the TCI Exchange Systems together with
other systems that we owned and operated in Indiana and Kentucky, subject
to debt (the "Insight Debt"), for which we received a 50% membership
interest in Insight Indiana;
o Several affiliates of AT&T BIS, including TCI of Indiana Holdings, LLC,
collectively contributed to Insight Indiana certain systems that they
owned and operated in Indiana, subject to debt (the "TCI Debt"), for
which TCI of Indiana Holdings, LLC ("TCI Holdings") 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 certain 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
Pursuant to 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 an affiliate. Commencing on
October 30, 2003, we and AT&T BIS each have the right to commence a process
whereby we or AT&T BIS 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, ICM
and a subsidiary and related party of AT&T BIS to purchase their combined 50%
interest in InterMedia VI for $327.2 million, which was calculated based upon
InterMedia's total outstanding debt, which was $730.4 million as of
February 28, 1999. The purchase price is subject to adjustment for certain
events including an increase in the purchase price by 50% of all capital
expenditures incurred by InterMedia VI between April 13, 1999 and consummation
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. Pending consummation of the Kentucky Acquisition, ICM
will continue to manage InterMedia VI. The consummation of the Kentucky
Acquisition is subject to several conditions including (a) receipt (or waiver)
of all necessary material consents from third parties, (b) absence of any
material adverse changes in the conditions, properties or business of the
Kentucky Systems and (c) notification, approval and compliance with the
requirements of appropriate governmental agencies, including, without
limitation, transfer of cable television franchises. We anticipate that the
acquisition will be consummated during the second half of 1999. There can be no
assurance that the Kentucky Acquisition will be consummated on the terms
described in this prospectus, or at all. This offering is not contingent or in
any way dependent on the Kentucky Acquisition.
79
<PAGE>
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 consummation
of the Kentucky Acquisition and several other conditions set forth in the
agreement.
THE TRANSACTION WITH AT&T
In December 1998, we entered into a letter of intent with AT&T to form the
Telephony Joint Venture which would provide local or any-distance communications
services (other than mobile wireless services, video entertainment services and
high-speed Internet access services) to residential consumers and certain small
business customers under the "AT&T" brand name over our cable network. The
Telephony 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 certain other network services from AT&T. AT&T would have majority
representation on the Board of Directors of the Telephony Joint Venture, appoint
all officers of the Telephony Joint Venture and manage the day-to-day operations
of the Telephony Joint Venture. The Telephony 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: (a) we are required to invest between 35% and 49% in the joint venture;
(b) we will receive payments based on number of homes passed upon receipt of
certification; (c) we will be responsible to upgrade our plant to meet certain
telephone certification requirements; (d) the joint venture will be responsible
for all capital associated with customer premise equipment and operating
expenses; and (e) we will receive a monthly operating payment for the license of
our plant to the joint venture.
Formation of the Telephony 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.
80
<PAGE>
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 subsidiaries (excluding
Insight Indiana and Insight Ohio). 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 ("leverage ratio"), in the case of alternate base rate loans
ranging in increments from 1.25% when the leverage ratio exceeds 6.5:1.0 and
zero when the leverage ratio is less than 4.5:1.0, and, in the case of
Eurodollar loans, ranging in increments from 2.5% when the leverage ratio
exceeds 6.5:1.0 and 1.0% when the leverage ratio is less than 3.5:1.0.
The Insight Credit Facility contains a number of covenants that, among
other things, restricts our ability to make capital expenditures, acquire or
dispose of assets, incur additional indebtedness, pay dividends or other
distributions, create liens on assets, make investments, and engage in
transactions with affiliates. 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
(the "Insight Indiana 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
("leverage ratio"), in the case of alternate base loans ranging in increments
from 0.75% when the leverage ratio equals or exceeds 6.0:1.0 and zero when the
leverage ratio is less than 5.0:1.0, and, in the case of Eurodollar loans,
ranging in increments from 2.0% when the leverage ratio equals or exceeds
6.0:1.0 and 0.75% when the leverage 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 affiliates. In addition, the Insight Indiana Credit
Facility requires compliance with certain
81
<PAGE>
financial ratios, requires Insight Indiana to enter into interest rate
protection agreements covering at least 40% of its total indebtedness and also
contains customary events of default. To date, the proceeds of term and
revolving credit borrowings under the Insight Indiana Credit Facility have been
used primarily to repay indebtedness secured by or relating to the cable system
assets transferred to Insight Indiana by Insight 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 (the
"Insight Ohio 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 affiliates. 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. ("InterMedia Partners"), a
subsidiary of InterMedia VI, entered into a senior credit facility ("Kentucky
Credit Facility One") with a group of banks and other financial institutions led
by Toronto Dominion (Texas), Inc., as amended on March 23, 1999. Kentucky Credit
Facility One 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 Kentucky Credit Facility
One may be used to refinance debt, finance acquisitions, capital expenditures
and for working capital and general corporate purposes. 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 Kentucky Credit
Facility One are secured by all of the partnership interests of InterMedia
Partners and any intercompany notes made in favor of InterMedia Partners.
Revolving loans under Kentucky Credit Facility One bear interest, at InterMedia
Partners' option, at an alternate base or Eurodollar rate, plus an additional
margin tied to InterMedia Partners' ratio of total debt to annualized cash flow
("leverage ratio"), in the case of alternate base revolving loans ranging in
increments from 0.875% when the leverage ratio exceeds 6.5:1.0 and zero when the
leverage ratio is less than or equal to 5.0:1.0, and, in the case of Eurodollar
revolving loans, ranging in increments from 1.875% when the leverage ratio
exceeds 6.5:1.0 and 0.500% when the leverage ratio is less than or equal to
4.0:1.0. The term loans under Kentucky Credit Facility One also bear interest,
at InterMedia Partners' option, at an alternate base or Eurodollar rate, plus an
additional margin tied to InterMedia Partners' leverage ratio.
Kentucky Credit Facility One contains a number of covenants that, among
other things, restrict the ability of InterMedia Partners 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, Kentucky Credit Facility
One requires compliance with certain financial ratios, requires InterMedia
Partners to enter into interest rate protection agreements covering at least 50%
of its total indebtedness and also contains customary events of default. Certain
subsidiaries of AT&T BIS have agreed to advance InterMedia Partners and
InterMedia Group (as defined below) up to
82
<PAGE>
$489.5 million under certain events, including InterMedia Partners being unable
to make payments under Kentucky Credit Facility One. As of March 31, 1999, there
was approximately $555.0 million outstanding under Kentucky Credit Facility One.
On April 30, 1998, InterMedia Partners Group VI, L.P. ("InterMedia Group"),
a subsidiary of InterMedia VI, entered into a credit facility ("Kentucky Credit
Facility Two") with a group of banks and other financial institutions led by
Toronto Dominion (Texas), Inc., as amended on March 23, 1999. Kentucky Credit
Facility Two provides for a subordinated term loan of $125.0 million. Loans
under Kentucky Credit Facility Two 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
Kentucky Credit Facility Two are secured by all of the partnership interests of
InterMedia Partners and InterMedia Group and any intercompany notes made in
favor of InterMedia Group. The term loan bears interest, at InterMedia Group'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%.
Kentucky Credit Facility Two contains a number of covenants that, among
other things, restrict the ability of InterMedia Group 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, Kentucky Credit Facility
Two requires compliance with certain financial ratios, requires InterMedia Group
to enter into interest rate protection agreements covering at least 50% of its
total indebtedness and also contains customary events of default. Certain
subsidiaries of AT&T BIS have agreed to advance InterMedia Group and InterMedia
Partners up to $489.5 million under certain events, including InterMedia Group
being unable to make payments under Kentucky Credit Facility Two. As of March
31, 1999, there was approximately $125.0 million outstanding under Kentucky
Credit Facility Two.
On April 30, 1998, InterMedia Partners Group entered into another credit
facility ("Kentucky Credit Facility Three") with a group of banks and other
financial institutions led by Toronto Dominion (Texas), Inc., as amended on
March 23, 1999. Kentucky Credit Facility Three provides for a subordinated term
loan of $60 million. Loans under Kentucky Credit Facility Three may be used to
refinance debt and to make contributions to subsidiaries. The term loan matures
in May 1999. The term loans under Kentucky Credit Facility Three bear interest,
at InterMedia Group's option, at an alternate base or at an Eurodollar rate,
plus in the case of Eurodollar term loans an additional margin of 0.30%. As of
March 31, 1999, there was approximately $53.0 million outstanding under Kentucky
Credit Facility Three.
COLUMBUS NOTES
In connection with the contribution of the Columbus System to Insight Ohio,
Coaxial and Phoenix issued $140.0 million aggregate principal amount of their
Senior Notes, and Coaxial LLC and Coaxial Financing Corp. issued approximately
$55.9 million aggregate principal amount at maturity of their Senior Discount
Notes. 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 affiliates. The issuers of the Notes are prohibited
from conducting any business activities.
83
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capitalization consists of shares of Class A common
stock, par value $.01 per share, shares of Class B common stock, par
value $.01 per share, and shares of preferred stock, par value $.01
per share.
Concurrently with the consummation of this offering, the holders of the
general and limited partnership interests of Insight 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 initial public offering price of this offering. As a
result, Insight L.P. will become a wholly-owned subsidiary of Insight. Our
assets and liabilities will remain with Insight L.P. and our business operations
will continue to be conducted through Insight L.P.
Upon completion of the exchange of partnership interests for common stock
and without giving effect for this offering, shares of Class A common
stock will be outstanding, held of record by persons, and shares of
Class B common stock will be outstanding, held of record by persons. 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 (collectively, the "Management Group"), may hold
Class B common stock. 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 General Corporation Law of the State of
Delaware ("Delaware 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 disproportionate
control."
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. The outstanding shares of Class A and Class B common stock
are, and the shares of Class A common stock being sold by us and offered by this
prospectus, when issued and paid for as set forth in this prospectus, will be
fully paid and nonassessable.
PREFERRED STOCK
Our certificate of incorporation authorizes us to issue 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.
84
<PAGE>
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.
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 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 the 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 the 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 the 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 the business combination is approved in a prescribed manner.
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.
85
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon the consummation of this offering, we will have shares of
common stock issued and outstanding. All of the shares of Class A common
stock to be sold in this offering and any shares sold upon exercise of the
underwriters' over-allotment option will be freely tradable without restrictions
or further registration under the Securities Act, except for any shares
purchased by an "affiliate" of Insight as that term is defined in Rule 144 under
the Securities Act, which will be subject to the resale limitations of
Rule 144. All other outstanding shares of common stock will be "restricted
securities" as that term is defined in Rule 144 and are also subject to certain
restrictions on disposition. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rule 144 or Rule 701 under the Securities Act. Sales of restricted
securities in the public market, or the availability of such shares for sale,
could have an adverse effect on the price of the Class A common stock. See "Risk
Factors--There has been no prior market for the Class A common stock," "-- There
is a potential for volatility of the market price of the Class A common stock"
and "Dilution."
REGISTRATION RIGHTS
We and Vestar have entered into a registration rights agreement, pursuant
to which we have granted to Vestar various demand rights to cause us to file a
registration statement under the Securities Act covering resales of all shares
of common stock held by Vestar, and to cause such registration statement to
become effective. The registration rights agreement also grants "piggyback"
registration rights permitting Vestar to include its registrable securities in a
registration of securities by us. We are obligated to pay the expenses of such
registrations.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
Class A common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of either
of the following:
o 1% of the number of shares of Class A common stock then outstanding,
which will equal approximately 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.
86
<PAGE>
FURTHER RESTRICTIONS ON TRANSFER FOR CERTAIN PERSONS
Each of us, our executive officers and directors and certain of our
affiliates has 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 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. Upon completion of the exchange
of partnership interests for common stock, these stockholders will own in the
aggregate shares of common stock. 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."
87
<PAGE>
UNDERWRITERS
Subject to the terms and conditions contained in an underwriting agreement,
dated , 1999, the underwriters named below, who are represented
by Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co.
Incorporated, CIBC World Markets Corp. and Deutsche Bank Securities Inc., have
severally agreed to purchase from us the number of shares set forth opposite
their names below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........................
Morgan Stanley & Co. Incorporated...........................................
CIBC World Markets Corp.....................................................
Deutsche Bank Securities Inc................................................
Total.......................................................................
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of certain legal matters by their counsel and
to certain other conditions including the effectiveness of the registration
statement, the continuing correctness of our representations, the receipt of a
"comfort letter" from our accountants, the listing of the Class A common stock
on the NMS and no occurrence of an event that would have a material adverse
effect on us. The underwriters are obligated to purchase and accept delivery of
all the shares, other than those covered by the over-allotment option described
below, if they purchase any of the shares.
The underwriters propose initially to offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to certain dealers at the public offering
price less a concession not in excess of $ per share. The underwriters may
allow, and such dealers may re-allow, a concession not in excess of $ per
share on sales to certain other dealers. After the initial offering of the
shares to the public, the representatives may change the public offering price
and such concessions. The underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
The following table shows the underwriting fees to be paid to the
underwriters by us in connection with this offering. The amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of Class A common stock.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share...................................................... $ $
Total.......................................................... $ $
</TABLE>
We have granted to the underwriters an option, exercisable for 30 days from
the date of the underwriting agreement, to purchase up to
additional shares at the public offering price less the underwriting fees. The
underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with this offering. To the extent that the underwriters
exercise such option, each underwriter will become obligated, subject to certain
conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.
We estimate our expenses relating to the offering to be $ .
We and the underwriters have agreed to indemnify each other against certain
civil liabilities, including liabilities under the Securities Act.
Each of us, our executive officers and directors and certain of our
affiliates has 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,
88
<PAGE>
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
o enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock.
Either of the foregoing transaction restrictions will apply regardless of
whether a covered transaction is to be settled by the delivery of common stock
or such other securities, in cash or otherwise. In addition, during such period,
we have agreed not to file any registration statement with respect to, and each
of our executive officers and directors has agreed not to make any demand for,
or exercise any right with respect to, the registration of any shares of common
stock or any securities convertible into or exercisable for common stock without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
At our request, the underwriters have reserved up to five percent of the
shares offered hereby for sale at the initial public offering price to certain
of our employees, members of their immediate families and other individuals who
are our business associates. The number of shares of Class A common stock
available for sale to the general public will be reduced to the extent these
individuals purchase such reserved shares. Any reserved shares not purchased
will be offered by the underwriters to the general public on the same basis as
the other shares offered hereby.
Application will be made to list the Class A common stock on the NMS under
the symbol "ICCIA." In order to meet the requirements for listing the Class A
common stock on the NMS, the underwriters have undertaken to sell lots of 100 or
more shares to a minimum of 400 beneficial owners.
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of Class A common
stock included in this offering in any jurisdiction where action for that
purpose is required. The shares included in this offering may not be offered or
sold, directly or indirectly, nor may this prospectus or any other offering
material or advertisement in connection with the offer and sale of any such
shares be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons who receive this prospectus are
advised to inform themselves about and to observe any restrictions relating to
this offering of Class A common stock and the distribution of this prospectus.
This prospectus is not an offer to sell or a solicitation of an offer to buy any
shares of Class A common stock included in this offering in any jurisdiction
where that would not be permitted or legal.
CIBC World Markets Corp. or its affiliates 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 consummation of the Kentucky Acquisition, financing
for the Kentucky Acquisition will be provided by a group of banks led by DLJ
Bridge Finance. In consideration for this commitment, we paid DLJ Bridge Finance
a commitment fee of $3,500,000 and agreed to pay it an additional fee if the
financing is drawn on.
Any underwriters who own indebtedness under the Insight Credit Facility
will receive their proportionate share of the repayment of the credit facility
with the proceeds from the sale of the common stock. Because potentially more
than 10% of the proceeds from this offering, not including underwriting
compensation, may be received by such underwriters, as lenders under the Insight
Credit Facility, this offering is being conducted in accordance with
Rule 2710(c)(8) of the Conduct Rules of the National Association of Securities
Dealers, which requires that the initial public offering price be no higher than
that recommended by a "qualified independent underwriter." In accordance with
this requirement, Donaldson, Lufkin & Jenrette Securities Corporation has
assumed the responsibilities of acting as a qualified independent underwriter
and recommended an initial public offering price in compliance with the
requirements of Rule 2720 of the
89
<PAGE>
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 if Donaldson, Lufkin & Jenrette Securities Corporation
repurchases previously distributed Class A common stock in syndicate covering
transactions, in stabilizing transactions or otherwise or if Donaldson, Lufkin &
Jenrette Securities Corporation receives a report that indicates that the
clients of such syndicate members have "flipped" the Class A common stock. 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.
90
<PAGE>
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. In connection with this offering, Latham & Watkins, New York,
New York, will pass upon certain legal matters for the underwriters. Affiliates
and members of Cooperman Levitt Winikoff Lester & Newman, P.C. will own in the
aggregate shares of Class A common stock upon the closing of the offering.
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 and 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 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. Statements contained in this prospectus as to the contents of any
contracts or other document referred to herein are not necessarily complete and,
where such contract or other document is an exhibit to the registration
statement, each such statement is qualified in all respects by the provisions of
such exhibit, to which reference is hereby made. The registration statement 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.
91
<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 (DBS)...... A service by which packages of television programming are transmitted via
high-powered satellites to individual homes, each served by a small
satellite dish.
</TABLE>
92
<PAGE>
<TABLE>
<S> <C>
Fiber Optic Cable..................... A cable made of glass fibers through which signals are transmitted as
pulses of light to the distribution portion of the cable television system
which in turn goes to the customer's home. Capacity for a very large
number of channels can be more easily provided.
Fiber Optic Trunk System.............. The use of fiber optic cable from the headend to the distribution portion
of the cable television system.
Headend............................... A collection of hardware, typically including earth stations, satellite
receivers, towers, off-air antennae, modulators, amplifiers [, lasers] and
video cassette playback machines within which signals are processed and
then combined for distribution within the cable television network.
Equipment to process signals from the customer's home also are contained
at the headend.
Homes Passed.......................... A home is deemed to be passed if it can be connected to the distribution
system without further extension of the distribution network.
MSO................................... A term used to describe cable television companies that are multiple
system operators.
Multiplexing.......................... Additional screens of premium channels, such as HBO and Showtime, which
cable operators provide for no additional fees, provided the customer
subscribes to the primary premium channel.
Multipoint Multichannel
Distribution Service (MMDS)......... A one-way radio transmission of television channels over microwave
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.
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.
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.
</TABLE>
93
<PAGE>
<TABLE>
<S> <C>
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 (SMATV)...................... 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.
</TABLE>
94
<PAGE>
<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
INTERMEDIA CAPITAL PARTNERS, VI, L.P.
Report of Independent Accountants--PricewaterhouseCoopers LLP............................................ F-18
InterMedia Capital Partners VI, L.P. Consolidated Balance Sheet at December 31, 1998..................... F-19
InterMedia Capital Partners VI, L.P. Consolidated Statement of Operations for the period April 30, 1998
(commencement of operations) to December 31, 1998..................................................... F-20
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-21
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-22
InterMedia Capital Partners VI, L.P. Notes to Consolidated Financial Statements.......................... F-23
TCI IPVI
Report of Independent Auditors--KPMG LLP................................................................. F-33
TCI IPVI Combined Balance Sheets at December 31, 1997 and April 30, 1998................................. F-34
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-35
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-36
TCI IPVI Notes to Combined Financial Statements........................................................... F-37
TCI INSIGHT SYSTEMS
Report of Independent Auditors--KPMG LLP................................................................. F-44
TCI Insight Systems Combined Balance Sheets as of October 31, 1998 and December 31, 1997................. F-45
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-46
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-47
TCI Insight Systems Notes to Combined Financial Statements............................................... F-48
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
Report of Independent Auditors--Ernst & Young LLP........................................................ F-54
Insight Communications of Central Ohio, LLC Balance Sheet at December 31, 1998........................... F-55
Insight Communications of Central Ohio, LLC Statement of Operations and Changes in Members' Deficit for
the year ended December 31, 1998...................................................................... F-56
Insight Communications of Central Ohio, LLC Statement of Cash Flows for the year ended December 31,
1998.................................................................................................. F-57
Insight Communications of Central Ohio, LLC Notes to Financial Statements................................ F-58
CENTRAL OHIO CABLE OPERATING UNIT
Report of Independent Public Accountants--Arthur Andersen LLP............................................ F-62
Central Ohio Cable System Operating Unit Statement of Net Assets to be Contributed as of December 31,
1997.................................................................................................. F-63
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-64
Central Ohio Cable System Operating Unit Statements of Cash Flows for the years ended December 31, 1996
and 1997.............................................................................................. F-65
Central Ohio Cable System Operating Unit Notes to Financial Statements................................... F-66
</TABLE>
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
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 common 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) (528)
Limited partners, 52,634,399 and 41,974,421 units issued and outstanding in 1997 and
1998, respectively.................................................................. (126,254) (7,400)
--------- ---------
(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)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1997 1998
---------------- ------------------ -------------
(RESTATED)
<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................................................... 15,309 16,156 14,206
Other income (expense):
Gain on cable systems exchange................................... -- 78,931 111,746
Gain on contribution of cable systems to Joint Venture........... -- -- 44,312
Interest expense................................................. (17,644) (15,962) (28,106)
Equity in losses of Insight Communications of Central Ohio, LLC.. -- -- (3,251)
Other expense.................................................... -- -- (444)
--------- --------- ---------
(17,644) 62,969 124,257
--------- --------- ---------
Income (loss) before extraordinary item and minority interest...... (2,335) 79,125 138,463
Extraordinary loss from early extinguishment of debt............... (480) (5,243) (3,267)
--------- --------- ---------
Income (loss) before minority interest............................. (2,815) 73,882 135,196
Minority interest.................................................. -- -- 3,410
--------- --------- ---------
Net income (loss).................................................. (2,815) 73,882 138,606
Accretion of redeemable Class B common units....................... -- -- (5,729)
Accretion to redemption value of preferred limited units........... (5,421) (15,275) --
--------- --------- ---------
Net income (loss) applicable to common units....................... $ (8,236) $ 58,607 $ 132,877
--------- --------- ---------
--------- --------- ---------
</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 common units............... (57) (5,672) -- (5,729)
Purchase of limited partners' units........................ (165) (16,321) (13,189,066) (16,486)
Warrants exercised......................................... 10 957 2,529,088 967
Warrants lapsed............................................ 35 3,512 -- 3,547
Purchase of warrants....................................... (9) (842) -- (851)
------- --------- ------------ ---------
Balance at December 31, 1998................................. $ (528) $ (7,400) 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 1998
-------------- ---------------- ------------
(RESTATED)
<S> <C> <C> <C>
Operating activities:
Net income (loss)......................................................... $ (2,815) $ 73,882 $ 138,606
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.......................................... 15,694 18,125 43,849
Amortization of debt discount and deferred interest.................... 1,546 259 --
Equity in losses of Insight Communications of Central Ohio, LLC........ -- -- 3,251
Gain on cable systems exchange......................................... -- (78,931) (111,746)
Gain on contribution of cable systems to joint venture................. -- -- (44,312)
Extraordinary loss from early extinguishment of debt................... 480 2,002 3,267
Minority interest...................................................... -- -- (3,410)
Provision for losses on trade accounts receivable...................... 670 695 1,288
Changes in operating assets and liabilities:
Trade accounts receivable............................................ (647) (1,058) (7,545)
Due from and to affiliates........................................... (4) 12 (894)
Prepaid expenses and other assets.................................... (474) (1,663) 1,707
Accounts payable..................................................... (623) 2,046 17,774
Accrued expenses and other liabilities............................... 943 (1,782) (3,347)
Interest payable..................................................... 1,206 (3,151) 6,272
-------- ---------- ----------
Net cash provided by operating activities................................. 15,976 10,436 44,760
-------- ---------- ----------
Investing activities:
Purchases of fixed assets................................................. (16,414) (27,981) (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............................................. (175) -- (3,295)
-------- ---------- ----------
Net cash used in investing activities..................................... (16,589) (27,981) (142,190)
-------- ---------- ----------
Financing activities:
Proceeds from bank credit facility........................................ 11,000 140,252 753,900
Repayment of amounts due to Tele-Communications, Inc...................... -- -- (214,532)
Principal payments on bank credit facility................................ (6,800) (108,044) (387,725)
Purchase of warrants...................................................... -- (320) 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.................................... -- (10,250) (16,486)
Debt issuance costs....................................................... (3,330) (3,747) (4,613)
-------- ---------- ----------
Net cash provided by financing activities................................. 870 17,891 116,250
-------- ---------- ----------
Net increase in cash and cash equivalents................................. 257 346 18,820
Cash and cash equivalents, beginning of year.............................. 479 736 1,082
-------- ---------- ----------
Cash and cash equivalents, end of year.................................... $ 736 $ 1,082 $ 19,902
-------- ---------- ----------
-------- ---------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amount capitalized.................................... $ 15,639 $ 19,103 $ 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 Insight
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.
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 represent the excess of the cost of the properties
acquired over the amounts assigned to the tangible assets at the date of
acquisition and 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. The Lafayette purchase price
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. 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. Franchise
costs, arising from the acquisition, are being amortized over a period of 15
years. The results of operations of Rockford have been included in the
accompanying statements of operations since its acquisition date.
Effective October 31, 1998, the Partnership exchanged its Sandy, Brigham
City and Vernal, Utah systems (the "Utah Systems") servicing approximately
56,200 subscribers with TCI for their Jasper and Evansville, Indiana systems
servicing approximately 63,000 subscribers. This transaction has been accounted
for by the Partnership as a sale of the Utah Systems and purchase of the Jasper
and Evansville systems. Accordingly, the Evansville and Jasper systems have been
included in the accompanying consolidated balance sheets at their fair values
(approximately $125.0 million) 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
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)
Systems and the fair value of the Evansville and Jasper systems. The Evansville
and Jasper systems purchase price was allocated to the cable television assets
acquired in relation to their fair values as increases in property and equipment
of $24 million and franchise costs of $101 million. 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, a newly formed limited liability company (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 values 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. 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 systems 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. In connection with the
contribution of TCI's cable television systems, TCI contributed $214.6 million
of intercompany debt owed by such systems to TCI. Similarly, the Partnership
contributed $237.4 million of debt pertaining to the systems that it contributed
to Insight Indiana. During November 1998, Insight Indiana repaid such amounts to
TCI and the Partnership, which payments were funded by borrowings under its
credit facility.
The pro forma unaudited results of operations of the Partnership for the
years ended December 31 assuming the contribution of the TCI systems occurred on
January 1, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Revenues.............................................................. $141,991 $175,667
Income before extraordinary item...................................... 108,689 116,900
Net income............................................................ 75,343 113,633
</TABLE>
The Partnership earns a management fee for managing Insight Indiana
equivalent to 3% of Insight Indiana's revenues. For the two months ended
December 31, 1998, the Partnership earned approximately $.7 million of
management fees from Insight Indiana.
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
F-11
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
E. INSIGHT OHIO--(CONTINUED)
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.
The Partnership is the manager of Insight Ohio, however, certain operating
decisions (approval of capital budgets) require the approval of a majority of
the holders of the Voting Preferred. Insight Ohio was formed solely for the
purpose of completing the aforementioned transaction. The Partnership 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.
The Partnership is accounting for its investment in Insight Ohio under the
equity method of accounting. The Partnership is amortizing the difference
between its initial $10 million investment and its 75% interest in Insight
Ohio's deficiency in assets over a period of 12 1/2 years, which period
represents the average life of Insight Ohio's tangible and intangible assets.
Accordingly, the accompanying statement of operations for the year ended
December 31, 1998 includes the Partnership's share of Insight Ohio's operating
income (approximately $.1 million) and the amortization of the aforementioned
deficiency in assets (approximately $3.3 million) from August 21, 1998 (the
effective date of the Coaxial Contribution Agreement) through December 31, 1998.
At December 31, 1998, Insight Ohio has a $25 million revolving line of
credit. At December 31, 1998, no amounts were outstanding under this line of
credit.
F. 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>
F-12
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
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 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.
F-13
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
H. DEBT--(CONTINUED)
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 COMMON UNITS,WARRANTS AND REDEEMABLE PREFERRED LIMITED
UNITS
On January 29, 1998, the Partnership issued 47,215,859 non-interest bearing
Class B Common Units ("Class B Units") to Vestar Capital Partners III, LP
("Vestar") in exchange for $50 million in cash, resulting in Vestar holding a
45% ownership interest 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 Unit agreement includes a put/call
arrangement whereby the Class A partners 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. Distributions between the Class A Units and
Class B Units follow ownership percentage interests until the Class B Units earn
a 25% annual internal rate of return at which time distributions are amended to
approximately 30% to the Class B Unit holders and 70% to the Class A Unit
holders. In addition, management can earn up to 6% of the Class B holdings upon
achieving certain performance measures. 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 prior debt issuance, the Partnership issued detachable
warrants which were valued at $5.6 million at the date of issuance. Each warrant
entitles the holder thereof to purchase 4.22 Common Units in the Partnership at
an exercise price of $1.61 per warrant. For accounting purposes, the value of
the warrants was determined by management assuming that a sale had occurred as
of each year end and without regard to the illiquid nature of the warrants.
During 1997 and 1998, the Partnership acquired 176,490 and 512,200 warrants for
approximately $.3 million and approximately $.8 million, respectively. The value
of the warrants at
F-14
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
I. REDEEMABLE CLASS B COMMON UNITS, WARRANTS AND REDEEMABLE PREFERRED LIMITED
UNITS--(CONTINUED)
December 31, 1997 was approximately $3.5 million, which was estimated based on a
valuation of the Partnership prepared by management. During 1998, 599,310
warrants were converted into 2,529,088 Partnership units and 383,303 units
expired. Accordingly, at December 31, 1998, no warrants are outstanding.
In 1993, the Partnership issued redeemable preferred limited units to a
group of investors for a gross purchase price of $27 million. During January
1998, all of the remaining units were redeemed for $60 million pursuant to a
negotiated agreement. Prior to such redemption, the units had a liquidation
preference equal to the capital contribution plus a cumulative return on such
capital at an annual rate of 12 1/2%. In addition, the units shared in the
increase in the equity value of the Partnership. At December 31, 1997 the
preferred limited units have been accreted to $60 million in the accompanying
consolidated balance sheet. At December 31, 1996 and 1997, the accreted
redemption value of the preferred limited units was derived by the Partnership
in the same manner as the value of the warrants.
J. FINANCIAL INSTRUMENTS
Concentrations of Credit Risk
Financial instruments that potentially subject the Partnership to
significant concentrations of credit risk consist principally of cash
investments and accounts receivable.
The Partnership maintains cash and cash equivalents, with various financial
institutions. These financial institutions are located throughout the country
and the Partnership's policy is designed to limit exposure to any one
institution.
Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of customers comprising the Partnership's
customer base.
The following methods and assumptions were used by the Partnership in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates fair value.
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.
F-15
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
K. RELATED PARTY TRANSACTIONS
The Partnership has an agreement with Media One which enables the
Partnership to obtain certain services (principally pay and basic cable
programming services) and equipment at rates lower than those which would be
available from independent parties. Management believes that the loss of such
favorable rates could have a material adverse effect on the financial condition
and results of operations of the Partnership. In each of the years ended
December 31, 1996, 1997, and 1998, programming and other operating costs include
approximately $.2 million of expenses related to programming services paid to
Media One.
In addition, in connection with the Contribution Agreement (see note D),
Insight Indiana purchases substantially all of its pay television and other
programming from affiliates of TCI. Charges for such programming were
$1.4 million for the period from November 1, 1998 through December 31, 1998.
Management believes that the programming rates charged by TCI affiliates are
lower than those which would be available for independent parties.
During the years ended December 31, 1996, 1997 and 1998 the Partnership
reimbursed ICI for officers' salaries paid on its behalf of approximately
$1.7 million, $1.6 million and $1.8 million, respectively.
The General Partner leases, from an unaffiliated third party, office space
in New York City for the Partnership's principal executive offices, and the
Partnership reimburses the General Partner for the rent for such offices. For
the years ended December 31, 1996, 1997 and 1998, the Partnership paid
$.4 million, $.4 million, and $.5 million for rent to the General Partner.
L. 401(k) PLAN
The Partnership sponsors a savings and investment 401(k) Plan (the "Plan")
for the benefit of its employees. ICI is also a sponsor of the Plan. All
employees who have completed six months of employment and have attained age 21
are eligible to participate in the Plan. The Partnership makes matching
contributions equal to 25% of the employee's contribution which is not in excess
of 5% of the employee's wages. During 1996, 1997 and 1998 the Partnership
matched contributions of approximately $49,000, $51,000 and $188,000,
respectively.
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
F-16
<PAGE>
INSIGHT COMMUNICATIONS COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
M. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
television systems as a result of the late payment. Plaintiffs seek to require
cable television systems to provide compensation for alleged excessive late fee
charges for past periods. These cases are at various stages of the litigation
process. Based upon the facts available, management believes that, although no
assurances can be given as to the outcome of these actions, the ultimate
disposition of these matters should not have a material adverse effect upon the
financial condition or results of operations of the Partnership.
The Partnership is subject to other various legal proceedings that arise in
the ordinary course of business. While it is impossible to determine with
certainty the ultimate outcome of these matters, it is management's opinion that
the resolution of these matters will not have a material adverse affect on the
consolidated financial condition of the Partnership.
N. SUBSEQUENT EVENTS
On March 22, 1999, the Partnership exchanged its Franklin, Virginia cable
system ("Franklin") servicing 9,182 subscribers for Falcon Cablevision's
Scottsburg Indiana ("Scottsburg") cable system servicing 4,785 subscribers. In
addition, the Partnership received $8 million in cash. In addition, on
March 31, 1999, the Partnership acquired Michigan and Indiana Cable Associates,
Ltd's Portland, Indiana and Americable International--Michigan Inc's Fort
Recovery, Ohio cable systems ("Portland") servicing approximately 6,100
subscribers for approximately $10.9 million. The preliminary purchase price was
allocated to the cable television assets acquired in relation to their fair
values as increases in property and equipment of $2.3 million and franchise
costs of $8.6 million. The Partnership will account for the acquisition of the
Scottsburg and Portland systems as purchases.
Subsequent to December 31, 1998, the Partnership entered into an agreement
with Blackstone Capital Partners III Merchant Fund L.P. ("Blackstone") to
purchase its 50% interest in InterMedia Capital Partners VI, L.P (the
"InterMedia VI Partnership") for approximately $327 million subject to
adjustment. InterMedia VI Partnership was formed in August 1996 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.
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 IPVI Partnership's revenues.
F-17
<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-18
<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-19
<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-20
<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-21
<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-22
<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.
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.
F-23
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Depreciation is computed using the double-declining balance method over the
following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Cable television plant............................................. 5-10
Buildings and improvements......................................... 10
Furniture and fixtures............................................. 3-7
Equipment and other................................................ 3-10
</TABLE>
Intangible assets
The Partnership has franchise rights to operate cable television systems in
various towns and political subdivisions. Franchise rights are being amortized
over the lesser of the remaining lives of the franchises or the base
fourteen-year term of ICP-VI which expires on April 30, 2012. Remaining
franchise lives range from one to eighteen years.
The Partnership acquired a long term programming agreement (the
"Programming Agreement"), as described in Note 3--"Contribution of Cable
Properties." The Programming Agreement is valued at $150,000 and is being
amortized on a straight line basis over the fourteen year term of ICP-VI.
Debt issue costs are included in intangible assets and are being amortized
over the terms of the related debt.
Costs associated with potential acquisitions are initially deferred. For
acquisitions which are completed, related costs are capitalized as part of the
purchase price of assets acquired. For those acquisitions not completed, related
costs are expensed in the period the acquisition is abandoned.
Capitalized intangibles are written down to recoverable values whenever
recoverability through operations or sale of the systems becomes doubtful. Each
year, the Partnership evaluates the recoverability of the carrying value of its
intangible assets by assessing whether the projected cash flows, including
projected cash flows from sale of the systems, is sufficient to recover the
unamortized costs of these assets.
Interest rate swaps
Under an interest rate swap, the Partnership agrees with another party to
exchange interest payments at specified intervals over a defined term. Interest
payments are calculated by reference to the notional amount based on the
difference between the fixed and variable rates pursuant to the swap agreement.
The net interest received or paid as part of the interest rate swap is accounted
for as an adjustment to interest expense.
Income taxes
No provision or benefit for income taxes is reported by the Partnership
because, as partnerships, the tax effects of ICP-VI and its majority-owned
subsidiaries' results of operations accrue to the partners.
Partners' capital
Syndication costs incurred to raise capital have been charged to partners'
capital.
F-24
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 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
F-25
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. Management of the Partnership anticipates that, due to its limited
use of derivative instruments, the adoption of FAS 133 will not have a
significant effect on the Partnership's results of operation, financial position
or cash flows.
3. CONTRIBUTION OF CABLE PROPERTIES
On April 30, 1998, the Partnership borrowed $730,000 under new bank term
loans and a revolving credit facility and received equity contributions from its
partners of $202,034, consisting of $102,034 in cash and $100,000 of in-kind
contributions from TCI and another limited partner of ICP-VI. ICP-VI assumed
debt from TCI of $803,743 and issued a combined 49.5% limited partner interest
to TCI and another limited partner, in exchange for the contributed systems with
a fair market value of $753,743 and a long-term programming fee discount
agreement valued at $150,000. The TCI debt assumed was repaid with proceeds from
the borrowings under the bank loans and the cash contributions received from
ICP-VI's partners.
The total cost of the Systems contributed was as follows:
<TABLE>
<S> <C>
Value of debt assumed from TCI................................ $803,743
Costs incurred in connection with the contributed systems..... 3,629
Value of equity exchanged..................................... 100,000
--------
$907,372
--------
--------
</TABLE>
The Partnership's allocation of costs related to the contributed systems is
as follows:
<TABLE>
<S> <C>
Tangible assets............................................... $234,143
Intangible assets............................................. 528,033
Programming agreement......................................... 150,000
Current assets................................................ 12,037
Current liabilities........................................... (12,389)
Non-current liabilities....................................... (4,452)
--------
Net assets contributed........................................ $907,372
--------
--------
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets as of December 31, 1998 consist of the following:
<TABLE>
<S> <C>
Franchise rights.............................................. $528,073
Programming agreement......................................... 150,000
Debt issue costs.............................................. 7,395
Other......................................................... 26
--------
685,494
Accumulated amortization...................................... (53,492)
--------
$632,002
--------
--------
</TABLE>
F-26
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1998 consist of the following:
<TABLE>
<S> <C>
Land.......................................................... $ 6,028
Cable television plant........................................ 213,826
Buildings and improvements.................................... 2,470
Furniture and fixtures........................................ 2,958
Equipment and other........................................... 20,279
Construction in progress...................................... 30,246
--------
275,807
Accumulated depreciation...................................... (32,707)
--------
$243,100
--------
--------
</TABLE>
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities as of December 31, 1998 consist of
the following:
<TABLE>
<S> <C>
Accounts payable.............................................. $ 1,387
Accrued program costs......................................... 2,974
Accrued franchise fees........................................ 2,050
Accrued copyright fees........................................ 346
Accrued capital expenditures.................................. 7,248
Accrued property and other taxes.............................. 4,523
Other accrued liabilities..................................... 5,013
--------
$ 23,541
--------
--------
</TABLE>
7. CHANNEL LAUNCH REVENUE
During the period ended December 31, 1998, the Partnership received
payments of $1,776 from certain programmers to launch and promote their new
channels. Also, during 1998 the Partnership recorded receivables from two
programmers, of which $5,855 remains outstanding at December 31, 1998. In
connection with the contribution of the Systems, the Partnership assumed
deferred launch support revenue and obligations of $4,452. Of the total amount
recorded, the Partnership recognized advertising revenue of $911 for
advertisements provided by the Partnership to promote the new channels. The
remainder is being amortized over the remaining terms of the program agreements
which range between eight and ten years, of which $1,406 was amortized and
recorded as other service revenue for the period ended December 31, 1998.
F-27
<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. If
the Partnership is not able to successfully extend the due date, the borrowings
under the subordinated Term Loan B will be repaid with additional capital
contributions from TCI and Blackstone. Accordingly, 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 under the LIBOR option, and quarterly
payment of fees on the unused portion of the revolving credit facility and
F-28
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
8. LONG-TERM DEBT--(CONTINUED)
the subordinated Term Loan B at 0.375% per annum when the Senior Leverage Ratio
is greater than 5.0:1.0 and at 0.250% when the Senior Leverage Ratio is less
than or equal to 5.0:1.0.
The Partnership has entered into interest rate swap agreements in the
aggregate notional principal amount of $500,000 to establish long-term fixed
interest rates on its variable rate debt. Under the swap agreements, the
Partnership pays quarterly interest at fixed rates ranging from 5.850% to 5.865%
and receives quarterly interest payments equal to LIBOR. The agreements expire
July 2003. At December 31, 1998, the fair market value of the interest rate
swaps was approximately $(14,493).
Borrowings under the Bank Facility, excluding the subordinated Term Loan B,
("Permanent Debt") are secured by the partnership interests of IPG-VI and
IP-VI's subsidiaries and negative pledges of the stock and assets of certain TCI
subsidiaries that are parties to an agreement ("Keepwell Agreement") to support
the Permanent Debt. Under the Keepwell Agreement, the TCI subsidiaries are
required to make loans to IPG-VI and IP-VI in an amount not to exceed $489,500
if (i) IPG-VI or IP-VI fails to make payment of principal in accordance with the
respective debt agreements, or (ii) amounts due under the respective debt
agreements have been accelerated for non-payment or bankruptcy. The subordinated
Bank Term Loan B is secured by guarantees of TCI and Blackstone.
The debt agreements contain certain covenants which restrict the
Partnership's ability to encumber assets, make investments or distributions,
retire partnership interests, pay management fees currently, incur or guarantee
additional indebtedness and purchase or sell assets. The debt agreements also
include financial covenants which require minimum interest and debt coverage
ratios and specify maximum debt to cash flows ratios.
Annual maturities of long-term debt at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999.......................................................... $ --
2000.......................................................... 52,000
2001.......................................................... 3,562
2002.......................................................... 4,750
2003.......................................................... 4,750
Thereafter.................................................... 660,938
--------
$726,000
--------
--------
</TABLE>
Borrowings under the Bank Facility are at rates that would be otherwise
currently available to the Partnership. Accordingly, the carrying amounts of
bank borrowings outstanding as of December 31, 1998, approximate their fair
value.
9. RELATED PARTY TRANSACTIONS
ICM-VI LP provides certain management and administrative services to the
Partnership for a per annum fee of 1% of ICP-VI's total non-preferred partner
contributions ("ICM Management Fee") offset by certain expenses of the
Partnership, as defined, up to an amount equal to $500. In order to support the
Partnership's debt, 50% of the net ICM Management Fee is deferred until the
Partnership's Senior Leverage Ratio is less than five times. The remaining 50%
of the net ICM Management Fee is payable quarterly in advance. Any deferred ICM
Management Fee bears interest at 10%, compounded annually, payable upon payment
of the deferred management fee.
Based on current capital contributions, the management fee per annum is
$2,020 less partnership expenses of $500.
F-29
<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-30
<PAGE>
INTERMEDIA CAPITAL PARTNERS VI, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
10. CABLE TELEVISION REGULATION--(CONTINUED)
Current regulations issued in connection with the 1992 Act empower the FCC
and/or local franchise authorities to order reductions of existing rates which
exceed the maximum permitted levels and require refunds measured from the date a
complaint is filed in some circumstances or retroactively for up to one year in
other circumstances. Management believes it has made a fair interpretation of
the 1992 Act and related FCC regulations in determining regulated cable
television rates and other fees based on the information currently available.
Many aspects of regulations at the federal and local levels are currently
the subject of judicial review and administrative proceedings. In addition, the
FCC continues to conduct rulemaking proceedings to implement various provisions
of the 1996 Act. It is not possible at this time to predict the ultimate outcome
of these reviews or proceedings or their effect on the Partnership.
11. COMMITMENTS AND CONTINGENCIES
The Partnership is committed to provide cable television services under
franchise agreements with remaining terms of up to eighteen years. Franchise
fees of up to 5% of gross revenues are payable under these agreements.
Current FCC regulations require that cable television operators obtain
permission to retransmit major network and certain local television station
signals. The Partnership has entered into long-term retransmission agreements
with all applicable stations in exchange for in-kind and/or other consideration.
The Partnership is subject to litigation and other claims in the ordinary
course of business. In the opinion of management, the ultimate outcome of any
existing litigation or other claims will not have a material adverse effect on
the Partnership's financial position, results of operations or cash flows.
The Partnership has entered into pole rental agreements and leases certain
of its facilities and equipment under non-cancelable operating leases. Minimum
rental commitments at December 31, 1998 for the next five years and thereafter
under these leases are as follows:
<TABLE>
<S> <C>
1999............................................................. $ 641
2000............................................................. 558
2001............................................................. 274
2002............................................................. 129
2003............................................................. 100
Thereafter....................................................... 156
------
$1,858
------
------
</TABLE>
Rent expense, including pole rental agreements was $1,003, for the period
ended December 31, 1998.
12. SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENT OF CASH FLOWS
During the period from April 30, 1998 through December 31, 1998, the
Partnership paid interest of $32,465.
As described in Note 3 (Contribution of Cable Properties), on April 30,
1998 the Partnership received, from TCI and another limited partner, in-kind
contributions of cable television systems located in Kentucky. In connection
with the contribution, the Partnership repaid debt assumed of $803,743 and
incurred fees of $3,629.
13. EMPLOYEE BENEFIT PLAN
The Partnership participates in the InterMedia Partners Tax Deferred
Savings Plan, which covers all full-time employees who have completed at least
six months of employment. Such Plan provides for a base employee contribution of
1% and a maximum of 15% of compensation. The Partnership's matching
contributions under such Plan are at the rate of 50% of the employee's
contributions, up to a maximum of 5% of compensation.
F-31
<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. Plantiffs 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-32
<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-33
<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-34
<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-35
<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-36
<PAGE>
TCI IPVI SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1998 TO APRIL 30, 1998, AND
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. BASIS OF PRESENTATION
The combined financial statements include the accounts of eight of TCI's
cable television systems and five related advertising sales offices serving
certain subscribers within Kentucky (collectively, the "TCI IPVI Systems"). This
combination was created in connection with the Partnership formation discussed
below. Through February 1998, the TCI IPVI Systems were either 100%-owned or
majority-owned by TCI. In March 1998, through a series of transactions, TCI
acquired the remaining interest in the majority-owned entities from a third
party. As a result of these transactions, the TCI IPVI Systems' combined
financial statements include a March 1998 allocation of TCI's cost to acquire
such interest. Such allocation resulted in $69,646,000 of franchise costs and
$26,640,000 of deferred tax liabilities. All significant inter-entity accounts
and transactions have been eliminated in combination. The combined net assets of
TCI IPVI Systems are referred to as "Parent's Investment (Deficit)."
TCI's ownership interest in the IPVI Systems, as described above, were
acquired through transactions whereby TCI acquired various larger cable entities
(the "Original Systems"). The TCI IPVI System's combined financial statements
include an allocation of certain purchase accounting adjustments, including the
related deferred tax effects, from TCI's acquisition of the Original Systems.
Such allocation and the related franchise cost amortization was based on the
relative fair market value of the systems involved. In addition, certain costs
of TCI are charged to the TCI IPVI Systems based on their number of customers
(see note 5). Although such allocations are not necessarily indicative of the
costs that would have been incurred by the TCI IPVI Systems on a stand alone
basis, management believes that the resulting allocated amounts are reasonable.
Partnership Formation
Effective April 30, 1998, TCI and InterMedia Capital Management VI, L.P.
("InterMedia") executed a transaction under a Contribution Agreement, whereby
TCI contributed certain cable television systems and advertising sales offices,
the TCI IPVI Systems, to a newly formed partnership between TCI, Blackstone
Cable Acquisition Company, LLC, and InterMedia Capital Management VI, LLC (the
"Partnership") in exchange for an approximate 49.5% ownership interest in the
Partnership. TCI's 49.5% interest consists of a 49.005% direct ownership
interest issued in exchange for its contribution and an indirect ownership of
.495% through its 49.55% limited partner interest in InterMedia. In connection
with the contribution, the Partnership assumed $322.5 million of bank debt and
$489.5 million of intercompany interest bearing notes owed by the TCI IPVI
Systems to TCI and its affiliates. These amounts were subsequently paid by the
Partnership, net of certain post close adjustments. The accompanying combined
financial statements reflect the financial position, results of operations and
cash flows of the TCI IPVI Systems immediately prior to the contribution
transaction, and, therefore, do not include the effects of such transactions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Receivables
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at April 30, 1998 and December 31, 1997 was not significant.
Property and Equipment
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs, labor and applicable
overhead related to installations, and interest during construction are
capitalized. During the four-month period ended April 30, 1998 and for the years
ended December 31, 1997 and 1996, interest capitalized was not significant.
F-37
<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, such loss is measured by the amount that the
carrying value of such assets exceeds their fair value. Considerable management
judgment is necessary to estimate the fair value of assets, accordingly, actual
results could vary significantly from such estimates. Assets to be disposed of
are carried at the lower of their financial statement carrying amount or fair
value less costs to sell.
Revenue Recognition
Cable revenue for customer fees, equipment rental, advertising,
pay-per-view programming and revenue sharing agreements is recognized in the
period that services are delivered. Installation revenue is recognized in the
period the installation services are provided to the extent of direct selling
costs. Any remaining amount is deferred and recognized over the estimated
average period that customers are expected to remain connected to the cable
television system.
Combined Statements of Cash Flows
Transactions effected through the intercompany account with TCI (except for
the Dividend discussed in Note 5) have been considered constructive cash
receipts and payments for purposes of the combined statements of cash flows.
During 1998, TCI completed a series of transactions to acquire the
remaining interest of the group of entities that own the TCI IPVI Systems. This
transaction resulted in a non cash increase in franchise costs, parent's
investment (deficit), and deferred income tax liability of $69,646,000,
$43,006,000 and $26,640,000, respectively.
Estimates
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the combined financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
F-38
<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.
F-39
<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-40
<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-41
<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.
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
F-42
<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)
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-43
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors:
TCI Communications, Inc.:
We have audited the accompanying combined balance sheets of the TCI Insight
Systems (as defined in Note 1 to the combined financial statements) as of
October 31, 1998 and December 31, 1997, and the related combined statements of
operations and parent's investment (deficit), and cash flows for the ten-month
period ended October 31, 1998 and for each of the years in the two-year period
ended December 31, 1997. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the TCI Insight
Systems as of October 31, 1998 and December 31, 1997, and the results of their
operations and their cash flows for the ten-month period ended October 31, 1998
and for each of the years in the two-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Denver, Colorado
March 5, 1999
F-44
<PAGE>
TCI INSIGHT SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER OCTOBER 31,
31, 1997 1998
----------- ------------
<S> <C> <C>
ASSETS
Cash.................................................................................. $ -- $ 896
Trade and other receivables, net...................................................... 5,153 5,113
Property and equipment, at cost:
Land................................................................................ 217 217
Distribution systems................................................................ 107,216 117,346
Support equipment and buildings..................................................... 11,782 12,716
--------- --------
119,215 130,279
Less accumulated depreciation....................................................... 62,283 69,679
--------- --------
56,932 60,600
--------- --------
Franchise costs....................................................................... 187,858 187,768
Less accumulated amortization....................................................... 38,386 42,303
--------- --------
149,472 145,465
--------- --------
Other assets.......................................................................... 166 108
--------- --------
$ 211,723 $212,182
--------- --------
--------- --------
LIABILITIES AND PARENT'S INVESTMENT (DEFICIT)
Cash overdraft........................................................................ $ 599 $ --
Accounts payable and accrued expenses................................................. 4,411 3,728
Deferred income taxes (note 3)........................................................ 65,625 63,966
Intercompany notes owed to TCI (notes 1 and 4)........................................ -- 230,000
--------- --------
Total liabilities................................................................... 70,635 297,694
Parent's investment (deficit) (note 4)................................................ 141,088 (85,512)
--------- --------
Commitments and contingencies (note 5)................................................ $ 211,723 $212,182
--------- --------
--------- --------
</TABLE>
See accompanying notes to combined financial statements.
F-45
<PAGE>
TCI INSIGHT SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF OPERATIONS AND PARENT'S INVESTMENT (DEFICIT)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, JANUARY 1, 1998
---------------------------- THROUGH
1996 1997 OCTOBER 31, 1998
------------ ------------ ----------------
<S> <C> <C> <C>
Revenue................................................................. $ 88,191 $ 93,543 $ 80,357
Operating costs and expenses:
Operating (note 4).................................................... 27,243 28,012 24,375
Selling, general and administrative................................... 13,899 11,583 11,835
Management fees (note 4).............................................. 4,199 3,732 3,057
Depreciation.......................................................... 9,205 8,545 8,222
Amortization.......................................................... 4,858 4,916 4,001
-------- -------- --------
59,404 56,788 51,490
-------- -------- --------
Operating income................................................... 28,787 36,755 28,867
Other income (expense).................................................. (3) 96 (159)
-------- -------- --------
Earnings before income taxes....................................... 28,784 36,851 28,708
Income tax expense (note 3)............................................. (10,022) (12,828) (9,969)
-------- -------- --------
Net earnings....................................................... 18,762 24,023 18,739
Parent's investment (deficit):
Beginning of period................................................... 153,216 147,614 141,088
Change in due to TCI Communications, Inc. ("TCIC").................... (24,364) (30,549) (15,339)
Intercompany notes owed to TCI (notes 1 and 4)........................ -- -- 230,000
-------- -------- --------
End of period........................................................... $147,614 $141,088 $(85,512)
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to combined financial statements.
F-46
<PAGE>
TCI INSIGHT SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 1, 1998
DECEMBER 31, THROUGH
-------------------- OCTOBER 31,
1996 1997 1998
-------- -------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings............................................................ $ 18,762 $ 24,023 $ 18,739
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization........................................ 14,063 13,461 12,223
Deferred income tax expense.......................................... (1,229) (1,366) (1,659)
Changes in operating assets and liabilities:
Change in receivables.............................................. (273) (2,471) 40
Change in other assets............................................. 57 200 58
Change in accounts payable and accrued expenses.................... (321) 23 (683)
-------- -------- ---------
Net cash provided by operating activities.......................... 31,059 33,870 28,718
-------- -------- ---------
Cash flows from investing activities:
Capital expended for property and equipment............................. (6,623) (5,068) (11,927)
Other investing activities.............................................. 755 102 43
-------- -------- ---------
Net cash used in investing activities.............................. (5,868) (4,966) (11,884)
-------- -------- ---------
Cash flows from financing activities:
Change in due to TCIC................................................... (24,364) (30,549) (15,339)
Change in cash overdraft................................................ -- 599 (599)
-------- -------- ---------
Net cash used in financing activities.............................. (24,364) (29,950) (15,938)
-------- -------- ---------
Net increase (decrease) in cash.................................... 827 (1,046) 896
Cash:
Beginning of period............................................. 219 1,046 --
-------- -------- ---------
End of period................................................... $ 1,046 $ -- $ 896
-------- -------- ---------
-------- -------- ---------
</TABLE>
See accompanying notes to combined financial statements.
F-47
<PAGE>
TCI INSIGHT SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 31, 1998,
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. BASIS OF PRESENTATION
The combined financial statements include the accounts of twelve of TCIC's
cable television systems and three related advertising sales offices serving
certain subscribers within Indiana (collectively, the "TCI Insight Systems").
The TCI Insight Systems are wholly-owned by various subsidiaries of TCIC. TCIC
is a subsidiary of Tele-Communications, Inc. ("TCI"). All significant
inter-entity accounts and transactions have been eliminated in combination. The
combined net assets of TCI Insight Systems are referred to as "Parent's
Investment."
The TCI Insight Systems were acquired through a series of transactions
whereby TCIC acquired various larger cable entities (the "Original Systems").
The TCI Insight System's combined financial statements include an allocation of
certain purchase accounting adjustments, including the related deferred tax
effects, from TCIC's acquisition of the Original Systems. Such allocation and
the related franchise cost amortization is based on the relative fair market
value of systems acquired. In addition, certain costs of TCI are charged to the
TCI Insight Systems based on their number of subscribers (see note 4). Although
such allocations are not necessarily indicative of the costs that would have
been incurred by the TCI Insight Systems on a stand alone basis, management
believes that the resulting allocated amounts are reasonable.
Limited Liability Company Formation
Effective October 31, 1998, TCIC and Insight Communications L.P.
("Insight") executed a transaction under a Contribution and Purchase Agreement,
whereby TCIC contributed and exchanged certain cable television systems and
advertising sales offices to a newly formed Limited Liability Company between
TCIC and Insight (the "LLC") in exchange for an approximate 50% ownership
interest in the LLC and certain cable systems. In connection with the
contribution, the LLC assumed $214.6 million of the intercompany amounts owed by
the TCI Insight Systems to TCIC and its affiliates. These interest bearing notes
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-48
<PAGE>
TCI INSIGHT SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 31, 1998,
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Franchise Costs
Franchise costs include the difference between the cost of acquiring cable
television systems and amounts assigned to their tangible assets. Such amounts
are generally amortized on a straight-line basis over 40 years. Costs incurred
by the TCI Insight Systems in negotiating and renewing franchise agreements are
amortized on a straight-line basis over the life of the franchise, generally 10
to 20 years.
Impairment of Long-Lived Assets
Management periodically reviews the carrying amounts of property, plant and
equipment and its intangible assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. If an impairment
adjustment is deemed necessary, such loss is measured by the amount that the
carrying value of such assets exceeds their fair value. Considerable management
judgment is necessary to estimate the fair value of assets, accordingly, actual
results could vary significantly from such estimates. Assets to be disposed of
are carried at the lower of their financial statement carrying amount or fair
value less costs to sell.
Revenue Recognition
Cable revenue for customer fees, equipment rental, advertising,
pay-per-view programming and revenue sharing agreements is recognized in the
period that services are delivered. Installation revenue is recognized in the
period the installation services are provided to the extent of direct selling
costs. Any remaining amount is deferred and recognized over the estimated
average period that customers are expected to remain connected to the cable
television system.
Combined Statements of Cash Flows
Transactions effected through the intercompany account (except for the
dividend discussed in Note 4) with TCIC have been considered constructive
cash receipts and payments for purposes of the combined statements of cash
flows.
Estimates
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the combined financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
3. INCOME TAXES
The TCI Insight Systems were included in the consolidated federal income
tax return of TCI. Income tax expense for the TCI Insight Systems is based on
those items in the consolidated calculation applicable to the TCI Insight
Systems. Intercompany tax allocation represents an apportionment of tax expense
or benefit (other than deferred taxes) among subsidiaries of TCI in relation to
their respective amounts of taxable earnings or losses. The payable or
receivable arising from the intercompany tax allocation is recorded as an
increase or decrease in amounts due to TCIC. Deferred income taxes are based on
the book and tax basis differences of the assets and liabilities within the TCI
Insight Systems.
F-49
<PAGE>
TCI INSIGHT SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 31, 1998,
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
3. INCOME TAXES--(CONTINUED)
Income tax expense for the ten-month period ended October 31, 1998 and for
the years ended December 31, 1997 and 1996 consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Ten-month period ended October 31, 1998:
Intercompany allocation............................................. $(11,628) $ -- $(11,628)
Federal............................................................. -- 1,507 1,507
State and local..................................................... -- 152 152
-------- ------ --------
$(11,628) $1,659 $ (9,969)
-------- ------ --------
-------- ------ --------
Year ended December 31, 1997:
Intercompany allocation............................................. $(14,194) $ -- $(14,194)
Federal............................................................. -- 1,241 1,241
State and local..................................................... -- 125 125
-------- ------ --------
$(14,194) $1,366 $(12,828)
-------- ------ --------
-------- ------ --------
Year ended December 31, 1996:
Intercompany allocation............................................. $(11,251) $ -- $(11,251)
Federal............................................................. -- 1,117 1,117
State and local..................................................... -- 112 112
-------- ------ --------
$(11,251) $1,229 $(10,022)
-------- ------ --------
-------- ------ --------
</TABLE>
Income tax expense differs from the amounts computed by applying the
federal income tax rate of 35% as a result of the following:
<TABLE>
<CAPTION>
JANUARY 1, 1998
YEARS ENDED DECEMBER 31, THROUGH
---------------------------------------------------- OCTOBER 31,
1996 1997 1998
------------------------ ------------------------ ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense........................... $(10,074) $(12,897) $ (10,048)
State and local income taxes, net of federal income tax
benefit................................................. 73 81 98
Other..................................................... (21) (12) (19)
-------- -------- ---------
$(10,022) $(12,828) $ (9,969)
-------- -------- ---------
-------- -------- ---------
</TABLE>
F-50
<PAGE>
TCI INSIGHT SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 31, 1998,
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
3. INCOME TAXES--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liabilities at October 31,
1998 and December 31, 1997 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1997 1998
------------ -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Deferred tax asset--principally due to non-deductible accruals.... $ 80 $ 79
-------- -------
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation................................................. 13,124 12,822
Franchise costs, principally due to differences in amortization
and initial basis............................................ 52,581 51,223
-------- -------
Total gross deferred tax liabilities......................... 65,705 64,045
-------- -------
Net deferred tax liability...................................... $ 65,625 $63,966
-------- -------
-------- -------
</TABLE>
4. PARENT'S INVESTMENT (DEFICIT)
Parent's investment (deficit) in the TCI Insight Systems at
October 31, 1998 and December 31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1997 1998
------------ -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Due to TCIC....................................................... $ 93,231 $ 77,892
Retained earnings (deficit)....................................... 47,857 (163,404)
-------- ---------
$141,088 $ (85,512)
-------- ---------
-------- ---------
</TABLE>
The amount due to TCIC includes advances for operations, acquisitions and
construction costs, as well as, the non-interest bearing amounts owed as a
result of the allocation of certain costs from TCIC.
On September 30, 1998, TCIC caused the TCI Insight Systems to effect
a dividend from the TCI Insight Systems to TCIC aggregating $230,000,000 (the
"Dividend"). The Dividend resulted in an increase to the intercompany
notes owed to TCIC and a corresponding decrease to retained earnings.
As a result of TCIC's 100% ownership of the TCI Insight Systems, the
non-interest bearing amounts due to TCIC have been classified as a component of
Parent's investment (deficit) in the accompanying combined balance sheets.
The TCI Insight Systems purchase, at TCIC's cost, substantially all of
their pay television and other programming from affiliates of TCIC. Charges for
such programming were $18,037,000, $18,269,000, and $16,986,000 for the
ten-months ended October 31, 1998 and the years ended December 31, 1997 and
1996, respectively, and are included in operating expenses in the accompanying
combined financial statements.
Certain subsidiaries of TCIC provide administrative services to the TCI
Insight Systems and have assumed managerial responsibility of the TCI Insight
Systems' cable television system operations and construction. As compensation
for these services, the TCI Insight Systems pay a monthly fee calculated on a
per-subscriber basis.
F-51
<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--(CONTINUED)
The intercompany advances and expense allocation activity in amounts due to
TCIC consists of the following:
<TABLE>
<CAPTION>
JANUARY 1, 1998
YEARS ENDED DECEMBER 31, THROUGH
---------------------------------------------------- OCTOBER 31,
1996 1997 1998
------------------------ ------------------------ ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Beginning of period....................................... $148,144 $123,780 $ 93,231
Programming charges....................................... 16,986 18,269 18,037
Management fees........................................... 4,199 3,732 3,057
Tax allocations........................................... 11,251 14,194 11,628
Cash transfer............................................. (56,800) (66,744) (48,061)
-------- -------- ---------
End of period............................................. $123,780 $ 93,231 $ 77,892
-------- -------- ---------
-------- -------- ---------
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") imposed certain rate regulations on the cable television
industry. Under the 1992 Cable Act, all cable systems are subject to rate
regulation, unless they face "effective competition," as defined by the 1992
Cable Act and expanded in the Telecommunications Act of 1996 (the "1996 Act"),
in their local franchise area.
Although the Federal Communications Commission (the "FCC") has established
regulations required by the 1992 Cable Act, local government units (commonly
referred to as local franchising authorities) are primarily responsible for
administering the regulation of a cable system's basic service tier ("BST").
The FCC itself directly administered rate regulation of any cable programming
service tier ("CPST"). The FCC's authority to regulate CPST rates expired on
March 31, 1999. The FCC has taken the position that it will still adjudicate
CPST complaints filed after this sunset date (but not later than 180 days after
the last CPST rate increase imposed prior to March 31, 1999), and will strictly
limit its review (and possible refund orders) to the time period predating the
sunset date.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price structure that allows for the
recovery of inflation and certain increased costs, as well as providing some
incentive for expanding channel carriage. Operators also have the opportunity to
bypass this "benchmark" regulatory structure in favor of the traditional
"cost-of-service" regulation in cases where the latter methodology appears
favorable. Premium cable services offered on a per-channel or per-program basis
remain unregulated, as do affirmatively marketed packages consisting entirely of
new programming product.
The management of the TCI Insight Systems believes that it has complied in
all material respects with the provisions of the 1992 Cable Act and the 1996
Act, including its rate setting provisions. If, as a result of the review
process, a system cannot substantiate its rates, it could be required to
retroactively reduce its rates to the appropriate benchmark and refund the
excess portion of rates received. Any refunds of the excess portion of CPST
rates would be retroactive to the date of complaint. Any refunds of the excess
portion of BST or equipment rates would be retroactive to one year prior to the
implementation of the rate reductions.
Certain plaintiffs have filed or threatened separate class action
complaints against certain of the systems of TCI Insight Systems, alleging that
the systems' practice of assessing an administrative fee to subscribers whose
payments are delinquent constitutes an invalid liquidated damage provision, a
breach of contract, and violates local consumer protection statutes. Plaintiffs
seek recovery of all late fees paid to the subject systems as a class purporting
to consist of all subscribers who were assessed such fees during the applicable
limitation period, plus attorney fees and costs.
The TCI Insight Systems have contingent liabilities related to legal
proceedings and other matters arising in the ordinary course of business.
Although it is possible the TCI Insight Systems may incur losses upon conclusion
of the matters referred to above, an estimate of any loss or range of loss
cannot presently be made.
F-52
<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)
Based upon the facts available, management believes that, although no assurance
can be given as to the outcome of these actions, the ultimate disposition should
not have a material adverse effect upon the combined financial condition of the
TCI Insight Systems.
The TCI Insight Systems lease business offices, have entered into pole
rental agreements and use certain equipment under lease arrangements. Rental
expense under such arrangements amounted to $1,142,000, $1,557,000 and
$1,231,000 in for the ten-month period ended October 31, 1998, and the years
ended December 31, 1997 and 1996, respectively.
Future minimum lease payments under noncancellable operating leases for
each of the next five years are summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEARS ENDING
OCTOBER 31,
- -------------------------------------------------------------
<S> <C>
1999......................................................... $ 413
2000......................................................... 325
2001 302
2002......................................................... 202
2003 161
Thereafter................................................... 367
-------
$ 1,770
-------
-------
</TABLE>
TCI formed a year 2000 Program Management Office (the "PMO") to organize
and manage its year 2000 remediation efforts. The PMO is responsible for
overseeing, coordinating and reporting on TCIC's year 2000 remediation efforts,
including the year 2000 remediation efforts of the TCI Insight Systems prior to
the Contribution. Subsequent to the date of the Contribution, the year 2000
remediation efforts of the TCI Insight Systems are no longer the responsibility
of TCI, TCIC or the PMO.
The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. There can be
no assurance that the TCI Insight Systems or the systems of other companies on
which the TCI Insight Systems relies will be converted in time or that any such
failure to convert by the TCI Insight Systems or other companies will not have a
material adverse effect on it financial position, results of operations or cash
flows.
F-53
<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-54
<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
Preferred B Dividend Payable...................................................................... 1,438
----------
Total Current Liabilities........................................................................... 14,406
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-55
<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-56
<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-57
<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 directly related to the cable television system contributed to Insight
Ohio. 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 Discount Notes
are non-recourse, secured by 100% of the common stock of Coaxial, and
conditionally guaranteed by Insight Ohio.
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.
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.
F-58
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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.
Concentration of Credit Risk
Financial instruments that potentially subject Insight Ohio to
concentrations of credit risk consist principally of trade accounts receivable.
Insight Ohio's customer base consists of a number of homes concentrated in the
central Ohio area. Insight Ohio continually monitors the exposure for credit
losses and maintains allowances for anticipated losses. As of December 31, 1998,
Insight Ohio had no significant concentrations of credit risk.
Property and Equipment
Property and equipment are stated at cost, while maintenance and repairs
are expensed as incurred. Upon retirement or disposal of assets, the cost and
related accumulated depreciation and amortization are removed from the balance
sheet, and any gain or loss is reflected in earnings. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of the related assets as follows:
<TABLE>
<S> <C>
10 to
CATV systems............................................. 15 years
Equipment................................................ 5 years
Furniture................................................ 5 years
Leasehold improvements................................... Life of lease
</TABLE>
Assets held under capital leases at December 31, 1998 were approximately
$228,000.
Insight Ohio internally constructs certain CATV systems. Construction costs
capitalized include payroll, fringe benefits and other overhead costs associated
with construction activity.
Insight Ohio reviews its property, plant and equipment and other long term
assets when events or changes in circumstances indicate the carrying amounts may
not be recoverable. When such conditions exist, management estimates the future
cash flows from operations or disposition. If the estimated undiscounted future
cash flows are less than the carrying amount of the asset, an adjustment to
reduce the carrying amount would be recorded, and an impairment loss would be
recognized. Insight Ohio does not believe that there is an impairment of such
assets.
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).
F-59
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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
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
F-60
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
5. CREDIT FACILITY--(CONTINUED)
consolidations, engage in certain transactions with subsidiaries and affiliates
and otherwise restrict certain activities.
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>
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-61
<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-62
<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-63
<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-64
<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-65
<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.
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-66
<PAGE>
CENTRAL OHIO CABLE SYSTEM OPERATING UNIT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Property and Equipment
Property and equipment are stated at cost, while maintenance and repairs
are expensed as incurred. Upon retirement or disposal of assets, the cost and
related accumulated depreciation and amortization are removed from the balance
sheet, and any gain or loss is reflected in earnings. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of the related assets as follows:
<TABLE>
<CAPTION>
YEARS
-------------
<S> <C>
CATV systems............................................................................. 10 to 15
Equipment................................................................................ 5
Furniture................................................................................ 5
Leasehold improvements................................................................... Life of lease
</TABLE>
The Operating Unit internally constructs certain CATV systems. Construction
costs capitalized include payroll, fringe benefits and other overhead costs
associated with construction activity.
The Operating Unit reviews its property, plant and equipment and other long
term assets when events or changes in circumstances indicate the carrying
amounts may not be recoverable. When such conditions exist, management estimates
the future cash flows from operations or disposition. If the estimated
undiscounted future cash flows are less than the carrying amount of the asset,
an adjustment to reduce the carrying amount would be recorded, and an impairment
loss would be recognized. The Operating Unit does not believe that there is an
impairment of such assets.
Intangible Assets
Intangible assets are amortized using the straight-line method over the
estimated useful lives of the related assets as follows:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Franchise rights.............................................................................. 7 to 15
</TABLE>
Home Office Expenses
Home office expenses of approximately $1,697,000 and $1,498,000 in 1996 and
1997 (included in selling and administrative expenses) include billings for
legal fees, management fees, salaries, travel and other management expenses for
services provided by an affiliated services company.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense primarily
for campaign and telemarketing-related efforts was approximately $1,060,000 and
$1,025,000 in 1996 and 1997, respectively.
Change in Net Assets
The components of the change in net assets are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Beginning Balance........................................................ $23,498,549 $25,636,856
Net income............................................................. 17,931,649 13,900,935
Advances, loans and repayments by Coaxial.............................. (15,793,342) (13,967,020)
----------- -----------
Ending Balance........................................................... $25,636,856 $25,570,771
----------- -----------
----------- -----------
</TABLE>
F-67
<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-68
<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-69
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
INSIGHT COMMUNICATIONS COMPANY, INC.
[Logo]
,000,000 SHARES OF CLASS A COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
DONALDSON, LUFKIN & JENRETTE
MORGAN STANLEY DEAN WITTER
CIBC WORLD MARKETS
DEUTSCHE BANK SECURITIES
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Insight have
not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all
dealers, whether or not participating in this offering, that effect transactions
in these securities may be required to deliver a prospectus. This is in addition
to the dealer's obligation to deliver a prospectus when acting as an underwriter
in this offering and when selling previously unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth various expenses, other than underwriting
discounts, which will be incurred in connection with this offering:
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 143,865
NASDAQ listing fee............................................ 10,000
NASD filing fee............................................... 30,500
Blue sky fees and expenses.................................... *
Printing and engraving expenses............................... *
Legal fees and expenses....................................... *
Accounting fees and expenses.................................. *
Transfer Agent fees........................................... *
Miscellaneous expenses........................................ *
----------
Total.................................................... *
</TABLE>
- ------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee of or agent to the Registrant. The
statute provides that it is not exclusive of other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise. The Registrant's by-laws
provides for indemnification by the Registrant of any director or officer (as
such term is defined in the by-laws) of the Registrant who is or was a director
of any of its subsidiaries, or, at the request of the Registrant, is or was
serving as a director or officer of, or in any other capacity for, any other
enterprise, to the fullest extent permitted by law. The by-laws also provide
that the Registrant shall advance expenses to a director or officer and, if
reimbursement of such expenses is demanded in advance of the final disposition
of the matter with respect to which such demand is being made, upon receipt of
an undertaking by or on behalf of such director or officer to repay such amount
if it is ultimately determined that the director or officer is not entitled to
be indemnified by the Registrant. To the extent authorized from time to time by
the board of directors of the Registrant, the Registrant may provide to any one
or more employees of the Registrant, one or more officers, employees and other
agents of any subsidiary or one or more directors, officers, employees and other
agents of any other enterprise, rights of indemnification and to receive payment
or reimbursement of expenses, including attorneys' fees, that are similar to the
rights conferred in the by-laws of the Registrant on directors and officers of
the Registrant or any subsidiary or other enterprise. The by-laws do not limit
the power of the Registrant or its board of directors to provide other
indemnification and expense reimbursement rights to directors, officers,
employees, agents and other persons otherwise than pursuant to the by-laws. The
Registrant intends to enter into agreements with certain directors, officers and
employees who are asked to serve in specified capacities at subsidiaries and
other entities.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
payments of unlawful dividends or unlawful stock repurchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit. The Registrant's certificate of incorporation provides for such
limitation of liability.
II-1
<PAGE>
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 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. INDEMNIFICATION OF DIRECTORS AND OFFICERS
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
Indiana"), Insight Communications Company, L.P. ("Insight LP"), 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
2.2 -- Contribution Agreement by and between Coaxial Communications of Central Ohio, Inc. ("Coaxial") and
Insight LP, dated as of June 30, 1998
2.3 -- Amendment to Contribution Agreement by and between Coaxial and Insight LP, dated as of July 15,
1998
2.4 -- Second Amendment to Contribution Agreement by and among Coaxial, Insight LP and Insight Holdings
of Ohio, LLC ("IHO"), dated as of August 21, 1998
2.5 -- Asset Exchange Agreement by and among Insight LP, TCI of Indiana, Inc. and UACC Midwest, Inc.,
dated May 14, 1998
2.6 -- Asset Exchange Agreement by and between Insight LP and CoxCom, Inc., dated as of November 26, 1997
2.7 -- Asset Purchase Agreement by and between A-R Cable Services, Inc. and Insight LP, dated as of
August 12, 1997
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 L.P.
2.9 -- Contribution and Formation Agreement, dated April 18, 1999, between TCI of Indiana Holdings, LLC
and Insight L.P.
3.1* -- Certificate of Incorporation of Registrant
3.2* -- By-laws of Registrant
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C>
4.1* -- Form of certificate evidencing shares of Class A common stock
5.1* -- Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C.
10.1* -- 1999 Stock Option Plan
10.2* -- Fourth Amended and Restated Credit Agreement, dated as of December 21, 1998, among Insight LP,
several lenders and The Bank of New York
10.3* -- Credit Agreement, dated as of October 30, 1998, among Insight Indiana, several lenders and The
Bank of New York
10.4* -- Revolving Credit Agreement, dated as of October 7, 1998, among Insight Communications of Central
Ohio, LLC ("Insight Ohio"), several lenders and Canadian Imperial Bank of Commerce
10.5 -- Operating Agreement of Insight Indiana by and between Insight LP and TCI of Indiana Holdings, LLC,
dated as of May 14, 1998
10.6 -- Management Agreement by and between Insight Indiana and Insight LP, dated as of October 30, 1998
10.7 -- Operating Agreement of Insight Ohio by and among Coaxial, IHO, Barry Silverstein, Dennis
McGillicuddy and D. Stevens McVoy, dated as of August 21, 1998
10.8 -- Management Agreement of Coaxial LLC by and among Coaxial LLC, IHO and Barry Silverstein, dated as
of August 21, 1998
10.9 -- Management Agreement of Coaxial DJM LLC by and between Coaxial DJM LLC, IHO and Dennis
McGillicuddy, dated as of August 21, 1998
10.10 -- Management Agreement of Coaxial DSM LLC by and between Coaxial DSM LLC, IHO and D. Stevens McVoy,
dated as of August 21, 1998
10.11 -- Parent Undertaking given by Insight LP for and in favor of Coaxial, Phoenix Associates, Coaxial
LLC, Coaxial DJM LLC, Coaxial DSM LLC, Barry Silverstein, Dennis McGillicuddy and D. Stevens
McVoy, dated as of August 21, 1998
10.12* -- Management Agreement by and between Coaxial and Insight Ohio, dated as of August 21, 1998
10.13 -- Operating Agreement of IHO by and between Insight LP and IHO, dated as of August 21, 1998
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consents of KPMG LLP
23.3 -- Consent of PricewaterhouseCoopers LLP
23.4 -- Consent of Arthur Andersen LLP
23.5* -- Consent of Cooperman Levitt Winikoff Lester & Newman, P.C. (included in Exhibit 5.1)
23.6* -- Consent of Thomas L. Kempner
23.7* -- Consent of James S. Marcus
23.8* -- Consent of Daniel S. O'Connell
23.9* -- Consent of Prakash A. Melwani
24.1 -- Power of Attorney (included on the signature page of Part II of this registration statement)
27.1 -- Financial Data Schedule of Insight Communications Company, L.P.
</TABLE>
- ------------------
* To be filed by Amendment
(b) Financial Statement Schedule.
S-1 Report of Independent Auditors on Financial Statement Schedule.
S-2 Schedule II--Valuation and Qualifying Accounts.
II-3
<PAGE>
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 file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in "Calculation of
Registration Fee" table in the effective registration statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(4) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(5) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of this offering.
(6) To provide to the representatives at the closing specified in the
underwriting agreement, certificates in such denominations and registered
in such names as required by the representatives to permit prompt delivery
to each purchaser.
(7) 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 11TH DAY OF MAY, 1999.
INSIGHT COMMUNICATIONS COMPANY, INC.
By: /s/ MICHAEL S. WILLNER
-----------------------------------
Michael S. Willner
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael S. Willner and Kim D. Kelly, and each of
them, with full power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments (including post-effective amendments) to this registration
statement with respect to the proposed issuance, sale and delivery of Class A
common stock, or any registration statement for this offering that is to be
effective upon the filing pursuant to rule 462(b) under the Securities Act of
1933, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
-------------------------
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 May 11, 1999
- ------------------------------------------
Sidney R. Knafel
/s/ MICHAEL S. WILLNER President, Chief Executive Officer and Director May 11, 1999
- ------------------------------------------ (Principal Executive Officer)
Michael S. Willner
/s/ KIM D. KELLY Executive Vice President, Chief Financial and May 11, 1999
- ------------------------------------------ Operating Officer and Director (Principal Financial
Kim D. Kelly 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 Indiana"), Insight Communications Company, L.P. ("Insight LP"), 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
2.2 -- Contribution Agreement by and between Coaxial Communications of Central Ohio, Inc.
("Coaxial") and Insight LP, dated as of June 30, 1998
2.3 -- Amendment to Contribution Agreement by and between Coaxial and Insight LP, dated as of
July 15, 1998
2.4 -- Second Amendment to Contribution Agreement by and among Coaxial, Insight LP and
Insight Holdings of Ohio, LLC ("IHO"), dated as of August 21, 1998
2.5 -- Asset Exchange Agreement by and among Insight LP, TCI of Indiana, Inc. and UACC
Midwest, Inc., dated May 14, 1998
2.6 -- Asset Exchange Agreement by and between Insight LP and CoxCom, Inc., dated as of
November 26, 1997
2.7 -- Asset Purchase Agreement by and between A-R Cable Services, Inc. and Insight LP, dated
as of August 12, 1997
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 L.P.
2.9 -- Contribution and Formation Agreement, dated April 18, 1999, between TCI of Indiana
Holdings, LLC and Insight L.P.
3.1* -- Certificate of Incorporation of Registrant
3.2* -- By-laws of Registrant
4.1* -- Form of certificate evidencing shares of Class A common stock
5.1* -- Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C.
10.1* -- 1999 Stock Option Plan
10.2* -- Fourth Amended and Restated Credit Agreement, dated as of December 21, 1998, among
Insight LP, several lenders and The Bank of New York
10.3* -- Credit Agreement, dated as of October 30, 1998, among Insight Indiana, several lenders
and The Bank of New York
10.4* -- Revolving Credit Agreement, dated as of October 7, 1998, among Insight Communications
of Central Ohio, LLC ("Insight Ohio"), several lenders and Canadian Imperial Bank of
Commerce
10.5 -- Operating Agreement of Insight Indiana by and between Insight LP and TCI of Indiana
Holdings, LLC, dated as of May 14, 1998
10.6 -- Management Agreement by and between Insight Indiana and Insight LP, dated as of
October 30, 1998
10.7 -- Operating Agreement of Insight Ohio by and among Coaxial, IHO, Barry Silverstein,
Dennis McGillicuddy and D. Stevens McVoy, dated as of August 21, 1998
10.8 -- Management Agreement of Coaxial LLC by and among Coaxial LLC, IHO and Barry
Silverstein, dated as of August 21, 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
10.9 -- Management Agreement of Coaxial DJM LLC by and between Coaxial DJM LLC, IHO and Dennis
McGillicuddy, dated as of August 21, 1998
10.10 -- Management Agreement of Coaxial DSM LLC by and between Coaxial DSM LLC, IHO and D.
Stevens McVoy, dated as of August 21, 1998
10.11 -- Parent Undertaking given by Insight LP for and in favor of Coaxial, Phoenix
Associates, Coaxial LLC, Coaxial DJM LLC, Coaxial DSM LLC, Barry Silverstein, Dennis
McGillicuddy and D. Stevens McVoy, dated as of August 21, 1998
10.12* -- Management Agreement by and between Coaxial and Insight Ohio, dated as of August 21,
1998
10.13 -- Operating Agreement of IHO by and between Insight LP and IHO, dated as of August 21,
1998
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consents of KPMG LLP
23.3 -- Consent of PricewaterhouseCoopers LLP
23.4 -- Consent of Arthur Andersen LLP
23.5* -- Consent of Cooperman Levitt Winikoff Lester & Newman, P.C. (included in Exhibit 5.1)
23.6* -- Consent of Thomas L. Kempner
23.7* -- Consent of James S. Marcus
23.8* -- Consent of Daniel S. O'Connell
23.9* -- Consent of Prakash A. Melwani
24.1 -- Power of Attorney (included on the signature page of Part II of this registration
statement)
27.1 -- Financial Data Schedule of Insight Communications Company, L.P.
</TABLE>
- ------------------
* To be filed by Amendment
<PAGE>
ASSET CONTRIBUTION AGREEMENT
dated May 14, 1998
among
UACC MIDWEST, INC.
TCI OF KOKOMO, INC.,
TCI OF INDIANA, INC.,
HERITAGE CABLEVISION ASSOCIATES, A LIMITED PARTNERSHIP,
TCI OF INDIANA HOLDINGS, LLC
and
INSIGHT COMMUNICATIONS COMPANY, L.P.
and
INSIGHT COMMUNICATIONS OF INDIANA, LLC
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINITIONS..................................................1
1.1 1992 Cable Act...............................................2
1.2 Affiliate....................................................2
1.3 Assets.......................................................2
1.4 Basic Services...............................................2
1.5 Business Day.................................................2
1.6 Cable Act....................................................2
1.7 Cable Business...............................................2
1.8 Closing Time.................................................2
1.9 Communications Act...........................................2
1.10 Contract.....................................................2
1.11 Equivalent Basic Subscribers (or "EBSs").....................2
1.12 Environmental Law............................................3
1.13 ERISA........................................................3
1.14 ERISA Affiliate..............................................4
1.15 Exchanges....................................................4
1.16 Expanded Basic Services......................................4
1.17 FCC..........................................................4
1.18 Financial Statements.........................................4
1.19 GAAP.........................................................4
1.20 Governmental Authority.......................................4
1.21 Hazardous Substances.........................................4
1.22 HSR Act......................................................4
1.23 Insight Assets...............................................5
1.24 Insight Books and Records....................................5
1.25 Insight Leased Property......................................5
1.26 Insight Other Intangibles....................................5
1.27 Insight Other Real Property Interests........................5
1.28 Insight Owned Property.......................................5
1.29 Insight Required Consents....................................5
1.30 Insight System Contracts.....................................6
1.31 Insight System Franchises....................................6
1.32 Insight System Licenses......................................6
1.33 Insight Tangible Personal Property...........................6
1.34 Insight's Cable Business.....................................6
1.35 Judgment.....................................................6
1.36 Knowledge....................................................7
1.37 Leased Property..............................................7
1.38 Legal Requirement............................................7
1.39 Lien.........................................................7
- i -
<PAGE>
1.40 Litigation...................................................7
1.41 Losses.......................................................7
1.42 Other Real Property Interests................................7
1.43 Owned Property...............................................7
1.44 Pay TV.......................................................8
1.45 Permitted Lien...............................................8
1.46 Person.......................................................8
1.47 Required Consents............................................8
1.48 System.......................................................8
1.49 System Contracts.............................................8
1.50 System Franchises............................................8
1.51 System Licenses..............................................8
1.52 Tangible Personal Property...................................9
1.53 Taxes........................................................9
1.54 TCI Assets...................................................9
1.55 TCI Books and Records........................................9
1.56 TCI Leased Property..........................................9
1.57 TCI Other Intangibles........................................9
1.58 TCI Other Real Property Interests............................9
1.59 TCI Owned Property...........................................9
1.60 TCI Required Consents.......................................10
1.61 TCI System Contracts........................................10
1.62 TCI System Franchises.......................................10
1.63 TCI System Licenses.........................................10
1.64 TCI Tangible Personal Property..............................10
1.65 TCI's Cable Business........................................10
1.66 Third Party.................................................11
1.67 Transaction Documents.......................................11
1.68 Other Definitions...........................................11
1.69 Accounting Terms............................................13
SECTION 2. CONTRIBUTION................................................13
2.1 Agreement to Contribute.....................................13
SECTION 3. ISSUANCE OF MEMBERSHIP INTERESTS AND CLOSING
ADJUSTMENTS.................................................13
3.1 Issuance of Membership Interests............................13
3.2 Closing Adjustments.........................................13
3.3 Calculation of Adjustments..................................16
- ii -
<PAGE>
SECTION 4. ASSUMED LIABILITIES AND EXCLUDED ASSETS.....................17
4.1 Assumed Obligations and Liabilities.........................17
4.2 TCI Excluded Assets.........................................18
4.3 Insight Excluded Assets.....................................19
SECTION 5. INSIGHT'S REPRESENTATIONS AND WARRANTIES....................19
5.1 Organization and Qualification of Insight...................20
5.2 Authority and Validity......................................20
5.3 No Conflict; Required Consents..............................20
5.4 Assets......................................................21
5.5 Insight System Franchises, Insight System Licenses,
Insight System Contracts and Insight Other Real
Property Interests..........................................21
5.6 Real Property...............................................22
5.7 Environmental...............................................23
5.8 Compliance with Legal Requirements..........................24
5.9 Patents, Trademarks and Copyrights..........................26
5.10 Financial Statements; Undisclosed Liabilities;
Absence of Certain Changes or Events........................26
5.11 Litigation..................................................27
5.12 Tax Returns; Other Reports..................................27
5.13 Employment Matters..........................................27
5.14 Insight Systems Information.................................29
5.15 Accounts Receivable.........................................29
5.16 Bonds; Letters of Credit....................................29
5.17 Finders and Brokers.........................................29
5.18 Wireless Business; @Home....................................30
SECTION 6. TCI'S REPRESENTATIONS AND WARRANTIES........................30
6.1 Organization and Qualification of TCI.......................30
6.2 Authority and Validity......................................31
6.3 No Conflict; Required Consents..............................31
6.4 Assets......................................................32
6.5 TCI System Franchises, TCI System Licenses,
TCI System Contracts and TCI Other Real
Property Interests..........................................32
6.6 Real Property...............................................33
6.7 Environmental...............................................34
6.8 Compliance with Legal Requirements..........................35
6.9 Patents, Trademarks and Copyrights..........................36
6.10 Financial Statements; Undisclosed Liabilities;
Absence of Certain Changes or Events........................37
6.11 Litigation..................................................37
6.12 Tax Returns; Other Reports..................................38
6.13 Employment Matters..........................................38
- iii -
<PAGE>
6.14 TCI Systems Information.....................................39
6.15 Accounts Receivable.........................................40
6.16 Bonds; Letters of Credit....................................40
6.17 Finders and Brokers.........................................40
SECTION 7. ADDITIONAL COVENANTS........................................40
7.1 Access to Premises and Records..............................40
7.2 Continuity and Maintenance of Operations;
Certain Deliveries and Notices..............................40
7.3 Employees...................................................42
7.4 Leased Vehicles; Other Capital Leases.......................44
7.5 Required Consents, Estoppel Certificates,
Franchise Renewal...........................................44
7.6 Title Commitments and Surveys...............................46
7.7 HSR Notification............................................47
7.8 Taxes, Fees and Expenses....................................47
7.9 Distant Broadcast Signals...................................47
7.10 Programming.................................................48
7.11 Schedules...................................................48
7.12 Use of Names and Logos......................................49
7.13 Transitional Billing Services...............................49
7.14 Confidentiality and Publicity...............................49
7.15 Bulk Transfers..............................................50
7.16 Lien Searches...............................................50
7.17 Further Assurances..........................................50
7.18 Consents....................................................50
7.19 Cooperation as to Rates and Fees............................51
7.20 Satisfaction of Conditions..................................52
7.21 Offers......................................................52
7.22 Environmental Reports.......................................52
7.23 Company Financing...........................................53
7.24 Franchise Consents..........................................53
7.25 Management Incentive Plan and Five-Year
Operating Plan..............................................55
7.26 @Home Agreement.............................................55
SECTION 8. CONDITIONS PRECEDENT........................................56
8.1 Conditions to Insight's Obligations.........................56
8.2 Conditions to TCI's Obligations.............................58
SECTION 9. THE CLOSING.................................................60
9.1 The Closing; Time and Place.................................60
9.2 TCI's Delivery Obligations..................................60
9.3 Insight's Delivery Obligations..............................62
9.4 The Company's Delivery Obligations..........................64
9.5 Post-Closing Refinancing of the TCI and Insight
Permitted Debt..............................................64
- iv -
<PAGE>
SECTION 10. TERMINATION AND DEFAULT.....................................64
10.1 Termination Events..........................................64
10.2 Effect of Termination.......................................66
SECTION 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.............................................66
11.1 Survival of Representations and Warranties..................66
11.2 Indemnification by TCI......................................66
11.3 Indemnification by Insight..................................67
11.4 Indemnification by the Company..............................68
11.5 Third Party Claims..........................................68
11.6 Limitations on Indemnification - TCI........................69
11.7 Limitations on Indemnification - Insight....................69
11.8 Limitations on Indemnification - the Company................70
11.9 Other Indemnification.......................................70
SECTION 12. MISCELLANEOUS PROVISIONS....................................70
12.1 Parties Obligated and Benefited.............................70
12.2 Notices.....................................................71
12.3 Right to Specific Performance...............................72
12.4 Waiver......................................................72
12.5 Captions....................................................72
12.6 Choice of Law...............................................73
12.7 Terms.......................................................73
12.8 Rights Cumulative...........................................73
12.9 Time........................................................73
12.10 Late Payments...............................................73
12.11 Counterparts................................................73
12.12 Entire Agreement............................................73
12.13 Severability................................................73
12.14 Construction................................................73
12.15 Expenses....................................................74
12.16 Risk of Loss................................................74
12.17 Tax Consequences............................................76
12.18 Commercially Reasonable Efforts.............................76
- v -
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
<TABLE>
<CAPTION>
Schedules
- ---------
<S> <C>
Schedule 1.25 Insight Leased Property
Schedule 1.27 Insight Other Real Property Interests
Schedule 1.28 Insight Owned Property
Schedule 1.30 Insight System Contracts
Schedule 1.31 Insight System Franchises
Schedule 1.32 Insight System Licenses
Schedule 1.33 Insight Tangible Personal Property
Schedule 1.56 TCI Leased Property
Schedule 1.58 TCI Other Real Property Interests
Schedule 1.59 TCI Owned Property
Schedule 1.61 TCI System Contracts
Schedule 1.62 TCI System Franchises
Schedule 1.63 TCI System Licenses
Schedule 1.64 TCI Tangible Personal Property
Schedule 4.2 TCI Excluded Assets
Schedule 4.3 Insight Excluded Assets
Schedule 5.3 Insight Required Consents
Schedule 5.4 Insight Liens and Permitted Liens
Schedule 5.7 Insight Environmental Matters
Schedule 5.8 Insight Cost of Service Elections
</TABLE>
- vi -
<PAGE>
<TABLE>
<S> <C>
Schedule 5.10 Insight Financial Statements; Insight Changes or
Events
Schedule 5.11 Insight Litigation
Schedule 5.13(a) Insight Employees
Schedule 5.13 Insight Plans; Employee Matters
Schedule 5.14 Insight Systems Information
Schedule 5.16 Insight Bonds
Schedule 6.3 TCI Required Consents
Schedule 6.4 TCI Liens and Permitted Liens
Schedule 6.7 TCI Environmental Matters
Schedule 6.8 TCI Cost of Service Elections
Schedule 6.10 TCI Financial Statements; TCI Changes or Events
Schedule 6.11 TCI Litigation
Schedule 6.13(a) TCI Employees
Schedule 6.13 TCI Plans; Employee Matters
Schedule 6.14 TCI Systems Information
Schedule 6.16 TCI Bonds
Exhibits
Exhibit A Insight Systems
Exhibit B TCI Systems
Exhibit C Exchange Systems
Exhibit 7.5(b) Form of Estoppel Certificate
</TABLE>
- vii -
<PAGE>
<TABLE>
<S> <C>
Exhibit 9.2(a) Form of Bill of Sale and Assignment
Exhibit 9.4(a) Form of Assumption Agreement
</TABLE>
- viii -
<PAGE>
ASSET CONTRIBUTION AGREEMENT
THIS ASSET CONTRIBUTION AGREEMENT ("Agreement") is made and entered into as
of the 14th day of May, 1998, by and among UACC Midwest, Inc., a Delaware
corporation ("Midwest"), TCI of Kokomo, Inc., a Colorado corporation ("Kokomo"),
TCI of Indiana, Inc., an Indiana corporation ("Indiana"), Heritage Cablevision
Associates, a Limited Partnership, an Iowa limited partnership ("Heritage"), TCI
of Indiana Holdings, LLC, a Colorado limited liability company ("TCI LLC") and
Insight Communications Company, L.P., a Delaware limited partnership ("Insight")
and Insight Communications of Indiana, LLC, a Delaware limited liability company
(the "Company"). Midwest, Kokomo, Indiana and Heritage are collectively referred
to herein as the "TCI Parties" or "TCI."
RECITALS
A. Insight owns and operates cable television systems which are franchised
or hold other operating authority and operate in and around the communities in
Indiana listed on Exhibit A (the "Insight Systems").
B. TCI owns and operates cable television systems which are franchised or
hold other operating authority and operate in and around the communities in
Indiana listed on Exhibit B (the "TCI Systems").
C. On the date hereof, Midwest and Indiana are entering into an Asset
Exchange Agreement pursuant to which they will transfer and assign to Insight
(or a permitted assignee of Insight), on the Closing Date immediately prior to
the Closing hereunder, substantially all of the assets relating to certain cable
television systems which are franchised or hold other operating authority and
operate in and around Evansville and Jasper, Indiana and certain surrounding
communities (as listed on Exhibit C, the "Exchange Systems" and the assets of
such Exchange Systems that are transferred by Midwest and Indiana pursuant to
the Asset Exchange Agreement being referred to as the "Exchange Assets").
D. Insight desires to contribute the Insight Systems and the Exchange
Systems to the Company and TCI desires to contribute the TCI Systems to the
Company.
AGREEMENTS
In consideration of the mutual covenants and promises set forth herein, the
parties agree as follows:
SECTION 1. DEFINITIONS
<PAGE>
In addition to terms defined elsewhere in this Agreement, the following
capitalized terms or terms otherwise defined in this Section 1 shall have the
meanings set forth below:
1.1 1992 Cable Act. The Cable Television Consumer Protection and
Competition Act of 1992, as amended, and the FCC rules and regulations
promulgated thereunder.
1.2 Affiliate. With respect to any Person, any Person controlling,
controlled by or under common control with such Person; "control" means the
ownership, directly or indirectly, of voting securities representing the right
generally to elect a majority of the directors (or similar officials) of a
Person or the possession, by contract or otherwise, of the authority to direct
the management and policies of a Person.
1.3 Assets. The Insight Assets or the TCI Assets or both, as the context
requires, but not including any of the Exchange Assets unless expressly
indicated.
1.4 Basic Services. The lowest tier of cable television service offered to
subscribers of a System that includes the retransmission of local broadcast
signals as defined by the Cable Act and the 1992 Cable Act.
1.5 Business Day. Any day other than a Saturday, Sunday or a day on which
the banking institutions in Denver, Colorado or New York, New York are required
or authorized to be closed.
1.6 Cable Act. The Cable Communications Policy Act of 1984, as amended, and
the rules and regulations promulgated thereunder.
1.7 Cable Business. Insight's Cable Business or TCI's Cable Business, or
both as the context requires.
1.8 Closing Time. 11:59 P.M., Mountain Time, on the Closing Date.
1.9 Communications Act. The Communications Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
1.10 Contract. Any contract, mortgage, deed of trust, bond, indenture,
lease, license, note, franchise, certificate, option, warrant, right or other
instrument, document, obligation or agreement, whether written or oral.
1.11 Equivalent Basic Subscribers (or "EBSs"). As of any date of
determination and for each franchise area served by a System, the sum of (a) the
total number of private residential customer accounts that are billed by
individual unit for at least Basic Services (regardless of whether such accounts
are in single-family homes or in individually billed units in apartment
buildings and other multi-unit buildings) (exclusive of (i) "second connects"
and "additional outlets" as such terms are commonly understood in the cable
television industry, and (ii) accounts that are not charged or
-2-
<PAGE>
are charged less than the standard monthly service fees and charges then in
effect for such System for Basic Services) and (b) the quotient of (i) the total
monthly billings for sales of Basic Services and Expanded Basic Services by such
System for such franchise area during the most recent billing period ended prior
to the date of calculation to commercial, bulk- billed and other accounts not
billed by individual unit (whether on a discounted or non-discounted basis) and
to private residential customer accounts that are billed by individual unit but
pay less than the standard monthly service fees charged for Basic Services, but
excluding billings in excess of a single month's charges for any account,
divided by (ii) the standard monthly combined rate (without discount of any
kind) charged by such System for such franchise area to individually billed
subscribers for the highest level of Basic Services and Expanded Basic Services
offered by such System in effect during such billing period, which monthly rate
will not be less than the applicable rate specified in Schedule 5.14 (in the
case of Insight) or Schedule 6.14 (in the case of TCI). For purposes of
calculating the number of EBSs, there will be excluded (i) all accounts billed
by individual unit that are, and all billings to any commercial, bulk-billed and
other accounts not billed by individual unit that are, more than 60 days past
due in the payment of any amount in excess of the lesser of $10.00 or the
standard rate charged for Basic Services at the time of determination, (ii) any
accounts billed by individual unit and all commercial, bulk-billed and other
accounts not billed by individual units that, as of the date of calculation,
have not paid in full the charges for at least one full month of the subscribed
service, (iii) that portion of the billings to all accounts billed by individual
unit included in clause (b) above and any commercial, bulk-billed and other
accounts not billed by individual unit representing an installation or other
non-recurring charge, a charge for equipment or for any outlet or connection
other than the first outlet or first connection in any individually billed unit
or, with respect to a bulk account, in any residential unit (e.g., an individual
apartment or rental unit), a charge for any tiered service other than Expanded
Basic Services (whether or not included within Pay TV), any charge for Pay TV or
a pass-through charge for sales taxes, line-itemized franchise fees, fees
charged by the FCC and the like, (iv) any individually billed unit and all
billings to any commercial, bulk-billed and other accounts not billed by
individual unit whose service is pending disconnection for any reason and (v)
any individually billed unit and all billings to any commercial, bulk-billed or
other accounts not billed by individual unit that was solicited within the 60
day period preceding the Closing Date to purchase such services by promotions or
offers of discounts other than those ordinarily made by the party for which the
determination of EBSs is being made. For purposes of this definition, payments
on account of monthly billings will be deemed due on the first day of the period
for which the service to which such billings relate is provided.
1.12 Environmental Law. Any Legal Requirement concerning the protection of
public or employee health, safety, welfare or the environment, including Legal
Requirements relating to emissions, discharges, releases or threatened releases
of Hazardous Substances into the environment, air (including both ambient and
within buildings and other structures), surface water, ground water or land or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Substances.
1.13 ERISA. The Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder and published
interpretations with respect thereto.
- 3 -
<PAGE>
1.14 ERISA Affiliate. As to any Person, any trade or business, whether or
not incorporated, which together with such Person would be deemed a single
employer as determined under Section 4001(a)(14) of ERISA.
1.15 Exchanges. The exchange transactions contemplated by the Asset
Exchange Agreement among Insight, Indiana and Midwest dated as of the date of
this Agreement (the "Exchange Agreement") to be consummated at the closing
thereunder.
1.16 Expanded Basic Services. Any level of video programming service
greater than Basic Services provided over a cable television System, regardless
of service tier, other than Basic Services, any new product tier and Pay TV.
1.17 FCC. The Federal Communications Commission.
1.18 Financial Statements. Insight's Financial Statements or TCI's
Financial Statements or both, as the context requires.
1.19 GAAP. Generally accepted accounting principles as in effect from time
to time in the United States of America.
1.20 Governmental Authority. The United States of America, any state,
commonwealth, territory or possession of the United States of America and any
political subdivision or quasi-governmental authority of any of the same,
including any court, tribunal, department, commission, board, bureau, agency,
county, municipality, province, parish or other instrumentality of any of the
foregoing.
1.21 Hazardous Substances. (a) Any "hazardous waste" as defined by the
Resource Conservation and Recovery Act of 1976 (RCRA) (42 U.S.C. ss.ss. 6901 et
seq.), as amended, and the rules and regulations promulgated thereunder; (b) any
"hazardous substance" as defined by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. ss.ss. 9601 et seq.) (CERCLA),
as amended, and the rules and regulations promulgated thereunder; (c) any
substance regulated by the Toxic Substances Control Act (TSCA) (15 U.S.C.
ss.ss.2601 et seq.), or the Insecticide, Fungicide and Rodenticide Act (IFRA) (7
U.S.C. ss.ss.136 et seq.), each as amended, and the rules and regulations
promulgated thereunder; (d) asbestos or asbestos- containing material of any
kind or character; (e) polychlorinated biphenyls; (f) any substances regulated
under the provisions of Subtitle I of RCRA relating to underground storage
tanks; (g) any substance the presence, use, handling, treatment, storage or
disposal of which on real property is prohibited by any Environmental Law; and
(h) any other substance which by any Environmental Law requires special
handling, reporting or notification of any Governmental Authority in its
collection, storage, use, treatment or disposal.
1.22 HSR Act. The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder.
- 4 -
<PAGE>
1.23 Insight Assets. All assets, properties, privileges, rights, interests
and claims, real and personal, tangible and intangible, of every type and
description that are owned, leased, held for use or used in connection with
Insight's Cable Business and in which Insight or any Affiliate of Insight has
any right, title or interest or acquires any right, title or interest on or
before the Closing, including Insight Tangible Personal Property, Insight Owned
Real Property, Insight Leased Property, Insight Other Real Property Interests,
Insight System Franchises, Insight System Licenses, Insight System Contracts,
Insight Books and Records and Insight Other Intangibles, but excluding any
Insight Excluded Assets.
1.24 Insight Books and Records. All engineering records, files, data,
drawings, blueprints, schematics, reports, lists, plans and processes and all
other files of correspondence, lists, records and reports concerning Insight's
Cable Business, including subscribers and prospective subscribers of the Insight
Systems, signal and program carriage and dealings with Governmental Authorities,
including all reports filed by or on behalf of Insight with the FCC and
statements of account filed by or on behalf of Insight with the U.S. Copyright
Office, but excluding any Insight Excluded Assets.
1.25 Insight Leased Property. All leasehold interests in real property that
is held for use or used in connection with Insight's Cable Business which
Insight or any Affiliate of Insight has or acquires prior to Closing, including
those described as Insight Leased Property on Schedule 1.25.
1.26 Insight Other Intangibles. All intangible assets other than Insight
System Franchises, Insight System Licenses and Insight System Contracts,
including subscriber lists, accounts receivable, claims (excluding any claims
relating to Insight Excluded Assets), patents, copyrights and going concern
value, if any, that are owned, held for use or used in connection with Insight's
Cable Business and in which Insight or any Affiliate of Insight has, or acquires
prior to Closing, any right, title or interest.
1.27 Insight Other Real Property Interests. All easements and rights of
access (other than those relating to multiple dwelling units) and other
interests in real property that are held for use or used in connection with
Insight's Cable Business and in which Insight or any Affiliate of Insight has,
or acquires prior to Closing, any right, title or interest, including those
interests described as Insight Other Real Property Interests on Schedule 1.27,
but not including Insight Leased Property or Insight Owned Property.
1.28 Insight Owned Property. All fee interests in real property that is
held for use or used in connection with Insight's Cable Business which Insight
or any Affiliate of Insight has or acquires prior to Closing, including those
described as Insight Owned Property on Schedule 1.28 and all improvements
thereon.
1.29 Insight Required Consents. Any and all consents, authorizations and
approvals required for (i) Insight to transfer the Insight Assets to the
Company; (ii) the Company to operate the Insight Systems and to own, lease, use
and operate the Insight Assets and the Insight Systems
- 5 -
<PAGE>
at the places and in the manner in which the Insight Assets are used and the
Insight Systems are operated as of the date of this Agreement and as of the
Closing; and (iii) the Company to assume and perform the Insight System
Franchises, the Insight System Licenses, the leases and other documents
evidencing Insight Leased Property and Insight Other Real Property Interests and
the Insight System Contracts, including those consents, authorizations and
approvals required under the Insight System Franchises, the Insight System
Licenses, the leases and other documents evidencing Insight Leased Property and
Insight Other Real Property Interests and the Insight System Contracts.
1.30 Insight System Contracts. All pole line agreements, underground
conduit agreements, crossing agreements, multiple dwelling, bulk billing or
commercial service agreements, leased channel access agreements and other
Contracts (other than Insight System Franchises and Insight System Licenses)
held for use or used in connection with Insight's Cable Business and to which
Insight or any Affiliate of Insight is, or becomes prior to Closing, as
permitted by this Agreement, a party or bound, including those described on
Schedule 1.30.
1.31 Insight System Franchises. All franchise agreements, operating permits
or similar governing agreements, instruments, resolutions, statutes, ordinances,
approvals, authorizations and permits obtained from any franchising authority in
connection with Insight's Cable Business, including all amendments and
modifications thereto and all renewals thereof, including those listed on
Schedule 1.31.
1.32 Insight System Licenses. The intangible cable television channel
distribution rights, cable television relay service (CARS), business radio and
other licenses, copyright notices and other licenses, authorizations, consents
or permits issued by the FCC or any other Governmental Authority in connection
with Insight's Cable Business (other than Insight System Franchises, Insight
System Contracts and Insight Other Real Property Interests), including those
described on Schedule 1.32.
1.33 Insight Tangible Personal Property. All tangible personal property
that is owned, leased, held for use or used in connection with Insight's Cable
Business and in which Insight or any Affiliate of Insight has, or acquires prior
to Closing, any right, title or interest, including towers, tower equipment,
aboveground and underground cable, distribution systems, headend amplifiers,
line amplifiers, microwave equipment, converters, testing equipment, motor
vehicles, office equipment, computers and billing equipment, furniture,
fixtures, supplies, inventory and other physical assets, the principal items of
which, including all motor vehicles, are described on Schedule 1.33.
1.34 Insight's Cable Business. The cable television business and other
income-generating businesses related to the Insight Systems conducted by
Insight through the Insight Systems.
1.35 Judgment. Any judgment, writ, order, injunction, award or decree of
any court, judge, justice or magistrate, including any bankruptcy court or judge
or the arbitrator in any binding arbitration, and any order of or by any
Governmental Authority.
- 6 -
<PAGE>
1.36 Knowledge. The actual knowledge of a particular matter of one or more
of the principal corporate personnel of such party involved in the transactions
contemplated by this Agreement or the general manager or one or more of the
managers of such party's Systems.
1.37 Leased Property. The Insight Leased Property or TCI Leased Property or
both, as the context requires.
1.38 Legal Requirement. Applicable common law and any statute, ordinance,
code or other law, rule, regulation, order, technical or other written standard,
requirement, policy or procedure enacted, adopted, promulgated, applied or
followed by any Governmental Authority, including any Judgment and all judicial
decisions applying common law or interpreting any other Legal Requirement, in
each case, as amended.
1.39 Lien. Any security interest, security agreement, financing statement
filed with any Governmental Authority, conditional sale or other title retention
agreement, any lease, consignment or bailment given for purposes of security,
any mortgage, lien, indenture, pledge, option, encumbrance, adverse interest,
constructive trust or other trust, claim, attachment, exception to, defect in or
other condition affecting title or other ownership interest (including but not
limited to reservations, rights of entry, possibilities of reverter,
encroachments, protrusions, easements, rights-of-way, rights of first refusal,
restrictive covenants, leases and licenses) of any kind, which constitutes an
interest in or claim against property, whether arising pursuant to any Legal
Requirement, System License, System Franchise, System Contract or otherwise.
1.40 Litigation. Any written claim, action, suit, proceeding, arbitration,
or hearing.
1.41 Losses. Any claims, losses, liabilities, damages, penalties, costs and
expenses, including interest that may be imposed in connection therewith,
expenses of investigation, reasonable fees and disbursements of counsel and
other experts, and the cost to any Person making a claim or seeking
indemnification under this Agreement with respect to funds expended by such
Person by reason of the occurrence of any event or the existence or assertion of
any Liens (other than Permitted Liens) with respect to which indemnification is
sought, except Losses incurred by a party or on behalf of such party in
asserting any claim for indemnification against the other party where it is
ultimately determined (including by agreement of the parties) that such party is
not entitled to indemnification from the other party (before giving effect to
the limitations on such indemnification obligations set forth in Sections 11.6,
11.7 and 11.8).
1.42 Other Real Property Interests. The Insight Other Real Property
Interests or the TCI Other Real Property Interests or both, as the context
requires.
1.43 Owned Property. Insight Owned Property or TCI Owned Property or both,
as the context requires.
- 7 -
<PAGE>
1.44 Pay TV. A la carte tiers or premium programming services selected by
and sold to subscribers on a per channel or per program basis.
1.45 Permitted Lien. Any (a) Lien securing the Insight Permitted Debt or
the TCI Permitted Debt, (b) Lien securing Taxes, assessments and governmental
charges not yet due and payable, (c) zoning law or ordinance or any similar
Legal Requirement, (d) right reserved to any Governmental Authority to regulate
the affected property, (e) as to Owned Property and Other Real Property
Interests, any Lien not securing indebtedness or arising out of the obligation
to pay money that does not individually or in the aggregate interfere with the
right or ability to own, use or operate the Owned Property or Other Real
Property Interests as they are being used or operated or materially diminish the
value of such Owned Property or Other Real Property Interests, (f) in the case
of Owned Property and Leased Property, any lease or sublease by TCI or Insight
in favor of a third party that is disclosed in the Schedules to this Agreement,
and (g) in the case of Leased Property, (i) the rights of any lessor and (ii)
any Lien granted by any lessor of Leased Property; provided that "Permitted
Lien" will not include any Lien securing a debt or claim (other than inchoate
materialmen's, mechanics', workmen's, repairmen's or other like Liens arising in
the ordinary course of business or any Lien described in clause (g) above) or
any Lien which could prevent or impair in any way the conduct of the business of
the affected System as it is currently being conducted, and provided further
that the classification of any Lien as a "Permitted Lien" will not affect any
liability which TCI may have under this Agreement for any such Lien with respect
to the contribution of the TCI Assets or which Insight may have under this
Agreement for any such Lien with respect to the contribution of the Insight
Assets, including pursuant to any indemnity obligation under this Agreement.
1.46 Person. Any natural person, Governmental Authority, corporation,
general or limited partnership, limited liability company, joint venture, trust,
association or unincorporated entity of any kind.
1.47 Required Consents. The Insight Required Consents or the TCI Required
Consents or both, as the context requires.
1.48 System. Any of the Insight Systems or the TCI Systems or all of them,
as the context requires, but not including any of the Exchange Systems unless
expressly indicated.
1.49 System Contracts. The Insight System Contracts or the TCI System
Contracts or both, as the context requires.
1.50 System Franchises. The Insight System Franchises or the TCI System
Franchises or both, as the context requires.
1.51 System Licenses. The Insight System Licenses or the TCI System
Licenses or both, as the context requires.
- 8 -
<PAGE>
1.52 Tangible Personal Property. The Insight Tangible Personal Property or
the TCI Tangible Personal Property or both, as the context requires.
1.53 Taxes. All levies and assessments of any kind or nature imposed by any
Governmental Authority, including all income, sales, use, ad valorem, value
added, franchise, severance, net or gross proceeds, withholding, payroll,
employment, excise or property taxes and levies or assessments related to
unclaimed property, together with any interest thereon and any penalties,
additions to tax or additional amounts applicable thereto.
1.54 TCI Assets. All assets, properties, privileges, rights, interests and
claims, real and personal, tangible and intangible, of every type and
description that are owned, leased, held for use or used in connection with
TCI's Cable Business and in which TCI or any Affiliate of TCI has any right,
title or interest or acquires any right, title or interest on or before the
Closing, including TCI Tangible Personal Property, TCI Owned Real Property, TCI
Leased Property, TCI Other Real Property Interests, TCI System Franchises, TCI
System Licenses, TCI System Contracts, TCI Books and Records and TCI Other
Intangibles, but excluding any TCI Excluded Assets.
1.55 TCI Books and Records. All engineering records, files, data, drawings,
blueprints, schematics, reports, lists, plans and processes and all other files
of correspondence, lists, records and reports concerning TCI's Cable Business,
including subscribers and prospective subscribers of the TCI Systems, signal and
program carriage and dealings with Governmental Authorities, including all
reports filed by or on behalf of TCI with the FCC and statements of account
filed by or on behalf of TCI with the U.S. Copyright Office, but excluding any
TCI Excluded Assets.
1.56 TCI Leased Property. All leasehold interests in real property that is
held for use or used in connection with TCI's Cable Business which TCI or any
Affiliate of TCI has or acquires prior to Closing, including those described as
TCI Leased Property on Schedule 1.56.
1.57 TCI Other Intangibles. All intangible assets other than TCI System
Franchises, TCI System Licenses and TCI System Contracts, including subscriber
lists, accounts receivable, claims (excluding any claims relating to TCI
Excluded Assets), patents, copyrights and going concern value, if any, that are
owned, held for use or used in connection with TCI's Cable Business and in which
TCI or any Affiliate of TCI has, or acquires prior to Closing, any right, title
or interest.
1.58 TCI Other Real Property Interests. All easements and rights of access
(other than those relating to multiple dwelling units) and other interests in
real property that are held for use or used in connection with TCI's Cable
Business and in which TCI or any Affiliate of TCI has, or acquires prior to
Closing, any right, title or interest, including those interests described as
TCI Other Real Property Interests on Schedule 1.58, but not including TCI Leased
Property or TCI Owned Property.
1.59 TCI Owned Property. All fee interests in real property that is owned,
held for use or used in connection with TCI's Cable Business which TCI or any
Affiliate of TCI has or acquires
- 9 -
<PAGE>
prior to Closing, including those described as TCI Owned Property on Schedule
1.59 and all improvements thereon.
1.60 TCI Required Consents. Any and all consents, authorizations and
approvals required for (i) TCI to transfer the TCI Assets to the Company; (ii)
the Company to operate the TCI Systems and to own, lease, use and operate the
TCI Assets and the TCI Systems at the places and in the manner in which the TCI
Assets are used and the TCI Systems are operated as of the date of this
Agreement and as of the Closing; and (iii) the Company to assume and perform the
TCI System Franchises, the TCI System Licenses, the leases and other documents
evidencing TCI Leased Property or TCI Other Real Property Interests and the TCI
System Contracts, including those consents, authorizations and approvals
required under the TCI System Franchises, the TCI System Licenses, the leases
and other documents evidencing TCI Leased Property and TCI Other Real Property
Interests and the TCI System Contracts.
1.61 TCI System Contracts. All pole line agreements, underground conduit
agreements, crossing agreements, multiple dwelling, bulk billing or commercial
service agreements, leased channel access agreements and other Contracts (other
than TCI System Franchises and TCI System Licenses) held for use or used in
connection with TCI's Cable Business and to which TCI or any Affiliate of TCI
is, or becomes prior to Closing, as permitted by this Agreement, a party or
bound, including those described on Schedule 1.61.
1.62 TCI System Franchises. All franchise agreements, operating permits or
similar governing agreements, instruments, resolutions, statutes, ordinances,
approvals, authorizations and permits obtained from any franchising authority in
connection with TCI's Cable Business, including all amendments and modifications
thereto and all renewals thereof, including those listed on Schedule 1.62.
1.63 TCI System Licenses. The intangible cable television channel
distribution rights, cable television relay service (CARS), business radio and
other licenses, copyright notices and other licenses, authorizations, consents
or permits issued by the FCC or any other Governmental Authority in connection
with TCI's Cable Business (other than TCI System Franchises, TCI System
Contracts and TCI Other Real Property Interests), including those described on
Schedule 1.63.
1.64 TCI Tangible Personal Property. All tangible personal property that is
owned, leased, held for use or used in connection with TCI's Cable Business and
in which TCI or any Affiliate of TCI has, or acquires prior to Closing, any
right, title or interest, including towers, tower equipment, aboveground and
underground cable, distribution systems, headend amplifiers, line amplifiers,
microwave equipment, converters, testing equipment, motor vehicles, office
equipment, computers and billing equipment, furniture, fixtures, supplies,
inventory and other physical assets, the principal items of which, including all
motor vehicles, are described on Schedule 1.64.
1.65 TCI's Cable Business. The cable television business and other
income-generating businesses related to the TCI Systems conducted by TCI through
the TCI Systems.
- 10 -
<PAGE>
1.66 Third Party. With respect to TCI, any Person other than TCI and its
Affiliates and, with respect to Insight, any Person other than Insight and its
Affiliates.
1.67 Transaction Documents. The instruments and documents described in
Sections 9.2, 9.3 and 9.4 which are to be executed and delivered by or on behalf
of Insight, TCI or the Company in connection with this Agreement or the
transactions contemplated hereby; provided, that for purposes of Section 11,
"Transaction Documents" does not include the Programming Supply Agreement, the
Management Agreement or the Retained Franchise Management Agreement, it being
agreed that the parties' indemnification rights and obligations with respect to
the matters covered by such agreements and other rights and obligations with
respect thereto shall be as specified in those agreements.
1.68 Other Definitions. The following terms are defined in the Sections or
Recitals indicated:
Term Section or Recital
---- ------------------
Action 11.5
Agreement Preamble
Antitrust Division 7.7
Assumed Obligations and Liabilities 4.1
Closing 9.1
Closing Adjustments 3.2
Closing Date 9.1
Code 5.13(b)
"commercially reasonable efforts" 12.18
Company Preamble
Company Claimed Damages 11.8
Copyright Act 5.8(a)
Cost of Service Election 5.8(d)
EBS 1.11
Estoppel Certificate 7.5(b)
Exchange Agreement 1.15
Exchange Assets Recital C
Exchange Retained Franchises 7.24(a)
Exchange Systems Recital C
FAA 5.8(c)
Final Adjustment Certificate 3.3(b)
FTC 7.7
Heritage Preamble
Hired Employee 7.3(g)
Incentive Plan 7.25
Indemnified Party 11.5
- 11 -
<PAGE>
Indemnifying Party 11.5
Indiana Preamble
Initial Adjustment Certificate Preamble
Insight Balance Sheet 5.10
Insight Claimed Damages 11.7
Insight Closing Adjustment 3.2
Insight Excluded Assets 4.3
Insight Permitted Debt 7.23
Insight Plans 5.13(b)
Insight Systems Recital A
Insight Title Policies 9.3(c)
Insight's Financial Statements 5.10
Kokomo Preamble
LLC Agreement 3.1
Management Agreement 9.3(k)
Midwest Preamble
Operating Plan 7.25
Outside Closing Date 10.1(b)
Pending TCI Rate Order 6.8
Primary Transfer 7.24(b)
Prime Rate 12.10
Programming Supply Agreement 8.1(k)
Retained Employees 7.3(a)
Retained Franchise Management Agreement 7.24(c)
Retained Franchises 7.24(a)
Subsequent Transfer 7.24(b)
Surveys 7.6
Survival Period 11.1
Taking 12.16(e)
TCI Preamble
TCI Balance Sheet 6.10
TCI Claimed Damages 11.6
TCI Closing Adjustment 3.2
TCI Excluded Assets 4.2
TCI LLC Preamble
TCI Parties Preamble
TCI Permitted Debt 7.23
TCI Plans 6.13(c)
TCI Systems Recital B
TCI Title Policies 9.2(d)
TCI's Financial Statements 6.10
Title Commitments 7.6
- 12 -
<PAGE>
Title Company 7.6
Title Defect 7.6
Transitional Billing Services 7.13
WARN 5.13(a)
1.69 Accounting Terms. All accounting terms not otherwise defined in this
Agreement will have the meanings ascribed to them under GAAP.
SECTION 2. CONTRIBUTION
2.1 Agreement to Contribute. Subject to the terms and conditions set forth
in this Agreement, at the Closing, (a) each of TCI and Insight agrees to
contribute to the Company all of the Assets of such Person, free and clear of
all Liens (except Permitted Liens) and (b) Insight agrees to contribute (or
cause to be contributed) to the Company, subject to consummation of the
Exchanges, all of the Exchange Assets, subject only to Liens arising prior to
the consummation of the Exchanges.
SECTION 3. ISSUANCE OF MEMBERSHIP INTERESTS AND CLOSING ADJUSTMENTS
3.1 Issuance of Membership Interests. In consideration for the
contributions to the Company by TCI and Insight of their respective Assets and
the contribution to the Company by Insight of the Exchange Assets, TCI and
Insight shall receive at Closing membership interests in the Company as set
forth in, and in accordance with the terms of, the Operating Agreement of the
Company being executed on the date hereof by TCI LLC and Insight (the "LLC
Agreement").
3.2 Closing Adjustments. The adjustments provided for below in this Section
3.2 shall be made as of Closing with respect to each of TCI and Insight (the net
amount of such adjustments being referred to herein as the "TCI Closing
Adjustment" as made with respect to TCI and as the "Insight Closing Adjustment"
as made with respect to Insight and as the "Closing Adjustments" as made with
respect to either or both TCI and Insight), with TCI paying the Company or the
Company paying TCI, as the case may be, and with Insight paying the Company or
the Company paying Insight, as the case may be. Subject to Section 3.2(i), the
Insight Closing Adjustment shall be made in respect of both the Insight Systems
and the Exchange Systems. If the estimated TCI Closing Adjustment or Insight
Closing Adjustment is to be paid to the Company, such payment may be made in
whole or in part by reducing the TCI Permitted Debt or the Insight Permitted
Debt, as applicable. If the estimated TCI Closing Adjustment or Insight Closing
Adjustment is to be paid by the Company, such payment may be made in whole or in
part by increasing the TCI Permitted Debt or the Insight Permitted Debt, as
applicable.
(a) Appropriate adjustments on a pro rata basis as of the Closing Time
will be made with respect to each of TCI and Insight for all prepaid expenses
other than inventory (but only to the extent the full benefit of such prepaid
expenses will be realizable by the Company within 12
- 13 -
<PAGE>
months after the Closing Date), accrued expenses (including real and personal
property taxes), copyright fees and franchise or license fees or charges,
prepaid income, subscriber prepayments and, subject to paragraph (e) below,
accounts receivable related to such party's Cable Business (and in the case of
Insight those related to the Exchange Systems) to the extent specified in
Section 3.2(e), all as determined in accordance with GAAP consistently applied
and to reflect the principle that all expenses and income attributable to such
party's Cable Business (and in the case of Insight attributable to the Exchange
Systems) for the period through and including the Closing Time are for the
account of such party, and all expenses and income attributable to such party's
Cable Business (and in the case of Insight attributable to the Exchange Systems)
for the period after the Closing Time are for the account of the Company.
(b) All advance payments to, or funds of third parties on deposit
with, TCI or Insight as of the Closing Time and relating to such party's Cable
Business (or in the case of Insight relating to the Exchange Systems), including
advance payments and deposits (including any accrued interest on such deposits)
by subscribers served by such party's Cable Business (or in the case of Insight
by the Exchange Systems) for converters, encoders, decoders, cable television
service and related sales, shall be assumed by, and credited to the account of,
the Company.
(c) There shall be credited to the Company the economic value of all
accrued vacation time that the Company credits after the Closing Time to the
employees of Insight and TCI that are hired by the Company pursuant to Section
7.3(g), where economic value is the amount equal to the cash compensation that
would be payable to each such employee at his or her level of compensation on
the Closing Date for a period equal to such employee's credited accrued
vacation.
(d) All deposits relating to the business and operations of each
party's Systems (and in the case of Insight those relating to the Exchange
Systems) that are held by third parties as of the Closing Time for the account
of such party or as security for such party's performance of its obligations,
including deposits on leases and deposits for utilities, will be credited to the
account of such party in their full amounts and will become the property of the
Company; provided that no adjustment will be made for any deposits the full
benefit of which for contractual or other reasons cannot be made available to
the Company within 12 months following the Closing Time.
(e) Neither TCI nor Insight will receive credit for any of its (i)
accounts receivable resulting from cable television service sales any portion of
which is 60 days or more past due as of the Closing Date, or (ii) accounts
receivable from customers whose accounts are inactive or whose service is
pending disconnection for any reason as of the Closing Date. TCI and Insight
will receive credit for their accounts receivable resulting from cable
television service sales the entire portion of which are 0-59 days past due as
of the Closing Date in an amount equal to 99% of the face amount of such
accounts receivable. For purposes of making "past due" calculations under the
foregoing sentence, the billing statements of a System (including an Exchange
System) will be deemed to be due and payable on the first day of the period
during which the service to which such billing statements relate is provided.
TCI and Insight will receive credit for their advertising accounts receivable as
follows: (i) 100% of the face amount of the advertising accounts receivable
- 14 -
<PAGE>
which are outstanding 30 days or less from the invoice date, (ii) 95% of the
face amount of all advertising accounts receivable which are outstanding more
than 30 but fewer than 61 days from the invoice date, (iii) 80% of the face
amount of all advertising accounts receivable which are outstanding more than 60
but fewer than 91 days from the invoice date, and (iv) 50% of the face amount of
all advertising accounts receivable which are outstanding more than 90 but fewer
than 121 days from the invoice date. Neither TCI nor Insight will receive credit
for advertising accounts receivable which are outstanding more than 120 days
from the invoice date. Notwithstanding the foregoing, each of TCI and Insight
will receive credit for 100% of the face amount of their advertising accounts
receivable from national and regional representation accounts, regardless of the
age thereof. The obligations of TeleCable Corporation under the Agreement dated
as of December 8, 1992 between it and Insight with respect to the period prior
to Closing are not affected by this Agreement. For purposes of this Section
3.2(e), Insight's accounts receivable shall include accounts receivable related
to the Exchange Systems for which it gave TCI credit under the Exchange
Agreement.
(f) Each of TCI and Insight shall receive a credit equal to the
aggregate amount of all capital expenditures made by such party during the
period from January 1, 1998 through the Closing Date relating to (i) upgrades
and rebuilds of System plant capacity and associated items (including headend
sites and headend equipment to expand channel capacity), and (ii) the launch of
digital services, including the purchase of digital converters but not including
digital converters purchased in the ordinary course of business to replace lost,
stolen or defective digital converters. For purposes of this Section 3.2(f),
Insight shall receive credit for any credit it gave to TCI pursuant to Section
3.2(f) of the Exchange Agreement.
(g) Any amounts paid, or accrued as a current liability, prior to
Closing by TCI or its Affiliates with respect to retroactive franchise fees in
respect of TCI's Systems, or by Insight or its Affiliates with respect to
retroactive franchise fees in respect of Insight's Systems that have not been
collected prior to Closing will be credited to the account of TCI or Insight, as
applicable, in their full amounts to the extent that (i) such amounts can
legally be passed through to and collected from subscribers of the TCI Systems
or Insight Systems after Closing, and (ii) no agreement has been entered into
prohibiting the collection of such amounts, with such amounts upon collection
being assets of the Company. For purposes of this Section 3.2(g), Insight shall
receive credit for any credit it gave to TCI pursuant to Section 3.2(g) of the
Exchange Agreement.
(h) The adjustments provided for in this Section 3.2 will be made
without duplication. In addition, none of the adjustments provided for in this
Section 3.2 will be made with respect to any Excluded Asset or with respect to
any item of income or expense related to an Excluded Asset.
(i) The parties presently intend that the adjustments made in respect
of the Exchange Systems pursuant to Section 3 of the Exchange Agreement will be
made between TCI and the Company directly without the necessity of Insight
making any duplicating adjustments with the Company pursuant to Section 3 of
this Agreement. If for any reason Insight and TCI determine that
- 15 -
<PAGE>
the foregoing procedure may have adverse tax or other consequences to Insight,
TCI or the Company, Insight and TCI will cooperate in all reasonable respects to
give effect to the adjustments contemplated with respect to the Exchange Systems
in a manner that preserves the benefit of the economic bargain between Insight
and TCI and avoids any such adverse consequences, provided that to the extent
Insight would be required to make any payment to the Company (or decrease the
amount of Insight Permitted Debt) in respect of any such duplicating
adjustments, Insight shall not be required to make such payment (or give effect
to any such decrease) until it receives a payment from TCI pursuant to the
Exchange Agreement in the amount of such payment or decrease. Notwithstanding
the foregoing, for purposes of making the calculations specified on Schedule II
of the LLC Agreement, the Insight Closing Adjustment will include the
adjustments in respect of the Exchange Systems.
3.3 Calculation of Adjustments.
(a) Each of TCI and Insight will estimate in good faith the Closing
Adjustments with respect to its Systems and in the case of Insight, with respect
to the Exchange Systems (subject to Section 3.2(i) and provided that Insight's
Closing Adjustments with respect to the Exchange Systems will be based solely on
the certificates provided by TCI under the Exchange Agreement), and set forth
the same, together with a detailed statement of the calculation thereof, in a
certificate (the "Initial Adjustment Certificate") executed by an authorized
representative of such party and delivered to the other party at least 10
Business Days prior to the Closing. Each Initial Adjustment Certificate will be
accompanied by appropriate documentation, including an accounts receivable
detail with relevant aging information as of the Closing Time, in summary form,
supporting the determination of the Closing Adjustment proposed in such
certificate. Following receipt of such Initial Adjustment Certificate, the
recipient shall have five Business Days to review such schedule and supporting
information and to notify the preparer of such Initial Adjustment Certificate of
any disagreements with the preparer's estimates of its Closing Adjustment. If
the recipient provides a notice of disagreement with the preparer's estimates of
such amounts within such five Business Day period, TCI and Insight shall
negotiate in good faith to resolve any such dispute and to reach an agreement
prior to the Closing on such estimated amounts as of the Closing Time. The
estimates so agreed upon by TCI and Insight or (if the parties do not reach such
an agreement on such estimated amounts set forth in the Initial Adjustments
Certificate prior to the Closing Date or if the recipient fails to provide a
notice of disagreement with the preparer's estimates of such amounts within the
time provided) the estimates of such Closing Adjustments set forth in the
Initial Adjustments Certificate shall be the basis for determining the
preliminary amount payable pursuant to Section 3.2. All disagreements that may
exist with respect to the Initial Adjustment Certificate shall be resolved in
connection with the preparation of the Final Adjustment Certificate pursuant to
paragraph (b) below.
(b) Within 90 days after the Closing, each of TCI and Insight will
deliver to the other a certificate (the "Final Adjustment Certificate") showing
in full detail its final determination of the Closing Adjustment with respect to
its Systems and in the case of Insight, with respect to the Exchange Systems
(subject to Section 3.2(i) and provided that Insight's Closing Adjustments with
- 16 -
<PAGE>
respect to the Exchange Systems will be based solely on the certificates
provided by TCI under the Exchange Agreement), which certificate will be
accompanied by appropriate documentation supporting the amounts proposed in such
certificate, including an accounts receivable detail with relevant aging
information as of the Closing Time, and which will be executed by an officer of
such party. Each recipient party will review the other's Final Adjustment
Certificate and will give written notice to the preparing party of any
objections it has to the calculations shown in such certificate within 30 days
after its receipt thereof. TCI and Insight will endeavor in good faith to
resolve any such objections within 30 days after the receipt by the parties of
each other's objections. If any objections or disputes have not been resolved at
the end of such 30-day period, the disputed portions of the Closing Adjustments
will be determined within the following 30 days by a partner in a major
accounting firm with substantial cable television audit experience which is not
the auditor of either Insight or TCI (or any Affiliate of either of them) and
the determination of such auditor will be final and will be binding upon all
parties. If Insight and TCI cannot agree with respect to the selection of an
auditor, Insight and TCI will each select an auditor and those two auditors will
select a third auditor whose determination will be final and will be binding
upon all parties. Insight and TCI will bear equally the expenses arising in
connection with an auditor's determination of disputed amounts, and payment of
the final amounts due under Section 3.2 (after taking into account any amounts
paid at the Closing) will be made by the party responsible therefor to the party
to whom such payment is required to be made pursuant to this Agreement in
immediately available funds within 15 Business Days after the final
determination is made.
(c) Each of Insight and TCI will provide to the other reasonable
access to all records in its possession which were used in the preparation of
its Initial Adjustment Certificate and Final Adjustment Certificate.
SECTION 4. ASSUMED LIABILITIES AND EXCLUDED ASSETS
4.1 Assumed Obligations and Liabilities. As of the Closing, the Company
will assume and after the Closing, the Company will pay, discharge and perform
the following (the "Assumed Obligations and Liabilities"): (a) those obligations
and liabilities accruing and relating to periods after the Closing Time under or
with respect to the Assets and Exchange Assets assigned and transferred to the
Company at the Closing; (b) those obligations and liabilities of TCI and Insight
to customers of their respective Cable Businesses and to customers of the
Exchange Systems for (i) subscriber deposits related to the Systems and Exchange
Systems held by TCI or Insight as of the Closing Date in the amount for which
TCI or Insight received credit under Section 3.2 and (ii) customer, advertising
and other advance payments held by TCI or Insight as of the Closing Date in the
amount for which TCI or Insight received credit under Section 3.2; (c) all
obligations and liabilities accruing and relating to the Cable Businesses and
the Exchange Systems prior to the Closing Time in respect of which TCI or
Insight received a credit pursuant to Section 3.2; (d) the TCI Permitted Debt
and the Insight Permitted Debt and (e) all other obligations and liabilities
accruing and relating to periods after the Closing Time and arising out of the
Company's ownership of the Assets or Exchange Assets or operation of the Systems
or Exchange Systems after the Closing Time, except to the extent that such
obligations or liabilities relate to any TCI or Insight Excluded
- 17 -
<PAGE>
Asset. All obligations and liabilities, contingent, fixed or otherwise, arising
out of or relating to the Assets or the Systems other than the Assumed
Obligations and Liabilities will remain and be the obligations and liabilities
solely of TCI or Insight, as the case may be, including any obligation,
liability or claim relating to or arising pursuant to (x) rate refunds to
subscribers of their Systems with respect to rates charged to such subscribers
during periods through and including the Closing Time, (y) litigation commenced
prior to, or related to an event occurring at any time prior to the Closing
Time, or (z) any TCI or Insight Excluded Asset.
4.2 TCI Excluded Assets. "TCI Excluded Assets" means all: (a) programming
(including cable guide Contracts) and retransmission consent Contracts of TCI
other than those listed on Schedule 1.61 (TCI System Contracts), it being agreed
that leased channel access agreements are not programming agreements for
purposes of this Section 4.2; (b) TCI Plans; (c) insurance policies of TCI and
rights and claims thereunder (except as otherwise provided in Section 12.16);
(d) bonds, letters of credit, surety instruments and other similar items and any
stocks, bonds, certificates of deposit and similar investments of TCI; (e) cash
and cash equivalents and notes receivable of TCI; (f) TCI's trademarks, trade
names, service marks, service names, logos and similar proprietary rights,
subject to Section 7.12; (g) subscriber billing Contracts and related leased
equipment and software of TCI, subject to Section 7.13; (h) all contracts and
related accounts receivable for providing DMX service to commercial accounts via
direct broadcast satellite; (i) all TCI Contracts relating to national
advertising sales representation, including Contracts with National Cable
Communications or Cable Networks, Inc.; (j) all agreements pursuant to which TCI
has created, incurred, assumed or guaranteed indebtedness for borrowed money or
under which any Lien securing such indebtedness has been or may be imposed on
any TCI Asset, other than agreements evidencing TCI Permitted Debt; (k) any
claims, rights or choses in action of TCI related to the period prior to the
Closing Time (other than customer and advertising accounts receivable),
including, without limitation, any Litigation and the proceeds thereof and any
claims, rights and interest in and to any refunds of federal, state or local
franchise, income or other taxes or payments of any nature for the periods prior
to the Closing Time, including copyright fees; (l) any books and records that
TCI is required by any Legal Requirement to retain and any books of account, tax
reports and returns and the like related to the TCI Systems; provided that
copies of such books and records will be made available to the Company for a
period of three years (and six years in the case of tax reports and returns and
underlying books and records, although in the case of underlying books and
records, the parties acknowledge that they are not retained for periods for
which an IRS field examination has been completed) from the Closing Date upon
reasonable request; (m) TCI's corporate minute books, partnership and limited
liability company records and other books and records related to internal
matters and financial relationships with TCI's lenders and affiliates; (n) any
employment, union, collective bargaining, compensation, bonus, deferred
compensation, noncompetition, confidentiality, consulting, agency or management
agreements of TCI; (o) all documents, reports and records relating to the
employees of the TCI Systems; provided that copies of such books and records
will be made available to the Company for a period of three years from the
Closing Date upon reasonable request by the Company accompanied by a waiver and
release from the employee whose records are sought in form and substance
reasonably satisfactory to TCI; (p) any agreement, right, asset or property
owned, leased or held by TCI that is not used or held for use in connection with
the
- 18 -
<PAGE>
operation of the TCI Systems; (q) TCI's rights under the @Home Distribution
Agreement (as defined in the LLC Agreement), it being agreed that the parties'
rights and obligations with respect thereto shall be as specified in the LLC
Agreement; and (r) rights, assets and properties described on Schedule 4.2.
4.3 Insight Excluded Assets. "Insight Excluded Assets" means all: (a)
programming (including cable guide Contracts) and retransmission consent
Contracts of Insight other than those listed on Schedule 1.30 (Insight System
Contracts), it being agreed that leased channel access agreements are not
programming agreements for purposes of this Section 4.2; (b) Insight Plans; (c)
insurance policies of Insight and rights and claims thereunder (except as
otherwise provided in Section 12.16); (d) bonds, letters of credit, surety
instruments and other similar items and any stocks, bonds, certificates of
deposit and similar investments of Insight; (e) cash and cash equivalents and
notes receivable of Insight; (f) Insight's trademarks, trade names, service
marks, service names, logos and similar proprietary rights, subject to Section
7.12; (g) subscriber billing Contracts and related leased equipment and software
of Insight, subject to Section 7.13; (h) all Insight Contracts relating to
national advertising sales representation; (i) all agreements pursuant to which
Insight has created, incurred, assumed or guaranteed indebtedness for borrowed
money or under which any Lien securing such indebtedness has been or may be
imposed on any Insight Asset, other than agreements evidencing Insight Permitted
Debt; (j) any claims, rights or choses in action of Insight related to the
period prior to the Closing Time (other than customer and advertising accounts
receivable), including, without limitation, any Litigation and the proceeds
thereof and any claims, rights and interest in and to any refunds of federal,
state or local franchise, income or other taxes or payments of any nature for
the periods prior to the Closing Time, including copyright fees; (k) any books
and records that Insight is required by any Legal Requirement to retain and any
books of account, tax reports and returns and the like related to the Insight
Systems; provided that copies of such books and records will be made available
to the Company for a period of three years (and six years in the case of tax
reports and returns and underlying books and records, although in the case of
underlying books and records, the parties acknowledge that they are not retained
for periods for which an IRS field examination has been completed) from the
Closing Date upon reasonable request; (l) Insight's partnership record books and
other books and records related to internal partnership matters and financial
relationships with Insight's lenders and affiliates; (m) any employment, union,
collective bargaining, compensation, bonus, deferred compensation,
noncompetition, confidentiality, consulting, agency or management agreements of
Insight; (n) all documents, reports and records relating to the employees of the
Insight Systems; provided that copies of such books and records will be made
available to the Company for a period of three years from the Closing Date upon
reasonable request accompanied by a waiver and release from the employee whose
records are sought in form and substance reasonably satisfactory to Insight; (o)
any agreement, right, asset or property owned, leased or held by Insight that is
not used or held for use in connection with the operation of the Insight
Systems; and (p) rights, assets and properties described on Schedule 4.3.
- 19 -
<PAGE>
SECTION 5. INSIGHT'S REPRESENTATIONS AND WARRANTIES
Insight represents and warrants to TCI and the Company as of the date of
this Agreement (or, if a different date is specified in this Section 5 or in
Insight's Schedules, as of such specified date) as follows, it being understood
that the representations and warranties in Sections 5.1, 5.2 and 5.3 assume that
the Exchange Agreement will be consummated in accordance with its terms prior to
the Closing hereunder and Insight makes no representation or warranty with
respect to any of the Exchange Systems or Exchange Assets.
5.1 Organization and Qualification of Insight. Insight is a limited
partnership duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite partnership power and authority
to own, lease and use the Insight Assets and to conduct Insight's Cable Business
as it is currently conducted. Insight is duly qualified to do business and is in
good standing under the laws of each jurisdiction in which the ownership,
leasing or use of the Insight Assets or the nature of its activities in
connection with the Insight Systems makes such qualification necessary, except
in any such jurisdiction where the failure to be so qualified and in good
standing would not have a material adverse effect on the ownership or operation
of Insight's Cable Business, the Insight Assets or Insight Systems or on the
ability of Insight to perform its obligations under this Agreement. Insight's
U.S. taxpayer identification number is 133290944.
5.2 Authority and Validity. Insight has all requisite partnership power and
authority to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement and the Transaction
Documents to which Insight is a party. The execution and delivery by Insight,
the performance by Insight under, and the consummation by Insight of the
transactions contemplated by, this Agreement and the Transaction Documents to
which Insight is a party have been duly and validly authorized by all required
partnership action by or on behalf of Insight. This Agreement has been, and when
executed and delivered by Insight the Transaction Documents will be, duly and
validly executed and delivered by Insight and the valid and binding obligations
of Insight, enforceable against Insight in accordance with their terms, except
as the same may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to the
enforcement of creditors' rights generally or by principles governing the
availability of equitable remedies.
5.3 No Conflict; Required Consents. Except for, and subject to receipt of,
the Insight Required Consents, all of which are listed on Schedule 5.3, the TCI
Required Consents, all consents, authorizations and approvals required for
Insight to transfer the Exchange Assets to the Company and the notification and
expiration or earlier termination of the waiting period under the HSR Act, the
execution and delivery by Insight, the performance of Insight under, and the
consummation of the transactions contemplated by, this Agreement and the
Transaction Documents to which Insight is a party do not and will not: (a)
conflict with or violate any provision of its agreement of limited partnership;
(b) violate any provision of any Legal Requirement; (c) require any consent,
approval or authorization of, or filing of any certificate, notice, application,
report or other document with, any Governmental Authority or other Person; or
(d)(i) conflict with, violate, result in a breach of
- 20 -
<PAGE>
or constitute a default under (without regard to requirements of notice, lapse
of time or elections of other Persons or any combination thereof), (ii) permit
or result in the termination, suspension or modification of, (iii) result in the
acceleration of (or give any Person the right to accelerate) the performance of
Insight under, (iv) result in the creation or imposition of any Lien under any
Insight System Franchise, Insight System License or any Insight System Contract
or other instrument evidencing any of the Insight Assets or by which Insight or
any of its assets is bound or affected, except for purposes of clauses (c) and
(d) such consents, approvals, authorizations and filings that, if not obtained
or made, would not, and such violations, conflicts, breaches, defaults,
terminations, suspensions, modifications and accelerations as would not,
individually or in the aggregate, have a material adverse effect on any Insight
System, Insight's Cable Business or on the ability of Insight to perform its
obligations under this Agreement or the Transaction Documents to which Insight
is a party.
5.4 Assets.
(a) Insight has good and valid title to (or, in the case of Assets
that are leased, valid leasehold interests in) the Insight Assets (other than
Insight Owned Real Property, Insight Leased Property and Insight Other Real
Property Interests, as to which representations and warranties in Section 5.6
apply). The Insight Assets are free and clear of all Liens, except (i) Permitted
Liens and (ii) Liens described on Schedule 5.4, all of which Liens on Schedule
5.4 will be terminated, released or, in the case of the rights of first refusal
listed on Schedule 5.4, waived, as appropriate, at or prior to the Closing.
Except as described on Schedule 1.33 (Insight Tangible Personal Property), the
Insight Tangible Personal Property is in good operating condition and repair
(ordinary wear and tear excepted).
(b) Except for items included in the Insight Excluded Assets, the
Insight Assets constitute all the assets necessary to permit the Company to
conduct Insight's Cable Business and to operate the Insight Systems
substantially as they are being conducted and operated on the date of this
Agreement and in compliance in all material respects with all applicable Legal
Requirements, Insight System Contracts, Insight System Licenses and Insight
System Franchises and to perform all of the Assumed Obligations and Liabilities
as they relate to the Insight Systems.
(c) Except as disclosed on Schedule 5.4, to the Knowledge of Insight,
no third party has been granted or applied for a cable television franchise or
is providing or intending to provide cable television services in any of the
communities or unincorporated areas currently served by Insight's Cable
Business.
5.5 Insight System Franchises, Insight System Licenses, Insight System
Contracts and Insight Other Real Property Interests.
(a) Except as described on Schedules 1.25 (Insight Leased Property),
1.27 (Insight Other Real Property Interests), 1.30 (Insight System Contracts),
1.31 (Insight System Franchises) and 1.32 (Insight System Licenses), or as
described on Schedule 4.3 (Insight Excluded
- 21 -
<PAGE>
Assets) or otherwise included in the definition of Insight Excluded Assets,
Insight is not bound or affected by any of the following that relate primarily
or in whole to Insight's Cable Business: (i) leases of real or personal
property; (ii) franchises for the construction or operation of cable television
systems or Contracts of substantially equivalent effect; (iii) other licenses,
authorizations, consents or permits of the FCC or any other Governmental
Authority; (iv) material easements, rights of access, underground conduit
agreements, crossing agreements or other interests in real property; (v) pole
line or attachment agreements; (vi) multiple dwelling unit agreements, including
bulk agreements, and commercial service agreements; (vii) agreements pursuant to
which the Insight Systems receive or provide advertising sales representation
services; (viii) agreements pursuant to which an Insight System has constructed
or agreed to construct for third parties an institutional network or otherwise
provides to third parties telecommunications services other than one-way video;
(ix) construction and development agreements (other than installation agreements
where services are provided in the ordinary course of business on an as- needed
basis); or (x) Contracts relating to the operation of Insight's Cable Business
other than those described in any other clause of this Section which contemplate
payments by or to Insight in any 12-month period exceeding $25,000 individually
or $150,000 in the aggregate or that have a remaining term of two years or more
as of the Closing Date. Except as described on the Schedules to this Agreement,
no Affiliate of Insight is a party to any documents listed on such Schedules.
(b) Complete and correct copies of the Insight System Franchises and
Insight System Licenses have been delivered by Insight to TCI. Except as set
forth on Schedule 1.31 (Insight System Franchises), the Insight System
Franchises contain all of the commitments and obligations of Insight to the
applicable Governmental Authority granting such Franchises with respect to the
construction, ownership and operation of the Insight Systems. The Insight System
Franchises and Insight System Licenses are currently in full force and effect
and are valid and enforceable under all applicable Legal Requirements according
to their terms. There is no legal action, governmental proceeding or, to
Insight's Knowledge, investigation, pending or to Insight's Knowledge
threatened, to terminate, suspend or modify any Insight System Franchise or any
Insight System License and Insight is in material compliance with the terms and
conditions of all the Insight System Franchises and Insight System Licenses and
with other applicable requirements of all Governmental Authorities (including
the FCC and the Register of Copyrights) relating to the Insight System
Franchises and Insight System Licenses, including all requirements for
notification, filing, reporting, posting and maintenance of logs and records.
All areas served by the Insight Systems are served pursuant to one of the
Insight System Franchises except as set forth on Schedule 1.31.
(c) Complete and correct copies of all Insight System Contracts
required to be listed on Insight's Schedules (including all Contracts relating
to Leased Property and Other Real Property Interests described on Schedule 1.27)
have been provided to TCI. Such documents constitute the entire agreement with
the other party. Each such Insight System Contract is in full force and effect
and constitutes the valid, legal, binding and enforceable obligation of Insight
and Insight is not and to Insight's Knowledge, each other party thereto is not
in breach or default of any material terms or conditions thereunder.
- 22 -
<PAGE>
5.6 Real Property. All Insight Assets consisting of Insight Owned Property,
Insight Leased Property and material Insight Other Real Property Interests are
described on Schedules 1.25 (Insight Leased Property), 1.27 (Insight Other Real
Property Interests) and 1.28 (Insight Owned Property). Except as otherwise
disclosed on Schedule 1.28 (Insight Owned Property), Insight holds title to the
Insight Owned Property free and clear of all Liens except (a) Permitted Liens
and (b) Liens described on Schedule 5.4 (all of which Liens on Schedule 5.4 will
be terminated, released or, in the case of the rights of first refusal listed on
Schedule 5.4, waived, as appropriate, at or prior to the Closing), and has the
valid and enforceable right to use and possess such Insight Owned Property,
subject only to the above-referenced Liens. Except as otherwise disclosed on
Schedules 1.25 (Insight Leased Property) and 1.27 (Insight Other Real Property
Interests), Insight has valid and enforceable leasehold interests in all Insight
Leased Property and, with respect to Insight Other Real Property Interests, has
valid and enforceable rights to use such Insight Other Real Property Interests,
subject only to the above-referenced Liens. Except for ordinary wear and tear
and routine repairs, all of the material improvements, leasehold improvements
and the premises of the Insight Owned Property and the premises demised under
the leases and other documents evidencing the Insight Leased Property are in
good condition and repair and are suitable for the purposes used. Each parcel of
Insight Owned Property and each parcel of Insight Leased Property and any
improvements thereon and their current use (x) has access to and over public
streets or private streets for which Insight has a valid right of ingress and
egress, (y) conforms in its current use and occupancy to all material zoning
requirements without reliance upon a variance issued by a Governmental Authority
or a classification of the parcel in question as a nonconforming use and (z)
conforms in its current use to all restrictive covenants, if any, or other Liens
affecting all or part of such parcel. Except where the failure of the
representations made in this sentence to be true and correct would not have a
material adverse effect on the Insight Assets or Insight's Cable Business, all
buildings, towers, guy wires and anchors, headend equipment, earth-receiving
dishes and related facilities used in the operations of the Insight Systems are
located entirely on Insight Owned Property or Insight Leased Property or other
real property in which Insight has an Insight Other Real Property Interest and
are maintained, placed and located in accordance with the provisions of all
applicable Legal Requirements, deeds, leases, licenses, permits or other legally
enforceable arrangements.
5.7 Environmental.
(a) To Insight's Knowledge, except as disclosed on Schedule 5.7, the
Insight Owned Property and Insight Leased Property comply in all material
respects with and have previously been operated in compliance in all material
respects with all Environmental Laws. Insight has not, either directly or
indirectly (i) generated, stored, used, treated, handled, discharged, released
or disposed of any Hazardous Substances at, on, under, in or about, to or from
or in any other manner affecting, any Insight Owned Property or Insight Leased
Property, (ii) transported any Hazardous Substances to or from any Insight Owned
Property or Insight Leased Property or (iii) undertaken or caused to be
undertaken any other activities relating to the Insight Owned Property or
Insight Leased Property, which could reasonably give rise to any liability under
any Environmental Law and, to Insight's Knowledge, no other present or previous
owner, tenant, occupant or user of any Insight Owned Property or Insight Leased
Property or any other Person has
- 23 -
<PAGE>
committed or suffered any of the foregoing. To Insight's Knowledge, no release
of Hazardous Substances outside the Insight Owned Property or Insight Leased
Property has entered or threatens to enter any Insight Owned Property or Insight
Leased Property, nor is there any pending or threatened Litigation based on
Environmental Laws which arises from any condition of the land adjacent to or
immediately surrounding any Insight Owned Property or Insight Leased Property.
No Litigation based on Environmental Laws which relates to any Insight Owned
Property or Insight Leased Property or any operations or conditions on it (1)
has been asserted or conducted in the past with respect to, or is currently
pending against, Insight or, to Insight's Knowledge, any other Person or (2) to
Insight's Knowledge, is threatened or contemplated.
(b) To Insight's Knowledge, except as disclosed on Schedule 5.7 (i) no
aboveground or underground storage tanks are currently or have been located on
any Insight Owned Property or Insight Leased Property, (ii) no Insight Owned
Property or Insight Leased Property has been used at any time as a gasoline
service station or any other facility for storing, pumping, dispensing or
producing gasoline or any other petroleum products or wastes and (iii) no
building or other structure on any Insight Owned Property or Insight Leased
Property contains asbestos, asbestos-containing material or material presumed to
be asbestos-containing material under any Environmental Law.
(c) Insight has provided TCI with complete and correct copies of (i)
all studies, reports, surveys or other written materials in Insight's possession
relating to the presence or alleged presence of Hazardous Substances at, on,
under or affecting the Insight Owned Property or Insight Leased Property, (ii)
all notices (other than general notices made by general publication) or other
materials in Insight's possession that were received from any Governmental
Authority having the power to administer or enforce any Environmental Laws
relating to current or past ownership, use or operation of the Insight Owned
Property or Insight Leased Property or activities at the Insight Owned Property
or Insight Leased Property and (iii) all materials in Insight's possession
relating to any Litigation or allegation by any private third party concerning
any Environmental Law.
5.8 Compliance with Legal Requirements.
(a) The ownership, leasing and use of the Insight Assets as they are
currently owned, leased and used and the conduct of Insight's Cable Business and
the operation of the Insight Systems as they are currently conducted and
operated do not violate or infringe in any material respect any Legal
Requirements currently in effect (other than Legal Requirements described in
Sections 5.7, 5.8(d) and 5.13, as to which the representations and warranties
set forth in those subsections shall apply), including (i) the Communications
Act, (ii) Section 111 of the U.S. Copyright Act of 1976, and the U.S. Copyright
Office rules and regulations promulgated thereunder (the "Copyright Act") and
(iii) all other applicable Legal Requirements relating to the construction,
maintenance, ownership and operation of the Insight Assets, the Insight Systems
and Insight's Cable Business. Insight has received no written notice of any
violation by Insight or Insight's Cable Business of any Legal Requirement
applicable to the operation of Insight's Cable Business as currently conducted,
or the Insight Systems as currently operated and to Insight's Knowledge, there
- 24 -
<PAGE>
is no existing fact, circumstance or condition that could reasonably form the
basis for a finding by any Governmental Authority of any such violation.
(b) A valid request for renewal has been duly and timely filed under
Section 626 of the Communications Act with the proper Governmental Authority
with respect to all Insight System Franchises that have expired prior to or will
expire within 36 months after the date of this Agreement.
(c) Except as set forth in Schedule 5.8, (i) no written notices or
demands have been received from the FCC, from any television station, or from
any other Person or Governmental Authority (1) challenging the right of the
Insight Systems to carry any television broadcast station or deliver the same or
(2) claiming that any Insight System has failed to carry a television broadcast
station required to be carried pursuant to the Communications Act or has failed
to carry a television broadcast station on a channel designated by such station
consistent with the requirements of the Communications Act; (ii) all necessary
Federal Aviation Administration ("FAA") approvals have been obtained with
respect to the height and location of towers used in connection with the
operation of the Insight Systems and are listed in Schedule 5.8, and such towers
are being operated in compliance in all material respects with applicable FCC
and FAA rules; and (iii) Insight has received no written notice from any
Governmental Authority with respect to an intention to enforce customer service
standards pursuant to the 1992 Cable Act and Insight has not agreed with any
Governmental Authority to establish customer service standards that exceed the
FCC standards promulgated pursuant to the 1992 Cable Act.
(d) Notwithstanding the foregoing, to Insight's Knowledge, each
Insight System is in compliance in all material respects with the provisions of
the 1992 Cable Act as such Legal Requirements relate to the rates and other fees
charged to subscribers of Insight's Cable Business. Insight has used reasonable
good faith efforts to establish rates charged to subscribers, effective since
September 1, 1993, that are or were allowable under the 1992 Cable Act and any
authoritative interpretation thereof now or then in effect, to the extent such
rates are or were subject to regulation at such time by any Governmental
Authority, including any local franchising authority and/or the FCC.
Notwithstanding the foregoing, Insight makes no representation or warranty that
any of its rates that are not subject to rate regulation would be allowable if
such rates were subject to regulation and makes no representation or warranty
that the rates charged to subscribers would be allowable under any rules and
regulations of the FCC or any authoritative interpretation thereof, promulgated
after the Closing Date. Insight has delivered to TCI complete and correct copies
of all FCC Forms and other information reasonably requested by TCI relating to
rate regulation generally or specific rates charged to subscribers with respect
to the Insight Systems. Except as set forth on Schedule 5.8, Insight has not
made any election with respect to any cost of service proceeding conducted in
accordance with Part 76.922 of Title 47 of the Code of Federal Regulations or
any similar proceeding with respect to any of the Insight Systems (a "Cost of
Service Election"). Insight has not entered into and is not subject to any
so-called social contract or proposed resolution with the FCC with respect to
rates charged for cable television services in the Insight Systems and is not
currently negotiating or anticipating entering into or being subject to the
same. Except as otherwise described
- 25 -
<PAGE>
on Schedule 5.8, as of the date of this Agreement, (i) to the Knowledge of
Insight, there are no outstanding or unresolved proceedings or investigations
(other than those affecting the cable industry generally) dealing with or
otherwise affecting the rates that any cable television system included in the
Insight Systems can charge (whether for programming, equipment, installation,
service or otherwise), (ii) no cable television system included in the Insight
Systems is subject to any currently effective order issued by a Governmental
Authority that reduced the rates that it may charge (whether for programming,
equipment, installation, service, or otherwise), (iii) no local franchising
authority has been certified by the FCC as a rate regulating authority with
respect to any of the Insight Systems and (iv) there is no unresolved complaint
pending with respect to the CPST tier of any Insight System and no rate order
with respect to the Insight Systems that is being appealed.
5.9 Patents, Trademarks and Copyrights. Insight has deposited with the U.S.
Copyright Office all statements of account and other documents and instruments,
and has paid all royalties, supplemental royalties, fees and other sums to the
U.S. Copyright Office under the Copyright Act with respect to the business and
operations of the Insight Systems as are required to obtain, hold and maintain
the compulsory license for cable television systems prescribed in Section 111 of
the Copyright Act. To Insight's Knowledge, there is no inquiry, claim, action or
demand pending before the U.S. Copyright Office or from any other Person which
questions the copyright filings or payments made by Insight with respect to the
Insight Systems. Insight has delivered to TCI complete and correct copies of all
current reports and filings for the past three years, made or filed pursuant to
copyright rules and regulations with respect to Insight's Cable Business.
Insight does not possess any patent, patent right, trademark or copyright
related to or material to the operation of the Insight Systems and Insight is
not a party to any license or royalty agreement with respect to any such patent,
patent right, trademark or copyright, except for licenses respecting program
material and obligations under the Copyright Act applicable to cable television
systems generally. The Insight Systems and Insight's Cable Business have been
operated in such a manner so as not to violate or infringe upon the rights, or
give rise to any rightful claim of any Person for copyright, trademark, service
mark, patent or license infringement or the like.
5.10 Financial Statements; Undisclosed Liabilities; Absence of Certain
Changes or Events. Insight has delivered to TCI complete and correct copies of
an unaudited trial balance sheet for each Insight System as of April 21, 1998
and an unaudited income and expense summary statement for each Insight System
for the year ended December 31, 1997 and the three-month period ended March 31,
1997, including all notes and schedules thereto (all of such financial
statements and notes being hereinafter referred to as "Insight's Financial
Statements"). Insight's Financial Statements are in accordance with the books
and records of Insight, were prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, and, except as may be
described therein, present fairly the financial condition of Insight at the
dates and for the periods indicated, subject only to standard year-end
adjustments and the omission of footnotes. The unaudited trial balance sheets of
Insight as of April 21, 1998 are herein called the "Insight Balance Sheets." At
the date of the Insight Balance Sheets, Insight had no material liabilities
required by GAAP to be reflected or reserved against therein that were not fully
reflected or reserved against on the Insight Balance Sheets, other than
liabilities as set forth on Schedule 5.10. Except as set forth
- 26 -
<PAGE>
on Schedule 5.10, since the date of the Insight Balance Sheets through the date
of this Agreement: (x) Insight has not incurred any obligation or liability
(contingent or otherwise), except normal trade or business obligations incurred
in the ordinary course of business, the performance of which will not, to
Insight's Knowledge, individually or in the aggregate, have a material adverse
effect on the financial condition of Insight or the results of operations of
Insight's Cable Business; (y) there has been no material adverse change in the
Insight Assets comprising any Insight System or in the business, condition,
financial or otherwise, or liabilities of Insight's Cable Business or any
Insight System and, to Insight's Knowledge, no fact or condition exists or is
contemplated or threatened which would result in such a change in the future;
and (z) Insight's Cable Business has been conducted only in the ordinary course
of business consistent with past practice. For the purpose of this Agreement,
the impact of general economic conditions (including changes in capital and
financial markets), governmental legislation and regulations and other events
which affect the cable industry as a whole in the State of Indiana or the United
States, shall not be considered in determining whether there has been a material
adverse change in the business, condition, financial or otherwise or liabilities
of Insight's Cable Business or any Insight System or the Insight Assets.
5.11 Litigation. Except as set forth in Schedule 5.11: (a) there is no
Litigation pending or, to Insight's Knowledge, threatened, and, to Insight's
Knowledge, there is no investigation pending or threatened, by or before any
Governmental Authority or private arbitration tribunal against Insight which, if
adversely determined, would materially adversely affect the financial condition
or operations of Insight's Cable Business, Insight Systems, the Insight Assets
or the ability of Insight to perform its obligations under this Agreement, or
which, if adversely determined, would result in the modification, revocation,
termination, suspension or other limitation of any of the Insight System
Franchises, Insight System Licenses, Insight System Contracts or leases or other
documents evidencing the Insight Leased Property or the Insight Other Real
Property Interests; and (b) there is not in existence any Judgment requiring
Insight to take any action of any kind with respect to the Insight Assets or the
operation of the Insight Systems, or to which Insight (with respect to the
Insight Systems), the Insight Systems or the Insight Assets are subject or by
which they are bound or affected.
5.12 Tax Returns; Other Reports. Insight has duly and timely filed in
correct form all federal, state, local and foreign Tax returns and other Tax
reports required to be filed by Insight, and has timely paid all Taxes which
have become due and payable, whether or not so shown on any such return or
report, the failure of which to be filed or paid could adversely affect or
result in the imposition of a Lien upon the Insight Assets or that could impose
on the Company any transferee liability for any taxes, penalties or interest due
or to become due from Insight, except such amounts as are being contested
diligently and in good faith and are not in the aggregate material. Insight has
received no notice of, nor does Insight have any Knowledge of, any deficiency,
assessment or audit, or proposed deficiency, assessment or audit from any taxing
Governmental Authority which could affect or result in the imposition of a Lien
upon the Insight Assets.
- 27 -
<PAGE>
5.13 Employment Matters.
(a) Schedule 5.13(a) contains a complete and correct list of the names
and positions of all employees engaged principally in Insight's Cable Business
as of the date set forth on Schedule 5.13(a). Insight has complied in all
material respects with all applicable Legal Requirements relating to the
employment of labor, including, the Worker Adjustment and Retraining
Notification Act, 29 U.S.C. ss. 2101, et seq. ("WARN"), ERISA, continuation
coverage requirements with respect to group health plans and those relating to
wages, hours, collective bargaining, unemployment insurance, worker's
compensation, equal employment opportunity, age and disability discrimination,
immigration control and the payment and withholding of Taxes.
(b) Each employee benefit plan (as defined in Section 3(3) of ERISA)
or any multi-employer plan (as defined in Section 3(37) of ERISA) with respect
to which Insight or any of its ERISA Affiliates has any liability or in which
any employees or agents, or any former employees or agents, of Insight or any of
its ERISA Affiliates participate is set forth in Schedule 5.13 (the "Insight
Plans"). Neither Insight, any of its ERISA Affiliates nor any Insight Plan is in
material violation of any provision of the United States Internal Revenue Code,
as amended (the "Code") or ERISA. No "reportable event" (as defined in Section
4043 of ERISA) has occurred and is continuing with respect to any Insight Plan
and no "prohibited transaction" (as defined in Section 406 of ERISA) has
occurred with respect to any Insight Plan which reasonably could result in
material liability to Insight or any of its ERISA Affiliates. No material
"accumulated funding deficiency" or "withdrawal liability" (as defined in
Section 302 of ERISA) exists with respect to any of the Insight Plans. After the
Closing, the Company will not be required, under ERISA, the Code or any
collective bargaining agreement, to establish, maintain or continue any Plan
currently maintained by Insight or any of its ERISA Affiliates.
(c) Except as set forth on Schedule 5.13, there are no collective
bargaining agreements applicable to any Person employed by Insight that renders
services in connection with the Insight Systems and Insight has no duty to
bargain with any labor organization with respect to any such Person. There are
not pending any unfair labor practice charges against Insight, any demand for
recognition or any other effort of or request or demand from, a labor
organization for representative status with respect to any Person employed by
Insight that renders services in connection with the Insight Systems. Except as
described on Schedule 5.13, Insight has no employment agreements, either written
or oral, with any employee of the Insight Systems and none of the employment
agreements listed on Schedule 5.13 requires Insight or will require the Company
to employ any Person after the Closing.
(d) Insight is not aware of the existence of any governmental
inspection, investigation, audit or examination of any Insight Plan or of any
facts which would lead it to believe that any such governmental inspection,
investigation, audit or examination is pending or threatened. There exists no
action, suit or claim (other than routine claims for benefits) with respect to
any Insight Plan pending or to the knowledge of Insight threatened against any
of such plans and Insight possesses no knowledge of any facts which could give
rise to any such action, suit or claim. Each
- 28 -
<PAGE>
Insight Plan that is intended to be tax-qualified, and each amendment thereto,
is the subject of a favorable determination letter, and no plan amendment that
is not the subject of a favorable determination letter would affect the validity
of any Insight Plan's letter. At all times prior to the Closing, each Insight
Plan, to the extent such plan is intended to be tax-qualified, satisfies all
minimum coverage and minimum participation requirements, if any, imposed on such
Insight Plan by the applicable terms of the Code and ERISA.
5.14 Insight Systems Information. Schedule 5.14 sets forth a materially
true and accurate description of the following information relating to Insight's
Cable Business as of the most recent monthly report generated by Insight in the
ordinary course of business containing the information required to prepare such
Schedule 5.14 (which date is specified in Schedule 5.14) provided that such date
is no earlier than two months prior to the date of this Agreement:
(a) the approximate number of miles (both underground and aerial) of
plant included in the Insight Assets;
(b) the number of Equivalent Basic Subscribers (including the number
that are residential and the number that are bulk-billed) served by the Insight
Systems for each Insight System service area (by franchise area or community);
(c) the approximate number of single family homes and residential
dwelling units passed by the Insight Systems;
(d) a description of basic and optional or tier services available
from the Insight Systems, the rates charged by Insight for each and the number
of EBSs receiving each optional or tier service;
(e) the stations and signals carried by the Insight Systems and the
channel position of each such signal and station and the basis for carriage of
all television broadcast signals; and
(f) the cities, towns, villages, townships, boroughs, counties or
other communities served by the Insight Systems (with or without the requirement
of a franchise) that have been, or are required to be, registered with the FCC
pursuant to Section 76.12 of its rules, including each C.U.I.D. number.
5.15 Accounts Receivable. Insight's accounts receivable for its Cable
Business are actual and bona fide receivables representing obligations for the
total dollar amount of such receivables, as shown on the books of Insight, that
resulted from the regular course of Insight's Cable Business. Such receivables
are subject to no offset or reduction of any nature, except for a reserve for
uncollectible amounts consistent with the reserve established by Insight in
Insight's Financial Statements and those credits or reductions to such accounts
made in the ordinary course of business.
- 29 -
<PAGE>
5.16 Bonds; Letters of Credit. Except as set forth on Schedule 5.16, there
are no franchise, construction, fidelity, performance, or other bonds,
guaranties in lieu of bonds or letters of credit posted by Insight in connection
with its operation or ownership of any of the Insight Systems or Insight Assets.
5.17 Finders and Brokers. Insight has not employed any financial advisor,
broker or finder or incurred any liability for any financial advisory,
brokerage, finder's or similar fee or commission in connection with the
transactions contemplated by this Agreement for which TCI or the Company could
be liable.
5.18 Wireless Business; @Home.
(a) At the time of Closing and immediately thereafter, the Company
will not be engaged in any "Competitive Activities." For purposes of this
Section 5.18, the term "Competitive Activities" means to bid on, acquire or,
directly or indirectly, own, manage, operate, join, control or finance, or
participate in the management, operation, control or financing of, or be
connected as a principal, agent, representative, consultant, beneficial owner of
an interest in any Person or otherwise with, or use or permit its name to be
used in connection with, any business or enterprise which (1) engages in the
bidding for an acquisition of any wireless business license or engages in any
wireless business, or (2) provides, offers, promotes or brands wireless
telecommunications services; provided, however, that in no event shall the term
"Competitive Activities" include any video entertainment distribution business
delivered by wireline, microwave or satellite, LMDS or otherwise.
(b) At the time of Closing and immediately thereafter, the Company
will not be engaged in, or have any ownership interest in any entity engaged in,
the business of providing an Internet Backbone Service (as defined in the LLC
Agreement). The Insight Assets do not include any equity interest in any Person
that owns or conducts an Internet Backbone Service.
SECTION 6. TCI'S REPRESENTATIONS AND WARRANTIES
TCI represents and warrants to Insight and the Company as of the date of
this Agreement (or, if a different date is specified in this Section 6 or in
TCI's Schedules, as of such specified date), as follows.
6.1 Organization and Qualification of TCI. Midwest is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware; Indiana is a corporation duly organized, validly existing and in good
standing under the laws of the State of Indiana; Kokomo is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado; Heritage is a limited partnership duly organized, validly existing and
in good standing under the laws of the State of Iowa; and TCI LLC is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Colorado. Each of Midwest, Indiana, Kokomo, Heritage
and TCI LLC (a) has all requisite corporate, partnership or
- 30 -
<PAGE>
limited liability company power and authority to own, lease and use the TCI
Assets owned, leased or used by it and to conduct its portion of TCI's Cable
Business as it is currently conducted and (b) is duly qualified to do business
and is in good standing under the laws of each jurisdiction in which the
ownership, leasing or use of the TCI Assets owned or leased by it or the nature
of its activities in connection with the TCI Systems makes such qualification
necessary, except in any such jurisdiction where the failure to be so qualified
and in good standing would not have a material adverse effect on the ownership
or operation of TCI's Cable Business, the TCI Assets or TCI Systems or on the
ability of TCI to perform its obligations under this Agreement. Indiana's U.S.
taxpayer identification number is 841038399; Midwest's U.S. taxpayer
identification number is 061116778; Kokomo's U.S. taxpayer identification number
is 841295029; Heritage's U.S. taxpayer identification number is 421202532; and
TCI LLC's U.S. taxpayer identification number is 841458995.
6.2 Authority and Validity. Each of Midwest, Indiana, Kokomo, Heritage and
TCI LLC has all requisite corporate, partnership or limited liability company
power and authority to execute and deliver, to perform its obligations under,
and to consummate the transactions contemplated by, this Agreement and the
Transaction Documents to which it is a party. The execution and delivery by TCI,
the performance by TCI under, and the consummation by TCI of the transactions
contemplated by, this Agreement and the Transaction Documents to which TCI is a
party have been duly and validly authorized by all required corporate,
partnership or limited liability company action by or on behalf of TCI, subject
to TCI obtaining board of director, membership or partnership approval, as
applicable, for the same. This Agreement has been, and when executed and
delivered by TCI the Transaction Documents will be, duly and validly executed
and delivered by TCI and the valid and binding obligations of TCI, enforceable
against TCI in accordance with their terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect relating to the enforcement of creditors' rights
generally or by principles governing the availability of equitable remedies,
subject to TCI obtaining board of director, membership or partnership approval,
as applicable, for the same..
6.3 No Conflict; Required Consents. Except for, and subject to receipt of,
the TCI Required Consents, all of which are listed on Schedule 6.3, the Insight
Required Consents, all consents, authorizations and approvals for Insight to
transfer the Exchange Assets to the Company and the notification and expiration
or earlier termination of the waiting period under the HSR Act, the execution
and delivery by TCI, the performance of TCI under, and the consummation of the
transactions contemplated by, this Agreement and the Transaction Documents to
which TCI is a party do not and will not: (a) conflict with or violate any
provision of charter or bylaws, partnership agreement or limited liability
company agreement; (b) violate any provision of any Legal Requirement; (c)
require any consent, approval or authorization of, or filing of any certificate,
notice, application, report or other document with, any Governmental Authority
or other Person; or (d) (i) conflict with, violate, result in a breach of or
constitute a default under (without regard to requirements of notice, lapse of
time or elections of other Persons or any combination thereof), (ii) permit or
result in the termination, suspension or modification of, (iii) result in the
acceleration of (or give any Person the right to accelerate) the performance of
TCI under, (iv) result in the
- 31 -
<PAGE>
creation or imposition of any Lien under any TCI System Franchise, TCI System
License or any TCI System Contract or other instrument evidencing any of the TCI
Assets or by which TCI or any of its assets is bound or affected, except for
purposes of clauses (c) and (d) such consents, approvals, authorizations and
filings, that, if not obtained or made, would not, and such violations,
conflicts, breaches, defaults, terminations, suspensions, modifications and
accelerations as would not, individually or in the aggregate, have a material
adverse effect on any TCI System, TCI's Cable Business or on the ability of TCI
to perform its obligations under this Agreement or the Transaction Documents to
which TCI is a party.
6.4 Assets.
(a) TCI has good and valid title to (or, in the case of Assets that
are leased, valid leasehold interests in) the TCI Assets (other than TCI Owned
Real Property, TCI Leased Property and TCI Other Real Property Interests, as to
which representations and warranties in Section 6.6 apply). The TCI Assets are
free and clear of all Liens, except (i) Permitted Liens and (ii) Liens described
on Schedule 6.4, all of which Liens on Schedule 6.4 will be terminated, released
or, in the case of the rights of first refusal listed on Schedule 6.4, waived,
as appropriate, at or prior to the Closing. Except as described on Schedule 1.64
(TCI Tangible Personal Property), the TCI Tangible Personal Property is in good
operating condition and repair (ordinary wear and tear excepted).
(b) Except for items included in the TCI Excluded Assets, the TCI
Assets constitute all the assets necessary to permit the Company to conduct
TCI's Cable Business and to operate the TCI Systems substantially as they are
being conducted and operated on the date of this Agreement and in compliance in
all material respects with all applicable Legal Requirements, TCI System
Contracts, TCI System Licenses and TCI System Franchises and to perform all of
the Assumed Obligations and Liabilities as they relate to the TCI Systems.
(c) Except as disclosed on Schedule 6.4, to the Knowledge of TCI, no
third party has been granted or applied for a cable television franchise or is
providing or intending to provide cable television services in any of the
communities or unincorporated areas currently served by TCI's Cable Business.
6.5 TCI System Franchises, TCI System Licenses, TCI System Contracts and
TCI Other Real Property Interests.
(a) Except as described on Schedules 1.56 (TCI Leased Property), 1.58
(TCI Other Real Property Interests), 1.61 (TCI System Contracts), 1.62 (TCI
System Franchises) and 1.63 (TCI System Licenses) or as described on Schedule
4.2 (TCI Excluded Assets) or otherwise included in the definition of TCI
Excluded Assets, TCI is not bound or affected by any of the following that
relate primarily or in whole to TCI's Cable Business: (i) leases of real or
personal property; (ii) franchises for the construction or operation of cable
television systems or Contracts of substantially equivalent effect; (iii) other
licenses, authorizations, consents or permits of the FCC or any other
Governmental Authority; (iv) material easements, rights of access, underground
conduit
- 32 -
<PAGE>
agreements, crossing agreements or other interests in real property; (v) pole
line or attachment agreements; (vi) multiple dwelling unit agreements, including
bulk agreements, and commercial service agreements; (vii) agreements pursuant to
which the TCI Systems receive or provide advertising sales representation
services; (viii) agreements pursuant to which a TCI System has constructed or
agreed to construct for third parties an institutional network or otherwise
provide to third parties telecommunications services other than one-way video;
(ix) construction and development agreements (other than installation agreements
where services are provided in the ordinary course of business on an as-needed
basis); or (x) Contracts relating to the operation of TCI's Cable Business other
than those described in any other clause of this Section which contemplate
payments by or to TCI in any 12-month period exceeding $25,000 individually or
$150,000 in the aggregate or that have a remaining term of two years or more as
of the Closing Date. Except as described on the Schedules to this Agreement, no
Affiliate of TCI is a party to any documents listed on such Schedules.
(b) Complete and correct copies of the TCI System Franchises and TCI
System Licenses have been delivered by TCI to Insight. Except as set forth on
Schedule 1.62 (TCI System Franchises), the TCI System Franchises contain all of
the commitments and obligations of TCI to the applicable Governmental Authority
granting such Franchises with respect to the construction, ownership and
operation of the TCI Systems. The TCI System Franchises and TCI System Licenses
are currently in full force and effect and are valid and enforceable under all
applicable Legal Requirements according to their terms. There is no legal
action, governmental proceeding or, to TCI's Knowledge, investigation, pending
or to TCI's Knowledge threatened, to terminate, suspend or modify any TCI System
Franchise or TCI System License and TCI is in material compliance with the terms
and conditions of all the TCI System Franchises and TCI System Licenses and with
other applicable requirements of all Governmental Authorities (including the FCC
and the Register of Copyrights) relating to the TCI System Franchises and TCI
System Licenses, including all requirements for notification, filing, reporting,
posting and maintenance of logs and records. All areas served by the TCI Systems
are served pursuant to one of the TCI System Franchises except as set forth on
Schedule 1.62.
(c) Complete and correct copies of all TCI System Contracts required
to be listed on TCI's Schedules (including all Contracts relating to Leased
Property and Other Real Property Interests described on Schedule 1.58) have been
provided to Insight. Such documents constitute the entire agreement with the
other party. Each such TCI System Contract is in full force and effect and
constitutes the valid, legal, binding and enforceable obligation of TCI and TCI
is not and to TCI's Knowledge, each other party thereto is not in breach or
default of any material terms or conditions thereunder.
6.6 Real Property. All TCI Assets consisting of TCI Owned Property, TCI
Leased Property and material TCI Other Real Property Interests are described on
Schedules 1.56 (TCI Leased Property), 1.58 (TCI Other Real Property Interests)
and 1.59 (TCI Owned Property). Except as otherwise disclosed on Schedule 1.59
(TCI Owned Property), TCI holds title to the TCI Owned Property free and clear
of all Liens except (a) Permitted Liens and (b) Liens described on
- 33 -
<PAGE>
Schedule 6.4 (all of which Liens on Schedule 6.4 will be terminated, released
or, in the case of the rights of first refusal listed on Schedule 6.4, waived,
as appropriate, at or prior to the Closing), and has the valid and enforceable
right to use and possess such TCI Owned Property, in each case subject only to
the above-referenced Liens. Except as otherwise disclosed on Schedules 1.56 (TCI
Leased Property) and 1.58 (TCI Other Real Property Interests); TCI has valid and
enforceable leasehold interests in all TCI Leased Property and, with respect to
TCI Other Real Property Interests, has valid and enforceable rights to use all
TCI Other Real Property Interests subject, subject only to the above-referenced
Liens. Except for ordinary wear and tear and routine repairs, all of the
material improvements, leasehold improvements and the premises of the TCI Owned
Property and the premises demised under the leases and other documents
evidencing the TCI Leased Property are in good condition and repair and are
suitable for the purposes used. Each parcel of TCI Owned Property and each
parcel of TCI Leased Property and any improvements thereon and their current use
(x) has access to and over public streets or private streets for which TCI has a
valid right of ingress and egress, (y) conforms in its current use and occupancy
to all material zoning requirements without reliance upon a variance issued by a
Governmental Authority or a classification of the parcel in question as a
nonconforming use and (z) conforms in its current use to all restrictive
covenants, if any, or other Liens affecting all or part of such parcel. Except
where the failure of the representations made in this sentence to be true and
correct would not have a material adverse effect on the TCI Assets or TCI's
Cable Business, all buildings, towers, guy wires and anchors, headend equipment,
earth-receiving dishes and related facilities used in the operations of the TCI
Systems are located entirely on TCI Owned Property or TCI Leased Property or
other real property in which TCI has a TCI Other Real Property Interest and are
maintained, placed and located in accordance with the provisions of all
applicable Legal Requirements, deeds, leases, licenses, permits or other legally
enforceable arrangements.
6.7 Environmental.
(a) To TCI's Knowledge, except as disclosed on Schedule 6.7, the TCI
Owned Property and TCI Leased Property comply in all material respects with and
has previously been operated in compliance in all material respects with all
Environmental Laws. TCI has not either directly or indirectly (i) generated,
stored, used, treated, handled, discharged, released or disposed of any
Hazardous Substances at, on, under, in or about, to or from or in any other
manner affecting, any TCI Owned Property or TCI Leased Property, (ii)
transported any Hazardous Substances to or from any TCI Owned Property or TCI
Leased Property or (iii) undertaken or caused to be undertaken any other
activities relating to the TCI Owned Property or TCI Leased Property, which
could reasonably give rise to any liability under any Environmental Law and, to
TCI's Knowledge, no other present or previous owner, tenant, occupant or user of
any TCI Owned Property or TCI Leased Property or any other Person has committed
or suffered any of the foregoing. To TCI's Knowledge, no release of Hazardous
Substances outside the TCI Owned Property or TCI Leased Property has entered or
threatens to enter any TCI Owned Property or TCI Leased Property, nor is there
any pending or threatened Litigation based on Environmental Laws which arises
from any condition of the land adjacent to or immediately surrounding any TCI
Owned Property or TCI Leased Property. No Litigation based on Environmental Laws
which relates to any TCI Owned
- 34 -
<PAGE>
Property or TCI Leased Property or any operations or conditions on it (1) has
been asserted or conducted in the past with respect to, or is currently pending
against, TCI or, to TCI's Knowledge, any other Person, or (2) to TCI's
Knowledge, is threatened or contemplated.
(b) To TCI's Knowledge, except as disclosed on Schedule 6.7, (i) no
aboveground or underground storage tanks are currently or have been located on
any TCI Owned Property or TCI Leased Property, (ii) no TCI Owned Property or TCI
Leased Property has been used at any time as a gasoline service station or any
other facility for storing, pumping, dispensing or producing gasoline or any
other petroleum products or wastes and (iii) no building or other structure on
any TCI Owned Property or TCI Leased Property contains asbestos,
asbestos-containing material or material presumed to be asbestos-containing
material under any Environmental Law.
(c) TCI has provided Insight with complete and correct copies of (i)
all studies, reports, surveys or other written materials in TCI's possession
relating to the presence or alleged presence of Hazardous Substances at, on,
under or affecting the TCI Owned Property or TCI Leased Property, (ii) all
notices (other than general notices made by general publication) or other
materials in TCI's possession that were received from any Governmental Authority
having the power to administer or enforce any Environmental Laws relating to
current or past ownership, use or operation of the TCI Owned Property or TCI
Leased Property or activities at the TCI Owned Property or TCI Leased Property
and (iii) all materials in TCI's possession relating to any Litigation or
allegation by any private third party concerning any Environmental Law.
6.8 Compliance with Legal Requirements.
(a) The ownership, leasing and use of the TCI Assets as they are
currently owned, leased and used and the conduct of TCI's Cable Business and the
operation of the TCI Systems as they are currently conducted and operated do not
violate or infringe in any material respect any Legal Requirements currently in
effect (other than Legal Requirements described in Sections 6.7, 6.8(d) and
6.13, as to which the representations and warranties set forth in those
subsections shall apply), including (i) the Communications Act, (ii) Section 111
of the Copyright Act and (iii) all other applicable Legal Requirements relating
to the construction, maintenance, ownership and operation of the TCI Assets, the
TCI Systems and TCI's Cable Business. TCI has received no written notice of any
violation by TCI or TCI's Cable Business of any Legal Requirement applicable to
the operation of TCI's Cable Business as currently conducted, or the TCI Systems
as currently operated and to TCI's Knowledge, there is no existing fact,
circumstance or condition that could reasonably form the basis for a finding by
any Governmental Authority of any such violation.
(b) A valid request for renewal has been duly and timely filed under
Section 626 of the Communications Act with the proper Governmental Authority
with respect to all TCI System Franchises that have expired prior to or will
expire within 36 months after the date of this Agreement.
- 35 -
<PAGE>
(c) Except as set forth in Schedule 6.8, (i) no written notices or
demands have been received from the FCC, from any television station, or from
any other Person or Governmental Authority (1) challenging the right of the TCI
Systems to carry any television broadcast station or deliver the same or (2)
claiming that any TCI System has failed to carry a television broadcast station
required to be carried pursuant to the Communications Act or has failed to carry
a television broadcast station on a channel designated by such station
consistent with the requirements of the Communications Act; (ii) all necessary
FAA approvals have been obtained with respect to the height and location of
towers used in connection with the operation of the TCI Systems and are listed
in Schedule 6.8, and such towers are being operated in compliance in all
material respects with applicable FCC and FAA rules; and (iii) TCI has received
no written notice from any Governmental Authority with respect to an intention
to enforce customer service standards pursuant to the 1992 Cable Act and TCI has
not agreed with any Governmental Authority to establish customer service
standards that exceed the FCC standards promulgated pursuant to the 1992 Cable
Act.
(d) Notwithstanding the foregoing, to TCI's Knowledge, each TCI System
is in compliance in all material respects with the provisions of the 1992 Cable
Act as such Legal Requirements relate to the rates and other fees charged to
subscribers of TCI's Cable Business. TCI has used reasonable good faith efforts
to establish rates charged to subscribers, effective since September 1, 1993,
that are or were allowable under the 1992 Cable Act and any authoritative
interpretation thereof now or then in effect, to the extent such rates are or
were subject to regulation at such time by any Governmental Authority, including
any local franchising authority and/or the FCC. Notwithstanding the foregoing,
TCI makes no representation or warranty that any of its rates that are not
subject to rate regulation would be allowable if such rates were subject to
regulation and makes no representation or warranty that the rates charged to
subscribers would be allowable under any rules and regulations of the FCC or any
authoritative interpretation thereof, promulgated after the Closing Date. TCI
has delivered to Insight complete and correct copies of all FCC Forms and other
information reasonably requested by Insight relating to rate regulation
generally or specific rates charged to subscribers with respect to the TCI
Systems. TCI has not entered into and is not subject to any so-called social
contract or proposed resolution with the FCC with respect to rates charged for
cable television services in the TCI Systems that would be applicable to such
Systems following Closing and is not currently negotiating or anticipating
entering into or being subject to any new social contract with respect to the
TCI Systems; provided, that certain of the TCI Systems are affected by FCC Order
97-324 (adopted 9/10/97) that is currently pending approval before the FCC (the
"Pending TCI Rate Order"). Except as set forth on Schedule 6.8, TCI has not made
any Cost of Service Election with respect to any of the TCI Systems. Except as
otherwise described on Schedule 6.8, as of the date of this Agreement and except
with respect to the Pending TCI Rate Order, (i) to the Knowledge of TCI, there
are no outstanding or unresolved proceedings or investigations (other than those
affecting the cable industry generally) dealing with or otherwise affecting the
rates that any cable television system included in the TCI Systems can charge
(whether for programming, equipment, installation, service or otherwise), (ii)
no cable television system included in the TCI Systems is subject to any
currently effective order issued by a Governmental Authority that reduced the
rates that it may charge (whether for programming, equipment, installation,
service, or otherwise), (iii) no local franchising authority has been certified
by the FCC
- 36 -
<PAGE>
as a rate regulating authority with respect to any of the TCI Systems and (iv)
there is no unresolved complaint pending with respect to the CPST tier of any
TCI System and no rate order with respect to the TCI Systems is being appealed.
6.9 Patents, Trademarks and Copyrights. TCI has deposited with the U.S.
Copyright Office all statements of account and other documents and instruments,
and has paid all royalties, supplemental royalties, fees and other sums to the
U.S. Copyright Office under the Copyright Act with respect to the business and
operations of the TCI Systems as are required to obtain, hold and maintain the
compulsory license for cable television systems prescribed in Section 111 of the
Copyright Act. To TCI's Knowledge, there is no inquiry, claim, action or demand
pending before the U.S. Copyright Office or from any other Person which
questions the copyright filings or payments made by TCI with respect to the TCI
Systems. TCI has delivered to Insight complete and correct copies of all current
reports and filings for the past three years, made or filed pursuant to
copyright rules and regulations with respect to TCI's Cable Business. TCI does
not possess any patent, patent right, trademark or copyright related to or
material to the operation of the TCI Systems and TCI is not a party to any
license or royalty agreement with respect to any such patent, patent right,
trademark or copyright, except for licenses respecting program material and
obligations under the Copyright Act applicable to cable television systems
generally. The TCI Systems and TCI's Cable Business have been operated in such a
manner so as not to violate or infringe upon the rights, or give rise to any
rightful claim of any Person for copyright, trademark, service mark, patent or
license infringement or the like.
6.10 Financial Statements; Undisclosed Liabilities; Absence of Certain
Changes or Events. TCI has delivered to Insight complete and correct copies of
an unaudited balance sheet for each TCI System as of December 31, 1997 and an
unaudited statement of operations for the year ended December 31, 1997 for each
System, including all notes and Schedules thereto (all of such financial
statements and notes being hereinafter referred to as "TCI's Financial
Statements"). TCI's Financial Statements are in accordance with the books and
records of TCI, were prepared in accordance with GAAP, applied on a consistent
basis throughout the periods covered thereby, present fairly the financial
condition of TCI with respect to the TCI Systems at the dates and for the
periods indicated, subject, in the case of unaudited TCI Financial Statements,
only to standard year-end adjustments and the omission of footnotes. The
unaudited balance sheets of TCI as of December 31, 1997 are herein called the
"TCI Balance Sheets." At the date of the TCI Balance Sheets, TCI had no material
liabilities with respect to the Systems required by GAAP to be reflected or
reserved against therein that were not fully reflected or reserved against on
the TCI Balance Sheets, other than liabilities as set forth on Schedule 6.10.
Except as set forth on Schedule 6.10, since the date of the TCI Balance Sheets
through the date of this Agreement: (x) TCI has not incurred any obligation or
liability (contingent or otherwise), except normal trade or business obligations
incurred in the ordinary course of business, the performance of which will not,
to TCI's Knowledge, individually or in the aggregate, have a material adverse
effect on the financial condition of TCI or the results of operations of TCI or
TCI's Cable Business; (y) there has been no material adverse change in the TCI
Assets comprising any TCI System or in the business, condition, financial or
otherwise, or liabilities of TCI's Cable Business or any TCI System and, to
TCI's Knowledge, no fact or condition exists or is contemplated
- 37 -
<PAGE>
or threatened which would result in such a change in the future; and (z) TCI's
Cable Business has been conducted only in the ordinary course of business
consistent with past practice. For the purpose of this Agreement, the impact of
general economic conditions (including changes in capital and financial
markets), governmental legislation and regulations and other events which affect
the cable industry as a whole in the State of Indiana or the United States,
shall not be considered in determining whether there has been a material adverse
change in the business, condition, financial or otherwise or liabilities of
TCI's Cable Business or any TCI System or the TCI Assets.
6.11 Litigation. Except as set forth in Schedule 6.11: (a) there is no
Litigation pending or, to TCI's Knowledge, threatened, and, to TCI's knowledge,
there is no investigation pending or threatened, by or before any Governmental
Authority or private arbitration tribunal against TCI which, if adversely
determined, would materially adversely affect the financial condition or
operations of TCI's Cable Business, TCI Systems, the TCI Assets or the ability
of TCI to perform its obligations under this Agreement, or which, if adversely
determined, would result in the modification, revocation, termination,
suspension or other limitation of any of the TCI System Franchises, TCI System
Licenses, TCI System Contracts or leases or other documents evidencing the TCI
Leased Property or the TCI Other Real Property Interests; and (b) there is not
in existence any Judgment requiring TCI to take any action of any kind with
respect to the TCI Assets or the operation of the TCI Systems, or to which TCI
(with respect to the TCI Systems), the TCI Systems or the TCI Assets are subject
or by which they are bound or affected.
6.12 Tax Returns; Other Reports. TCI has duly and timely filed in correct
form all federal, state, local and foreign Tax returns and other Tax reports
required to be filed by TCI, and has timely paid all Taxes which have become due
and payable, whether or not so shown on any such return or report, the failure
of which to be filed or paid could adversely affect or result in the imposition
of a Lien upon the TCI Assets or that could impose on the Company any transferee
liability for any taxes, penalties or interest due or to become due from TCI,
except such amounts as are being contested diligently and in good faith and are
not in the aggregate material. TCI has received no notice of, nor does TCI have
any Knowledge of, any deficiency, assessment or audit, or proposed deficiency,
assessment or audit from any taxing Governmental Authority which could affect or
result in the imposition of a Lien upon the TCI Assets.
6.13 Employment Matters.
(a) Schedule 6.13(a) contains a complete and correct list of the names
and positions of all employees engaged principally in TCI's Cable Business as of
the date set forth on Schedule 6.13(a). TCI has complied in all material
respects with all applicable Legal Requirements relating to the employment of
labor, including WARN, ERISA, continuation coverage requirements with respect to
group health plans and those relating to wages, hours, collective bargaining,
unemployment insurance, worker's compensation, equal employment opportunity, age
and disability discrimination, immigration control and the payment and
withholding of Taxes.
- 38 -
<PAGE>
(b) Each employee benefit plan (as defined in Section 3(3) of ERISA)
or any multi-employer plan (as defined in Section 3(37) of ERISA) with respect
to which TCI or any of its ERISA Affiliates has any liability or in which any
employees or agents, or any former employees or agents, of TCI or any of its
ERISA Affiliates participate is set forth in Schedule 6.13 (the "TCI Plans").
Neither TCI, any of its ERISA Affiliates nor any TCI Plan is in material
violation of any provision of the Code or ERISA. No "reportable event" (as
defined in Section 4043 of ERISA) has occurred and is continuing with respect to
any TCI Plan and no "prohibited transaction" (as defined in Section 406 of
ERISA) has occurred with respect to any TCI Plan which reasonably could result
in material liability to TCI or any of its ERISA Affiliates. No material
"accumulated funding deficiency" or "withdrawal liability" (as defined in
Section 302 of ERISA) exists with respect to any of the TCI Plans. After the
Closing, the Company will not be required, under ERISA, the Code or any
collective bargaining agreement, to establish, maintain or continue any Plan
currently maintained by TCI or any of its ERISA Affiliates.
(c) Except as set forth on Schedule 6.13, there are no collective
bargaining agreements applicable to any Person employed by TCI that renders
services in connection with the TCI Systems and TCI has no duty to bargain with
any labor organization with respect to any such Person. There are not pending
any unfair labor practice charges against TCI, any demand for recognition or any
other effort of or request or demand from, a labor organization for
representative status with respect to any Person employed by TCI that renders
services in connection with the TCI Systems. Except as described on Schedule
6.13, TCI has no employment Contracts, either written or oral, with any employee
of the TCI Systems and none of the employment Contracts listed on Schedule 6.13
requires TCI or will require the Company to employ any Person after the Closing.
(d) TCI is not aware of the existence of any governmental inspection,
investigation, audit or examination of any TCI Plan or of any facts which would
lead it to believe that any such governmental inspection, investigation, audit
or examination is pending or threatened. There exists no action, suit or claim
(other than routine claims for benefits) with respect to any TCI Plan pending or
to the knowledge of TCI threatened against any of such plans and TCI possesses
no knowledge of any facts which could give rise to any such action, suit or
claim. Each TCI Plan that is intended to be tax-qualified is the subject of a
favorable determination letter or IRS opinion or notification letter. At all
times prior to the Closing, each TCI Plan, to the extent such plan is intended
to be tax-qualified, satisfies all minimum coverage and minimum participation
requirements, if any, imposed on such TCI Plan by the applicable terms of the
Code and ERISA.
6.14 TCI Systems Information. Schedule 6.14 sets forth a materially true
and accurate description of the following information relating to TCI's Cable
Business as of the most recent monthly report generated by TCI in the ordinary
course of business containing the information required to prepare such Schedule
6.14 (which date is specified in Schedule 6.14) provided that such date is no
earlier than two months prior to the date of this Agreement:
(a) the approximate number of miles (both underground and aerial) of
plant included in the TCI Assets;
- 39 -
<PAGE>
(b) the number of Equivalent Basic Subscribers (including the number
that are residential and the number that are bulk-billed) served by the TCI
Systems for each TCI System service area (by franchise area or community);
(c) the approximate number of single family homes and residential
dwelling units passed by the TCI Systems;
(d) a description of basic and optional or tier services available
from the TCI Systems, the rates charged by TCI for each and the number of EBSs
receiving each optional or tier service;
(e) the stations and signals carried by the TCI Systems and the
channel position of each such signal and station and the basis for carriage of
all television broadcast signals; and
(f) the cities, towns, villages, townships, boroughs, counties, or
other communities served by the TCI Systems (with or without the requirement of
a franchise) that have been, or are required to be, registered with the FCC
pursuant to Section 76.12 of its rules, including each C.U.I.D. number.
6.15 Accounts Receivable. TCI's accounts receivable for its Cable Business
are actual and bona fide receivables representing obligations for the total
dollar amount of such receivables, as shown on the books of TCI, that resulted
from the regular course of TCI's Cable Business. Such receivables are subject to
no offset or reduction of any nature, except for a reserve for uncollectible
amounts consistent with the reserve established by TCI in TCI's Financial
Statements and those credits or reductions to such accounts made in the ordinary
course of business.
6.16 Bonds; Letters of Credit. Except as set forth on Schedule 6.16, there
are no franchise, construction, fidelity, performance, or other bonds,
guaranties in lieu of bonds or letters of credit posted by TCI in connection
with its operation or ownership of any of the TCI Systems or TCI Assets.
6.17 Finders and Brokers. TCI has not employed any financial advisor,
broker or finder or incurred any liability for any financial advisory,
brokerage, finder's or similar fee or commission in connection with the
transactions contemplated by this Agreement for which Insight or the Company
could be liable.
SECTION 7. ADDITIONAL COVENANTS
It is understood and agreed that the covenants in this Section 7 shall not
apply to Insight with respect to the Exchange Systems or the Exchange Assets
except as expressly set forth below.
7.1 Access to Premises and Records. Between the date of this Agreement and
the Closing Date each of Insight and TCI will give to the other and its
representatives full access during
- 40 -
<PAGE>
normal business hours to all the premises and books and records of its Cable
Business and to all its Assets and Systems' personnel and will furnish to the
other and its representatives all such documents, financial information and
other information regarding its Cable Business and its Assets as the other from
time to time reasonably may request; provided that no investigation by a party
will affect or limit the scope of any of the representations, warranties,
covenants and indemnities of the other party in this Agreement or in any
Transaction Document or limit the other party's liability for breach of any of
the foregoing.
7.2 Continuity and Maintenance of Operations; Certain Deliveries and
Notices. Between the date of this Agreement and the Closing, TCI with respect to
TCI's Cable Business, the TCI Systems and the TCI Assets and Insight with
respect to Insight's Cable Business, the Insight Systems and the Insight Assets:
(a) will conduct its Cable Business and operate its Systems only in
the usual, regular and ordinary course and consistent with past practices,
including continuing to make ordinary marketing, advertising and promotional
expenditures, and, to the extent consistent with such conduct and operation,
will use its commercially reasonable efforts to (i) preserve its current
business intact in all material respects, including preserving existing
relationships with franchising authorities, suppliers, customers and others
having business dealings with its Systems, and (ii) keep available the services
of its employees and agents providing services in connection with the Cable
Business;
(b) will maintain its Assets in good repair, order and condition,
ordinary wear and tear excepted; will maintain equipment and inventory for its
Systems at not less than normal historical levels consistent with past
practices; will maintain in full force and effect policies of insurance with
respect to its Cable Business consistent with past practices; and will maintain
its books, records and accounts with respect to its Assets and the operation of
its Systems in the usual, regular and ordinary manner on a basis consistent with
past practices;
(c) except with respect to Excluded Assets, will not (i) modify,
terminate, renew, suspend, abrogate or enter into any System Contract or other
instrument that would be included in such party's Assets, other than in the
ordinary course of business; provided that the other party's consent, not to be
unreasonably withheld or delayed, will be required to modify, terminate, renew,
suspend, abrogate or enter into any retransmission consent or programming
agreement, any System Franchise, any lease or document evidencing Leased
Property or any other agreement that contemplates payments to or by the
transferring party in any 12-month period exceeding $25,000 individually or
$150,000 in the aggregate and provided further that the Company consents to the
new Lebanon franchise that will become effective in September 1998 and to the
new Greenfield franchise that is pending approval before the Greenfield
franchise authority ; (ii) take or omit to take any action that would result in
the condition set forth in Section 8.1(a) with respect to TCI or Section 8.2(a)
with respect to Insight not being satisfied at any time prior to the Closing;
(iii) engage in any marketing, subscriber installation, disconnection or
collection practices other than in the ordinary course of business consistent
with its past practices; (iv) make any Cost of Service Election; (v) enter into
any agreement with or commitment to any competitive access providers with
respect to any
- 41 -
<PAGE>
System; (vi) sell, transfer or assign any portion of its Assets other than sales
in the ordinary course of business and assets sold or disposed of and replaced
by other assets of comparable utility and value or permit the creation of a
Lien, other than a Permitted Lien, on any Asset; or (vii) engage in any hiring
or employee compensation practices that are inconsistent with past practices
except for changes in such practices implemented by such party and its
Affiliates on a company-wide basis.
(d) will promptly deliver to the other true and complete copies of all
quarterly financial statements and all monthly and quarterly operating reports
with respect to the operation of the Cable Business prepared in the ordinary
course of business by or for such party at any time from the date of this
Agreement until the Closing;
(e) will give or cause to be given to the other and its counsel,
accountants and other representatives, as soon as reasonably possible but in any
event prior to the date of submission to the appropriate Governmental Authority,
copies of all FCC Forms 1200, 1205, 1210, 1215, 1220, 1225, 1235 and 1240 or any
other FCC forms required to be filed with any Governmental Authority under the
1992 Cable Act with respect to rates and prepared with respect to any of its
Systems, such forms to be reasonably satisfactory in form and substance to the
other;
(f) will duly and timely file a valid notice of renewal under Section
626 of the Cable Act with the appropriate Governmental Authority with respect to
any System Franchise that will expire within 36 months after any date between
the date of this Agreement and the Closing Date;
(g) will promptly notify the other of any fact, circumstance, event or
action by it or otherwise (i) which if known at the date of this Agreement would
have been required to be disclosed by it in or pursuant to this Agreement or
(ii) the existence, occurrence or taking of which would result in the condition
set forth in Section 8.1(a) with respect to TCI or Section 8.2(a) with respect
to Insight not being satisfied at any time prior to the Closing, and, with
respect to clause (ii), will use its commercially reasonable efforts to remedy
the same, subject to Section 12.16; and
(h) will consult the other prior to decreasing or increasing the rate
charged for any level of Basic Services, Expanded Basic Services or Pay TV and
prior to adding, deleting, retiering or repackaging any programming services;
provided that the other's consent is not required for any such action and
provided that TCI does not need to consult Insight with respect to its scheduled
June 1998 rate increases.
7.3 Employees.
(a) The Company may, but shall have no obligation to employ or offer
employment to any employee of TCI's Cable Business or Insight's Cable Business.
Not more than 60 days after the date of this Agreement, TCI shall provide to
Insight on behalf of the Company a list of all active employees of TCI's Systems
as of a recent date, showing then-current positions and rates of compensation
and indicating which of such employees TCI desires to retain as its employees
- 42 -
<PAGE>
(the "Retained Employees"). Within 30 days after receipt of this list, Insight
on behalf of the Company will provide to TCI in writing a list of employees of
TCI that the Company may desire to employ following the Closing (subject to the
satisfaction of the Company's conditions for employment), which list shall not
include any Retained Employees and will provide to TCI in writing a list of
employees of Insight that the Company desires to employ following Closing. At
Closing, TCI shall terminate the employment of all its employees who were
employed incidental to the conduct of its Cable Business other than Retained
Employees and any other employees not hired by the Company that TCI determines
to retain.
(b) Each of TCI and Insight will pay to all employees of its Cable
Business all compensation, including salaries, commissions, bonuses, deferred
compensation, severance, insurance, vacation (except for accrued vacation
included in the adjustments calculated pursuant to Section 3.2(c) to be carried
over pursuant to Section 7.3(g)), sick pay and other compensation or benefits to
which they are entitled for periods through and including the Closing Time in
accordance with the terms and conditions of any arrangement providing for such
compensation or benefits, including, without limitation, all amounts, if any,
payable on account of the termination of their employment. TCI agrees to
cooperate in all reasonable respects with Insight to allow Insight on behalf of
the Company to evaluate and interview employees of TCI's Cable Business in order
to make hiring decisions. Such cooperation shall include but not be limited to
allowing Insight to contact employees during normal business hours and making
personnel records available.
(c) Each of TCI and Insight will be responsible for the maintenance
and distribution of benefits accrued under any employee benefit plan (as defined
in ERISA) maintained by such party pursuant to the provisions of any Legal
Requirement and of such plans. The Company will not assume any obligation or
liability for any such accrued benefits or any fiduciary or administrative
responsibility to account for or dispose of any such accrued benefits under any
employee benefit plans maintained by TCI or Insight.
(d) All claims and obligations under, pursuant to or in connection
with any welfare, medical, insurance, disability or other employee benefit plans
of either TCI or Insight or arising under any Legal Requirement affecting
employees of such party incurred through and including the Closing Date or
resulting from or arising from events or occurrences occurring or commencing
through and including the Closing Date will remain the responsibility of such
party, whether or not such employees are hired by the Company after the Closing.
The Company will not have or assume any obligation or liability under or in
connection with any such plan maintained by TCI or Insight.
(e) Each of TCI and Insight will remain solely responsible for, and
will indemnify and hold harmless the other and the Company from and against all
Losses arising from or with respect to, all salaries and all severance, vacation
(except for accrued vacation included in the adjustments calculated pursuant to
Section 3.2(c)), medical, sick, holiday, continuation coverage and other
compensation or benefits to which its employees may be entitled, whether or not
such employees may be hired by the Company, as a result of their employment by
it through and
- 43 -
<PAGE>
including the Closing Time, the termination of their employment at the Closing
Time, the obligation, if any, to notify and/or bargain with any labor
organization, the consummation of the transactions contemplated hereby or
pursuant to any applicable Legal Requirement (including without limitation WARN)
or otherwise relating to their employment through and including the Closing
Time.
(f) Each of TCI and Insight will retain full responsibility and
liability for offering and providing "continuation coverage" of any "qualified
beneficiary" who is covered by a "group health plan" sponsored or contributed to
by such party and who has experienced a "qualifying event" or is receiving
"continuation coverage" through and including the Closing Date. "Continuation
coverage," "qualified beneficiary," "group health plan," and "qualifying event"
shall have the meanings given such terms under Code Section 4980B.
(g) Notwithstanding anything to the contrary herein, the Company shall
(i) credit each employee of TCI (including employees of the Exchange Systems) or
Insight who becomes an employee of Company at the Closing Time (a "Hired
Employee"), the lesser of the amount of vacation accrued by him or her as an
employee of TCI or Insight through and including the Closing Time or the amount
of accrued vacation permitted to be accrued by similarly situated employees of
the Company or Insight in accordance with the Company's or Insight's standard
practices; (ii) permit each Hired Employee and their dependents to participate
in the Company's employee benefit plans to the same extent as similarly situated
employees of the Company or Insight and their dependents; (iii) give each Hired
Employee credit for his or her past service with TCI or Insight at the Closing
Time (including past service with any prior owner or operator of such party to
the extent such Hired Employee previously received credit for such service) for
purposes of eligibility and vesting under the Company's employee benefit and
other plans to the same extent as other similarly situated employees of the
Company or Insight; (iv) not subject any Hired Employee to any waiting periods
or limitations on benefits for pre-existing conditions under the Company's
employee benefit plans, including any group health and disability plans, except
to the extent such employees were subject to such limitations under TCI's or
Insight's employee benefit plans; and (v) give credit under the Company's group
health plans for any deductible previously met by a Hired Employee under TCI's
or Insight's group health plan.
(h) If the Company discharges without cause within 90 days after the
Closing any Hired Employee and such Hired Employee would have been entitled to
severance payments pursuant TCI's or Insight's severance benefits plan if such
Hired Employee had been discharged without cause at Closing by TCI or Insight as
of the Closing Time, then the Company shall pay severance benefits to such Hired
Employee in accordance with TCI's or Insight's severance benefit plan to the
extent such plan would have paid severance to such Hired Employee.
(i) Nothing in this Section 7.3 or elsewhere in this Agreement shall
be deemed to make any employee of the parties a third party beneficiary of this
Agreement.
- 44 -
<PAGE>
7.4 Leased Vehicles; Other Capital Leases. Each of TCI and Insight will pay
the remaining balances on any leases for vehicles included in its Tangible
Personal Property and will deliver valid and good title to such vehicles free
and clear of all Liens (other than Permitted Liens) to the Company at the
Closing.
7.5 Required Consents, Estoppel Certificates, Franchise Renewal.
(a) Each of TCI and Insight will use its commercially reasonable
efforts to obtain in writing as promptly as possible and at its expense, all of
its Required Consents, in form and substance reasonably satisfactory to the
other, and will deliver to the other copies of such Required Consents promptly
after they are obtained by such party; provided however that each of TCI and
Insight will afford the other the opportunity to review, approve and revise the
form of Required Consent prior to delivery to the party whose consent is sought.
Each of TCI and Insight will cooperate with the other in its efforts to obtain
its Required Consents, but neither the other party nor the Company will be
required to accept or agree or accede to any condition to transfer of any Asset,
or any modifications or amendments to any of the System Franchises, System
Licenses, System Contracts or leases or documents evidencing Leased Property or
Other Real Property Interests that in either case would make, or are reasonably
likely to make, the underlying instrument materially more onerous in any respect
or that would materially reduce, or are reasonably likely to materially reduce,
the benefits available under the instrument in respect of which the consent
relates. TCI shall make the decision as to whether the foregoing standard is met
with respect to the Insight Required Consents and Insight shall make such
decision with respect to the TCI Required Consents. As soon as practicable after
the date of this Agreement, but in any event no later than 45 days after the
date of this Agreement, Insight and TCI will cooperate with each other to
complete, execute and deliver, or cause to be completed, executed and delivered
to the appropriate Governmental Authority, a request for such Governmental
Authority's consent to transfer each System Franchise as to which such consent
is required.
(b) Each of TCI and Insight will use its commercially reasonable
efforts to obtain a certificate executed by the lessor of each parcel of its
Leased Property substantially in the form of Exhibit 7.5(b), the substance of
which may be included as part of the consent obtained pursuant to Section 7.5(a)
(an "Estoppel Certificate").
(c) Each of TCI and Insight will use commercially reasonable efforts
to obtain and cooperate with the other to obtain renewals or extensions of any
System Franchise for which a valid notice of renewal pursuant to the formal
renewal procedures established by Section 626 of the Cable Act has not been
timely delivered to the appropriate Governmental Authority for a period expiring
no earlier than three years after the date of this Agreement.
(d) Each of TCI and Insight will use commercially reasonable efforts
to obtain and cooperate with the other to obtain renewals or extensions for a
period expiring no earlier than two years after the date of this Agreement of
any System Franchise which is expired or has a term of less than one year
remaining as of the date of this Agreement.
- 45 -
<PAGE>
(e) Each of TCI and Insight will cooperate with the other in its
efforts to obtain renewals or extensions of any System Franchises pursuant to
Section 7.5(c) or (d), but the Company will not be required to accept or agree
or accede to any renewal or extended System Franchise that contains terms that
would make, or are reasonably likely to make, the System Franchise that is being
renewed or extended materially more onerous in any respect or that would
materially reduce, or are reasonably likely to materially reduce, the benefits
available under the System Franchise that is being renewed or extended. TCI
shall make the decision as to whether the foregoing standard is met with respect
to the Insight System Franchises and Insight shall make such decision with
respect to the TCI System Franchises.
(f) Notwithstanding Section 7.5(a), neither TCI nor Insight will have
any further obligation to obtain Required Consents: (i) with respect to license
agreements relating to pole attachments where the licensing party will not,
after the assigning party's exercise of commercially reasonable efforts, consent
to an assignment of such license agreement but requires that the Company enter
into a new agreement with such licensing authority, in which case the Company
shall use its commercially reasonable efforts to enter into such agreement prior
to the Closing or as soon as practicable thereafter and the party to the license
agreement will cooperate with and assist the Company in obtaining such
agreements; provided however that the Company's commercially reasonable efforts
shall not require it to take any action of the type that such party is not
required to take pursuant to this Section 7.5; and (ii) for any business radio
license which such party reasonably expects can be obtained within 120 days
after the Closing and so long as a temporary authorization is available to the
Company under FCC rules with respect thereto.
7.6 Title Commitments and Surveys. Insight and TCI each will provide to the
other, within 60 days after the date of this Agreement, (a) current commitments
to issue title insurance policies on the 1992 ALTA owner's form (or its local
equivalent in any state in which ALTA policies are not available) ("Title
Commitments") by an agent writing for Old Republic Insurance Company, Chicago
Title Insurance Company or another nationally-recognized title insurance company
(the "Title Company") and containing policy limits and other terms reasonably
acceptable to the other, and, legible photocopies of all recorded items
described as exceptions therein, committing to insure fee simple title in the
Company to each parcel of the Owned Property and easements that provide access
to such Owned Real Property included in its Assets, subject only to Permitted
Liens, and (b) surveys of each parcel of Owned Property in such form as is
necessary to obtain the title insurance to be issued pursuant to the Title
Commitments with the standard printed exceptions relating to survey matters
deleted (the "Surveys"), certified to the Company and to the Title Company
issuing a Title Commitment. The cost to obtain such Title Commitments and
Surveys and other documents required by the Title Company to issue such policies
and Surveys shall be paid by the Company; provided however that each of Insight
and TCI shall pay for the cost to delete or insure over any Title Defects
relating to its Owned Property. If Insight or TCI notifies the other within 30
days following its receipt of both the Title Commitments and the Surveys of any
Lien (other than a Permitted Lien or a Lien set forth in Schedules 5.4 or 6.4,
as applicable) or other matter affecting title to Owned Property of the other
which prevents access to or which could prevent or impede in any way the use or
operation of any parcel of Owned Property for the purposes for which
- 46 -
<PAGE>
it is currently used or operated by the other (each a "Title Defect"), the other
will exercise commercially reasonable efforts to (i) remove such Title Defect,
or (ii) with the consent of the objecting party, cause the Title Company to
commit to insure over each such Title Defect prior to the Closing. If such Title
Defect cannot be removed prior to Closing or the Title Company does not commit
to insure over such Title Defect prior to Closing and if the objecting party
elects to waive such Title Defect and proceed towards consummation of the
transaction in accordance with this Agreement in its reasonable discretion, the
Company and the party that owns such property shall enter into a written
agreement at Closing containing the commitment of the party that owns such
property to use commercially reasonable efforts to remedy the Title Defect
following Closing on terms satisfactory to the Company, in its reasonable
discretion. Any decisions to be made by the Company pursuant to this Section
shall be made by TCI with respect to Insight Owned Property and by Insight with
respect to TCI Owned Property. Insight agrees that the Title Commitments and
Surveys to be delivered by TCI pursuant to the Exchange Agreement with respect
to owned real property included in the Exchange Assets shall be issued in the
name of the Company and shall be paid for by the Company, notwithstanding any
contrary provision in the Exchange Agreement; provided, that TCI shall pay for
the cost to delete or insure over any Title Defects relating to such owned real
property.
7.7 HSR Notification. As soon as practicable but in any event no later than
60 days after the date of this Agreement, Insight and TCI will each complete and
file, or cause to be completed and filed, any notification and report required
to be filed under the HSR Act and each such filing shall request early
termination of the waiting period imposed by the HSR Act. Insight and TCI shall
use their commercially reasonable efforts to respond as promptly as reasonably
practicable to any inquiries received from the Federal Trade Commission (the
"FTC") and the Antitrust Division of the Department of Justice (the "Antitrust
Division") for additional information or documentation and to respond as
promptly as reasonably practicable to all inquiries and requests received from
any other Governmental Authority in connection with antitrust matters. Insight
and TCI shall use their respective commercially reasonable efforts to overcome
any objections which may be raised by the FTC, the Antitrust Division or any
other Governmental Authority having jurisdiction over antitrust matters.
Notwithstanding the foregoing, neither Insight nor TCI shall be required to make
any significant change in the operations or activities of the business (or any
material assets employed therein) of such party or any of its Affiliates, if a
party determines in good faith that such change would be materially adverse to
the operations or activities of the business (or any material assets employed
therein) of such party or any of its Affiliates having significant assets, net
worth or revenue. Each of Insight and TCI will coordinate with the other party
with respect to its filings and will cooperate to prevent inconsistencies
between their respective filings and will furnish to each other such necessary
information and reasonable assistance as the other may reasonably request in
connection with its preparation of necessary filings or submissions under the
HSR Act. Notwithstanding anything to the contrary in this Agreement if either
Insight or TCI determines in its reasonable business judgment that a request for
additional data and information in connection with the HSR Act is unduly
burdensome, it may terminate this Agreement by notifying the other party within
30 days following the unduly burdensome request.
- 47 -
<PAGE>
7.8 Taxes, Fees and Expenses. All sales, use or excise Taxes arising from
or payable by reason of the transfer to the Company of any of the TCI Assets,
the Insight Assets or the Exchange Assets will be paid by the Company. All
transfer and similar Taxes or assessments, including transfer and recording fees
and similar assessments for or under System Franchises, System Licenses and
System Contracts, arising from or payable by reason of the conveyance of the TCI
Assets, the Insight Assets and the Exchange Assets will be paid by TCI with
respect to the TCI Assets and by Insight with respect to the Insight Assets and
the Exchange Assets (to the extent related to the transfer from Insight to the
Company); provided, that to the extent any such transfer or similar Taxes or
assessments are paid or payable only once with respect to the two transfers from
TCI to Insight and then from Insight to the Company, such amounts shall be
shared equally by TCI and Insight.
7.9 Distant Broadcast Signals. Unless otherwise restricted or prohibited by
any Governmental Authority or applicable Legal Requirement, if requested by the
Company, the transferor of a System will delete prior to the Closing Date any
distant broadcast signals which the Company determines will result in
unacceptable liability on the part of the Company for copyright payments with
respect to continued carriage of such signals after the Closing. TCI shall make
the foregoing request and determination on behalf of the Company with respect to
the Insight Systems and Insight shall make such request and determination on
behalf of the Company with respect to the TCI Systems.
7.10 Programming. The Company will execute and deliver such documents as
may be reasonably requested by Insight or TCI to comply with the requirements of
their respective programming Contracts and channel line-up requirements with
respect to acquisitions and divestitures of cable television systems. The
Company will not be required to make any payments to TCI's or Insight's
programmers in the fulfillment of its obligations under this Section 7.10.
7.11 Schedules.
(a) TCI and Insight acknowledge that this Agreement was signed and
delivered without Schedules attached hereto and that they have not reached final
agreement on, among other things, which of their agreements will be Excluded
Assets. TCI and Insight agree to negotiate in good faith to reach agreement on
the Schedules to this Agreement on or before June 1, 1998 and in connection
therewith to supply to the other party such information and copies of agreements
as the other party may reasonably request in connection with its review of such
Schedules. Neither party may refuse to accept the other party's Schedules based
upon any exception to the other party's representations and warranties that was
previously disclosed to such party or based upon any exception to the other
party's representations and warranties that was not previously disclosed to such
party but that would not have a material adverse effect on the Assets, Systems
or Cable Business to be transferred to such party. If TCI and Insight do not
reach agreement on the Schedules to this Agreement on or before June 1, 1998,
either TCI or Insight may terminate this Agreement upon written notice to the
other party given at any time after June 1, 1998 but prior to such agreement
being reached. Once TCI and Insight reach agreement on the Schedules to this
- 48 -
<PAGE>
Agreement, the Schedules will be deemed to have been part of this Agreement
effective as of the date hereof.
(b) Not less than ten Business Days prior to Closing, each of TCI and
Insight will deliver to the other revised copies of each of its Schedules
included in this Agreement, except for Schedules 5.14 and 6.14 or Schedules
5.13(a) and 6.13(a), in each case updated and marked to show any changes
occurring between the date of this Agreement and the date of delivery (it being
agreed that a complete set of Schedules shall be delivered pursuant to this
Section 7.11, not just individual Schedules that have been changed); provided
however that for purposes of such party's representations and warranties and
covenants in this Agreement, all references to the Schedules will mean the
version of the Schedules attached to this Agreement on the date of signing, and
provided further that if the effect of any such updates to Schedules is to
disclose any one or more additional properties, privileges, rights, interests or
claims acquired or arising after the date of this Agreement as Assets of Insight
or TCI, the other party will have the right (to be exercised by written notice
to the party that owns such assets at or before Closing) to cause any one or
more of such items to be designated as and deemed to constitute Excluded Assets
for all purposes under this Agreement unless such items are Contracts that were
not required to be scheduled or that were entered into after the date of this
Agreement in accordance with the terms of this Agreement. Without changing the
result set forth in the preceding sentence that a party's updated Schedules do
not serve to update such party's representations and warranties, the updated
Schedules delivered pursuant to this Section shall be accompanied by an
officer's certificate of the party delivering such Schedules, certifying that
the information set forth in such Schedules is true and accurate in all material
respects as of the date of delivery thereof and that all information required to
be given in the Schedules "as of the date of this Agreement" has been updated to
the date of delivery of the updated Schedules or other date permitted to be
specified in such Schedules.
7.12 Use of Names and Logos. For a period of 90 days after the Closing, the
Company will be entitled to use the trademarks, trade names, service marks,
service names, logos and similar proprietary rights of TCI and Insight to the
extent incorporated in or on the Assets transferred to it at the Closing,
provided that the Company will exercise reasonable efforts to remove all such
names, marks, logos and similar proprietary rights of Insight and TCI from the
Assets by such earlier date as reasonably practicable following the Closing.
Notwithstanding the foregoing, the Company will not be required to remove or
discontinue using any such name or mark that is affixed to converters or other
items in or to be used in customer homes or properties, or as are used in
similar fashion making such removal or discontinuation impracticable for the
Company.
7.13 Transitional Billing Services. Insight and TCI will each provide to
the Company, access to and the right to use its billing system computers,
software and related fixed assets in connection with its Systems for a period of
up to 180 days following the Closing to allow for conversion of existing billing
arrangements ("Transitional Billing Services"). All Transitional Billing
Services that are requested by the Company will be provided on terms and
conditions reasonably satisfactory to each party; provided however that the
amount to be paid by the Company will not exceed the cost to the party providing
such Transitional Billing Services. Each of TCI and
- 49 -
<PAGE>
Insight will notify the Company at least 45 days prior to the Closing of the
cost to such party of providing such Transitional Billing Services.
7.14 Confidentiality and Publicity.
(a) Each of Insight and TCI will use commercially reasonable efforts
to assure that any non-public information that such party may obtain from the
other in connection with this Agreement with respect to the other's Cable
Business and Systems (it being understood and agreed that all proprietary
information of the transferring party that is included among the Assets of such
transferring party shall become the proprietary information of the Company at
Closing) will be kept confidential and, such party will not disclose, and will
cause its employees, consultants, advisors and agents not to disclose, any such
information to any other Person (other than its directors, officers and
employees and representatives of its advisers and lenders whose knowledge
thereof is necessary in order to facilitate the consummation of the transactions
contemplated hereby) or use, and will cause its employees, consultants, advisors
and agents not to use, such information to the detriment of the other; provided
that (i) such party may use and disclose any such information once it has been
publicly disclosed (other than by such party in breach of its obligations under
this Section) or which rightfully has come into the possession of such party
(other than from the other party) and (ii) to the extent that such party may, in
the reasonable opinion of its counsel, be compelled by Legal Requirements to
disclose any of such information, such party may disclose such information if it
will have used all reasonable efforts, and will have afforded the other the
opportunity, to obtain an appropriate protective order or other satisfactory
assurance of confidential treatment, for the information compelled to be
disclosed. The obligation of Insight and TCI to hold information in confidence
pursuant to this Section will be satisfied if such party exercises the same care
with respect to such information as it would exercise to preserve the
confidentiality of its own similar information. In the event of termination of
this Agreement, each of Insight and TCI will use all reasonable efforts to cause
to be delivered to the other, and retain no copies of, any documents, work
papers and other materials obtained by such party or on its behalf from the
other, whether so obtained before or after the execution hereof.
(b) Neither party will issue (or cause the Company to issue) any press
release or make any other public announcement or any oral or written statement
to its or the other party's employees concerning this Agreement and the
transactions contemplated hereby, except as required by applicable Legal
Requirements, without the prior written consent and approval of the other, which
consent and approval may not be unreasonably withheld.
7.15 Bulk Transfers. The Company waives compliance by TCI and Insight with
Legal Requirements relating to bulk transfers applicable to the transactions
contemplated hereby.
7.16 Lien Searches. Within 45 days after the execution of this Agreement,
each of TCI and Insight will obtain at its expense and deliver to the other, the
results of a lien search conducted by a professional search company of records
in the offices of the secretaries of state in each state and county clerks in
each county where there exists any of its Owned Property or Tangible Personal
- 50 -
<PAGE>
Property, and in the state and county where such party's principal offices are
located, including copies of all financing statements or similar notices or
filings (and any continuation statements) discovered by such search company.
Each of TCI and Insight will update its lien search and deliver the results
thereof to the other at least 10 Business Days prior to the date scheduled for
Closing.
7.17 Further Assurances. At and after the Closing, each of the parties will
promptly execute and deliver, or cause to be executed and delivered, to the
other parties all such documents and instruments, in addition to those otherwise
required by this Agreement, in form and substance reasonably satisfactory to the
other parties as they may reasonably request in order to carry out or evidence
the terms of this Agreement or to collect on behalf of the Company any accounts
receivable or other claims included in the Insight Assets or the TCI Assets.
7.18 Consents. If and to the extent Insight or TCI shall have waived
satisfaction of the condition to Closing set forth in Section 8.1(e) or Section
8.2(e), respectively, subsequent to the Closing, subject to Section 7.24, each
of TCI with respect to the TCI Systems and the TCI Assets and Insight with
respect to the Insight Systems and the Insight Assets will continue to use
commercially reasonable efforts to obtain in writing as promptly as possible any
Required Consent which was not obtained on or before the Closing and will
deliver copies of the same, reasonably satisfactory in form and substance, to
the other. The obligations set forth in this Section will survive the Closing
and will not be merged in the consummation of the transactions contemplated
hereby.
7.19 Cooperation as to Rates and Fees.
(a) Each of TCI and Insight shall diligently pursue any current rate
proceedings and shall make available to the other upon request copies of any
documents, correspondence or notices sent by or received by TCI or Insight in
connection with the current rate proceedings or any rate regulatory matter with
respect to its Systems instituted after the date of this Agreement.
(b) Prior to Closing, without the prior consent of the other, neither
TCI nor Insight shall settle any rate proceeding with respect to its Systems if
such settlement would (i) impose upon the Company any liability, or (ii)
adversely affect the rates to be charged by the Company during the post-Closing
time period unless such party compensates the Company therefor in the manner
agreed by the parties, or if the parties do not agree, as determined by an
independent auditor in accordance with the procedures established in Section
3.3(b), it being agreed, without in any way affecting TCI's indemnification
obligations, that neither Insight's nor the Company's consent is required to
settle the Pending TCI Rate Order in accordance with its current terms. TCI will
notify Insight of any material changes to the Pending TCI Rate Order after the
date of this Agreement.
(c) After Closing and except with respect to the Pending TCI Rate
Order, notwithstanding the terms of Section 11.4 hereof, the Company shall have
the right at its own expense to assume control of the defense of any rate
proceeding with respect to any System transferred to it at Closing that remains
pending as of Closing or that arises after Closing but relates to the
pre-Closing operation of a System. The Company shall promptly notify the
transferor of the
- 51 -
<PAGE>
System of the commencement of any such rate proceeding relating to the pre-
Closing operation of such System. In any such rate proceeding involving a
System, the transferor of such System shall cooperate in such proceeding and
promptly deliver to the Company all information reasonably requested by the
Company as necessary or helpful in such proceeding.
(i) If the Company elects to assume control of the defense of any
such rate proceeding, then (1) the transferor of the affected System shall have
the right to participate, at its expense, in the defense in such rate
proceeding, and (2) the Company shall have the right to settle any rate
proceeding relating to the pre-Closing operation of a System unless under such
settlement the transferor would be required to bear liability with respect to
the pre-Closing time period, in which event such settlement shall require the
transferor's prior written consent, which consent shall not be unreasonably
withheld.
(ii) If the Company does not elect to assume control of the
defense of any such rate proceeding, then (1) the Company shall have the right
to participate, at its expense, in the defense in such rate proceeding, and (2)
without the prior consent of the Company, the transferor shall not settle such
rate proceeding if such settlement would require the Company to bear any
liability or would adversely affect the rates to be charged by the Company
unless the transferor compensates the Company therefor in the manner agreed by
Insight and TCI, or if the parties do not so agree, as determined by an
independent auditor in accordance with the procedures established in Section
3.3(b).
(d) If either TCI or Insight is required following Closing pursuant to
any Legal Requirement, settlement or otherwise to reimburse to any subscribers
of such party's Systems any subscriber payments previously made by them,
including fees for cable television service, late fees and similar payments, the
Company agrees that it will make such reimbursement through its billing system
on terms specified by TCI or Insight, as applicable, and TCI or Insight, as
applicable, will pay the Company for all such payments made by the Company
following Closing and for the Company's reasonable out-of-pocket expenses
incurred in connection therewith. Without limiting the foregoing, the parties
will provide each other with all information in their possession that is
reasonably required in order to fulfill the terms of this Section 7.19(d).
7.20 Satisfaction of Conditions. Each of Insight and TCI will use its
commercially reasonable efforts to satisfy, or to cause to be satisfied, the
conditions to the obligations of the other party to consummate the transactions
contemplated by this Agreement, as set forth in Section 8, with "commercially
reasonable efforts" being determined with respect to any particular matter as
set forth elsewhere in this Agreement. Without limiting the foregoing, Insight
agrees to use its commercially reasonable efforts to obtain prior to Closing at
the Company's expense and obligation, any retransmission consents that the
Company will need from and after Closing and TCI agrees to cooperate with
Insight in its efforts to obtain the same.
7.21 Offers. Neither TCI nor Insight will offer its Assets or Cable
Business for sale, entertain offers for such Assets or Cable Business or
otherwise negotiate for the sale of such Assets
- 52 -
<PAGE>
or Cable Business or make information about such Assets or Cable Business
available to any third party in connection with the possible sale of such Assets
or Cable Business prior to the Closing Date or the date this Agreement is
terminated in accordance with its terms.
7.22 Environmental Reports. TCI may obtain at its expense, such
environmental assessments and reports with respect to the Insight real property
as it may determine and Insight may obtain at its expense, such environmental
assessments and reports with respect to the TCI real property as it may
determine. Upon request, each of TCI and Insight shall give the other and all
environmental engineers and consultants acting on the other's behalf such access
during normal business hours to the sites and facilities relating to the other's
Systems as is reasonably required to permit such engineers and consultants to
conduct the physical on-site inspections and prepare the environmental surveys
and assessments with respect to such sites and facilities as the requesting
party shall reasonably request. If TCI's or Insight's environmental
investigation reveals a matter that would be a material breach of the other's
representations given with respect to environmental matters, without taking into
account the Knowledge limitations in such representations, the party that
commissioned the environmental investigation shall have the right to terminate
this Agreement, by written notice given to the other party not later than 120
days after the date of this Agreement unless the other party agrees to, and by
Closing does, make satisfactory arrangements, as reasonably determined by the
party that commissioned the investigation, to either fix the problem or
indemnify the party that commissioned the environmental investigation.
7.23 Company Financing. The parties agree that at the Closing, the Company
shall assume from TCI or its Affiliates, debt in the amount of $217,500,000 (the
"TCI Permitted Debt") and from Insight or its Affiliates, debt in the amount of
$234,500,000 (the "Insight Permitted Debt"). Insight shall use commercially
reasonable efforts to secure such financing for the Company as shall be
necessary for it to refinance the TCI Permitted Debt and the Insight Permitted
Debt. Such financing shall be obtained by the Company on such terms as Insight
shall deem commercially reasonable, so long as such financing shall be at market
rates and not be obtained on terms that result in an Operating Cash Flow Ratio
(as defined in the LLC Agreement) of greater than 7.0 to 1. TCI shall cause any
Liens securing the TCI Permitted Debt and Insight shall cause any Liens securing
the Insight Permitted Debt to be released in connection with the refinancing of
such debt. Insight will consult with TCI regarding Insight's efforts to secure
such financing and TCI will cooperate with Insight in its efforts to secure such
financing. The amounts of the TCI Permitted Debt and the Insight Permitted Debt
are subject to adjustment pursuant to Section 3.2.
7.24 Franchise Consents. If by the date that is 210 days after the date of
this Agreement (i) the aggregate number of TCI EBSs located in areas that are
served without a franchise or that are served pursuant to TCI System Franchises
that either do not require consent or as to which Required Consents have been
obtained is at least 95% of the number of EBSs for all TCI Systems (it being
agreed that 95% for this purpose is 153,288 EBSs); (ii) the aggregate number of
Insight EBSs (including EBSs that relate to the Exchange Systems) located in
areas that are served without a franchise or that are served pursuant to Insight
System Franchises (or system franchises that relate to the Exchange Systems
("Exchange Franchises")) that either do not require consent or as to which
- 53 -
<PAGE>
all required consents have been obtained is at least 95% of the number of EBSs
for all Insight Systems and Exchange Systems (it being agreed that 95% for this
purpose is 150,742 EBSs); (iii) all conditions precedent to the obligations of
the parties have been satisfied or waived by the applicable parties (other than
any condition that all Required Consents for System Franchises or Exchange
Franchises have been obtained and any conditions precedent that are to be
satisfied at Closing by delivery of documents), and (iv) the System Franchises
or Exchange Franchises for which consents have not then been obtained do not,
and applicable Legal Requirements do not, in the reasonable judgment of the
party transferring such System Franchises or Exchange Franchises (the
transferring party being TCI for this purpose), prohibit the actions
contemplated by this Section 7.24, then the following shall occur:
(a) Closing shall occur with respect to, and Insight and TCI shall
transfer, convey and assign to the Company (the "Primary Transfer") all of the
TCI Assets and all of the Insight Assets and Exchange Assets other than any
System Franchises or Exchange Franchises for which Required Consents have not
been obtained (such excepted System Franchises, including any Assets that are
located in the franchise area for such franchises or that relate exclusively to
such franchises, are referred to herein as the "Retained Franchises"; provided,
that any excepted Exchange Franchises, including any Assets that are located in
the franchise area for such franchises or that relate exclusively to such
franchises, are referred to herein as the "Exchange Retained Franchises" and not
as "Retained Franchises").
(b) Following the Closing of the Primary Transfer, the parties shall
continue to use commercially reasonable efforts to obtain Required Consents for
any Retained Franchises in accordance with the terms of this Agreement and to
obtain Required Consents for any Exchange Retained Franchises in accordance with
the terms of the Exchange Agreement. Within 10 Business Days of obtaining a
Required Consent for a Retained Franchise or Exchange Retained Franchise, the
owner of such System Franchise shall transfer, convey and assign such System
Franchise to the Company (a "Subsequent Transfer"), free and clear of all Liens
other than Permitted Liens (or in the case of a transfer of an Exchange Retained
Franchise from Insight to the Company, subject only to Liens that existed as of
the Closing Date of the Primary Transfer under the Exchange Agreement). The
conditions to closing shall not apply to any Subsequent Transfer of a Retained
Franchise or an Exchange Retained Franchise other than the delivery of
appropriate transfer documents and other than any closing conditions for the
Exchange Retained Franchises that are specified in the management agreements
related thereto that are entered into pursuant to the Exchange Agreement.
(c) Insight and TCI shall negotiate in good faith to reach agreement
at the Closing on a management agreement pursuant to which the Company will
manage all Retained Franchises, which management agreement shall also contain
any required signal sharing arrangements (the "Retained Franchise Management
Agreement"). The Retained Franchise Management Agreement shall provide that the
Company will bear all expenses relating to the Retained Franchises and the
operation thereof (including any expenses related to defending any challenges
raised with respect to a Retained Franchise or the transactions described in
this Section as applied to such Retained Franchise) and will receive the net
cash flow from the Retained Franchises as its management fee.
- 55 -
<PAGE>
The Retained Franchise Management Agreement shall provide that its term will
continue with respect to each Retained Franchise until there is a Subsequent
Transfer of such Retained Franchise, or such Retained Franchise is revoked as a
result of the transactions described in this Section or a court orders the
termination of the Retained Franchise Management Agreement with respect to such
Retained Franchise. If the Retained Franchise Management Agreement is terminated
with respect to a Retained Franchise prior to its Subsequent Transfer, then (i)
if such termination is due to the revocation of the Retained Franchise, the
Company shall use reasonable commercial efforts to obtain a replacement
franchise, or (ii) if such termination is due to a court ordering the
termination of the Retained Franchise Management Agreement with respect to such
Retained Franchise, the Company TCI and Insight shall negotiate in good faith to
reach some other structure that will allow the Company to continue to receive
the benefits of the Retained Franchise. If the Company is unable to obtain a
replacement franchise or the parties are unable to negotiate a structure that
will allow the Company to continue to receive the benefits of the Retained
Franchise, TCI and Insight will negotiate in good faith the amount of the cash
contribution that TCI or Insight (or both) is required to make to the Company to
maintain the membership interests of TCI and Insight at 50% each, based upon the
circumstances of the termination and the value of the Retained Franchise at the
time of loss.
(d) All references in this Agreement to the Closing and the Closing
Date will mean the Closing and Closing Date of the Primary Transfer and the
contribution value determination to be made pursuant to the LLC Agreement and
Section 3.1 hereof and Closing Adjustments pursuant to Section 3 will be made as
of the Closing Date for the Retained Franchises as if they were transferred on
the Closing Date. In addition, the Company will become liable for the Assumed
Obligations and Liabilities with respect to the Retained Franchises as of the
Closing Date rather than the Subsequent Transfer date. All representations and
warranties (except as to those Required Consents that have not been obtained)
made in connection with the Retained Franchises will be made as of the Closing
Date rather than the Subsequent Transfer date.
(e) With respect to each Exchange Retained Franchise, Insight will
contribute to the Company until the Subsequent Transfer date for such Exchange
Retained Franchise, Insight's after-tax net cash flow taking into account all
expenses and expenditures, including capital expenditures from the Insight
Matching Franchise (as defined in the Exchange Agreement) for such Exchange
Retained Franchise pursuant to an agreement that will define such net cash flow,
and the times at which it must be contributed, that the parties will negotiate
in good faith to enter into at Closing. If the Subsequent Transfer date for an
Exchange Retained Franchise does not occur by the second anniversary of the
Closing Date, Insight shall contribute to the Company the proceeds from its sale
of the Insight Matching Franchise for such Exchange Retained Franchise to TCI
pursuant to the Exchange Agreement, after deducting its actual taxes payable in
respect of such sale, its reasonable expenses incurred in connection with such
sale and the actual income taxes payable by Insight's ultimate equity owners (as
estimated by Insight in good faith); provided that if the Insight Matching
Franchise cannot be sold to TCI because consent for the transfer thereof to TCI
was not obtained, then Insight and TCI shall negotiate in good faith the cash
contribution that Insight is required to make to the Company to maintain the
membership interests of TCI and Insight at 50% each, based upon the
circumstances of the termination and the value of the Exchange Retained
- 55 -
<PAGE>
Franchise. Neither Insight nor TCI shall receive any capital account credit with
respect to any transfer by it of property or cash pursuant to this Section 7.24
following Closing.
(f) If the provisions of this Section 7.24 become operative, the
parties agree to use commercially reasonable efforts and act in good faith in
taking such actions and negotiating such additional provisions or other
agreements, including amendments to this Agreement, as may be necessary or
appropriate to carry out the intent of this Section 7.24, including without
limitation, keeping franchise transfers effective.
7.25 Management Incentive Plan and Five-Year Operating Plan. Prior to
Closing, Insight will propose to TCI a management incentive plan for the Company
(an "Incentive Plan"), which plan will not provide for any management incentives
to be available to senior Insight executives and a five-year operating plan of
the Company (the "Operating Plan"). TCI will have the right to consent to the
Incentive Plan and the Operating Plan, such consent not to be unreasonably
withheld.
7.26 @Home Agreement. Insight agrees to use its commercially reasonable
efforts to have the Company enter into a distribution agreement for the @Home
Service (as defined in the LLC Agreement) for the Insight Systems prior to
Closing; provided that such obligation shall survive Closing if such
distribution agreement is not entered into prior thereto.
SECTION 8. CONDITIONS PRECEDENT
8.1 Conditions to Insight's Obligations. Subject to Section 7.24, the
obligations of Insight to consummate the transactions contemplated by this
Agreement are subject to the satisfaction at or before the Closing of the
following conditions, any of which may be waived by Insight.
(a) Accuracy of Representations and Warranties. The representations
and warranties of TCI in this Agreement and in any Transaction Document, if
specifically qualified by materiality, are true in all respects and, if not so
qualified, are true in all material respects, in each case at and as of the
Closing with the same effect as if made at and as of the Closing.
(b) Performance of Agreements. TCI has performed in all material
respects all obligations and agreements and complied in all material respects
with all covenants in this Agreement and in any Transaction Document to be
performed and complied with by it at or before the Closing.
(c) Deliveries. TCI and the Company have delivered the items and
documents required to be delivered by them pursuant to this Agreement, including
those required under Sections 9.2 and 9.4.
(d) Legal Proceedings. No action, suit or proceeding is pending or
threatened by or before any Governmental Authority and no Legal Requirement has
been enacted, promulgated or issued or become or deemed applicable to any of the
transactions contemplated by this Agreement
- 56 -
<PAGE>
by any Governmental Authority, which would (i) prohibit the Company's ownership
or operation of all or a material portion of any TCI System, TCI's Cable
Business or the TCI Assets, (ii) compel the Company to dispose of or hold
separately all or a material portion of any TCI System, TCI's Cable Business or
the TCI Assets as a result of any of the transactions contemplated by this
Agreement, (iii) if determined adversely to Insight's or the Company's interest,
materially impair the ability of Insight or the Company to realize the benefits
of the transactions contemplated by this Agreement or have a material adverse
effect on the right of the Company to exercise full rights of ownership of the
TCI Systems or (iv) prevent or make illegal the consummation of any transactions
contemplated by this Agreement.
(e) Consents. Subject to Section 7.24, Insight has received evidence,
in form and substance reasonably satisfactory to it, that the following TCI
Required Consents have been obtained without the imposition of any condition or
any modification that in either case makes, or is reasonably likely to make, the
underlying instrument materially more onerous in any respect or materially
reduces in any respect, or is reasonably likely to materially reduce in any
respect, the benefits available under the instrument in respect of which the
consent relates: TCI Required Consents for the TCI System Franchises, the TCI
System Licenses, and any TCI Leased Property or TCI Other Real Property Interest
on which a headend, tower or other reception site is located. In addition,
subject to Section 7.24 of this Agreement and the Exchange Agreement (i) Insight
shall have received evidence, in form and substance reasonably satisfactory to
it, that the TCI Required Consents obtained in accordance with the Exchange
Agreement also contain all consents, authorizations and approvals required for
Insight to transfer the Exchange Assets to the Company and (ii) the Insight
Required Consents for the Insight System Franchises and Insight System Licenses
shall have been obtained.
(f) No Material Adverse Change. There has not been any material
adverse change in the TCI Assets or the financial condition or operations of
TCI's Cable Business or the TCI Systems since the date of this Agreement. In
making the determination required by the preceding sentence, the last sentence
of Section 6.10 shall be applicable.
(g) Subscribers. The TCI Systems are serving at least 150,000
Equivalent Basic Subscribers as of the Closing Date.
(h) HSR Act. All filings required under the HSR Act have been made and
the applicable waiting period has expired or been earlier terminated.
(i) Franchise Renewals. Any TCI System Franchise for which a valid
notice of renewal pursuant to the formal renewal procedures established by
Section 626 of the Cable Act has not been timely delivered to the appropriate
Governmental Authority has been renewed or extended for a period expiring no
earlier than three years after the Closing Date, such renewal or extension being
on terms that would not make, or are not reasonably likely to make, the System
Franchise that is being renewed or extended materially more onerous in any
respect and that would not materially
- 57 -
<PAGE>
reduce, or are not reasonably likely to materially reduce, the benefits
available under the System Franchise that is being renewed or extended.
(j) Exchanges. All of the conditions to Insight's obligation to
consummate the Exchanges shall have been satisfied or waived (other than those
based on acts to be performed at such closing) by Insight in accordance with the
terms of the Exchange Agreement (taking into account the provisions of Section
7.24 thereof as they modify the condition in Section 8.1(e) thereof) and TCI
shall stand ready, willing and able to consummate the Exchanges in accordance
with the terms and conditions set forth in the Exchange Agreement.
(k) Supply Agreement. The Company and Satellite Services, Inc. shall
have entered into or shall enter into contemporaneously with Closing, a
programming supply agreement in form and substance reasonably satisfactory to
Insight.
(l) Company Financing. The Company shall have secured financing in
accordance with the terms of Section 7.23 to enable it to refinance the TCI
Permitted Debt and the Insight Permitted Debt immediately after the Closing.
(m) Incentive Plan and Operating Plan. TCI and Insight shall have
agreed on an Incentive Plan and an Operating Plan as specified in Section 7.25.
(n) Retransmission Consents. With respect to any retransmission
consent agreements for broadcast signals carried on the Systems on the date of
this Agreement and on the date of the Closing that are included as part of the
TCI Excluded Assets or the Insight Excluded Assets, all required retransmission
consents for continued carriage of such broadcast signals by the Company have
been obtained on terms and conditions reasonably acceptable to the Company.
(o) Retained Franchise Management Agreements. If Section 7.24 has
become operative, the parties shall have reached agreement on the Retained
Franchise Management Agreements and other agreements contemplated thereby.
8.2 Conditions to TCI's Obligations. Subject to Section 7.24, the
obligations of TCI to consummate the transactions contemplated by this Agreement
are subject to the satisfaction at or before the Closing of the following
conditions, any of which may be waived by TCI.
(a) Accuracy of Representations and Warranties. The representations
and warranties of Insight in this Agreement and in any Transaction Document, if
specifically qualified by materiality, are true in all respects and, if not so
qualified, are true in all material respects, in each case at and as of the
Closing with the same effect as if made at and as of the Closing.
(b) Performance of Agreements. Insight has performed in all material
respects all obligations and agreements and complied in all material respects
with all covenants in this
- 58 -
<PAGE>
Agreement and in any Transaction Document to be performed and complied with by
it at or before the Closing.
(c) Deliveries. Insight and the Company have delivered the items and
documents required to be delivered by them pursuant to this Agreement, including
those required under Sections 9.3 and 9.4.
(d) Legal Proceedings. No action, suit or proceeding is pending or
threatened by or before any Governmental Authority and no Legal Requirement has
been enacted, promulgated or issued or become or deemed applicable to any of the
transactions contemplated by this Agreement by any Governmental Authority, which
would (i) prohibit the Company's ownership or operation of all or a material
portion of any Insight System, Insight's Cable Business or the Insight Assets,
(ii) compel the Company to dispose of or hold separately all or a material
portion of any Insight System, Insight's Cable Business or Insight Assets as a
result of any of the transactions contemplated by this Agreement, (iii) if
determined adversely to TCI's or the Company's interest, materially impair the
ability of TCI or the Company to realize the benefits of the transactions
contemplated by this Agreement or have a material adverse effect on the right of
the Company to exercise full rights of ownership of the Insight Systems or (iv)
prevent or make illegal the consummation of any transactions contemplated by
this Agreement.
(e) Consents. Subject to Section 7.24, TCI has received evidence, in
form and substance reasonably satisfactory to it, that the following Insight
Required Consents have been obtained without the imposition of any condition or
any modification that in either case, makes, or is reasonably likely to make,
the underlying instrument materially more onerous in any respect or materially
reduces in any respect, or is reasonably likely to materially reduce in any
respect, the benefits available under the instrument in respect of which the
consent relates: Insight Required Consents for the Insight System Franchises,
the Insight System Licenses, and any Insight Leased Property or Insight Other
Real Property Interest on which a headend, tower or other reception site is
located. In addition, subject to Section 7.24, the TCI Required Consents for the
TCI System Franchises and TCI System Licenses shall have been obtained and all
required TCI board of director, membership or partnership approvals shall have
been obtained.
(f) No Material Adverse Change. There has not been any material
adverse change in the Insight Assets or the financial condition or operations of
Insight's Cable Business or the Insight Systems since the date of this
Agreement. In making the determination required by the preceding sentence, the
last sentence of Section 5.10 shall be applicable.
(g) Subscribers. The Insight Systems are serving at least 90,000
Equivalent Basic Subscribers as of the Closing Date.
(h) HSR Act. All filings required under the HSR Act have been made and
the applicable waiting period has expired or been earlier terminated.
- 59 -
<PAGE>
(i) Franchise Renewals. Any Insight System Franchise for which a valid
notice of renewal pursuant to the formal renewal procedures established by
Section 626 of the Cable Act has not been timely delivered to the appropriate
Governmental Authority has been renewed or extended for a period expiring no
earlier than three years after the Closing Date, such renewal or extension being
on terms that would not make, or are not reasonably likely to make, the System
Franchise that is being renewed or extended materially more onerous in any
respect and that would not materially reduce, or are not reasonably likely to
materially reduce, the benefits available under the System Franchise that is
being renewed or extended.
(j) Exchanges. All of the conditions to TCI's obligation to consummate
the Exchanges shall have been satisfied or waived (other than those based on
acts to be performed at such closing) by TCI in accordance with the terms of the
Exchange Agreement (taking into account the provisions of Section 7.24 thereof
as they modify the condition in Section 8.2(e) thereof) and Insight shall stand
ready, willing and able to consummate the Exchanges in accordance with the terms
and conditions set forth in the Exchange Agreement.
(k) Company Financing. The Company shall have secured financing in
accordance with the terms of Section 7.23 to enable it to refinance the TCI
Permitted Debt and the Insight Permitted Debt immediately after the Closing.
(l) Incentive Plan and Operating Plan. TCI and Insight shall have
agreed on an Incentive Plan and an Operating Plan as specified in Section 7.25.
(m) Retransmission Consents. With respect to any retransmission
consent agreements for broadcast signals carried on the Systems on the date of
this Agreement and on the date of the Closing that are included as part of the
TCI Excluded Assets or the Insight Excluded Assets, all required retransmission
consents for continued carriage of such broadcast signals by the Company have
been obtained on terms and conditions reasonably acceptable to the Company.
(n) Retained Franchise Management Agreements. If Section 7.24 has
become operative, the parties shall have reached agreement on the Retained
Franchise Management Agreements and other agreements contemplated thereby.
SECTION 9. THE CLOSING
9.1 The Closing; Time and Place. Subject to Section 7.24, the closing of
the transactions contemplated by this Agreement (the "Closing") will take place
at a date (the "Closing Date") and time mutually determined by TCI and Insight,
which Closing Date shall be within ten days after the date on which all
conditions set forth in Sections 8.1 and 8.2 (other than those based on acts to
be performed at the Closing) have either been satisfied or waived in writing by
the party entitled to the benefit of such condition.
- 60 -
<PAGE>
9.2 TCI's Delivery Obligations. At the Closing, TCI will deliver or cause
to be delivered to the Company the following.
(a) Bill of Sale and Assignment. The executed Bill of Sale and
Assignment in the form of Exhibit 9.2(a) and such other instruments of transfer,
assignment or assumption, in form and substance mutually satisfactory the
parties, as Insight may reasonably require to further document the transfer and
assignment of the TCI Assets to the Company.
(b) Deeds. A special or limited warranty deed in a form reasonably
acceptable to Insight (and complying with applicable state laws) with respect to
each parcel of TCI Owned Property, duly executed and acknowledged and in
recordable form, warranting only to defend title to such TCI Owned Property in
the peaceable possession of the Company against all Persons claiming by, through
or under TCI, subject however, to any Permitted Liens and any Title Defects
insured over pursuant to Section 7.6, and in form sufficient to permit the
applicable Title Company to issue the TCI Title Policies referred to in
paragraph (d) below to the Company, together with any title affidavit reasonably
required by the title insurer that does not expand the aforesaid limited or
special warranty of TCI.
(c) Title Policies. A policy of title insurance issued by an eligible
Title Company for each parcel of TCI Owned Property, updated to the Closing
Date, containing such endorsements as are required or permitted by Section 7.6,
deleting the survey exception and otherwise consistent with the form and
substance prescribed by Section 7.6 and the Title Commitments contemplated
thereby (the "TCI Title Policies"), or the irrevocable written commitment of the
Title Company to deliver the TCI Title Policies, provided that with respect to
each Title Defect affecting the TCI Owned Property, either (i) the TCI Title
Policy relating to the affected parcel of TCI Owned Property shall not contain
an exception for such Title Defect, or (ii) if Insight has consented as provided
in Section 7.6, such TCI Title Policy shall contain an endorsement insuring over
such Title Defect, or (iii) if, in lieu of a TCI Title Policy satisfying either
of the two preceding requirements, Insight has agreed that the Company shall
accept a written agreement of TCI as contemplated in the last sentence of
Section 7.6, TCI shall have executed and delivered such an agreement.
(d) Estoppel Certificates. Each TCI Estoppel Certificate obtained
pursuant to Section 7.5(b).
(e) Lien Releases. Evidence reasonably satisfactory to Insight that
all Liens (other than Permitted Liens) affecting or encumbering the TCI Assets
have been terminated, released or waived, as appropriate, or original, executed
instruments in form reasonably satisfactory to Insight effecting such
terminations, releases or waivers and evidence reasonably satisfactory to
Insight that all Liens securing the TCI Permitted Debt will be released upon the
refinancing of such debt.
(f) Vehicle Titles. Title certificates to all vehicles included among
the TCI Assets, endorsed for transfer of valid and good title to the Company
free and clear of all Liens (other
- 61 -
<PAGE>
than Permitted Liens), and separate bills of sale therefor or other transfer
documentation, if required by the laws of the States in which such vehicles are
titled.
(g) Evidence of Authorization Actions. Certified resolutions of the
Board of Directors or other evidence reasonably satisfactory to Insight that TCI
has taken all corporate action necessary to authorize the execution of this
Agreement and the Transaction Documents and the consummation of the transactions
contemplated hereby.
(h) FIRPTA Certificate. FIRPTA Non-Foreign Seller Certificate
certifying that TCI is not a foreign person within the meaning of Section 1445
of the Code reasonably satisfactory in form and substance to Insight.
(i) Officer's Certificate. A certificate executed by an executive
officer of the managing member of TCI LLC dated the Closing Date, reasonably
satisfactory in form and substance to Insight certifying (i) that the conditions
specified in Sections 8.1(a) and 8.1(b) have been satisfied; and (ii) the total
number of EBSs for all the TCI Systems, estimated in good faith as of the
Closing Date.
(j) Documents and Records. All TCI Books and Records, including a list
of all pending subscriber hook-ups, disconnect and repair orders, supply orders
and any other lists reasonably necessary to the operation of the TCI Systems.
Delivery of the foregoing will be deemed made to the extent such TCI Books and
Records are then located at any of the offices included in the TCI Owned
Property or TCI Leased Property.
(k) Other. Such other documents and instruments as may be reasonably
necessary to effect the intent of this Agreement and consummate the transactions
contemplated hereby, including a signature page to the Retained Franchise
Management Agreement, if applicable.
9.3 Insight's Delivery Obligations. At the Closing, except as otherwise
provided below, Insight will deliver or cause to be delivered to the Company the
following.
(a) Bill of Sale. The executed Bill of Sale and Assignment in the form
of Exhibit 9.2(a) and such other instruments of transfer, assignment or
assumption, in form and substance mutually satisfactory to the parties, as TCI
may reasonably require to further document the transfer and assignment of the
Insight Assets and the Exchange Assets to the Company; provided, that Insight's
assignment of the Exchange Assets to the Company will be made without
representation or warranty of any kind.
(b) Deeds. A special or limited warranty deed in a form reasonably
acceptable to TCI (and complying with applicable state laws) with respect to
each parcel of Insight Owned Property, duly executed and acknowledged and in
recordable form, warranting only to defend title to such Insight Owned Property
or other owned property in the peaceable possession of the Company against all
Persons claiming by, through or under Insight, subject however, to any Permitted
Liens
- 62 -
<PAGE>
and any Title Defects insured over pursuant to Section 7.6, and in form
sufficient to permit the applicable Title Company to issue the Insight Title
Policies referred to in paragraph (d) below to the Company, together with any
title affidavit reasonably required by the title insurer that does not expand
the aforesaid limited or special warranty of Insight and, if the owned property
included in the Exchange Assets is not deeded directly from TCI to the Company,
a quit claim deed from Insight to the Company with respect to each parcel of
owned property included in the Exchange Assets.
(c) Title Policies. A policy of title insurance issued by an eligible
Title Company for each parcel of Insight Owned Property, updated to the Closing
Date, containing such endorsements as are required or permitted by Section 7.6,
deleting the survey exception and otherwise consistent with the form and
substance prescribed by Section 7.6 and the Title Commitments contemplated
thereby (the "Insight Title Policies"), or the irrevocable written commitment of
the Title Company to deliver the Insight Title Policies, provided that with
respect to each Title Defect affecting the Insight Owned Property, either (i)
the Insight Title Policy relating to the affected parcel of Insight Owned
Property shall not contain an exception for such Title Defect, or (ii) if TCI
has consented as provided in Section 7.6, such Insight Title Policy shall
contain an endorsement insuring over such Title Defect, or (iii) if, in lieu of
a Insight Title Policy satisfying either of the two preceding requirements, TCI
has agreed that the Company shall accept a written agreement of Insight as
contemplated in the last sentence of Section 7.6, Insight shall have executed
and delivered such an agreement.
(d) Estoppel Certificates. Each Insight Estoppel Certificate obtained
pursuant to Section 7.5(b).
(e) Lien Releases. Evidence reasonably satisfactory to TCI that all
Liens (other than Permitted Liens) affecting or encumbering the Insight Assets
have been terminated, released or waived, as appropriate, or original, executed
instruments in form reasonably satisfactory to TCI effecting such terminations,
releases or waivers and evidence reasonably satisfactory to TCI that all Liens
securing the Insight Permitted Debt will be released upon the refinancing of
such debt.
(f) Vehicle Titles. Title certificates to all vehicles included among
the Insight Assets or the Exchange Assets (to the extent Insight receives such
vehicles from TCI), endorsed for transfer of valid and good title to the
Company, free and clear of all Liens (other than Permitted Liens) and separate
bills of sale therefor or other transfer documentation, if required by the laws
of the States in which such vehicles are titled.
(g) Evidence of Authorization Actions. Evidence reasonably
satisfactory to TCI that Insight has taken all action necessary to authorize the
execution of this Agreement and the Transaction Documents and the consummation
of the transactions contemplated hereby.
(h) FIRPTA Certificate. FIRPTA Non-Foreign Seller Certificate
certifying that Insight is not a foreign person within the meaning of Section
1445 of the Code reasonably satisfactory in form and substance to TCI.
- 63 -
<PAGE>
(i) Officer's Certificates. A certificate executed by an executive
officer of the ultimate corporate general partner of Insight dated the Closing
Date, reasonably satisfactory in form and substance to TCI certifying (i) that
the conditions specified in Sections 8.2(a) and 8.2(b) have been satisfied; and
(ii) the total number of EBSs for all the Insight Systems, estimated in good
faith as of the Closing Date.
(j) Documents and Records. All Insight Books and Records, including a
list of all pending subscriber hook-ups, disconnect and repair orders, supply
orders and any other lists reasonably necessary to the operation of the Insight
Systems. Delivery of the foregoing will be deemed made to the extent such
Insight Books and Records are then located at any of the offices included in the
Insight Owned Property or Insight Leased Property.
(k) Management Agreement. An original signature page of Insight to the
management agreement attached to the LLC Agreement as Exhibit A (the "Management
Agreement").
(l) Exchange Agreement Assignment. An assignment to the Company of
Insight's rights and obligations under the Exchange Agreement (provided that,
without limiting the Company's indemnification rights, Insight shall retain its
indemnification rights thereunder as if they had not been assigned and other
than rights and obligations that Insight is not permitted to assign under the
Exchange Agreement), in form and substance reasonably satisfactory to TCI,
including an assignment to the Company from any qualified intermediary to whom
Insight assigns its rights under the Exchange Agreement if requested by TCI. The
foregoing assignment shall include the Company's undertaking to assume Insight's
obligations with respect to any Exchange Retained Franchises once they are
transferred to the Company.
(m) Other. Such other documents and instruments as may be reasonably
necessary to effect the intent of this Agreement and consummate the transactions
contemplated hereby, including a signature page to the Retained Franchise
Management Agreement, if applicable.
9.4 The Company's Delivery Obligations. At the Closing, except as otherwise
provided below, the Company will deliver or cause to be delivered the following.
(a) Assumption Agreements. Assumption Agreements in the form of
Exhibit 9.4(a) with respect to the TCI Assets and the Insight Assets.
(b) Management Agreement. An original signature page of the Company to
the Management Agreement.
(c) Exchange Agreement Assumption. An assumption from the Company for
the benefit of TCI of Insight's obligations under the Exchange Agreement.
- 64 -
<PAGE>
(d) Other. Such other documents and instruments as may be reasonably
necessary to effect the intent of this Agreement and to consummate the
transactions contemplated hereby, including any documents requested under
Section 7.10 and a signature page to the Retained Franchise Management
Agreement, if applicable.
9.5 Post-Closing Refinancing of the TCI and Insight Permitted Debt. As a
condition subsequent to the obligations of TCI and Insight under this Agreement,
immediately after the Closing, the Company shall pay (i) the TCI Permitted Debt
to TCI by wire transfer of immediately available funds in accordance with wire
transfer instructions provided by TCI and (ii) the Insight Permitted Debt to
Insight or to such Other Persons as designated by Insight by wire transfer of
immediately available funds in accordance with wire transfer instructions
provided by Insight.
SECTION 10. TERMINATION AND DEFAULT
10.1 Termination Events. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned:
(a) at any time by the mutual agreement of Insight and TCI;
(b) prior to the Primary Transfer, by either Insight or TCI at any
time (if such party itself is not then in material breach of any of its
covenants, agreements or other obligations contained in this Agreement or the
LLC Agreement), if the other is in material breach or default of any of its
covenants, agreements or other obligations herein or the LLC Agreement, or if
any of its representations herein or in the LLC Agreement if specifically
qualified by materiality, is not true in all respects or, if qualified by
materiality, is not true in all material respects when made or when otherwise
required by this Agreement or the LLC Agreement to be true, if the non-breaching
party provides the breaching party with prompt written notice that provides a
reasonably detailed explanation of the facts and circumstances surrounding such
breach or default; provided that such party shall have no right to terminate if
(i) the breaching Party cures such breach or default within 30 days after its
receipt of such written notice, unless such breach or default cannot be cured
within such 30-day period; or (ii) the breach or default is capable of being
cured prior to the one year anniversary of the date of this Agreement (the
"Outside Closing Date") and the breaching party commences to cure such breach or
default within such 30-day period and diligently continues to take all action
reasonably necessary to cure such breach or default prior to the Outside Closing
Date and such breach or default is cured prior to the Outside Closing Date; or
(c) prior to the Primary Transfer, by either Insight or TCI upon
written notice to the other given not earlier than the Outside Closing Date, if
any of the conditions to its obligations set forth in Sections 8.1 and 8.2,
respectively, are not satisfied on or before the Outside Closing Date for any
reason other than a material breach or default by the terminating party of its
respective covenants, agreements or other obligations under this Agreement, or
if any of its representations herein or in any Transaction Document, if
specifically qualified by materiality, is not true in all
- 65 -
<PAGE>
respects or, if qualified by materiality, is not true in all material respects
when made or when otherwise required by this Agreement or the LLC Agreement to
be true; or
(d) by either Insight or TCI, by written notice to the other party, if
the Exchange Agreement has been terminated prior to any closing thereunder in
accordance with its terms; or
(e) if TCI does not notify Insight in writing on or before June 1,
1998 that its representations in Section 6.2 are no longer subject to TCI
obtaining board of director, membership or partnership approval and that the
obligations of TCI LLC and TCI Communications, Inc. under the LLC Agreement are
no longer subject to those entities obtaining board of director, membership or
partnership approval, as applicable, Insight may terminate this Agreement by
written notice to TCI given at any time after June 1, 1998 and before TCI
notifies Insight in writing that is has obtained such approvals; provided, that
upon such notice by TCI to Insight the condition to TCI's obligations in Section
8.2(e) regarding all required TCI board of director, membership or partnership
approvals having been obtained shall be deemed irrevocably satisfied; or
(f) if Insight does not notify TCI in writing on or before June 1,
1998 either that it has entered into the Programming Supply Agreement with SSI
or that it irrevocably waives the condition to its obligations specified in
Section 8.1(k), TCI may terminate this Agreement by written notice to Insight
given at any time after June 1, 1998 and prior to the time that Insight so
notifies TCI in writing; or
(g) as otherwise provided in this Agreement.
10.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 10.1, all obligations of the parties under this Agreement will
terminate, except for the obligations set forth in Sections 7.14 and 12.15.
Notwithstanding the preceding sentence, termination of this Agreement pursuant
to Sections 10.1(b) or 10.1(c) or 10.1(d) or 12.16 will not limit or impair any
remedies that either of TCI or Insight may have with respect to a breach or
default by the other of its covenants, agreements or obligations under this
Agreement prior to Closing.
SECTION 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
11.1 Survival of Representations and Warranties. The representations and
warranties of TCI and Insight in this Agreement and in the Transaction Documents
and the covenants of TCI, Insight and the Company in this Agreement and the
Transaction Documents to be performed prior to the Closing will survive until
the first anniversary of the Closing Date except that (a) all such
representations and warranties with respect to Taxes, rates, Environmental Laws,
ERISA, employment matters or copyright matters will survive until 60 days after
the expiration of the applicable statute of limitations (including any
extensions) for such Taxes, rates, Environmental Laws, ERISA, employment matters
or copyright matters, respectively, and (b) the representations and warranties
as to title to the Assets in Sections 5.4(a) and 6.4(a), respectively, and as to
title to
- 66 -
<PAGE>
Owned Property set forth in Sections 5.6 and 6.6, respectively, and in the
special warranty deed or deeds delivered with respect to Owned Property will
survive the Closing and the delivery of such deeds and will continue in full
force and effect without limitation with the understanding that, notwithstanding
any language contained in any such deed, the representations and warranties as
to title to Owned Property set forth in Sections 5.6 and 6.6, respectively, will
not be merged into any such deed or other Transaction Document. The periods of
survival of the representations and warranties and of the covenants to be
performed prior to the Closing prescribed by this Section 11.1 are referred to
as the "Survival Period." The liabilities of each party under its respective
representations and warranties and its respective covenants to be performed
prior to the Closing will expire as of the expiration of the applicable Survival
Period; provided however that such expiration will not include, extend or apply
to any such representation or warranty or covenant, the breach of which has been
asserted by a party in a written notice to the other party before such
expiration or about which a party has given the other party written notice
before such expiration indicating that facts or conditions exist that, with the
passage of time or otherwise, can reasonably be expected to result in a breach
(and describing such potential breach in reasonable detail). The covenants and
agreements of each party in this Agreement and in the Transaction Documents to
be performed after the Closing will survive the Closing and will continue in
full force and effect in accordance with their terms. The Survival Periods and
the other provisions of this Section shall apply to the Retained Franchises as
if they were transferred on the Closing Date.
11.2 Indemnification by TCI. From and after the Closing, TCI will
indemnify, defend and hold harmless Insight, its partners and the Company and
their respective Affiliates, and the members, partners, shareholders, officers,
directors, employees, agents, successors and assigns of them and any Person
claiming by or through any of them, as the case may be, from and against any and
all Losses arising out of or resulting from (a) any breach of any representation
or warranty made by TCI in this Agreement or any Transaction Document; (b) any
breach of any covenant, agreement or obligation of TCI contained in this
Agreement or any Transaction Document; (c) any act or omission of TCI with
respect to, or any event or circumstance related to, the ownership or operation
of the TCI Assets or the conduct of TCI's Cable Business, which act, omission,
event or circumstance occurred or existed prior to or at the Closing Time,
without regard to whether a claim with respect to such matter is asserted before
or after the Closing Time, including any matter described on Schedule 6.11; (d)
any liability or obligation with respect to the TCI Systems not included in the
Assumed Obligations and Liabilities; (e) any Title Defect relating to any TCI
Owned Property that is not deleted as an exception in, or insured over by, the
applicable TCI Title Policy; (f) any claim that the transactions contemplated by
this Agreement with respect to the TCI Systems violate WARN or any Legal
Requirement or any bulk transfer or fraudulent conveyance laws of any
jurisdiction; (g) any claim relating to "continuation coverage" under Code
Section 4980B with respect to former employees of TCI at and after the Closing
Time or that the Company is deemed to be a successor employer of TCI under Code
Section 4980B; (h) any claim by a third party relating to the presence,
generation, removal or transportation of a Hazardous Substance on or from any of
the TCI Owned Property or TCI Leased Property through and including the Closing
Time, including the costs in response to a third party claim of removal or
clean-up of such Hazardous Substance and other compliance with the provisions of
any Environmental Laws (whether before or after Closing); or (i)
- 67 -
<PAGE>
any rate refund or credit, penalty and/or interest payment with respect thereto
ordered by any Governmental Authority with respect to the TCI Systems for
periods through and including the Closing Time.
In the event that an indemnified item arises under both clause (a) and under one
or more of clauses (b) through (i) of this Section, Insight's and the Company's
rights to pursue its claim under clauses (b) through (i) as applicable will
exist notwithstanding the expiration of the Survival Period applicable to such
claim under clause (a).
11.3 Indemnification by Insight. From and after the Closing, Insight will
indemnify, defend and hold harmless TCI, its members and the Company and their
respective Affiliates and the members, partners, shareholders, officers,
directors, employees, agents, successors and assigns of them and any Person
claiming by or through any of them, as the case may be, from and against any and
all Losses arising out of or resulting from (a) any breach of any representation
or warranty made by Insight in this Agreement or any Transaction Document; (b)
any breach of any covenant, agreement or obligation of Insight contained in this
Agreement or any Transaction Document; (c) any act or omission of Insight with
respect to, or any event or circumstance related to, the ownership or operation
of the Insight Assets or the conduct of Insight's Cable Business, which act,
omission, event or circumstance occurred or existed prior to or at the Closing
Time, without regard to whether a claim with respect to such matter is asserted
before or after the Closing Time, including any matter described on Schedule
5.11; (d) any liability or obligation with respect to the Insight Systems not
included in the Assumed Obligations and Liabilities; (e) any Title Defect
relating to any Insight Owned Property that is not deleted as an exception in,
or insured over by, the applicable Insight Title Policy; (f) any claim that the
transactions contemplated by this Agreement with respect to the Insight Systems
violate WARN or any similar Legal Requirement or any bulk transfer or fraudulent
conveyance laws of any jurisdiction; (g) any claim relating to "continuation
coverage" under Code Section 4980B with respect to former employees of Insight
at and after the Closing Time or that the Company is deemed to be a successor
employer of Insight under Code Section 4980B; (h) any claim by a third party
relating to the presence, generation, removal or transportation of a Hazardous
Substance on or from any of the Insight Owned Property or Insight Leased
Property through and including the Closing Time, including the costs in response
to a third party claim of removal or clean-up of such Hazardous Substance and
other compliance with the provisions of any Environmental Laws (whether before
or after Closing); or (i) any rate refund or credit, penalty and/or interest
payment with respect thereto ordered by any Governmental Authority with respect
to the Insight Systems for periods through and including the Closing Time.
In the event that an indemnified item arises under both clause (a) and under one
or more of clauses (b) through (i) of this Section, TCI's and the Company's
rights to pursue its claim under clauses (b) through (i) as applicable will
exist notwithstanding the expiration of the Survival Period applicable to such
claim under clause (a).
11.4 Indemnification by the Company. From and after the Closing, the
Company will indemnify, defend and hold harmless TCI and Insight and their
shareholders, members and partners
- 68 -
<PAGE>
and their respective Affiliates and the members, shareholders, partners,
officers, directors, employees, agents, successors and assigns of them and any
other Person claiming by or through any of them, as the case may be, from and
against any and all Losses arising out of or resulting from (a) any breach of
any covenant, agreement or obligation of the Company contained in this
Agreement; or (b) the failure of the Company to perform the Assumed Obligations
and Liabilities.
11.5 Third Party Claims. Promptly after the receipt by any party of notice
of any claim, action, suit or proceeding by any third party (collectively, an
"Action"), which Action is subject to indemnification under this Agreement, such
party (the "Indemnified Party") will give reasonable written notice to the party
from whom indemnification is claimed (the "Indemnifying Party"). The Indemnified
Party will be entitled, at the sole expense and liability of the Indemnifying
Party, to exercise full control of the defense, compromise or settlement of any
such Action unless the Indemnifying Party, within a reasonable time after the
giving of such notice by the Indemnified Party, (a) admits in writing to the
Indemnified Party the Indemnifying Party's liability to the Indemnified Party
for such Action under the terms of this Section 11, (b) notifies the Indemnified
Party in writing of the Indemnifying Party's intention to assume such defense,
(c) provides evidence reasonably satisfactory to the Indemnified Party of the
Indemnifying Party's ability to pay the amount, if any, for which the
Indemnified Party may be liable as a result of such Action and (d) retains legal
counsel reasonably satisfactory to the Indemnified Party to conduct the defense
of such Action. The other party or parties will cooperate with the party
assuming the defense, compromise or settlement of any such Action in accordance
with this Agreement in any manner that such party reasonably may request. If the
Indemnifying Party so assumes the defense of any such Action, the Indemnified
Party will have the right to employ separate counsel and to participate in (but
not control) the defense, compromise or settlement of the Action, but the fees
and expenses of such counsel will be at the expense of the Indemnified Party
unless (x) the Indemnifying Party has agreed to pay such fees and expenses, (y)
any relief other than the payment of money damages is sought against the
Indemnified Party or (z) the Indemnified Party will have been advised by its
counsel that there may be one or more defenses available to it which are
different from or additional to those available to the Indemnifying Party, and
in any such case that portion of the fees and expenses of such separate counsel
that are reasonably related to matters covered by the indemnity provided in this
Section 11 will be paid by the Indemnifying Party. No Indemnified Party will
settle or compromise any such Action for which it is entitled to indemnification
under this Agreement without the prior written consent of the Indemnifying
Party, unless the Indemnifying Party has failed, after reasonable notice, to
undertake control of such Action in the manner provided in this Section 11.5. No
Indemnifying Party will settle or compromise any such Action (A) in which any
relief other than the payment of money damages is sought against any Indemnified
Party or (B) in the case of any Action relating to the Indemnified Party's
liability for any Tax, if the effect of such settlement would be an increase in
the liability of the Indemnified Party for the payment of any Tax for any period
beginning after the Closing Date, unless the Indemnified Party consents in
writing to such compromise or settlement.
11.6 Limitations on Indemnification - TCI. TCI will not be liable with
respect to any matter or claim for which indemnification could be sought
pursuant to Section 11.2(a) or (b) for (a)
- 69 -
<PAGE>
any Losses of or to Insight, the Company or any other Person entitled to
indemnification from TCI or (b) any Losses incidental to or relating to or
resulting from any of the foregoing (the items described in clauses (a) and (b)
collectively being referred to for purposes of this Section 11 as "TCI Claimed
Damages") unless the amount of TCI Claimed Damages for which TCI would, but for
the provisions of this Section, be liable exceeds, on an aggregate basis,
$500,000, in which case TCI will be liable for all such TCI Claimed Damages from
dollar zero, which will be due and payable within 15 days after TCI's receipt of
a statement therefor. TCI will not have any liability under Section 11.2(a) or
(b) to the extent that the aggregate amount of Losses otherwise subject to its
indemnification obligation thereunder exceeds $25,000,000. The limitations set
forth in this Section 11.6 do not apply to (i) the Closing Adjustments to the
extent they are included in the calculation of Closing Adjustments pursuant to
Sections 3.2 and 3.3 or (ii) any claims made pursuant to Sections 11.2(c)-(i),
including, without limitation, any Losses related to any liability or obligation
for late fees; any liability or obligation with respect to paying franchise fees
on franchise fees; subscriber refunds, including pursuant to the Pending TCI
Rate Order; or TCI any matters listed in the Schedules to this Agreement.
11.7 Limitations on Indemnification - Insight. Insight will not be liable
with respect to any matter or claim for which indemnification could be sought
pursuant to Section 11.3(a) or (b) for (a) any Losses of or to TCI, the Company
or any other Person entitled to indemnification from Insight or (b) any Losses
incidental to or relating to or resulting from any of the foregoing (the items
described in clauses (a) and (b) collectively being referred to for purposes of
this Section 11 as "Insight Claimed Damages") unless the amount of Insight
Claimed Damages for which Insight would, but for the provisions of this Section,
be liable exceeds, on an aggregate basis, $500,000, in which case Insight will
be liable for all such Insight Claimed Damages from dollar zero, which will be
due and payable within 15 days after Insight's receipt of a statement therefor.
Insight will not have any liability under Section 11.3(a) or (b) to the extent
that the aggregate amount of Losses otherwise subject to its indemnification
obligations thereunder exceeds $25,000,000. The limitations set forth in this
Section 11.7 do not apply to (i) the Closing Adjustments to the extent they are
included in the calculation of Closing Adjustments pursuant to Section 3.2 and
3.3 or (ii) any claims made pursuant to Sections 11.3(c)-(i), including, without
limitation, any Losses related to any liability or obligation for late fees; any
liability or obligation with respect to paying franchise fees on franchise fees;
subscriber refunds; or litigation listed in the schedules to this Agreement.
Once Insight contributes the Exchange Systems to the Company it shall have no
obligation to the Company with respect thereto and, following the assumption by
the Company of Insight's obligations under the Exchange Agreement with respect
to the Exchange Systems, Insight shall have no obligation to TCI with respect to
the Exchange Systems except insofar as an Exchange System becomes a Retained
Franchise, in which event Insight's obligations to TCI shall continue as
specified in the Exchange Agreement.
11.8 Limitations on Indemnification - the Company. The Company will not be
liable with respect to any matter or claim for which indemnification could be
sought pursuant to Section 11.4(a) for (a) any Losses of or to TCI, Insight or
any other Person entitled to indemnification from the Company or (b) any Losses
incidental to or relating to or resulting from any of the foregoing (the
- 70 -
<PAGE>
items described in clauses (a) and (b) collectively being referred to for
purposes of this Section 11 as "Company Claimed Damages") unless the amount of
Company Claimed Damages for which the Company would, but for the provisions of
this Section, be liable exceeds, on an aggregate basis, $500,000, in which case
the Company will be liable for all such Company Claimed Damages from dollar
zero, which will be due and payable within 15 days after the Company's receipt
of a statement therefor. The Company will not have any liability under Section
11.4(a) to the extent that the aggregate amount of Losses otherwise subject to
its indemnification obligations thereunder exceeds $25,000,000. The limitations
set forth in this Section 11.8 do not apply to the Closing Adjustments to the
extent they are included in the calculation of Closing Adjustments pursuant to
Section 3.2 and 3.3.
11.9 Other Indemnification. The provisions of Sections 11.1, 11.6, 11.7 and
11.8 will be applicable to any claim for indemnification made under any other
provision of this Agreement and all references in Sections 11.1, 11.6, 11.7 and
11.8 to Sections 11.2, 11.3 and 11.4 will be deemed to be references to such
other provisions of this Agreement.
SECTION 12. MISCELLANEOUS PROVISIONS
12.1 Parties Obligated and Benefited.
(a) Subject to the limitations set forth below, this Agreement will be
binding upon the parties and their respective assigns and successors in interest
and will inure solely to the benefit of the parties and their respective assigns
and successors in interest, and no other Person will be entitled to any of the
benefits conferred by this Agreement. Without the prior written consent of the
other parties, no party will assign any of its rights under this Agreement or
delegate any of its duties under this Agreement, provided that Insight or TCI
may, without the consent of any other party, prior to Closing assign all of such
party rights and obligations under this Agreement to any Affiliate of such party
provided such assignee can make all of the representations and warranties
applicable to the assigning party hereunder (other than those relating to
jurisdiction of incorporation), the assigning party can provide reasonable
assurances that such assignee can otherwise perform the covenants, agreements
and obligations applicable to the assigning party hereunder and such assignment
would not materially delay or hinder the consummation of the transactions
contemplated by this Agreement and provided further that TCI may make the
assignments described in Section 12.1(b). After the Closing, each of the parties
may grant to the Company's lenders, a security interest in the indemnification
rights hereunder inuring to the benefit of such party. Except as specified
herein, no assignment by either party of its rights hereunder shall release such
party from its obligations hereunder.
(b) The TCI Parties are all of the members of TCI LLC as of the date
of this Agreement. Immediately prior to closing, the TCI Parties will transfer
the TCI Assets, their rights and obligations under this Agreement and their
membership interests in TCI LLC to one or more Affiliates of the TCI Parties and
such Affiliates will then transfer the TCI Assets and their rights and
obligations under this Agreement to TCI LLC. Upon completion of such transfers,
all references
- 71 -
<PAGE>
in this Agreement to "TCI" will thereafter be deemed to be references to TCI LLC
and from and after the Closing the TCI Parties will be released from all
liabilities and obligations under this Agreement. Insight shall have the right
to approve the transfer documents evidencing the foregoing, such consent not to
be unreasonably withheld.
12.2 Notices. Any notice, request, demand, waiver or other communication
required or permitted to be given under this Agreement will be in writing and
will be deemed to have been duly given only if delivered in person or by first
class, prepaid, registered or certified mail, or sent by courier or, if receipt
is confirmed, by telecopier:
To TCI at:
c/o Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: William R. Fitzgerald
Telecopy: (303) 267-6672
With a copy similarly addressed to the attention of Legal Department
To Insight or the Company at:
Insight Communications Company, L.P.
126 East 56th Street
New York, New York
Attention: Michael S. Willner
Telecopy: (212) 371-1549
With a copy to:
Cooperman, Levitt, Winikoff & Newman
800 Third Avenue
New York, New York 10022
Attention: Robert Winikoff, Esq.
Telecopy: (212) 755-2839
- 72 -
<PAGE>
and
Dow, Lohnes & Albertson PLLC
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: Leonard J. Baxt, Esq.
Telecopy: (202) 776-2222
Any party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section. All notices
will be deemed to have been received on the date of delivery, which in the case
of deliveries by telecopier will be the date of the sender's confirmation.
12.3 Right to Specific Performance. Insight and TCI acknowledge that the
unique nature of the Assets to be contributed by them pursuant to this Agreement
renders money damages an inadequate remedy for the breach by them of their
obligations under this Agreement, and they agree that in the event of such
breach, they will upon proper action instituted by either of them, be entitled
to a decree of specific performance of this Agreement.
12.4 Waiver. This Agreement or any of its provisions may not be waived
except in writing. The failure of any party to enforce any right arising under
this Agreement on one or more occasions will not operate as a waiver of that or
any other right on that or any other occasion.
12.5 Captions. The section and other captions of this Agreement are for
convenience only and do not constitute a part of this Agreement.
12.6 Choice of Law. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES UNDER IT
WILL BE GOVERNED BY AND CONSTRUED IN ALL RESPECTS IN ACCORDANCE WITH THE LAWS OF
THE STATE OF DELAWARE, WITHOUT REGARD TO THE CONFLICTS OF LAWS RULES OF
DELAWARE.
12.7 Terms. Terms used with initial capital letters or otherwise defined in
this Agreement will have the meanings specified, applicable to both singular and
plural forms, for all purposes of this Agreement. The word "include" and
derivatives of that word are used in this Agreement in an illustrative sense
rather than limiting sense.
12.8 Rights Cumulative. All rights and remedies of each of the parties
under this Agreement will be cumulative, and the exercise of one or more rights
or remedies will not preclude the exercise of any other right or remedy
available under this Agreement or applicable law.
12.9 Time. Time is of the essence under this Agreement. If the last day
permitted for the giving of any notice or the performance of any act required or
permitted under this Agreement falls
- 73 -
<PAGE>
on a day which is not a Business Day, the time for the giving of such notice or
the performance of such act will be extended to the next succeeding Business
Day.
12.10 Late Payments. If any party fails to pay the other any amounts when
due under this Agreement, the amounts due will bear interest from the due date
to the date of payment at the annual rate publicly announced from time to time
by The Bank of New York as its prime rate (the "Prime Rate") plus 2%, adjusted
as and when changes in the Prime Rate are made.
12.11 Counterparts. This Agreement may be executed in counterparts, each of
which will be deemed an original.
12.12 Entire Agreement. Except for the Exchange Agreement and the LLC
Agreement, this Agreement (including the Transaction Documents and the Schedules
and Exhibits referred to in this Agreement, which are incorporated in and
constitute a part of this Agreement) contains the entire agreement of the
parties and supersedes all prior oral or written agreements and understandings
with respect to the subject matter. This Agreement may not be amended or
modified except by a writing signed by the parties.
12.13 Severability. Any term or provision of this Agreement which is
invalid or unenforceable will be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining rights
of the Person intended to be benefitted by such provision or any other
provisions of this Agreement.
12.14 Construction. This Agreement has been negotiated by the parties and
their respective legal counsel, and legal or equitable principles that might
require the construction of this Agreement or any provision of this Agreement
against the party drafting this Agreement will not apply in any construction or
interpretation of this Agreement.
12.15 Expenses. Except as otherwise expressly provided in this Agreement
(which expenses the parties shall pay as so provided), each party will pay all
of its expenses, including attorneys' and accountants' fees, in connection with
the negotiation of this Agreement, the performance of its obligations and the
consummation of the transactions contemplated by this Agreement.
12.16 Risk of Loss.
(a) The risk of any loss or damage to the Insight Assets or TCI Assets
resulting from fire, theft or other casualty (except reasonable wear and tear)
will be borne by Insight or TCI, respectively, at all times through and
including the Closing. If any such loss or damage is sufficiently substantial so
as to preclude and prevent resumption of normal operations of any material
portion of a System or the replacement or restoration of the lost or damaged
property within twenty days or, if earlier, prior to the Outside Closing Date,
Insight or TCI as appropriate, will immediately notify the other in writing of
that fact and subject to the other provisions of this Section
- 74 -
<PAGE>
12.16, Insight, in the event of loss or damage to the Insight Assets, or TCI, in
the event of loss or damage to the TCI Assets, as appropriate, will use its
commercially reasonable efforts to repair, replace and restore the lost or
damaged property to its former condition as soon as practicable at its sole
expense, subject to Section 12.16(b), including applying any insurance proceeds
to restore such assets to their prior condition.
(b) If the aggregate cost to repair, replace or restore the lost or
damaged property to its former condition would exceed $5,000,000, Insight, in
the event of loss or damage to the Insight Assets, or TCI, in the event of loss
or damage to the TCI Assets, as appropriate, may, subject to the other party's
right to cause the Company to consummate the Closing as described below, elect
to terminate this Agreement by written notice to the other party at any time
within ten days of the occurrence of the event of loss or damage, and upon such
termination both parties will stand fully released and discharged of any and all
obligations under this Agreement (except with respect to any then existing
breaches by either such party).
(c) If any such loss or damage to the TCI Assets is sufficiently
substantial so as to preclude and prevent resumption of normal operations of any
material portion of a TCI System or the repair, replacement or restoration of
the lost or damaged property within twenty days, or if earlier, the Outside
Closing Date, and TCI is not obligated to correct the problem because the cost
would exceed $5,000,000, and TCI elects not to repair, replace and restore the
lost or damaged property, Insight may elect to terminate this Agreement upon
written notice to TCI at any time within ten days after it receives written
notice from TCI of the occurrence of the event of such loss or damage and the
fact that TCI is not obligated to correct the problem and TCI has elected not to
correct the problem, and upon such termination both parties will stand fully
released and discharged of any and all obligations under this Agreement (except
with respect to any then existing breaches by either such party). In the absence
of a timely election to terminate this Agreement, Insight shall be deemed to
have waived such loss or damage and to have elected to consummate the Closing in
accordance with all of the remaining provisions of this Agreement and
notwithstanding TCI's election to terminate this Agreement pursuant to Section
12.16(b), Insight may elect to consummate the Closing in accordance with all of
the remaining provisions of this Agreement, in which event at the Closing, the
amount of any insurance deductible payable by TCI and all insurance proceeds
payable as a result of the occurrence of the event resulting in such loss or
damage to the TCI Assets (in each case to the extent not used to repair, replace
or restore such lost or damaged TCI Assets), except for any proceeds from
business interruption insurance relating to the loss of revenue for the period
through and including the Closing Time, will be delivered by TCI to the Company
or the rights to such proceeds will be assigned by TCI to the Company if not yet
paid over to TCI, and upon such delivery or assignment and consummation of the
Closing TCI shall have no additional liability to Insight or the Company in
respect of any such loss or damage to the TCI Assets.
(d) If any such loss or damage to the Insight Assets is sufficiently
substantial so as to preclude and prevent resumption of normal operations of any
material portion of an Insight System or the repair, replacement or restoration
of the lost or damaged property within twenty days, or if earlier, the Outside
Closing Date, and Insight is not obligated to correct the problem because
- 75 -
<PAGE>
the cost would exceed $5,000,000, and Insight elects not to repair, replace and
restore the lost or damaged property, TCI may elect to terminate this Agreement
upon written notice to Insight at any time within ten days after it receives
written notice from Insight of the occurrence of the event of such loss or
damage and the fact that Insight is not obligated to correct the problem and has
elected not to correct the problem, and upon such termination both parties will
stand fully released and discharged of any and all obligations under this
Agreement (except with respect to any then existing breaches by either such
party). In the absence of a timely election to terminate this Agreement, TCI
shall be deemed to have waived such loss or damage and to have elected to
consummate the Closing in accordance with all of the remaining provisions of
this Agreement, and notwithstanding Insight's election to terminate this
Agreement pursuant to Section 12.16(b), TCI may elect to consummate the Closing
in accordance with all of the remaining provisions of this Agreement in which
event at the Closing, the amount of any insurance deductible payable by Insight
and all insurance proceeds payable as a result of the occurrence of the event
resulting in such loss or damage to the Insight Assets (in each case to the
extent not used to repair, replace or restore such lost or damaged Insight
Assets), except for any proceeds from business interruption insurance relating
to the loss of revenue for the period through and including the Closing Time,
will be delivered by Insight to the Company or the rights to such proceeds will
be assigned by Insight to the Company if not yet paid over to Insight, and upon
such delivery or assignment and consummation of the Closing Insight shall have
no additional liability to TCI or the Company in respect of any such loss or
damage to the Insight Assets.
(e) If, prior to the Closing, any part of or interest in any material
Insight Assets or any material TCI Assets is taken or condemned as a result of
the exercise of the power of eminent domain, or if a Governmental Authority
having such power informs Insight or TCI that it intends to condemn all or any
part of any material Assets of such party (such event being called, in either
case, a "Taking"), then the other party may terminate this Agreement. If the
other party does not elect to terminate this Agreement, then (a) the other party
will have the sole right, in the name of the party on behalf of the Company, if
the other party so elects, to negotiate for, claim, contest and receive all
damages with respect to the Taking, (b) the party will be relieved of its
obligation to convey to the party the Assets or interests that are the subject
of the Taking, (c) at the Closing the party will assign to the Company all of
the party's rights to all damages payable with respect to the Taking and (d)
following the Closing, the party will give the Company such further assurances
of such rights and assignment with respect to the Taking as the Company may from
time to time reasonably request.
12.17 Tax Consequences. No party to this Agreement makes any representation
or warranty, express or implied, with respect to the Tax implications of any
aspect of this Agreement on any other party to this Agreement, and all parties
expressly disclaim any such representation or warranty with respect to any Tax
consequences arising under this Agreement. Each party has relied solely on its
own Tax advisors with respect to the Tax implications of this Agreement.
12.18 Commercially Reasonable Efforts. For purposes of this Agreement,
unless a different standard is expressly provided with respect to any particular
matter, "commercially reasonable
- 76 -
<PAGE>
efforts" will not be deemed to require a party to undertake extraordinary
measures, including the initiation or prosecution of legal proceedings or the
payment of amounts in excess of normal and usual filing fees and processing
fees, if any.
- 77 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
UACC MIDWEST, INC.
By:______________________________________
Name: William R. Fitzgerald
Title: Vice President
TCI OF KOKOMO, INC.
By:______________________________________
Name: William R. Fitzgerald
Title: Vice President
TCI OF INDIANA, INC.
By:______________________________________
Name: William R. Fitzgerald
Title: Vice President
HERITAGE CABLEVISION ASSOCIATES, A
LIMITED PARTNERSHIP
By: Heritage/Indiana Cablevision, Inc., its
general partner
By:______________________________________
Name: William R. Fitzgerald
Title: Vice President
TCI OF INDIANA HOLDINGS, LLC
By: TCI of Indiana, Inc., its managing member
By:______________________________________
Name: William R. Fitzgerald
Title: Vice President
- 78 -
<PAGE>
INSIGHT COMMUNICATIONS COMPANY,
L.P.
By: ICC Associates, L.P., its general partner
By: Insight Communications, Inc., its general
partner
By:______________________________________
Name:____________________________________
Title:___________________________________
INSIGHT COMMUNICATIONS OF INDIANA,
LLC
By: Insight Communications Company, L.P., its
managing member
By: ICC Associates, L.P., its general
partner
By: Insight Communications, Inc.,
its general partner
By:______________________________________
Name:____________________________________
Title:___________________________________
and
By: TCI of Indiana Holdings, LLC, its member
By: TCI of Indiana, Inc., its managing
member
By:______________________________________
Name: William R. Fitzgerald
Title: Vice President
- 79 -
<PAGE>
CONTRIBUTION AGREEMENT, DATED AS OF
JUNE 30, 1998
<PAGE>
CONTRIBUTION AGREEMENT, DATED AS OF
JUNE 30, 1998
-----------------------------------
TABLE OF CONTENTS
Page
----
ARTICLE 1 DEFINITIONS
1.1 Terms Defined in this Section.....................................1
1.2 Terms Defined Elsewhere in this Agreement.........................7
1.3 Terms Generally...................................................7
ARTICLE 2 CONTRIBUTIONS
2.1 Formation of the Company and Contributions to the Company.........8
2.2 Excluded Assets..................................................10
2.3 Refinancing......................................................11
ARTICLE 3 VALUE OF CONTRIBUTIONS
3.1 Fair Market Value of Contributed Assets..........................11
3.2 Certain Adjustments..............................................12
ARTICLE 4 ASSUMED LIABILITIES
4.1 Assumption of Central Liabilities................................13
4.2 Liabilities Not Assumed..........................................13
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF CENTRAL
5.1 Organization, Standing, and Authority............................14
5.2 Authorization and Binding Obligation.............................14
5.3 Absence of Conflicting Agreements................................14
5.4 Financial Statements.............................................14
5.5 Interim Operations...............................................15
5.6 Title to Assets; Liens...........................................15
5.7 Franchises.......................................................15
5.8 Governmental Permits.............................................16
5.9 Real Property and Real Property Interests........................16
5.10 Tangible Personal Property......................................16
5.11 Contracts.......................................................16
5.12 Intangibles.....................................................17
- i -
<PAGE>
Page
----
5.13 System Information..............................................17
5.14 Employees and Compensation......................................20
5.15 Taxes...........................................................21
5.16 Environmental Matters...........................................21
5.17 Compliance with Laws............................................22
5.18 Claims and Legal Actions........................................22
5.19 Insurance and Bonds.............................................22
5.20 Transactions with Affiliates....................................22
5.21 Brokers.........................................................22
5.22 Assets..........................................................23
5.23 Accounts Receivable.............................................23
5.24 No Undisclosed Liabilities......................................23
5.25 Liabilities to Customers........................................23
5.26 Restoration.....................................................23
5.27 Overbuilds......................................................23
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF INSIGHT
6.1 Organization, Standing, and Authority............................24
6.2 Authorization and Binding Obligation.............................24
6.3 Absence of Conflicting Agreements................................24
6.4 Claims and Legal Actions.........................................25
6.5 Brokers..........................................................25
ARTICLE 7 OPERATIONS OF SYSTEM PRIOR TO CLOSING
7.1 Generally........................................................25
7.2 Contracts or Commitments.........................................25
7.3 Disposition of Assets............................................25
7.4 Distributions....................................................26
7.5 Encumbrances.....................................................26
7.6 Franchises and Governmental Permits..............................26
7.7 Access to Information............................................26
7.8 Maintenance of Assets............................................26
7.9 Insurance and Bonds..............................................26
7.10 Compliance with Contracts and Laws..............................26
7.11 Changes to Employee Compensation and Benefits...................27
7.12 Delivery of Financial Information...............................27
7.13 Acquisition of Business Office and Headend Site.................27
7.14 Marketing Programs..............................................27
7.15 Accounts Payable................................................27
- ii -
<PAGE>
Page
----
ARTICLE 8 SPECIAL COVENANTS AND AGREEMENTS
8.1 Consents.........................................................28
8.2 Cooperation......................................................29
8.3 Deferred Contributions...........................................29
8.4 Confidentiality..................................................30
8.5 Bulk Sales Law...................................................31
8.6 Further Assurances...............................................31
8.7 HSR Act..........................................................31
8.8 Risk of Loss.....................................................32
8.9 Use of Names and Logos...........................................32
8.10 Power of Attorney...............................................32
8.11 Access to Books and Records.....................................32
8.12 Other Transaction Documents.....................................32
ARTICLE 9 CLOSING CONDITIONS
9.1 Conditions to Obligations of Insight.............................33
9.2 Conditions to Obligations of Central.............................34
ARTICLE 10 CLOSING AND CLOSING DELIVERIES
10.1 Time and Place of Closing........................................35
10.2 Deliveries by Central............................................36
10.3 Deliveries by the Company........................................36
10.4 Deliveries by Insight............................................37
ARTICLE 11 TERMINATION RIGHTS
11.1 Termination by Agreement.........................................37
11.2 Termination by Central...........................................37
11.3 Termination by Insight...........................................38
11.4 Due Diligence Termination........................................38
11.5 Escrow Deposit...................................................38
11.6 Rights on Termination............................................39
11.7 Specific Performance.............................................40
ARTICLE 12 MISCELLANEOUS
12.1 Survival of Representations and Warranties.......................40
12.2 Taxes, Fees, and Expenses........................................41
12.3 Notices..........................................................42
12.4 Benefit and Binding Effect.......................................43
12.5 Entire Agreement.................................................43
12.6 Waiver of Compliance; Consents...................................43
12.7 Severability.....................................................44
12.8 GOVERNING LAW....................................................44
- iii -
<PAGE>
12.9 Disputed Matters.................................................44
12.10 Headings.........................................................46
12.11 Rights Cumulative................................................46
12.12 Construction.....................................................46
12.13 Business Day.....................................................46
12.14 Counterparts.....................................................47
12.15 No Third-Party Beneficiaries.....................................47
- iv -
<PAGE>
TABLE OF EXHIBITS
Exhibit Description
- ------- -----------
Exhibit A Form of Operating Agreement
Exhibit B Form of Amended Articles of Incorporation of
Central
Exhibit C Form of Close Corporation Agreement of
Central
Exhibit D Form of Single-Member LLC Operating Agreement
Exhibit E Form of Single-Member LLC Management
Agreement
- v -
<PAGE>
TABLE OF SCHEDULES
Schedule Description
- -------- -----------
Schedule 2.2 Certain Excluded Assets
Schedule 2.3(a) Use of Refinancing Proceeds
Schedule 5.3 Consents
Schedule 5.5 Interim Operations
Schedule 5.6 Liens
Schedule 5.7 Franchises
Schedule 5.8 Governmental Permits
Schedule 5.9 Real Property
Schedule 5.10 Tangible Personal Property
Schedule 5.11 Contracts
Schedule 5.12 Intangibles
Schedule 5.13 System Information
Schedule 5.14 Employees and Compensation
Schedule 5.17 Compliance with Laws
Schedule 5.18 Claims and Legal Actions
Schedule 5.19 Insurance and Bonds
Schedule 5.20 Transactions with Affiliates
Schedule 5.24 Liabilities
Schedule 5.27 Overbuilds
Schedule 6.3 Absence of Conflicting Agreements: Insight Consents
Schedule 7.2 Post-Signing Contracts
Schedule 7.11 Changes to Compensation
- vi -
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT is made and entered into as of June 30, 1998 by
and between Coaxial Communications of Central Ohio, Inc., an Ohio corporation
("Central"), and Insight Communications Company, L.P., a Delaware limited
partnership ("Insight").
PRELIMINARY STATEMENT
Central owns and operates a cable television system serving Columbus, Ohio,
and the surrounding communities identified on Schedule 5.7.
Central and Insight desire to form Insight Communications of Central Ohio,
LLC, a Delaware limited liability company (the "Company"), pursuant to the
Delaware Limited Liability Company Act and an Operating Agreement to be entered
into between Insight and Central.
Central and Insight desire that Central contribute to the Company
substantially all the assets of the System, subject to certain liabilities being
assumed by the Company, and that Insight or its permitted assignee contribute to
the Company cash in the amount of Ten Million Dollars, all as specified in this
Agreement.
The parties desire to enter into this Agreement to provide for the
transactions described above and certain other matters.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Terms Defined in this Section.
For purposes of this Agreement, the following terms shall have the
following meanings (all terms used in this Agreement that are not defined in
this Section 1.1 shall have the meanings set forth elsewhere in this Agreement
as indicated in Section 1.2):
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities or
voting interests, by contract or otherwise.
"Agreement" means this Contribution Agreement, as it may be amended from
time to time.
<PAGE>
"Assets" means the assets to be contributed by Central to the Company under
this Agreement, as specified in Section 2.1(b).
"Assumed Contracts" means (a) all Contracts listed in Schedule 5.11, other
than Contracts that are Excluded Assets, other Contracts designated on Schedule
5.11 as not being Assumed Contracts, and Contracts that terminate or expire
prior to Closing, (b) Contracts of Central in existence on the date of this
Agreement that are not required by Section 5.11 to be listed on Schedule 5.11,
other than Contracts that are Excluded Assets, (c) Contracts of Central in
existence on the Closing Date that were entered into after the date of this
Agreement in compliance with Section 7.2, other than Contracts that are Excluded
Assets, and (d) all other Contracts of Central in existence on the Closing Date
that Insight has agreed in writing will be assumed by the Company at the
Closing.
"Business Day" means any day other than a Saturday or Sunday or a day on
which banking institutions in Columbus, Ohio or New York, New York, are required
or authorized to be closed.
"Central's Knowledge" means the actual knowledge of any of Central's
President and Chief Executive Officer, Executive Vice President and Chief
Financial Officer, Barry Silverstein, Dennis McGillicuddy, or D. Stevens McVoy.
"Close Corporation Agreement" means the Close Corporation Agreement of
Central, substantially in the form of Exhibit C, with any changes thereto that
are agreed to by the parties.
"Closing" means the consummation of the contribution of the Assets to the
Company, as contemplated by this Agreement, as described in Article 10.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder, or any subsequent legislative enactment thereof, as in
effect from time to time.
"Communications Act" means the Communications Act of 1934, as amended,
including the Cable Communications Policy Act of 1984, the Cable Television
Consumer Protection and Competition Act of 1992, and the Telecommunications Act
of 1996, each as amended, and all rules, regulations, and policies thereunder.
"Compensation Arrangement" means any written plan or compensation
arrangement other than an Employee Plan or a Multiemployer Plan that provides to
employees of Central employed at the System any compensation or other benefits,
whether deferred or not, in excess of base salary or wages and excluding
overtime pay, including any bonus or incentive plan, stock rights plan, deferred
compensation arrangement, stock purchase plan, severance pay plan, and any other
perquisites and employee fringe benefit plan.
- 2 -
<PAGE>
"Consent Conditions" means those conditions specified in Section 9.1(c),
Section 9.1(d), Section 9.1(e), and Section 9.1(f).
"Consents" means all of the consents, permits, approvals, or other actions
of Governmental Authorities and other third parties necessary to permit the
transfer of the Assets to the Company or otherwise to consummate lawfully the
transactions contemplated by this Agreement.
"Contracts" means all pole attachment and conduit agreements,
retransmission consent agreements and must-carry elections, leases,
non-governmental licenses, employment agreements, subscriber agreements, and
other agreements, written or oral (including any amendments and other
modifications thereto), to which Central is a party or which are binding upon
Central and which relate to the Assets or the business or operations of the
System, and (a) which are in effect on the date of this Agreement or (b) which
are entered into by Central between the date of this Agreement and the Closing
Date.
"Copyright Act" means the Copyright Act of 1976, as amended, all rules,
regulations, orders, and policies of the United States Copyright Office
thereunder.
"Employee Plan" means any written pension, retirement, profit-sharing,
deferred compensation, vacation, severance, bonus, incentive, medical, vision,
dental, disability, life insurance, or other employee benefit plan as defined in
Section 3(3) of ERISA (other than a Multiemployer Plan) to which Central
contributes or which Central sponsors or maintains or by which Central otherwise
is bound, that provides benefits to employees of Central employed at the System.
"Employee Transition Agreement" means the Employee Transition Agreement,
substantially in the form to be agreed to by the parties prior to the funding of
the escrow deposit described in Section 11.5, to be entered into at Closing
between the Company and Central.
"Environmental Law" means any Legal Requirement pertaining to the release
or threatened release of hazardous substances or pollution or protection of the
environment, including the following federal laws as they may be amended from
time to time: (a) Clean Air Act; (b) Clean Water Act; (c) Resource Conservation
and Recovery Act; (d) Comprehensive Environmental Response, Compensation and
Liability Act; (e) Safe Drinking Water Act; (f) Toxic Substance Control Act; (g)
Occupational Safety and Health Act; (h) Rivers and Harbors Act of 1899; and (i)
Endangered Species Act of 1973.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder, as in effect from time to
time.
"Escrow Agreement" means that certain Escrow Agreement to be entered into
among Insight, Central, and the Escrow Agent pursuant to Section 11.5.
- 3 -
<PAGE>
"FAA" means the Federal Aviation Administration.
"FCC" means the Federal Communications Commission.
"Franchises" means all authorizations (including any applications therefor)
issued to Central by Governmental Authorities empowered by federal, state, or
local law to issue such authorizations, whether such authorizations are
designated as franchises, permits, licenses, resolutions, contracts,
certificates, agreements, or otherwise, in connection with the construction,
operation, or maintenance of the System, including the authorizations listed in
Schedule 5.7, and all amendments thereto and renewals and modifications thereof,
together with any additions thereto between the date of this Agreement and the
Closing Date.
"Franchising Authorities" means the Governmental Authorities that have
issued the Franchises, or before which there are pending any applications filed
by Central relating to the operation of the System.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"Governmental Authority" means the United States of America, any state,
commonwealth, territory, or possession of the United States of America and any
political subdivision thereof, and any agency, authority, or instrumentality of
any of the foregoing, including any court, tribunal, department, bureau,
commission, or board.
"Governmental Permits" means all licenses, permits, and other
authorizations (other than the Franchises) issued by the FCC, the FAA, or any
other federal, state, or local Governmental Authority and held by Central in
connection with the conduct of the business or operations of the System,
including the items listed in Schedule 5.8, together with any additions thereto
between the date of this Agreement and the Closing Date.
"Hazardous Substance" means any substance designated as "hazardous" or
"toxic," including petroleum and petroleum related substances, or having
characteristics identified as "hazardous" or "toxic" under any Environmental
Law.
"Homes Passed" means the total number of single family residences or
dwelling units within a building containing multiple dwelling units (including
hotel rooms and similar units) capable of being serviced by the System without
further line construction, plus the total number of commercial and other
buildings (including hotels) actually served by the System.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations thereunder, as in effect from time to
time.
- 4 -
<PAGE>
"Intangibles" means all copyrights, trademarks, trade names, service marks,
service names, licenses, patents, permits, proprietary information, technical
information and data, machinery and equipment warranties, and other intangible
property rights and interests (and any goodwill associated with any of the
foregoing) applied for, issued to, transferred to, or owned by Central or under
which Central is licensed or franchised and which are used or held for use in
connection with the business and operations of the System, including the items
listed in Schedule 5.12, together with any additions thereto between the date of
this Agreement and the Closing Date.
"Judgment" means any judgment, writ, order, injunction, award or decree of
any court, judge, justice, arbitrator, panel of arbitrators, or magistrate,
including any bankruptcy court or judge, and any order of or by any Governmental
Authority.
"Legal Requirements" means applicable common law and any applicable
statute, ordinance, code, or other law, rule, regulation, order, technical or
other standard, requirement, or procedure enacted, adopted, promulgated, or
applied by any Governmental Authority, including any applicable Judgment that
may have been handed down, adopted, or imposed by any Governmental Authority.
"Lien" means any lien, mortgage, deed of trust, hypothecation, pledge,
easement, right-of-way, building or use restriction, exception, reservation,
security interest, or similar third-party right.
"Multiemployer Plan" means a plan, as defined in ERISA Section 3(37) or
4001(a)(3), to which Central or any trade or business which would be considered
a single employer with Central under Section 4001(b)(1) of ERISA contributed,
contributes or is required to contribute that provides benefits to employees of
Central employed at the System.
"Operating Agreement" means the Operating Agreement of the Company,
substantially in the form of Exhibit A, with any changes thereto that are agreed
to by the parties, to be entered into between Insight and Central pursuant to
this Agreement.
"Permitted Liens" means any of the following: (a) liens for taxes,
assessments, and governmental charges not yet due and payable or that Central is
contesting in good faith through appropriate proceedings, (b) mechanic's,
materialmen's, and similar liens, (c) purchase money liens and liens securing
rental payments under capital lease arrangements, (d) in the case of Real
Property Interests that are leaseholds, the rights of any lessor and any lien
encumbering any lessor's interest in the underlying Real Property, (e) zoning
laws and ordinances and similar Legal Requirements and rights reserved to any
Governmental Authority to regulate the affected property, (f) liens,
liabilities, or encumbrances that secure liabilities to be assumed by the
Company pursuant to Article 4, and (g) as to any Real Property Interest, any
easements, rights-of-way, servitudes, permits, restrictions, and minor
imperfections or irregularities in title that are reflected in the public
records and do not individually or in the aggregate, materially affect the value
of,
- 5 -
<PAGE>
or materially interfere with the right or ability to own, use, or operate the
underlying Real Property.
"Person" means any association, corporation, general or limited
partnership, Governmental Authority, joint venture, limited liability company,
natural person, trust, or unincorporated entity of any kind.
"Principals" means Barry Silverstein, Dennis McGillicuddy, and D. Stevens
McVoy.
"Real Property" means all real property, and all buildings and other
improvements thereon, used or held for use in connection with the business or
operations of the System.
"Real Property Interests" means all interests of Central in any of the Real
Property, including fee estates, leaseholds, and subleaseholds, purchase
options, licenses, easements, rights to access, and rights of way, including the
items listed in Schedule 5.9, together with any additions thereto between the
date of this Agreement and the Closing Date (including that contemplated by
Section 7.13).
"Service Area" means any of the geographic areas in which Central is
authorized to provide cable television service pursuant to a municipal, county,
or state Franchise or provides cable television service without a municipal,
county, or state Franchise being required by any applicable Legal Requirement.
"Single-Member LLCs" means the three Delaware limited liability companies
to be formed by the Principals to own the stock of Central.
"Single-Member LLC Management Agreements" means the three management
agreements, substantially in the form of Exhibit E, with any changes thereto
that are agreed to by the parties, to be entered into between Insight and each
Single-Member LLC.
"Single-Member LLC Operating Agreements" means the Operating Agreements of
Single-Member LLCs, substantially in the form of Exhibit D, with any changes
thereto that are agreed to by the parties.
"System" means the cable television systems of Central in and around the
areas listed on Schedule 5.7.
"Tangible Personal Property" means all plant, machinery, equipment, tools,
vehicles, furniture, leasehold improvements that are not Real Property, office
equipment, inventory, spare parts, supplies, customer billing systems, and other
tangible personal property which is owned, leased, used or held for use by
Central in connection with the conduct of the business or operations of the
System, including the items listed in Schedule 5.10, together with any additions
thereto between the date of this Agreement and the Closing Date.
- 6 -
<PAGE>
"Taxes" means any federal, state or local taxes or assessments.
"Transferable Service Area" means any Service Area with respect to which
(a) any Consent necessary for the assignment of any municipal, county, or state
Franchise for such Service Area in connection with the consummation of the
transactions contemplated by this Agreement shall have been obtained without any
condition or qualification that would impose conditions or obligations
materially more burdensome than those currently contained in the Franchise that
is the subject of the Consent, or (b) no Consent is necessary for the assignment
of any municipal, county, or state Franchise for such Service Area in connection
with the consummation of the transactions contemplated by this Agreement, or (c)
no municipal, county, or state Franchise is required for the provision of cable
television service in the Service Area.
1.2 Terms Defined Elsewhere in this Agreement.
For purposes of this Agreement, the following terms have the meanings set
forth in the sections indicated:
Term Section
- ---- -------
AAA Section 12.9(b)
Arbitration Notice Section 12.9(e)
Central Preamble
Company Preliminary Statement
Escrow Agent Section 11.5
Excluded Assets Section 2.2
Financial Statements Section 5.4
Insight Preamble
Management Agreement Section 8.3(b)(2)
Marketing Programs Section 5.13(c)
Refinancing Proposals Section 2.3(a)
Retained Assets Section 8.3(a)
System Employee Section 5.14(a)
1.3 Terms Generally.
The definitions in Section 1.1 and elsewhere in this Agreement shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context requires, any pronoun
- 7 -
<PAGE>
includes the corresponding masculine, feminine, and neuter forms. The words
"include," "includes," and "including" are not limiting. Any reference in this
Agreement to a "day" or number of "days" (without the explicit qualification of
"Business") shall be interpreted as a reference to a calendar day or number of
calendar days.
ARTICLE 2
CONTRIBUTIONS
2.1 Formation of the Company and Contributions to the Company.
(a) At or prior to the Closing, Central and Insight shall execute and
deliver the Operating Agreement.
(b) At the Closing, subject to the terms and conditions set forth in
this Agreement and in accordance with the Operating Agreement, Central shall
contribute or cause to be contributed to the Company, and the Company shall
acquire from Central, all of the tangible and intangible assets owned or held by
Central and used or held for use by Central in connection with the ownership and
conduct of the business or operations of the System (other than the Excluded
Assets and any assets disposed of by Central prior to the Closing Date in
compliance with this Agreement), together with any additions thereto between the
date of this Agreement and the Closing Date, free and clear of all Liens except
for Permitted Liens, including the following:
(1) the Tangible Personal Property;
(2) the Real Property Interests;
(3) the Franchises;
(4) the Assumed Contracts;
(5) the Governmental Permits;
(6) the Intangibles and the goodwill of the System, if any;
(7) all of Central's proprietary information, customer lists,
technical information and data, maps, computer discs and tapes, plans, diagrams,
blueprints and schematics relating to the business and operation of the System;
(8) all accounts receivable of the System as of the Closing;
(9) Central's cash on hand as of the Closing Date and all other
cash and cash equivalents in Central's bank, savings, or other depository
accounts;
- 8 -
<PAGE>
(10) any and all bonds, surety instruments, letters of credit, or
other similar items and any cash surrender value in regard thereto, and any
stocks, bonds, certificates of deposit, and similar investments;
(11) all choses in action of Central;
(12) any insurance policies and rights or claims thereunder;
(13) all deposits, advance payments, and prepaid expenses
relating to the System; and
(14) all books and records (including copies of Central's filings
with Franchising Authorities and FCC and copyright filings) relating to the
business or operations of the System.
(c) At the Closing, subject to the terms and conditions set forth in
this Agreement and in accordance with the Operating Agreement, Insight shall
contribute or cause to be contributed to the Company, in cash, the sum of Ten
Million Dollars.
(d) Central shall also contribute cash to the Company as provided in
this Section 2.1(d).
(1) If any amendment to this Agreement pursuant to Section 3.2
reduces the net fair market value of the Assets, then Central shall contribute
to the Company, at the time specified in Section 2.1(d)(3) and otherwise in
accordance with this Section 2.1(d), cash in an amount equal to the amount of
such reduction.
(2) Concurrently with the making of each capital contribution
pursuant to this Section 2.1(d), Central shall pay to the Company interest at a
rate of eleven percent per year, compounded annually, from the Closing Date
through the date on which such capital contribution is made, on the amount of
such capital contribution. Interest paid or payable pursuant to this Section
2.1(d)(2) shall not, for purposes of the Operating Agreement, be deemed to be a
Capital Contribution (as defined in the Operating Agreement).
(3) Central may make its capital contributions and interest
payments pursuant to this Section 2.1(d) at any time, subject to the other
provisions of this Section 2.1(d)(3) and Section 2.1(d)(4). Central shall be
required to make capital contributions and interest payments pursuant to this
Section 2.1(d) concurrently with, and to the extent of, any distributions to
Central (or any assignee of any portion of its membership interest in the
Company) pursuant to the Operating Agreement, other than any distributions with
respect to the Preferred A Interest or the Preferred B Interest (each as defined
in the Operating Agreement) and distributions based on the amount of any taxable
income allocated to the members of the Company (including the
- 9 -
<PAGE>
April Distributions and the Estimated Tax Distributions, as defined in the
Operating Agreement). The Company shall withhold from any distributions to
Central (or any assignee described in this Section 2.1(d)(3)) pursuant to the
Operating Agreement (other than any distributions with respect to the Preferred
A Interest or the Preferred B Interest (each as defined in the Operating
Agreement) and distributions based on the amount of any taxable income allocated
to the members of the Company (including the April Distributions and the
Estimated Tax Distributions, as defined in the Operating Agreement)) the amount
of its remaining obligations under this Section 2.1(d) and any amount so
withheld shall be treated for purposes of the Operating Agreement and this
Agreement as having been distributed in accordance with the Operating Agreement
on the date on which Central would otherwise have received such distribution and
contributed or paid (as applicable) the amount of such distribution in
accordance with this Section 2.1(d) on the same date.
(4) To the extent that the effect of any circumstance giving rise
to an amendment to this Agreement pursuant to Section 3.2(b) is to reduce the
operating income of the Company such that the Company is unable to make any
required distribution with respect to the Preferred A Interest or the Preferred
B Interest (each as defined in the Operating Agreement), then Central shall be
required to make capital contributions and interest payments pursuant to this
Section 2.1(d) at any time within ten Business Days after a demand therefor by
the Manager (as defined in the Operating Agreement).
2.2 Excluded Assets.
The assets to be contributed to the Company by Central pursuant to Section
2.1(a) exclude the following assets (the "Excluded Assets"):
(a) all programming agreements (other than retransmission agreements
and must-carry elections) and all other Contracts of Central that are
designated on Schedule 5.11 as not being Assumed Contracts;
(b) any books and records that Central is required by any Legal
Requirement to retain, Central's corporate minute books, and any other books and
records related to internal corporate matters of Central;
(c) any claims, rights, and interest in and to any refunds of Taxes
for periods prior to the Closing Date;
(d) all choses in action of Central relating to any Excluded Asset or
any liability that is not assumed by the Company,
(e) any chose in action of Central relating to any circumstance giving
rise to any reduction to the net fair market value of the Assets pursuant to
Section 3.2 to the extent such chose of action is not assignable;
- 10 -
<PAGE>
(f) any trademarks, service marks, service names, logos, and similar
proprietary rights incorporating the name "Coaxial";
(g) the accounting system, the account books of original entry,
general ledgers, and financial records used in connection with the System;
(h) any insurance policies and rights or claims thereunder relating to
any Excluded Asset or any liability that is not assumed by the Company;
(i) any insurance policies and rights or claims thereunder relating to
any circumstance giving rise to any reduction to the net fair market value of
the Assets pursuant to Section 3.2 to the extent such insurance policies,
rights, or claims are not assignable;
(j) any other assets of Central not used or held for use in connection
with the business or operations of the System; and
(k) any assets (including accounts receivable or notes owed by
Affiliates of Central) described on Schedule 2.2.
2.3 Refinancing.
(a) Central has received proposals (collectively, the "Refinancing
Proposals") from CIBC Oppenheimer Corp., copies of which have been delivered to
Insight, concerning (1) the issuance by the Single-Member LLCs of certain senior
deferred interest notes, a portion of the net proceeds of which will be used to
repay, in part, obligations under the Credit Agreement, dated November 15, 1994,
among Central, certain other parties, and the lenders named therein, as amended,
(2) the purchase of the remaining obligations of Central under such Credit
Agreement from the lenders under the Credit Agreement and the restructuring of
such obligations, and (3) the granting to the Company of a revolving line of
credit. Insight acknowledges that the proceeds of the transactions contemplated
by the Refinancing Proposals will be used as described on Schedule 2.3(a).
(b) Central and Insight will each use their commercially reasonable
efforts to cause the transactions contemplated by the Refinancing Proposals to
be consummated in accordance with the terms thereof (without regard to any
change in interest rates for the senior notes from those contemplated by the
Refinancing Proposals).
ARTICLE 3
VALUE OF CONTRIBUTIONS
- 11 -
<PAGE>
3.1 Fair Market Value of Contributed Assets.
Central and Insight agree that the net fair market value of the Assets as
of the Closing Date for purposes of this Agreement and the Operating Agreement
(subject to adjustment as provided in Section 3.2) shall equal (a) $3,333,333
plus (b) the sum of the Preferred A Capital Amount and the Preferred B Capital
Amount (each as defined in the Operating Agreement) as of the Closing Date.
3.2 Certain Adjustments.
(a) If any loss, damage, confiscation, or condemnation of any of the
Assets occurs prior to the Closing, and the effect of such loss, damage,
confiscation, or condemnation is to reduce the net fair market value of the
Assets as of the Closing (taking into account any increase in liabilities and
obligations and any reduction in operating income resulting from such loss,
damage, confiscation, or condemnation and any insurance, condemnation, or other
proceeds received or to be received by the Company as a result of such loss,
damage, confiscation, or condemnation) by more than $500,000, then this
Agreement shall be amended to reduce the net fair market value of the Assets for
purposes of Section 3.1 by the amount by which the reduction in the net fair
market value of the Assets after the Closing as a result of such loss, damage,
confiscation, or condemnation exceeds $500,000.
(b) If (1) any of the representations and warranties of Central in
this Agreement or in the certificate delivered by Central pursuant to Section
10.2(e) was not true when made or if Central fails to perform and comply with
any covenant or agreement required by this Agreement to be performed or complied
with by Central prior to or on the Closing Date, and (2) Insight delivers a
written notice to Central (A) with respect to a breach of any representation or
warranty in Section 5.6 relating to title to the Assets, Section 5.15 relating
to Taxes, or Section 5.18 relating to third-party claims (including any
third-party claims relating to environmental matters), at any time, or (B) with
respect to a breach of any other representation or warranty, prior to or within
one year after the Closing, in each case identifying any circumstance described
in clause (1), and (3) the net fair market value of the Assets as of the Closing
(taking into account any increase in liabilities and obligations and any
reduction in operating income and any proceeds received by the Company as a
result of such circumstances under any chose of action or any insurance policy
or claim thereunder assigned by Central to the Company) is reduced by those
circumstances described in clause (1) that are identified in one or more notices
delivered by Insight pursuant to clause (2) by more than $500,000, then this
Agreement shall be amended to reduce the net fair market value of the Assets for
purposes of Section 3.1 by the lesser of (x) the amount by which the reduction
in the net fair market value of the Assets as of the Closing (taking into
account any increase in liabilities and obligations and any reduction in
operating income) attributable to the circumstances described in clause (1) that
are identified in any notice delivered by Insight pursuant to clause (2) exceeds
$500,000, or (y) $3,333,333.
- 12 -
<PAGE>
(c) Insight and Central shall use good faith efforts to negotiate and
enter into any amendment to this Agreement required by this Section 3.2. If
Insight and Central are unable to agree on such an amendment, the matter shall
be resolved pursuant to Section 12.9. Upon final determination, this Agreement
shall be deemed amended in accordance with any mediated resolution or
arbitrators' decision, as applicable.
ARTICLE 4
ASSUMED LIABILITIES
4.1 Assumption of Central Liabilities.
Effective as of the Closing, Insight shall cause the Company to assume and
undertake to pay, discharge, and perform the following:
(a) all obligations of Central to customers of the System for (1)
customer deposits held by Central as of the Closing that are refundable, (2)
customer, advertising, and other advance payments held by Central as of the
Closing for services to be rendered by the Company on or after the Closing Date,
and (3) the delivery of cable television service to cable television service
customers and the exhibition of advertising for advertising customers of the
System on or after the Closing Date;
(b) all obligations of Central under the Franchises, Governmental
Permits, and Assumed Contracts;
(c) all costs and expenses of Central and Insight that are set forth
in Section 12.2; and
(d) all other obligations and liabilities arising out of the Company's
ownership of the Assets or operation of the System, other than obligations or
liabilities arising under any Contract that is not included in the Assumed
Contracts, any obligations or liabilities relating to any Excluded Asset, and
any obligations and liabilities with respect to any Taxes for periods prior to
the Closing Date.
4.2 Liabilities Not Assumed.
Notwithstanding any provision of this Agreement to the contrary, except as
expressly provided in Section 4.1 or Section 12.2, the Company shall not assume
by virtue of this Agreement or the transactions contemplated hereby, and the
Company shall not have any liability for, any obligations or liabilities of
Central or of Insight of any kind, character, or description whatsoever.
- 13 -
<PAGE>
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF CENTRAL
Central represents and warrants to Insight as follows:
5.1 Organization, Standing, and Authority.
Central is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Ohio. Central has all requisite
corporate power and authority (a) to own, lease, and use the Assets as now
owned, leased, and used by Central, (b) to conduct the business and operations
of the System as now conducted by Central, and (c) to execute and deliver this
Agreement and the documents contemplated hereby, and to perform and comply with
all of the terms, covenants, and conditions to be performed and complied with by
Central hereunder and thereunder.
5.2 Authorization and Binding Obligation.
The execution, delivery, and performance by Central of this Agreement and
the documents contemplated hereby have been duly authorized by all necessary
corporate actions on the part of Central. This Agreement has been duly executed
and delivered by Central, and this Agreement constitutes, and when executed and
delivered the documents contemplated hereby will constitute, the legal, valid,
and binding obligations of Central, enforceable against Central in accordance
with their terms, except as the enforceability of this Agreement and the
documents contemplated hereby may be affected by bankruptcy, insolvency, or
similar laws affecting creditors' rights generally and by the application of
general equitable principles.
5.3 Absence of Conflicting Agreements.
Subject to obtaining the Consents listed on Schedule 5.3 or as otherwise
disclosed on Schedule 5.3, the execution, delivery, and performance by Central
of this Agreement and the documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (a) do not require the consent
of, notice to, or filing with any Governmental Authority or any third party; (b)
will not conflict with any provision of the Articles of Incorporation, Code of
Regulations, or any other organizational document of Central; (c) will not
conflict with, result in a breach of, or constitute a default under, any Legal
Requirement or any Judgment; (d) will not conflict with, constitute grounds for
termination of, result in a breach of, constitute a default under, or accelerate
or permit the acceleration of any performance required by the terms of, any
agreement, instrument, license, or permit to which Central is a party or by
which Central or any of the Assets may be bound; and (e) will not create any
Lien upon any of the Assets.
- 14 -
<PAGE>
5.4 Financial Statements.
Central has previously delivered to Insight audited financial statements
for the System containing a balance sheet, statement of income, and statement of
cash flows as at and for the fiscal year ended December 31, 1997, and unaudited
financial statements for the System containing a balance sheet, statement of
income, and statement of cash flows as at and for the three months ended March
31, 1998 (collectively, the "Financial Statements"). The Financial Statements
have been prepared from the books and records of Central with respect to the
System, have been prepared in accordance with GAAP consistently applied and
maintained throughout the periods indicated, accurately reflect the books,
records, and accounts of the System, and present fairly the financial condition
of the System as at their respective dates and results of operations for the
periods then ended.
5.5 Interim Operations.
Except as disclosed on Schedule 5.5, since March 31, 1998, Central has
conducted the business and operations of the System in the ordinary course of
business consistent with past practice and has not:
(a) sold or otherwise disposed of any assets that would have been
included in the Assets, except obsolete assets where suitable replacements have
been made therefor;
(b) suffered any material adverse change in its ability to conduct the
business and operations of the System in a manner consistent with Central's past
practices;
(c) waived or released any material claim or right of Central against
any third party; or
(d) mortgaged, pledged, or subjected to any Lien any of the Assets
(other than the Liens disclosed in Schedule 5.6).
5.6 Title to Assets; Liens.
Except as disclosed on Schedule 5.6, Central has good title to the Assets
free and clear of all Liens, except for Permitted Liens. The Company will, at
the Closing, acquire good title to, and all of Central's right, title, and
interest in and to, the Assets free and clear of all Liens, except for Permitted
Liens. No Person has an option to purchase, right of first refusal, or other
similar right with respect to any Assets.
5.7 Franchises.
Schedule 5.7 lists all Franchises held by Central (including the Service
Area covered by each such Franchise, the Franchising Authority that is party to
each such Franchise, Consent
- 15 -
<PAGE>
requirement, if any, and the effective date and expiration date for each such
Franchise). Central has delivered to Insight true and complete copies of all
Franchises. The Franchises listed on Schedule 5.7 constitute all of the
governmental authorizations (whether designated as franchises or otherwise),
other than the Governmental Permits, required to conduct the business of the
System and operate the System lawfully and in the same manner as the business of
the System is currently conducted and the System is currently operated by
Central. Each Franchise is in full force and effect in accordance with its
terms. Central is the authorized legal holder of each Franchise. Except as
disclosed on Schedule 5.7, Central is not in violation of or in default in the
performance of its obligations under any Franchise. All appropriate requests for
renewal under the Communications Act have been filed with the appropriate
Franchising Authorities within the time frame required by each Franchise and
pursuant to applicable Legal Requirements. Central has no reason to believe that
under existing Legal Requirements, any of the Franchises would not be renewed by
the granting authority in the ordinary course. Central has not made any
commitments (oral or written) to any Franchising Authorities with respect to the
System other than those contained in the Franchises.
5.8 Governmental Permits.
Each Governmental Permit held by Central is listed in Schedule 5.8. Central
holds all governmental licenses, permits, and other authorizations that are
required by any applicable Legal Requirement in connection with the conduct of
the business and operation of the System as it is currently conducted and
operated by Central. Each Governmental Permit is valid and in full force and
effect. Central has delivered to Insight true and complete copies of all written
Governmental Permits. Central is not in violation or default of any Governmental
Permit. No proceeding is pending or, to Central's Knowledge, threatened, to
revoke, terminate, cancel, or modify any Governmental Permit.
5.9 Real Property and Real Property Interests.
Schedule 5.9 contains a complete and accurate description of all Real
Property and the nature of all Real Property Interests with respect thereto
(including street address, owner, and use and location of all improvements
thereon). On the date of this Agreement, none of the Real Property Interests are
fee estates. All buildings and improvements occupied by Central on the Real
Property are available for immediate use in the conduct of the business and
operations of the System. There are no pending or, to Central's Knowledge,
threatened condemnation proceedings, special assessments, proceedings for
changes in zoning, lawsuits, or administrative actions that could adversely
affect Central's current use or occupancy of any Real Property. All Real
Property has full legal and practical access to public roads or streets and
facilities necessary for the operation of the System. To Central's Knowledge,
there are no leases, subleases, licenses, concessions, or other agreements,
whether written or oral, granting to any Person the right to use or occupy any
of the Real Property that would impair the Company's ability to use such Real
Property after the Closing for its intended purpose.
- 16 -
<PAGE>
5.10 Tangible Personal Property.
Schedule 5.10 describes all material items of Tangible Personal Property
(including the name of the lessor with respect to such property which is
leased). The Tangible Personal Property, taken as a whole, is in good operating
condition and repair, subject to ordinary wear and tear.
5.11 Contracts.
Schedule 5.11 is a true and complete list of all written Contracts, other
than (a) Contracts entered into in the ordinary course of business that may be
canceled by Central without penalty on not more than thirty days' notice (other
than material agreements to provide cable television service to multiple
dwelling units), (b) subscription agreements with customers for cable services
provided by the System in the ordinary course of business, (c) programming
agreements (other than retransmission agreements and must-carry elections), and
(d) any Contracts through which Central obtains access or rights-of-entry to any
real property that do not require periodic payments by Central. Central has
delivered to Insight true and complete copies of all Assumed Contracts listed on
Schedule 5.11. Central has given Insight reasonable access to review all other
Assumed Contracts. All of the Assumed Contracts are validly existing, in full
force and effect, and binding and enforceable against Central and the other
parties thereto (subject to bankruptcy, insolvency, or similar laws affecting
creditors' rights generally and to the application of general equitable
principles). No default exists under any Assumed Contract. Central has not, nor
has any other party to a Contract, given or received any notice that any party
to any Assumed Contract intends to terminate or not to renew such Assumed
Contract or amend the terms thereof and, subject to receipt of the Consents, the
consummation of the transactions contemplated by this Agreement is not likely to
result in any such termination, non-renewal, or amendment. Except for the need
to obtain the Consents described in Schedule 5.3, Central has full legal power
and authority to assign its rights under all Assumed Contracts to the Company in
accordance with this Agreement, and such assignment will not affect the
validity, enforceability, or continuation of any such Assumed Contract.
5.12 Intangibles.
Schedule 5.12 is a true and complete list of the Intangibles, all of which
are valid and in full force and effect and uncontested. Central does not possess
any patent, patent right, trademark, or copyright used or held for use in
connection with the operation of the System and is not party to any license or
royalty agreement with respect to any patent, trademark, or copyright except for
licenses respecting program material and obligations under Section 111 of the
Copyright Act applicable to cable television systems generally. Central, in its
operations of the System, is not infringing upon or otherwise acting adversely
to any trademarks, trade names, copyrights, patents, patent applications,
know-how, methods, or processes owned by any other Person, and there is no claim
or action pending or, to Central's Knowledge, threatened with respect thereto.
- 17 -
<PAGE>
5.13 System Information.
(a) Schedule 5.13 sets forth, as of the date indicated on Schedule
5.13, for each Service Area, the approximate number of customers of the System
in each class of service. The System consists of approximately 2,300 miles of
total plant, of which approximately 736 miles are underground and approximately
1,564 miles are aerial, from one headend and not fewer than 160,000 Homes
Passed.
(b) All of the communities to which the System provides cable
television service have been registered with the FCC. Schedule 5.13 contains a
true and complete, as of the date indicated on Schedule 5.13, list of each such
community and its corresponding FCC community unit identification number. Except
as disclosed on Schedule 5.13, Central has not received notice from any
community or other political subdivision served by the System that it has
applied to or become certified by the FCC for the purpose of regulating the
System's basic rates. Central has used reasonable efforts to establish rates
charged to customers that would be allowable under the rules and regulations
promulgated by the FCC under the Communications Act and any authoritative
interpretation thereof, if such rates were subject to regulation by any
Governmental Authority, including the local franchising authority, or the FCC,
and to Central's Knowledge, such rates as computed under the FCC's rules and
regulations are permitted rates except as set forth in Schedule 5.13. Central
has delivered to Insight true and complete copies of the most recent FCC Forms
393, 1200, 1205, 1210, 1215, 1220, 1230, and 1240 (as applicable) that have been
prepared with respect to the System. Central has given Insight reasonable access
to review all other such FCC Forms. No rate order of any Governmental Authority
is in effect or, to Central's Knowledge, threatened and no complaints have been
filed with the FCC with respect to the rates charged by Central with respect to
the System.
(c) Schedule 5.13 also sets forth a true and complete list of the
current channel alignment or lineup, channel capacity, and bandwidth capability
for the System. Central has delivered to Insight true and accurate records of
the rates, including installation charges, charged to customers for each class
of service and each category of customers of the System. Except as disclosed in
Schedule 5.13, the System is carrying channels and is providing reception on all
such channels in compliance with the technical standards set forth in all
applicable FCC rules, regulations, and requirements. All offset notifications
required to be filed by Central in connection with its operation of the System
have been filed pursuant to Section 76.615 of the FCC's regulations for all
aeronautical frequencies in use by the System. Schedule 5.13 also sets forth all
broadcast and non-broadcast stations or signals carried by the System, with a
breakdown as to each signal as between satellite and off-air reception, current
channel and frequencies utilized (including system radius and designated
coordinates reported to the FCC); all marketing programs pursuant to which any
customers of the System currently are receiving discounts, whether or not such
programs currently are being offered to customers or potential customers of the
System, and all marketing programs active as of the date of this Agreement as
described in written materials distributed to customers or potential customers
of the System (collectively, "Marketing
- 18 -
<PAGE>
Programs"); and all FCC call signs and licenses, including business radio, earth
station, and microwave licenses.
(d) All broadcast television station signals carried on the System,
excluding superstations carried pursuant to 47 C.F.R. section 76.64, are being
carried either pursuant to a valid must- carry election or a retransmission
consent agreement authorizing the retransmission of the station's signal. Each
such retransmission consent agreement is in full force and effect and consistent
with FCC rules, and there is no dispute pending or, to Central's Knowledge,
threatened, with respect to the carriage or non-carriage or channel position of
any broadcast station by the System. Central has complied with the must-carry
and retransmission consent provisions of the Communications Act and the FCC
rules and regulations promulgated thereunder as they relate to the System. No
retransmission consent agreement requires a cash payment by Central or imposes
other material onerous conditions. Central has not received any request or
demand to lease channel capacity on the System pursuant to Section 612 of the
Communications Act.
(e) Central and the System are currently in compliance with 47 C.F.R.
section 76.92 and section 76.151, with respect to network non-duplication
protection and syndicated exclusivity, and Central is not aware of any complaint
filed with the FCC alleging noncompliance with such regulations with respect to
the System.
(f) All required authorizations, certificates, licenses, permits, and
clearances from Governmental Authorities (including the FCC and the FAA) with
respect to the System's operations, including all of Central's towers, earth
stations, business radios, and frequencies utilized and carried by the System,
have been obtained by Central and are currently valid and in full force and
effect, and the towers are being operated in compliance with all applicable FCC
and FAA rules.
(g) Schedule 5.13 contains a true and complete list of each of the
System's towers (including tower coordinates and height for each such tower).
Copies of all relevant determinations of the FAA, if any, with respect thereto
have been delivered to Insight.
(h) Central has filed all reports, applications, financial statements,
and other documents required to be filed by Central with the FCC or any other
Governmental Authority with respect to its ownership and operation of the
System. All of such returns, reports, and documents filed by Central were,
complete and correct in all material respects as filed.
(i) (1) Central has filed with the U.S. Copyright Office all copyright
notices, statements of accounts, supplements, and other documents required to be
filed under Section 111 of the Copyright Act with respect to Central's ownership
and operation of the System and has paid all royalties, supplemental royalties,
fees, and other sums to the U.S. Copyright Office under the Copyright Act (with
all required interest and penalties, if any) required to be paid by it with
respect to such filings, (2) the operations of the System are in compliance with
the Copyright Act
- 19 -
<PAGE>
and the rules and regulations of the U.S. Copyright Office, and (3) the System
qualifies for, and has obtained, holds, and maintains, the compulsory license
under Section 111 of the Copyright Act, which compulsory copyright license is in
full force and effect. Central has made available to Insight complete and
correct copies of all reports and filings for the past three years made or filed
pursuant to the Copyright Act with respect to the System. Central has not
received any notice or inquiry from the United States Copyright Office or from
any other party concerning any claim, action, or demand relating to its
copyright filings, statements of accounts, or royalty payments or any notice,
inquiry, or claim from any other Person to the effect that the conduct of the
business or operations of the System has infringed, or as currently conducted
infringes, on the intellectual property rights of any Person.
(j) Without limiting the generality of the foregoing, and except as
set forth in Schedule 5.13 hereto:
(1) all of the annual performance tests on the System required
under the rules and regulations of the FCC have been performed and the results
of such tests demonstrate satisfactory compliance in all material respects;
(2) the System currently meets or exceeds the technical standards
set forth in the rules and regulations of the FCC, including, without
limitation, the leakage limits contained in 47 C.F.R. Section 76.605(a)(11);
(3) the System is being operated in compliance with the
provisions of 47 C.F.R. Section 76.610 through 76.619 (mid-band and super-band
signal carriage), including 47 C.F.R. Section 76.611 (compliance with the
cumulative signal leakage index);
(4) all notices to subscribers of the System required by the
rules and regulations of the FCC have been provided;
(5) Central is in compliance with its obligations with regard to
the protection of subscriber privacy pursuant to Section 631 of the
Communications Act; and
(6) no programmer is currently auditing the System with respect
to the number of System subscribers or amounts paid to any programmer.
5.14 Employees and Compensation.
(a) Schedule 5.14 contains a true and complete list of the names,
present titles and work assignments, respective dates of initial employment, and
current annual salary or hourly rate for all employees of Central as of the date
hereof who perform services primarily in connection with the operation of the
System (each a "System Employee"). Central generally enjoys good
employer-employee relations with the System Employees. Central does not have any
- 20 -
<PAGE>
written or oral contracts of employment with any System Employee, other than
those listed in Schedule 5.11.
(b) Except as set forth on Schedule 5.14, neither Central nor any of
its Affiliates is party to, administers, sponsors, maintains, or contributes to
any Employee Plan or Compensation Arrangement for the System Employees,
including any plans subject to ERISA. Except as disclosed in Schedule 5.14,
there is not now in effect or to become effective after the date of this
Agreement and until the Closing Date, any new Employee Plan or Compensation
Arrangement or any amendment to an existing Employee Plan or Compensation
Arrangement that will affect the benefits of System Employees and former System
Employees. All Employee Plans that are subject to Section 4980B(f) of the Code
and Sections 601 through 607 of ERISA comply in all material respects with and
have been administered in material compliance with the health care
continuation-coverage requirements for tax-favored status under Section 4980B(f)
of the Code, and Sections 601 through 607 of ERISA. Central has complied in all
material respects with all applicable provisions of ERISA, the Code, the
National Labor Relations Act, Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act and all other laws pertaining to employee
benefit plans. Central has no liability for any delinquent contributions due to
employee benefit plans within the meaning of Section 515 of ERISA (including
related attorneys' fees, costs, liquidated damages and interest) or for any
arrearages of wages. Central does not contribute to and is not required to
contribute to any Multiemployer Plan with respect to System Employees.
(c) Central has complied in all material respects with all applicable
Legal Requirements relating to the employment of labor, including those related
to wages, hours, collective bargaining, discrimination, and the payment of
Social Security or similar taxes. Central has not been and is not a party to or
subject to any collective bargaining agreement with respect to the System. No
proceedings or material controversies or disputes are pending or, to Central's
Knowledge, threatened between it and any System Employee (singly or
collectively). No labor union or other collective bargaining unit represents or
claims to represent any of the System Employees.
5.15 Taxes.
All federal, state and local tax returns required to be filed by Central in
connection with the operation of the System with respect to any Taxes have been
filed and all Taxes which are due and payable have been paid, except such
amounts as are being contested diligently and in good faith and are not in the
aggregate material. There are no legal, administrative, or tax proceedings
pursuant to which Central is or could be made liable for any taxes, penalties,
interest, or other charges, the liability of which could extend to the Company
as transferee of the System or Assets or business related thereto, and no event
has occurred that could impose on the Company any transferee liability for any
taxes, penalties, or interest due or to become due from Central.
- 21 -
<PAGE>
5.16 Environmental Matters.
Central's operation of the System and use of the Real Property and Assets
complies and has complied with all Environmental Laws, and Central has no
liability under any Environmental Law based on its operation of the System and
use of the Real Property and Assets. Central has not received notice of any
claim or investigation based on Environmental Laws that relates to the
operations of the System, any Real Property or any operations conducted by
Central on such Real Property, including any such notice indicating that the
Real Property has been or may be placed on any federal or state "Superfund" or
"Superlien" list. Neither Central nor, to Central's Knowledge, any other Person
has released any reportable quantity of any Hazardous Substance on the Real
Property, treated or disposed of any Hazardous Substance on the Real Property,
or transported any Hazardous Substance to or from any Real Property, except for
such substances found in commercial cleaning products or standard office
supplies of the types and in the amounts customarily used by businesses similar
to the business of the System. Neither Central nor, to Central's Knowledge, any
other Person has installed or removed any tanks on or below the surface of the
Real Property. Central has provided Insight with complete and correct copies of
(1) all studies, reports, surveys or other materials in Central's possession
relating to the presence or alleged presence of Hazardous Substances on the Real
Property, (2) all notices or other materials in Central's possession that were
received from any Governmental Authority having the power to administer or
enforce any Environmental Law relating to current or past ownership, use, or
operation of the Real Property or activities at the Real Property, and (3) all
materials in Central's possession relating to any claim, allegation, or action
by any Person under any Environmental Law relating to current or past ownership,
use, or operation of the Real Property.
5.17 Compliance with Laws.
Except as disclosed on Schedule 5.17, neither Central nor the ownership of
the Assets as they are currently owned by Central or the operation of the System
as it is currently operated by Central, is in violation of (a) any applicable
Judgment relating to the System or Assets or (b) any Legal Requirement
applicable to the System or the Assets.
5.18 Claims and Legal Actions.
Except as disclosed on Schedule 5.18 and except for proceedings generally
affecting the cable television industry, (a) there is no action, suit, claim,
demand, arbitration, or other proceeding (or, to Central's Knowledge, any
investigation), administrative or judicial, pending (or, to Central's Knowledge,
threatened) against or relating to Central with respect to its ownership or
operation of the System or otherwise relating to the Assets, and (b) no Judgment
been issued against or relating to any of the foregoing.
- 22 -
<PAGE>
5.19 Insurance and Bonds.
Schedule 5.19 is a true and complete list of all insurance policies of
Central that insure any part of the Assets or the business of the System and all
performance, surety, or other bonds maintained by Central with respect to the
Assets or the business of the System. All of such policies and bonds are in full
force and effect, and Central has received no notice of non-renewal or
cancellation of any such policies or bonds.
5.20 Transactions with Affiliates.
Except as disclosed on Schedule 5.20, Central has not been involved in any
business arrangement or relationship relating to the System with any Affiliate
of Central, and no Affiliate of Central owns any property or right, tangible or
intangible, that is used in the business of the System.
5.21 Brokers.
Neither Central nor any Person acting on Central's behalf has incurred any
liability for any finders' or brokers' fees or commissions in connection with
the transaction contemplated by this Agreement, except for fees or commissions
payable to Waller Capital Corporation.
5.22 Assets.
Central uses no properties or assets in the business or operations of the
System, other than the Assets and the Excluded Assets, and the Assets and the
Excluded Assets together include all material properties and assets necessary
for the conduct of the business of the System in the ordinary course of business
in substantially the same manner as now conducted.
5.23 Accounts Receivable.
All accounts receivable reflected on the Financial Statements, and all
accounts receivable of Central that arose after the date of the Financial
Statements and prior to the date of this Agreement, arose from bona fide
transactions in the ordinary course of business.
5.24 No Undisclosed Liabilities.
Except as and to the extent set forth on Schedule 5.24, Central does not
have any liability or obligation (direct or indirect, absolute, fixed,
contingent, or otherwise) arising out of the Assets or operation of the System
that would be required by GAAP to be reflected or reserved on the Financial
Statements but which are not so reflected or reserved, other than any such
liability or obligation incurred since March 31, 1998 in the ordinary course of
business.
- 23 -
<PAGE>
5.25 Liabilities to Customers.
Central has no obligations or liabilities to customers of the System except
with respect to (a) prepayments or deposits made by such customers as set forth
in the Financial Statements or, since March 31, 1998, incurred in the ordinary
course of business consistent with past practices, and (b) obligations to supply
services to customers in the ordinary course of business in accordance with and
pursuant to the terms of the Franchises, the Governmental Permits, and
Contracts.
5.26 Restoration.
No property of any third party has been damaged, destroyed, disturbed or
removed in the process of constructing or maintaining the System that has not
been, or will not be, prior to the Closing, repaired, restored, or replaced,
other than in connection with installation and work projects undertaken in the
ordinary course of business and ongoing as of Closing.
5.27 Overbuilds.
Except as set forth in Schedule 5.27, to Central's Knowledge, on the date
of this Agreement, (a) no construction programs have been undertaken or are
proposed or threatened to be undertaken by any municipality or other cable
television, multichannel multipoint distribution system, or multipoint
distribution system provider or operator in any Service Area; and (b) no
application of any Person for any franchise to provide cable television service
in any Service Area is pending. Except as set forth in Schedule 5.27, Central is
not, nor is an affiliate of Central, a party to any agreement restricting the
ability of a third party to operate cable television systems in the Franchise
areas.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF INSIGHT
Insight represents and warrants to Central as follows:
6.1 Organization, Standing, and Authority.
Insight is a limited partnership duly organized, validly existing, and in
good standing under the laws of the State of Delaware. Insight has all requisite
partnership power and authority to own, lease, and use its properties and
assets, to engage in the business or businesses in which it is engaged, and to
execute and deliver this Agreement and the documents contemplated hereby, and to
perform and comply with all of the terms, covenants, and conditions to be
performed and complied with by Insight hereunder and thereunder.
- 24 -
<PAGE>
6.2 Authorization and Binding Obligation.
The execution, delivery, and performance of this Agreement by Insight have
been duly authorized by all necessary actions on the part of Insight. This
Agreement has been duly executed and delivered by Insight, and this Agreement
constitutes, and when executed and delivered the documents contemplated hereby
will constitute, the legal, valid, and binding obligations of Insight,
enforceable against Insight in accordance with their terms, except as the
enforceability of this Agreement and the documents contemplated hereby may be
affected by bankruptcy, insolvency, or similar laws affecting creditors' rights
generally and by the application of general equitable principles.
6.3 Absence of Conflicting Agreements.
Except as set forth on Schedule 6.3, subject to obtaining any Consents
required to be disclosed by Central on Schedule 5.3, the execution, delivery,
and performance by Insight of this Agreement and the documents contemplated
hereby (with or without the giving of notice, the lapse of time, or both): (a)
do not require the consent of, notice to, or filing with any Governmental
Authority or any third party; (b) will not conflict with any provision of
Insight's agreement of limited partnership or certificate of limited
partnership; (c) will not conflict with, result in a breach of, or constitute a
default under, any Legal Requirement or any Judgment; and (d) will not conflict
with, constitute grounds for termination of, result in a breach of, constitute a
default under, or accelerate or permit the acceleration of any performance
required by the terms of, any agreement, instrument, license, or permit to which
Insight is a party or by which Insight may be bound.
6.4 Claims and Legal Actions.
Except for proceedings generally affecting the cable television industry,
there is no claim, legal action, counterclaim, suit, arbitration, governmental
investigation, or other legal, administrative, or tax proceeding in progress or
pending or, to the knowledge of Insight, threatened, nor any Judgment
outstanding, against or relating to Insight, that may impair Insight's ability
to perform its obligations under this Agreement, the Operating Agreement, or the
Single-Member LLC Management Agreements.
6.5 Brokers.
Neither Insight nor any Person acting on its behalf has incurred any
liability for any finders' or brokers' fees or commissions in connection with
the transactions contemplated by this Agreement, except for fees or commissions
payable to Lazard Freres & Co. LLC.
- 25 -
<PAGE>
ARTICLE 7
OPERATIONS OF SYSTEM PRIOR TO CLOSING
7.1 Generally.
Central agrees that, between the date of this Agreement and the Closing
Date, Central shall operate the System in the ordinary course of business
consistent with past practices and in compliance with the other covenants in
this Article 7, except as specifically required by this Agreement or consented
to by Insight.
7.2 Contracts or Commitments.
Central shall not (a) modify or amend in any material respect any
Franchise, Governmental Permit, or Assumed Contract, (b) terminate, suspend, or
abrogate any Franchise, Governmental Permit, or Assumed Contract, or (c) enter
into any contract that will be binding on the Company after Closing other than
(1) contracts entered into in the ordinary course of business that do not
involve consideration individually in excess of $75,000 and, in the aggregate,
in excess of $350,000, measured at Closing, and (2) contracts described on
Schedule 7.2.
7.3 Disposition of Assets.
Central shall not sell, lease or otherwise dispose of any of the Assets
other than in the ordinary course of business where suitable replacements have
been made therefor.
7.4 Distributions.
Central shall not make any distributions to its shareholders, except for
distributions made consistent with past practices for the purpose of offsetting
tax liabilities attributable to the allocation of taxable income to the
shareholders of Central.
7.5 Encumbrances.
Central shall not create, assume, or permit to exist any Lien upon the
Assets, except for Permitted Liens and Liens that are disclosed on Schedule 5.6.
7.6 Franchises and Governmental Permits.
Central shall not cause or permit, by any act or failure to act, any of the
Franchises or Governmental Permits to expire or to be revoked, suspended, or
modified, or take any action that would cause any Franchising Authority or other
Governmental Authority to institute proceedings for the suspension, revocation,
or adverse modification of any of the Franchises or Governmental Permits.
- 26 -
<PAGE>
7.7 Access to Information.
Central shall, upon reasonable advance notice, give Insight and its
counsel, accountants, engineers, and other authorized representatives reasonable
access to the Assets and to all other properties, equipment, books, records,
Contracts, and documents relating to the System and the Assets for the purpose
of audit and inspection, and will, upon reasonable advance notice, furnish or
cause to be furnished to Insight or its authorized representatives all
information with respect to the affairs and business of the System that Insight
may reasonably request.
7.8 Maintenance of Assets.
Central shall maintain all of the Tangible Personal Property in good
operating condition (ordinary wear and tear excepted), use, operate, and
maintain all of the Assets in a reasonable manner, and maintain inventories
consistent with past practices.
7.9 Insurance and Bonds.
Central shall at all times prior to and through the Closing maintain the
insurance policies (or comparable replacement policies) and bonds described in
Section 5.19 in amounts not less than those in effect on the date hereof.
7.10 Compliance with Contracts and Laws.
Central shall comply in all material respects with all contractual
obligations and Legal Requirements applicable or relating to its ownership and
operation of the System.
7.11 Changes to Employee Compensation and Benefits.
Except as described on Schedule 7.11, Central shall not cause or permit (a)
any change in the existing salary or compensation rates payable to any System
Employees (other than as required by any Legal Requirement or regularly
scheduled bonuses and increases in salary or compensation in the ordinary course
of business consistent with past practice as described on Schedule 7.11), or (b)
any change in the employee benefits or benefit plans existing on the date of
this Agreement or the establishment of any new employee benefits or benefit
plans (other than as required by any Legal Requirement).
7.12 Delivery of Financial Information.
Central shall furnish to Insight within 20 days after the end of each month
ending between the date of this Agreement and the Closing Date a flash report of
income and expense for the month just ended for the System and such other
financial information (including information on payables and receivables) as
Insight may reasonably request. Promptly after the preparation
- 27 -
<PAGE>
thereof, Central shall deliver to Insight copies of any other financial
statements, subscriber counts, and other operational data regularly prepared by
Central for its internal use.
7.13 Acquisition of Business Office and Headend Site.
Prior to Closing, Central will acquire, at no cost (net of any capital
contributions received by Central from its shareholders to finance such
acquisition, if required) to Central, good title, free and clear of all Liens
except for Permitted Liens (other than any purchase money liens), to the Real
Property designated on Schedule 5.9 as being owned by Tierra Associates, an
Affiliate of Central, and leased to Central for use as a business office,
warehouse, and headend site.
7.14 Marketing Programs.
Central shall not initiate any Marketing Programs other than as described
in Schedule 5.13.
7.15 Accounts Payable.
Central shall pay its accounts payable, on average, within forty-five days.
ARTICLE 8
SPECIAL COVENANTS AND AGREEMENTS
8.1 Consents.
(a) Central shall use commercially reasonable efforts to obtain as
expeditiously as possible all Consents required for the performance of its
obligations under this Agreement and the documents contemplated hereby. No such
Consent shall include any condition or qualification that would impose terms or
conditions that are materially more burdensome than those set forth in the
Franchise, Governmental Permit, or other Assumed Contract that is the subject of
the Consent, unless otherwise agreed to by Insight. Any instrument evidencing
any Consent shall be in form and substance reasonably satisfactory to Insight.
(b) Central will submit an FCC Form 394 to each Franchising Authority
that granted any of the Franchises (excluding any Franchising Authority the
consent of which is not required to assign to the Company the Franchise issued
by such Franchising Authority) within fifteen days after Central receives from
Insight all information regarding Insight that is required to complete such FCC
Form 394.
(c) Nothing in this Agreement shall require Central to make any
expenditure or payment of funds or give any other consideration in order to
obtain any Consent required for the performance of their obligations under this
Agreement and the documents contemplated hereby, except for fees of attorneys
for Central, filing fees, and other reasonable fees or out-of-
- 28 -
<PAGE>
pocket costs (for example, application fees) imposed by any Franchising
Authority, Governmental Authority or other third party and any costs required to
remedy any item of breach by Central with the terms of any Franchise,
Governmental Permit, or other Contract.
(d) Insight will cooperate fully with Central in obtaining any
necessary Consents, but Insight will not be required (1) to make any payment to
any Person or Franchising Authority from which such Consent is sought or (2) to
accept any terms, conditions, or obligations that are materially more burdensome
than those currently contained in any Franchise, Governmental Permit, or Assumed
Contract as a condition to obtaining any Consent. Insight may participate with
Central in negotiations with Franchising Authorities and other third parties
with respect to the Consents. Insight will not, without the prior written
consent of Central, seek amendments or modifications to the Franchises or other
Assumed Contracts.
(e) Insight shall promptly furnish to any Franchising Authority or
other third party any information regarding Insight, including financial
information concerning Insight and other information relating to the cable and
other operations of Insight (other than information that Insight reasonably
deems to be proprietary), that such Franchising Authority or other third party
may reasonably require in connection with obtaining any Consent, and Insight
shall promptly furnish to Central a copy of any such information provided to
such Franchising Authority or other third party. Each of Insight and Central
shall use reasonable efforts to ensure that its appropriate officers and
employees shall be available to attend, as the Franchising Authority may
reasonably request, any scheduled hearings or meetings in connection with
obtaining such Consent.
8.2 Cooperation.
The parties to this Agreement will cooperate fully with each other and
their respective counsel and accountants in connection with any actions required
to be taken as part of their respective obligations under this Agreement, and
each party shall execute such other documents as may be reasonably necessary and
desirable to the implementation and consummation of this Agreement, and
otherwise shall use its commercially reasonable efforts to consummate the
transactions contemplated by this Agreement and to fulfill its obligations
hereunder.
8.3 Deferred Contributions.
If on the date specified for the Closing pursuant to Section 10.1(a), any
Service Area is not a Transferable Service Area, then, notwithstanding any other
provision of this Agreement, the following provisions shall apply:
(a) At the Closing, Central shall contribute to the Company, only
those Assets that do not relate solely to a Service Area that is not a
Transferable Service Area (including any Assets, such as head-ends and business
offices and the Real Property Interests and equipment related thereto, that may
relate both to Transferable Service Areas and Service Areas that are not
Transferable Service Areas). The Assets that are not contributed to the Company
at the Closing
- 29 -
<PAGE>
in accordance with the preceding sentence are referred to in this Section 8.3 as
the "Retained Assets." From and after the Closing, Central shall retain the
Retained Assets, and Central shall contribute the Retained Assets to the Company
in accordance with the terms of this Section 8.3.
(b) At the Closing:
(1) All conveyancing documents, certificates, and other documents
contemplated by this Agreement to be delivered at the Closing shall be in the
form and substance provided for in this Agreement with such modifications as are
necessary or appropriate to reflect the provisions of this Section 8.3 and to
relate only to the Assets being contributed to the Company at the Closing.
(2) Central and the Company shall enter into a management
agreement (each, a "Management Agreement"), in form and substance reasonably
satisfactory to Insight and Central, which will provide that the Company will
manage the Retained Assets for Central's benefit and the Company will be
entitled to receive and retain all revenues, and will be responsible for all
costs and expenses, attributable to the operations of such Retained Assets after
the Closing.
(c) After the Closing, Central, Insight, and the Company shall
continue to undertake, in accordance with this Agreement, to obtain any Consent
necessary to cause any Service Area that was not a Transferable Service Area on
the Closing Date to become a Transferable Service Area, and the agreements and
obligations of Central and Insight under Section 8.1 shall be fully applicable
in seeking such Consents after the Closing. Central shall give Insight written
notice of the receipt of any Consent necessary to cause any Service Area that
was not a Transferable Service Area on the Closing Date to become a Transferable
Service Area. As soon as practicable after any Service Area that was not a
Transferable Service Area on the Closing Date becomes a Transferable Service
Area, on a date to be specified by Insight, a closing shall be held at which
Central shall contribute to the Company those Retained Assets relating to such
Service Area and the Company and Central shall execute and deliver conveyancing
documents, certificates, and other documents corresponding to those delivered at
the Closing with such modifications as are necessary or appropriate to reflect
the provisions of this Section 8.3 (including the Company's management of the
Retained Assets) and to relate only to the Retained Assets being contributed to
the Company at such closing. Upon such closing, the applicable Management
Agreement will be terminated insofar as it relates to the Retained Assets
transferred at such closing. The value of such Retained Assets is reflected in
the net fair market value of the Assets as calculated in accordance with this
Agreement, and any such contribution by Central shall not increase the amount of
capital contributions made by Central for purposes of the Operating Agreement.
(d) If any Retained Assets have not been contributed to the Company
prior to the dissolution of the Company pursuant to the Operating Agreement,
then, upon the dissolution and liquidation of the Company, the Liquidator (as
defined in the Operating Agreement) shall have the authority to sell such
Retained Assets on behalf of Central in connection with the liquidation
- 30 -
<PAGE>
of the Company in accordance with the liquidation procedures in the Operating
Agreement. Upon the consummation of any such sale of the Retained Assets,
Central shall contribute to the Company an amount in cash equal to the net
pre-tax proceeds of such sale, and the Company shall treat such amount as if it
were proceeds from the liquidating sale of assets of the Company. The right to
receive such net sale proceeds in lieu of the Retained Assets, under the
circumstances described in this Section 8.3(d), is reflected in the net fair
market value of the Assets as calculated in accordance with this Agreement, and
neither such contribution by Central nor Central's failure to contribute the
Retained Assets shall increase or decrease the amount of capital contributions
made by Central for purposes of the Operating Agreement.
8.4 Confidentiality.
(a) Except as and to the extent required by any Legal Requirement or
as provided in Section 8.4(c), each party will keep confidential any information
obtained from the other party in connection with the transactions contemplated
by this Agreement. If this Agreement is terminated, each party will return to
the other party or destroy all information obtained by such party from the other
party in connection with the transactions contemplated by this Agreement. The
obligations of the parties under this Section 8.4(a) will survive the
termination of this Agreement.
(b) Except as provided in Section 8.4(c), neither party shall publish
any press release or make any other public announcement concerning this
Agreement or the transactions contemplated hereby without the prior written
consent of the other party, which shall not be withheld unreasonably.
(c) Nothing contained in this Agreement shall prevent either party
from making any filings with Governmental Authorities, including in connection
with any securities filings with any Governmental Authorities or exchanges that,
in its judgment, may be required or advisable in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
8.5 Bulk Sales Law.
Insight, for itself and on behalf of the Company, waives compliance by
Central with Article 6 of the Uniform Commercial Code (regarding bulk sales) as
in effect in the states in which the Assets are located and the business of the
System is conducted.
8.6 Further Assurances.
After the Closing, Central shall take such actions, and execute and deliver
to the Company such further deeds, bills of sale, assignments, or other transfer
documents as, in the opinion of counsel for Insight, may be reasonably necessary
to ensure the full and effective transfer of the Assets to the Company pursuant
to this Agreement.
- 31 -
<PAGE>
8.7 HSR Act.
Each party to this Agreement has determined that neither such party nor its
ultimate parent entity (within the meaning of the HSR Act) is required to make
any filings with the Department of Justice or the Federal Trade Commission under
the HSR Act in connection with the transactions contemplated by this Agreement.
If either party subsequently determines that any filing under the HSR Act is
required in connection with the transactions contemplated by this Agreement, (a)
each party and its Affiliates will cooperate with the other party in causing
such filing to be made as expeditiously as practicable, (b) each party and its
Affiliates will promptly file, after any request by the Department of Justice or
the Federal Trade Commission and after appropriate negotiation with the
Department of Justice or the Federal Trade Commission of the scope of such
request, any information or documents so requested, and (c) each party will
furnish to other party any correspondence from or to, and notify the other party
of any other communications with, the Department of Justice or the Federal Trade
Commission that relates to the transactions contemplated by this Agreement.
8.8 Risk of Loss.
The risk of any loss, damage, impairment, confiscation, or condemnation of
any of the Assets from any cause whatsoever shall be borne by Central at all
times prior to the Closing and thereafter shall be borne by the Company.
8.9 Use of Names and Logos.
For a period of 180 days after Closing, the Company shall be entitled to
use the trademarks, trade names, service marks, service names, logos, and
similar proprietary rights of Central to the extent incorporated in or on the
Assets transferred to the Company at Closing, provided that Insight shall
exercise reasonable efforts to cause the Company to remove all such names,
marks, logos, and similar proprietary rights of Central from such Assets as soon
as reasonably practicable following Closing.
8.10 Power of Attorney.
At Closing, Central shall grant to the Company the limited, irrevocable
right, in Central's name, place, and stead, as Central's attorney-in-fact, to
cash, deposit, endorse, or negotiate checks received on or after the Closing
Date made out to Central in payment for cable television and related services
provided by the System. In addition, on or prior to the Closing Date, Central
shall provide written instructions to its lock-box service provider or similar
agents to promptly forward to the Company all such cash, deposits, and checks
that it may receive. From and after the Closing, Central shall promptly remit to
the Company any payment received by Central on or after the Closing Date in
respect of any accounts receivable of the System as of the Closing.
- 32 -
<PAGE>
8.11 Access to Books and Records.
Central shall provide the Company with access and the right to copy for a
period of three years after the Closing Date any books and records that are
Excluded Assets.
8.12 Other Transaction Documents.
Central agrees that, on or prior to the Closing Date, (a) each Principal
will execute the Single-Member LLC Operating Agreement to which he is a party,
(b) each Principal will cause the Single-Member LLC of which he is sole member
to execute and deliver to Insight the Single-Member LLC Management Agreement to
which it is a party, (c) the Amended Articles of Incorporation of Central will
be duly adopted and filed with the Secretary of State of the State of Ohio, and
(d) Central and each Single-Member LLC will execute the Close Corporation
Agreement. Central and Insight agree that, on the Closing Date, the Company will
enter into the Employee Transition Agreement.
ARTICLE 9
CLOSING CONDITIONS
9.1 Conditions to Obligations of Insight.
All obligations of Insight at the Closing are subject, at Insight's option,
to the fulfillment prior to and at the Closing Date of each of the following
conditions (any one or more of which may be waived by Insight, in its
discretion):
(a) All representations and warranties of Central in this Agreement
shall be true in all material respects at and as of the Closing Date as though
made at and as of such date.
(b) Central shall have performed and complied with in all material
respects all covenants and agreements required by this Agreement to be performed
or complied with by Central prior to or on the Closing Date.
(c) Each Consent designated on Schedule 5.3 as a "Required Consent"
shall have been duly obtained and delivered to Insight without any conditions,
qualifications, or obligations that are materially more burdensome than those
currently set forth in the Governmental Permit or Assumed Contract that is the
subject of such Consent.
(d) The aggregate number of customers in those Service Areas that are
Transferable Service Areas shall be at least two-thirds of the aggregate number
of customers in all Service Areas. For purposes of this Section 9.1(d) and
Section 9.2(c), the number of customers in a Service Area shall be the number of
customers set forth next to the name of such
- 33 -
<PAGE>
Service Area on Schedule 5.13 (regardless of the actual number of customers in
such Service Area on the Closing Date).
(e) The FCC shall have consented, to the extent such consent is
legally required, to the transfer to the Company of all Governmental Permits
issued by the FCC.
(f) All waiting periods under the HSR Act applicable to this Agreement
or the transactions contemplated by this Agreement to be consummated at the
Closing shall have expired or been terminated.
(g) Central shall have made or stand willing and able to make all the
deliveries required to be made by Central pursuant to Section 10.2.
(h) There shall not be in effect any Judgment that would prevent or
make unlawful the Closing.
(i) The transactions contemplated by the Refinancing Proposals shall
have been consummated substantially in accordance with the terms of the
Refinancing Proposals (without regard to any change in interest rates for the
senior notes from those contemplated by the Refinancing Proposals).
(j) Central's operating income for the quarter ended June 30, 1998
shall not have been less than $5,200,000, where Central's operating income for
such period means the net income (or loss) of Central for such period (exclusive
of any extraordinary gain or loss) determined in accordance with GAAP applied in
a manner consistent with Central's past practices, plus interest, depreciation,
amortization, income tax expense, any home office expenses, any non-operating
expenses, and any expenses incurred in connection with the transactions
contemplated by this Agreement or the procurement of any financing, to the
extent such items were deducted in determining Central's net income (or loss)
for such period.
(k) Each Principal shall have executed the Single-Member LLC Operating
Agreement to which he is a party, each Single-Member LLC shall have executed and
delivered to Insight the Single-Member LLC Management Agreement to which it is a
party, the Amended Articles of Incorporation of Central shall have been duly
adopted and filed with the Secretary of State of the State of Ohio, Central and
each Single-Member LLC shall have executed the Close Corporation Agreement, and
Central shall have executed and delivered to the Company the Employee Transition
Agreement.
9.2 Conditions to Obligations of Central.
All obligations of Central at the Closing are subject, at Central's option,
to the fulfillment prior to and at the Closing Date of each of the following
conditions (any one or more of which may be waived by Central, in its
discretion):
- 34 -
<PAGE>
(a) All representations and warranties of Insight in this Agreement
shall be true in all material respects at and as of the Closing Date as though
made at and as of such date.
(b) Insight shall have performed and complied with in all material
respects all covenants and agreements required by this Agreement to be performed
or complied with by it prior to or on the Closing Date.
(c) The aggregate number of customers in those Service Areas that are
Transferable Service Areas shall be at least two-thirds of the aggregate number
of customers in all Service Areas.
(d) The FCC shall have consented, to the extent such consent is
legally required, to the transfer to the Company of all Governmental Permits
issued by the FCC.
(e) All waiting periods under the HSR Act applicable to this Agreement
or the transactions contemplated by this Agreement to be consummated at the
Closing shall have expired or been terminated.
(f) Insight shall have caused or stand willing and able to cause the
Company to make all the deliveries to Central set forth in Section 10.3, and
Insight shall have made or shall stand willing and able to make all the
deliveries to the Company set forth in Section 10.4.
(g) There shall not be in effect any Judgment that would prevent or
make unlawful the Closing.
(h) The transactions contemplated by the Refinancing Proposals shall
have been consummated substantially in accordance with the terms of the
Refinancing Proposals (without regard to any change in interest rates for the
senior notes from those contemplated by the Refinancing Proposals).
(i) The Operating Agreement and the Single-Member LLC Management
Agreements shall have been executed and delivered by Insight, and the Employee
Transition Agreement shall have been executed and delivered by the Company.
ARTICLE 10
CLOSING AND CLOSING DELIVERIES
10.1 Time and Place of Closing.
(a) Closing Date.
- 35 -
<PAGE>
(1) Except as provided in Section 10.1(a)(2), or as otherwise
agreed to by Central and Insight, the Closing shall take place at 10:00 a.m. on
the fifth Business Day after the satisfaction of the last of the Consent
Conditions to be satisfied.
(2) If on the date on which the Closing would otherwise be
required to take place pursuant to Section 10.1(a)(1), (A) there shall be in
effect any Judgment that would prevent or make unlawful the Closing, (B) any
other circumstance beyond the reasonable control of the party making an election
under this Section 10.1(a)(2) shall exist that would prevent the Closing or the
satisfaction of any of the conditions precedent to the obligations of either
party set forth in this Agreement, or (C) the conditions specified in Section
9.1(i) and Section 9.2(h) shall not be satisfied, then Insight or Central may,
at its option, postpone the date on which the Closing is required to take place
until the fifth Business Day after such Judgment ceases to be in effect, such
other circumstance ceases to exist, or such conditions have been satisfied or
are capable of being satisfied concurrently with the Closing; provided, however,
that any postponement of the date on which the Closing is required to take place
pursuant to this Section 10.1(a)(2) shall not restrict the exercise by either
Central or Insight of its rights under Section 11.2(b) or Section 11.3(b), as
applicable.
(b) Closing Place. The Closing shall be held at the offices of
Cooperman Levitt Winikoff Lester & Newman, P.C., 800 Third Avenue, New York, New
York 10022, or any other place that is agreed upon by Central and Insight.
10.2 Deliveries by Central.
On the Closing Date, Central shall deliver to the Company the following, in
form and substance reasonably satisfactory to Insight and its counsel:
(a) Duly executed bills of sale, motor vehicle titles, assignments of
the Franchises, Governmental Permits, and Assumed Contracts, special warranty
deeds and such other transfer documents which shall be sufficient to vest good
title to the Assets in the name of the Company (or its designee), free and clear
of all Liens except for Permitted Liens.
(b) A manually executed copy of any instrument evidencing any Consent
that has been obtained.
(c) Any Management Agreement required pursuant to Section 8.3, duly
executed by Central.
(d) An opinion of counsel to Central, dated as of the Closing Date and
including FCC matters, in form and substance reasonably satisfactory to Insight
and its counsel.
(e) A certificate, dated as of the Closing Date, executed by Central,
certifying that except as disclosed in such certificate, all representations and
warranties of Central contained
- 36 -
<PAGE>
in this Agreement are true in all material respects at and as of the Closing
Date as though made at and as of that date.
(f) Such additional documents, information, and materials as Insight
shall reasonably request.
10.3 Deliveries by the Company.
On the Closing Date, the Company shall deliver to Central the following, in
form and substance reasonably satisfactory to Central and its counsel:
(a) Appropriate assumption agreements, pursuant to which the Company
shall assume the obligations and liabilities described in Section 4.1.
(b) Any Management Agreement required pursuant to Section 8.3, duly
executed by the Company.
(c) The Employee Transition Agreement, duly executed by the Company.
(d) Such additional documents, information, and materials as Central
shall reasonably request.
10.4 Deliveries by Insight.
On the Closing Date, Insight shall contribute or cause to be contributed to
the Company, in cash, the sum of Ten Million Dollars and shall deliver to
Central:
(a) An opinion of counsel to Insight, dated as of the Closing Date, in
form and substance reasonably satisfactory to Central and its counsel.
(b) The Operating Agreement, duly executed by Insight.
(c) The Single-Member LLC Management Agreements, duly executed by
Insight.
ARTICLE 11
TERMINATION RIGHTS
11.1 Termination by Agreement.
This Agreement may be terminated at any time prior to the Closing by
agreement between Insight and Central.
- 37 -
<PAGE>
11.2 Termination by Central.
This Agreement may be terminated by Central prior to the Closing, by
delivering written notice to Insight of its election to terminate this
Agreement, under any of the following circumstances (unless any of such
circumstances occurred as a result of the failure of Central to act in good
faith or as a result of any breach by Central of its representations,
warranties, covenants, or other obligations in this Agreement):
(a) If on the date on which the Closing is required to take place
pursuant to Section 10.1(a) any of the conditions precedent to the obligations
of Central set forth in this Agreement has not been satisfied or waived in
writing by Central.
(b) If the Closing shall not have occurred on or before December 31,
1998.
(c) If Insight breaches any of its covenants under this Agreement in
any material respect and fails to cure such breach within thirty days after its
receipt of notice thereof from Central.
(d) After July 15, 1998, if Insight fails to make the escrow deposit
described in Section 11.5.
11.3 Termination by Insight.
This Agreement may be terminated by Insight prior to the Closing, by
delivering written notice to Central of its election to terminate this
Agreement, under any of the following circumstances (unless any of such
circumstances occurred as a result of the failure of Insight to act in good
faith or as a result of any breach by Insight of its representations,
warranties, covenants, or other obligations in this Agreement):
(a) If on the date on which the Closing is required to take place
pursuant to Section 10.1(a) any of the conditions precedent to the obligations
of Insight set forth in this Agreement has not been satisfied or waived in
writing by Insight.
(b) If the Closing shall not have occurred on or before December 31,
1998.
(c) If Central breaches any of its covenants under this Agreement in
any material respect and fails to cure such breach within thirty days after its
receipt of notice thereof from Insight.
11.4 Due Diligence Termination.
This Agreement may be terminated by Insight, by delivering written notice
to Central of its election to terminate this Agreement, on or before July 15,
1998 (but in no event after Insight's
- 38 -
<PAGE>
funding of the escrow deposit described in Section 11.5), if Insight has
determined in its sole discretion that, after completing its due diligence,
Insight is not satisfied with any matter relating to the System or the
transactions contemplated by this Agreement (including the Exhibits and
Schedules to this Agreement).
11.5 Escrow Deposit.
On or prior to July 15, 1998, if Insight has not terminated this Agreement
pursuant to Section 11.4, Insight shall deposit with an escrow agent agreed to
between Central and Insight (the "Escrow Agent") the amount of $2,000,000 in
accordance with an Escrow Agreement among Insight, Central, and the Escrow
Agent, in form and substance reasonably satisfactory to the parties. All funds
and documents deposited with the Escrow Agent shall be held and disbursed in
accordance with the terms of the Escrow Agreement and the following provisions:
(a) At the Closing, Insight and Central shall jointly instruct the
Escrow Agent to disburse all amounts held by the Escrow Agent pursuant to the
Escrow Agreement, including any interest or other proceeds from the investment
of funds held by the Escrow Agent, to or at the direction of Insight.
(b) If this Agreement is terminated pursuant to this Article 11 and
Section 11.5(c) does not apply, Insight and Central shall jointly instruct the
Escrow Agent to disburse all amounts held by the Escrow Agent pursuant to the
Escrow Agreement, including any interest or other proceeds from the investment
of funds held by the Escrow Agent, to or at the direction of Insight.
(c) If this Agreement is terminated by Central due to Insight's breach
of this Agreement, then Insight and Central shall jointly instruct the Escrow
Agent to disburse all amounts held by the Escrow Agent pursuant to the Escrow
Agreement, including any interest or other proceeds from the investment of funds
held by the Escrow Agent, to or at the direction of Central.
11.6 Rights on Termination.
(a) If this Agreement is terminated by Central and Section 11.5(c)
applies, then the payment to Central pursuant to Section 11.5(c) shall be
liquidated damages and shall constitute full payment and the exclusive remedy
for any damages suffered by Central by reason of Insight's breach of this
Agreement. Central and Insight agree in advance that actual damages would be
difficult to ascertain and that the amount of the payment to be made to Central
pursuant to Section 11.5(c) is a fair and equitable amount to reimburse Central
for damages sustained due to Insight's breach of this Agreement.
(b) Upon termination of this Agreement pursuant to this Article 11,
- 39 -
<PAGE>
(1) The transactions contemplated by this Agreement shall be
terminated and abandoned, without further action by Insight or Central.
(2) Each party shall return to the other party or destroy all
documents and other material received from the other party and relating to the
transactions contemplated by this Agreement, whether received from the other
party before or after the execution of this Agreement.
(3) All confidential information received by either party to this
Agreement with respect to the business of the other party or any of its
Affiliates shall be treated in accordance with Section 8.4(a).
(4) The provisions of Section 12.2 shall continue in effect.
(5) Neither party to this Agreement shall have any further
obligation or liability under this Agreement to the other party, or to any of
the members, partners, officers, directors, shareholders, employees, or agents
of the other party, except as provided in this Section 11.6, or otherwise in
this Agreement.
(c) Following the termination of this Agreement pursuant to this
Article 11, each party agrees to indemnify, defend, and hold harmless the other
party from any liability, loss, or damage incurred by the other party by reason
of any claim made against the other party under this Agreement, in violation of
Section 11.6(b)(5), by any of the members, partners, officers, directors,
shareholders, employees, or agents of the indemnifying party.
11.7 Specific Performance.
The parties recognize that if Central breaches this Agreement and refuses
to perform under the provisions of this Agreement, monetary damages alone would
not be adequate to compensate Insight for its injury. Insight shall therefore be
entitled, in addition to any other remedies that may be available, including
money damages, to obtain specific performance of the terms of this Agreement. If
any action is brought by Insight to enforce this Agreement, Central shall waive
the defense that there is an adequate remedy at law.
ARTICLE 12
MISCELLANEOUS
12.1 Survival of Representations and Warranties.
(a) The representations and warranties contained in this Agreement
with respect to (1) title to any asset to be contributed to the Company pursuant
to Section 2.1, (2) Taxes, as set forth in Section 5.15, (3) third-party claims,
as set forth in Section 5.18 and Section 6.4, (4)
- 40 -
<PAGE>
the authority of each party to execute and deliver this Agreement and the
documents contemplated hereby and to perform and comply with the terms,
covenants, and conditions of this Agreement and the documents contemplated
hereby, as set forth in Section 5.2 and Section 6.2 and (5) the enforceability
of this Agreement, as set forth in Section 5.2 and Section 6.2, shall survive
the Closing indefinitely. All covenants contained in this Agreement that by
their terms are to be performed in whole or in part at or following the Closing
shall survive until fully discharged or performed.
(b) All representations and warranties contained in this Agreement and
not described in Section 12.1(a) and all covenants in this Agreement that by
their terms are only to be performed prior to the Closing shall not survive the
Closing. Except with respect to those representations, warranties, and covenants
that survive the Closing pursuant to Section 12.1(a), after the Closing, neither
party shall have any recourse against the other party as a result of the breach
of any representation, warranty, or covenant contained in this Agreement, and
each party hereby unconditionally and irrevocably waives and releases any and
all actual or potential claims that it may have against the other party (and its
officers, directors, stockholders, partners, and affiliates) as a result of the
breach by the other party of any representation, warranty, or covenant contained
in this Agreement; provided, however, that nothing in this Section 12.1(b) is
intended to limit the application of Section 3.2(b) to any of the circumstances
described in clause (1) thereof that are identified in a timely notice by
Insight pursuant to clause (2) thereof.
(c) In determining the accuracy of representations and warranties in
this Agreement as of a date other than the date of this Agreement, any
representation and warranty in this Agreement that expressly refers to facts
existing on the date of this Agreement or on any other specified date shall
continue to be construed only to refer to facts existing on the date specified
and shall not be construed as a representation or warranty concerning facts
existing at any later date.
12.2 Taxes, Fees, and Expenses.
(a) All filing fees (including all FCC filing fees and all fees
required in connection with filings under the HSR Act), transfer taxes,
recordation taxes, sales taxes, document stamps, or other charges (other than
income taxes) levied by any Governmental Authority prior to the Closing in
connection with the transactions contemplated by this Agreement shall be paid
equally by Central and by Insight. Insight and Central shall pay fees and
expenses of the Escrow Agent as provided in the Escrow Agreement.
(b) Following the Closing, the Company shall:
(1) pay all filing fees, transfer taxes, recordation taxes, sales
taxes, document stamps, or other charges (other than income taxes) levied by any
Governmental Authority at or after the Closing in connection with the
transactions contemplated by this Agreement,
- 41 -
<PAGE>
(2) reimburse Insight for all costs and expenses required to be
paid by Insight pursuant to Section 12.2(a), for all attorney's fees and
expenses incurred by Insight in connection with the authorization, preparation,
execution, and closing of this Agreement, for all costs and expenses incurred by
Insight in connection with the consummation of the transactions contemplated by
the Refinancing Proposals, and for all fees or commissions payable to Lazard
Freres & Co. LLC in connection with the transactions contemplated by this
Agreement, and
(3) reimburse Central for all costs and expenses required to be
paid by Central pursuant to Section 12.2(a), for all attorney's fees and
expenses incurred by Central in connection with the authorization, preparation,
execution, and closing of this Agreement, for all costs and expenses incurred by
Central in connection with the consummation of the transactions contemplated by
the Refinancing Proposals, for all fees or commissions payable to Waller Capital
Corporation in connection with the transactions contemplated by this Agreement,
and for any obligations or liabilities incurred by Central as a result of the
termination or cancellation of any programming agreement to which Central is a
party that relates to the business or operations of the System.
(c) Except as otherwise provided in this Agreement, each party hereto
shall pay its own fees and other expenses incurred in connection with the
authorization, preparation, execution, and performance of this Agreement.
(d) The obligations of the parties under this Section 12.2 will
survive the termination of this Agreement.
12.3 Notices.
All notices, demands, and requests required or permitted to be given
under the provisions of this Agreement shall be (a) in writing, (b) delivered by
personal delivery, sent by commercial delivery service or registered or
certified mail, return receipt requested, or transmitted by telecopy, (c) deemed
to have been given on the date of receipt, and (d) addressed as follows:
If to Central: Coaxial Communications of Central Ohio, Inc.
c/o Coaxial Communications
5111 Ocean Boulevard
Suite C
Sarasota, Florida 34242
Attention: Dennis McGillicuddy
Telecopier: 941-346-2788
- 42 -
<PAGE>
With copies to: Coaxial Communications of Central Ohio, Inc.
3770 East Livingston
Columbus, Ohio 43227
Attention: Thomas E. Wilson
Telecopier: 614-236-1737
and
Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, D.C. 20036-6802
Attention: David D. Wild
Telecopier: 202-776-2222
If to Insight: Insight Communications, Inc.
126 E. 56th Street
New York, N.Y. 10022
Attention: Michael S. Willner
Telecopier: 212-371-1549
With a copy to: Cooperman Levitt Winikoff Lester & Newman, P.C.
800 Third Avenue
New York, New York 10022
Attention: Robert L. Winikoff
Telecopier: 212-755-2839
or to any other or additional Persons and addresses as the parties may from time
to time designate in a writing delivered in accordance with this Section 12.3.
12.4 Benefit and Binding Effect.
Neither party hereto may assign this Agreement without the prior written
consent of the other party hereto, except that Insight may, without the consent
of Central, prior to Closing, assign all of Insight's rights and delegate all of
Insight's obligations under this Agreement to a Delaware limited liability
company of which Insight is the sole member if such assignee executes and
delivers to Central an assignment and assumption agreement, in form and
substance reasonably satisfactory to Central, pursuant to which such assignee
shall assume all obligations of Insight under this Agreement. Upon such
assignee's execution and delivery to Central of such assignment and assumption
agreement, Insight shall be released from its obligations hereunder, except that
Insight shall continue to be obligated to make the escrow deposit described in
Section 11.5, and Insight shall execute and deliver to Central and the
Principals a Parent Undertaking substantially in the form to be agreed to by the
parties prior to the funding of the escrow deposit
- 43 -
<PAGE>
described in Section 11.5. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
12.5 Entire Agreement.
This Agreement, and all Schedules and Exhibits hereto (which are hereby
incorporated herein), and all documents and certificates to be delivered by the
parties pursuant hereto collectively represent the entire understanding and
agreement between the parties with respect to the subject matter hereof. This
Agreement supersedes all prior negotiations, letters of intent, or other
writings between the parties with respect to the subject matter hereof and
cannot be amended, supplemented, or modified except by waiver pursuant to
Section 12.6 or a written agreement which makes specific reference to this
Agreement and which is signed by the party against which enforcement of any such
amendment, supplement, or modification is sought.
12.6 Waiver of Compliance; Consents.
Any failure of either party to comply with any obligation, representation,
warranty, covenant, or agreement herein may be waived by the party entitled to
the benefits thereof only by a written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, representation, warranty, covenant, or agreement shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
either party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in this
Section 12.6.
12.7 Severability.
If any provision hereof or the application thereof to any Person or
circumstance shall be invalid or unenforceable to any extent, the remainder of
this Agreement and the application of such provision to other Persons or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
12.8 GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED, AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CHOICE OF LAW
PROVISIONS THEREOF) AND THE UNITED STATES ARBITRATION ACT, TO THE EXTENT
PROVIDED IN SECTION 12.9.
12.9 Disputed Matters.
(a) Generally. If a dispute arises out of or relates to this Agreement
or any alleged breach thereof, Central and Insight will attempt in good faith to
resolve such dispute
- 44 -
<PAGE>
through negotiation. Either party may initiate negotiations by providing written
notice in letter form to the other party setting forth in general terms the
subject of the dispute. Representatives of each party with full settlement
authority shall meet at a mutually agreeable time and place in order to attempt
to resolve the dispute. If the dispute is not resolved in this manner, either
party may proceed to arbitration pursuant to Section 12.9(c) hereof, or, if they
so agree, first proceed to mediation pursuant to Section 12.9(b) hereof.
(b) Mediation. If a dispute arises out of or relates to this Agreement
or any alleged breach thereof and if the dispute is not settled through
negotiation as described in Section 12.9(a), Central and Insight may agree to
submit the dispute for mediation administered by the American Arbitration
Association (or any organization successor thereto) ("AAA") under its Commercial
Mediation Rules before resorting to arbitration. Either party may initiate
mediation pursuant to Rule 2 of the AAA's Commercial Mediation Rules. The
parties will cooperate with the AAA and with one another in the appointment of a
mediator and in scheduling the mediation proceedings. Unless otherwise agreed by
Central and Insight, the first mediation session shall be held no later than
thirty days after the date of filing the written request for mediation, and the
memorandum provided for under Rule 9 of the Commercial Mediation Rules shall be
provided to the mediator at least five days prior to the first mediation
session. All offers, promises, conduct, and statements, whether oral or written,
made in the course of the mediation by any of the parties, their agents,
employees, experts, and attorneys, and by the mediator or any AAA employees,
shall be confidential and inadmissible for any purposes, including impeachment,
in any arbitration or other proceeding involving the parties, but evidence that
is otherwise admissible or discoverable shall not be rendered inadmissible or
non-discoverable as a result of its use in the mediation. Either party may
initiate arbitration with respect to the matters submitted to mediation by
filing a written demand for arbitration with the AAA no sooner than thirty days
after the first mediation session. The mediation may continue after the
commencement of arbitration if the parties so agree. Unless otherwise agreed by
Central and Insight, the mediator shall be disqualified from serving as
arbitrator in the case.
(c) Arbitration. If a dispute arises out of or relates to this
Agreement or any alleged breach thereof, and if the dispute is not resolved
through negotiation and, if so agreed, mediation as described in Section 12.9(a)
and Section 12.9(b), such dispute shall be settled by arbitration in New York,
New York, in accordance with the Commercial Arbitration Rules of the AAA and the
Supplementary Procedures for Large, Complex Disputes of the AAA or other rules
agreed to by Central and Insight, by a panel of three arbitrators.
(d) United States Arbitration Act. The parties acknowledge that this
Agreement evidences a transaction involving interstate commerce. Insofar as it
applies, the United States Arbitration Act shall govern the interpretation of,
enforcement of, and proceedings pursuant to the arbitration clause in this
Agreement. After arbitration has commenced pursuant to Rule 6 of the Commercial
Arbitration Rules, either party may make an application to the arbitrator
seeking injunctive relief to maintain the status quo until such time as the
arbitration award is rendered or the dispute is otherwise resolved.
- 45 -
<PAGE>
(e) Request for Arbitration. The party requesting arbitration shall do
so by giving notice to that effect (the "Arbitration Notice") to the party and
by filing the notice with the AAA in accordance with Rule 6 of the Commercial
Arbitration Rules. Within thirty days after the Arbitration Notice is filed,
Central and Insight shall select an arbitrator using the procedures for
arbitrator selection of the AAA from the arbitrators in the Large, Complex case
pool for the New York, New York, AAA office.
(f) Administrative Conference and Hearing. Upon selection of the
arbitrator, Central and Insight shall conduct an initial administrative
conference provided for by the Supplementary Procedures for Large, Complex
Disputes of the AAA at which Central and Insight shall agree to a schedule and
procedures for the exchange of relevant information and the hearing and to any
other matters the arbitrator or Central and Insight deem appropriate. Either
party may submit to the arbitrator prior to the hearing any written information
and may make any oral presentation at the hearing that it deems appropriate to
support its position with respect to the disputed matter. At any hearing before
the arbitrator at which witnesses present testimony either in person or
telephonically Central and Insight shall be entitled to cross examine the
witnesses.
(g) Decision and Award. The arbitrator shall render his written
decision and award, including a statement of reasons upon which such award is
based, within thirty days after the arbitration hearing. Except insofar as the
United States Arbitration Act applies to such matters, the agreement to
arbitrate set forth in this Section 12.9 shall be construed, and the legal
relations between the parties shall be determined in accordance with, the
substantive laws of the State of New York as provided for in Section 12.8 of
this Agreement. The decision of the arbitrators shall be in writing and shall be
binding upon Central and Insight, final, and non-appealable. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
(h) Exclusivity of Arbitration. Except as provided under the United
States Arbitration Act, no action at law or in equity based upon any dispute
that is subject to arbitration under this Section 12.9 shall be instituted.
(i) Fees and Expenses. All expenses of any arbitration pursuant to
this Section 12.9, including fees and expenses of the parties' attorneys, fees
and expenses of the arbitrator, and fees and expenses of any witness or the cost
of any proof produced at the request of the arbitrator, shall be borne as
determined by the arbitrator. If either party institutes any action in law or in
equity in violation of Section 12.9(h) and the other party successfully compels
arbitration under this Section 12.9, the party instituting such action shall pay
all reasonable expenses incurred by the other party relating to such action,
including reasonable fees and expenses of the other party's attorneys.
- 46 -
<PAGE>
12.10 Headings.
The headings in this Agreement are included for ease of reference only and
shall not control or affect the meaning or construction of the provisions of
this Agreement.
12.11 Rights Cumulative.
Except as specified in this Agreement, all rights and remedies of each of
the parties under this Agreement will be cumulative, and the exercise of one or
more rights or remedies will not preclude the exercise of any other right or
remedy available under this Agreement or applicable law.
12.12 Construction.
This Agreement has been negotiated by the parties and their respective
legal counsel, and legal or equitable principles that might require the
construction of this Agreement or any provision of this Agreement against the
party drafting this Agreement will not apply in any construction or
interpretation of this Agreement.
12.13 Business Day.
If the last day permitted for the giving of any notice or the performance
of any act required or permitted under this Agreement falls on a day which is
not a Business Day, the time for the giving of such notice or the performance of
such act will be extended to the next succeeding Business Day.
12.14 Counterparts.
This Agreement may be executed in two counterparts, each of which, when so
executed and delivered, shall be an original, and both of which counterparts
together shall constitute one and the same fully executed instrument.
12.15 No Third-Party Beneficiaries.
This Agreement is not intended to, and shall not be construed to, create
any right enforceable by any Person that is not a party to this Agreement.
- 47 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Contribution Agreement
as of the day first mentioned above.
COAXIAL COMMUNICATIONS OF CENTRAL OHIO,
INC.
By:
-------------------------------------------------
Name: Dennis J. McGillicuddy
Title: Chairman
INSIGHT COMMUNICATIONS COMPANY, L.P.
By: ICC Associates, L.P., its General Partner
By: Insight Communications, Inc., General Partner
By:
-------------------------------------------------
Name: Michael S. Willner
Title: President
- 48 -
<PAGE>
AMENDMENT TO CONTRIBUTION AGREEMENT
This AMENDMENT TO CONTRIBUTION AGREEMENT (this "Amendment") is
entered into as of July 15, 1998, by and between Coaxial Communications of
Central Ohio, Inc., an Ohio corporation ("Central"), and Insight Communications
Company, L.P., a Delaware limited partnership ("Insight").
PRELIMINARY STATEMENT
Central and Insight entered into a Contribution Agreement, dated as of
June 30, 1998 (the "Contribution Agreement"). Central and Insight desire to
amend the Contribution Agreement as provided in this Amendment.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
DEFINITIONS
Capitalized terms used in this Amendment and not defined in this
Amendment shall have the meanings assigned to them in the Contribution
Agreement.
ARTICLE 2
AMENDMENTS TO EXHIBITS
2.1 Form of Operating Agreement.
The Contribution Agreement is amended by deleting Exhibit A thereto in
its entirety and substituting therefor the form of Operating Agreement attached
to this Amendment as Exhibit A.
2.2 Form of Amended Articles of Incorporation of Central.
The Contribution Agreement is amended by deleting Exhibit B thereto in
its entirety and substituting therefor the form of Amended Articles of
Incorporation of Central attached to this Amendment as Exhibit B.
2.3 Form of Close Corporation Agreement of Central.
The Contribution Agreement is amended by deleting Exhibit C thereto in
its entirety and substituting therefor the form of Close Corporation Agreement
of Central attached to this Amendment as Exhibit C.
<PAGE>
2.4 Form of Single-Member LLC Operating Agreement.
The Contribution Agreement is amended by deleting Exhibit D thereto in
its entirety and substituting therefor the form of Single-Member LLC Operating
Agreement attached to this Amendment as Exhibit D.
2.5 Form of Single-Member LLC Management Agreement.
The Contribution Agreement is amended by deleting Exhibit E thereto in
its entirety and substituting therefor the form of Single-Member LLC Management
Agreement attached to this Amendment as Exhibit E.
2.6 Employee Transition Agreement.
Insight and Central agree that the Employee Transition Agreement shall
be substantially in the form attached to this Amendment as Exhibit F.
2.7 Parent Undertaking.
Insight and Central agree that the Parent Undertaking referred to in
Section 12.4 of the Contribution Agreement shall be substantially in the form
attached to this Amendment as Exhibit G.
2.8 Schedules.
The Contribution Agreement is amended by deleting the Schedules thereto
in their entirety and substituting therefor the schedules attached to this
Amendment.
2.9 Other Provisions.
Except where inconsistent with the express terms of this Amendment, all
provisions of the Contribution Agreement as originally entered into shall remain
in full force and effect.
ARTICLE 3
MISCELLANEOUS
3.1 Benefit and Binding Effect.
This Amendment shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
-2-
<PAGE>
3.2 Entire Agreement.
This Amendment represents the entire understanding and agreement
between the parties with respect to the subject matter hereof.
3.3 Governing Law.
THIS AMENDMENT SHALL BE GOVERNED, CONSTRUED, AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD
TO THE CHOICE OF LAW PROVISIONS THEREOF).
3.4 Headings.
The headings in this Amendment are included for ease of reference only
and shall not control or affect the meaning or construction of the provisions of
this Amendment.
3.5 Construction.
The rules of construction set forth in the Contribution Agreement shall
govern the construction and interpretation of this Amendment.
3.6 Counterparts.
This Amendment may be executed in two counterparts, each of which, when
so executed and delivered, shall be an original, and both of which counterparts
together shall constitute one and the same fully executed instrument.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to
Contribution Agreement as of the day first mentioned above.
COAXIAL COMMUNICATIONS OF CENTRAL OHIO,
INC.
By:________________________________
Name: Dennis J. McGillicuddy
Title: Chairman
INSIGHT COMMUNICATIONS COMPANY, L.P.
By: ICC Associates, L.P., its General Partner
By: Insight Communications, Inc., General Partner
By:_______________________________
Name: Michael S. Willner
Title: President
-4-
<PAGE>
SECOND AMENDMENT TO CONTRIBUTION AGREEMENT
This AMENDMENT TO CONTRIBUTION AGREEMENT (this "Amendment") is
entered into as of August 21, 1998, by and among Coaxial Communications of
Central Ohio, Inc., an Ohio corporation ("Central"), Insight Communications
Company, L.P., a Delaware limited partnership ("Insight"), and Insight Holdings
of Ohio, LLC, a Delaware limited liability company ("Insight Holdings").
PRELIMINARY STATEMENT
Central and Insight entered into a Contribution Agreement, dated as of
June 30, 1998, and an Amendment to Contribution Agreement, dated as of July 15,
1998. Insight assigned its rights and delegated its obligations under such
Contribution Agreement, as so amended (the "Contribution Agreement"), to Insight
Holdings. The parties desire to amend the Contribution Agreement as provided in
this Amendment.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
DEFINITIONS
Capitalized terms used in this Amendment and not defined in this
Amendment shall have the meanings assigned to them in the Contribution
Agreement.
ARTICLE 2
AMENDMENTS
2.1 Form of Operating Agreement.
The Contribution Agreement is amended by deleting Exhibit A thereto in
its entirety and substituting therefor the form of Operating Agreement attached
to this Amendment as Exhibit A.
2.2 Certain Contributions.
Section 2.1(d)(4) of the Contribution Agreement is amended to read in
its entirety as follows:
(4) To the extent that the effect of any circumstance
giving rise to an amendment to this Agreement pursuant to Section 3.2(b) is to
reduce the operating income of the Company such that the Company is unable to
make any required distribution with respect to the Preferred A Interest or the
<PAGE>
Preferred B Interest (each as defined in the Operating Agreement), then Central
shall be required to make capital contributions and interest payments pursuant
to this Section 2.1(d) at any time within ten Business Days after a demand
therefor by the Manager (as defined in the Operating Agreement), subject to the
following:
(A) If Central fails to make any capital
contributions and interest payments described in this Section 2.1(d)(4) within
ten Business Days after a demand therefor by the Manager (as defined in the
Operating Agreement), then Insight may, at its option, at any time thereafter
and prior to such time, if any, that Central makes such capital contributions
and interest payments, elect:
(1) to make a capital contribution
to the Company equal to the amount of the capital contributions otherwise
required to be made by Central and pay to the Company interest in the amount of
the interest payments otherwise required to be paid by Central; or
(2) to cause the Company to issue a
Common Interest (as defined in the Operating Agreement) to any Person in
exchange for a capital contribution to the Company equal to the amount of the
capital contributions otherwise required to be made by Central and a payment to
the Company of interest in the amount of the interest payments otherwise
required to be paid by Central; or
(3) to cause the provisions of
Section 2.1(d)(4)(B) to apply without further capital contributions to the
Company.
(B) If Insight makes an election pursuant to
Section 2.1(d)(4)(A) with respect to any capital contributions and interest
payments described in this Section 2.1(d)(4), then (i) Central's obligation
under this Section 2.1(d) to make such capital contributions and and interest
payments shall be canceled and Central shall have no further obligation under
any provision of this Section 2.1(d) to make such capital contributions and
interest payments and shall have no liability or obligation to the Company or
Insight as a result of its failure to make such capital contributions and
interest payments or as a result of the circumstance giving rise to the
applicable amendment to this Agreement pursuant to Section 3.2(b), and (ii) the
number of Units assigned to the Common Interests of the Members shall be
adjusted as provided in the Operating Agreement.
(C) Insight shall have no obligation to make
an election pursuant to Section 2.1(d)(4)(A).
-2-
<PAGE>
2.3 Assumption of Liabilities.
(a) Section 4.1(d) of the Contribution Agreement is amended to
read in its entirety as follows:
(d) all other obligations and liabilities arising out
of Central's ownership of the Assets or operation of the System (other than
obligations or liabilities arising under any Contract that is not included in
the Assumed Contracts, any obligations or liabilities relating to any Excluded
Asset, and any obligations and liabilities with respect to any Taxes for periods
prior to the Closing Date) and the obligations and liabilities of Central
described on Schedule 4.1(d).
(b) The Contribution Agreement is amended by adding Schedule
4.1(d) in the form attached to this Amendment.
2.4 Other Provisions.
Except where inconsistent with the express terms of this Amendment, all
provisions of the Contribution Agreement as originally entered into shall remain
in full force and effect.
ARTICLE 3
MISCELLANEOUS
3.1 Benefit and Binding Effect.
This Amendment shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
3.2 Entire Agreement.
This Amendment represents the entire understanding and agreement among
the parties with respect to the subject matter hereof.
3.3 Governing Law.
THIS AMENDMENT SHALL BE GOVERNED, CONSTRUED, AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD
TO THE CHOICE OF LAW PROVISIONS THEREOF).
-3-
<PAGE>
3.4 Headings.
The headings in this Amendment are included for ease of reference only
and shall not control or affect the meaning or construction of the provisions of
this Amendment.
3.5 Construction.
The rules of construction set forth in the Contribution Agreement shall
govern the construction and interpretation of this Amendment.
3.6 Counterparts.
This Amendment may be executed in two counterparts, each of which, when
so executed and delivered, shall be an original, and both of which counterparts
together shall constitute one and the same fully executed instrument.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to
Contribution Agreement as of the day first mentioned above.
COAXIAL COMMUNICATIONS OF CENTRAL OHIO,
INC.
By: ___________________________________
Name: Dennis J. McGillicuddy
Title: Chairman
INSIGHT COMMUNICATIONS COMPANY, L.P.
By: ICC Associates, L.P., its general partner
By: Insight Communications, Inc., its general partner
By: ___________________________________
Name: Michael S. Willner
Title: President
INSIGHT HOLDINGS OF OHIO, LLC
By: Insight Communications Company, L.P., its
member
By: ICC Associates, L.P., its general partner
By: Insight Communications, Inc., its general partner
By: ___________________________________
Name: Michael S. Willner
Title: President
-5-
<PAGE>
ASSET EXCHANGE AGREEMENT
dated May 14, 1998
among
TCI OF INDIANA, INC.,
UACC MIDWEST, INC.
and
INSIGHT COMMUNICATIONS COMPANY, L.P.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. DEFINITIONS...................................................................................1
1.1 1992 Cable Act................................................................................1
1.2 Affiliate.....................................................................................1
1.3 Assets........................................................................................2
1.4 Basic Services................................................................................2
1.5 Business Day..................................................................................2
1.6 Cable Act.....................................................................................2
1.7 Cable Business................................................................................2
1.8 Closing Time..................................................................................2
1.9 Communications Act............................................................................2
1.10 Contract......................................................................................2
1.11 Contribution..................................................................................2
1.12 Equivalent Basic Subscribers (or "EBSs")......................................................2
1.13 Environmental Law.............................................................................3
1.14 ERISA.........................................................................................3
1.15 ERISA Affiliate...............................................................................3
1.16 Expanded Basic Services.......................................................................3
1.17 FCC...........................................................................................4
1.18 Financial Statements..........................................................................4
1.19 GAAP..........................................................................................4
1.20 Governmental Authority........................................................................4
1.21 Hazardous Substances..........................................................................4
1.22 HSR Act.......................................................................................4
1.23 Insight Assets................................................................................4
1.24 Insight Books and Records.....................................................................4
1.25 Insight Leased Property.......................................................................5
1.26 Insight Other Intangibles.....................................................................5
1.27 Insight Other Real Property Interests.........................................................5
1.28 Insight Owned Property........................................................................5
1.29 Insight Required Consents.....................................................................5
1.30 Insight System Contracts......................................................................5
1.31 Insight System Franchises.....................................................................6
1.32 Insight System Licenses.......................................................................6
1.33 Insight Tangible Personal Property............................................................6
1.34 Insight's Cable Business......................................................................6
1.35 Judgment......................................................................................6
1.36 Knowledge.....................................................................................6
1.37 Leased Property...............................................................................6
1.38 Legal Requirement.............................................................................6
1.39 Lien..........................................................................................7
</TABLE>
- i -
<PAGE>
<TABLE>
<S> <C> <C>
1.40 Litigation....................................................................................7
1.41 Losses........................................................................................7
1.42 Other Real Property Interests.................................................................7
1.43 Owned Property................................................................................7
1.44 Pay TV........................................................................................7
1.45 Permitted Lien................................................................................7
1.46 Person........................................................................................8
1.47 Required Consents.............................................................................8
1.48 System........................................................................................8
1.49 System Contracts..............................................................................8
1.50 System Franchises.............................................................................8
1.51 System Licenses...............................................................................8
1.52 Tangible Personal Property....................................................................8
1.53 Taxes.........................................................................................8
1.54 TCI Assets....................................................................................8
1.55 TCI Books and Records.........................................................................9
1.56 TCI Leased Property...........................................................................9
1.57 TCI Other Intangibles.........................................................................9
1.58 TCI Other Real Property Interests.............................................................9
1.59 TCI Owned Property............................................................................9
1.60 TCI Required Consents.........................................................................9
1.61 TCI System Contracts.........................................................................10
1.62 TCI System Franchises........................................................................10
1.63 TCI System Licenses..........................................................................10
1.64 TCI Tangible Personal Property...............................................................10
1.65 TCI's Cable Business.........................................................................10
1.66 Third Party..................................................................................10
1.67 Transaction Documents........................................................................10
1.68 Other Definitions............................................................................11
1.69 Accounting Terms.............................................................................12
SECTION 2. EXCHANGES....................................................................................12
2.1 Exchanges....................................................................................12
SECTION 3. CONSIDERATION................................................................................13
3.1 Value of Assets..............................................................................13
3.2 Adjustments to Value of Assets...............................................................13
3.3 Calculation of Adjustments...................................................................15
SECTION 4. ASSUMED LIABILITIES AND EXCLUDED ASSETS......................................................16
4.1 Indiana and Midwest Assumed Obligations and Liabilities......................................16
4.2 TCI Excluded Assets..........................................................................17
</TABLE>
- ii -
<PAGE>
<TABLE>
<S> <C> <C>
4.3 Insight Assumed Obligations and Liabilities..................................................18
4.4 Insight Excluded Assets......................................................................18
SECTION 5. INSIGHT'S REPRESENTATIONS AND WARRANTIES.....................................................19
5.1 Organization and Qualification of Insight....................................................19
5.2 Authority and Validity.......................................................................20
5.3 No Conflict; Required Consents...............................................................20
5.4 Assets.......................................................................................20
5.5 Insight System Franchises, Insight System Licenses, Insight System Contracts and
Insight Other Real Property Interests........................................................21
5.6 Real Property................................................................................22
5.7 Environmental................................................................................23
5.8 Compliance with Legal Requirements...........................................................24
5.9 Patents, Trademarks and Copyrights...........................................................25
5.10 Financial Statements; Undisclosed Liabilities; Absence of Certain Changes or
Events.......................................................................................26
5.11 Litigation...................................................................................26
5.12 Tax Returns; Other Reports...................................................................27
5.13 Employment Matters...........................................................................27
5.14 Insight Systems Information..................................................................28
5.15 Accounts Receivable..........................................................................29
5.16 Bonds; Letters of Credit.....................................................................29
5.17 Finders and Brokers..........................................................................29
SECTION 6. TCI'S REPRESENTATIONS AND WARRANTIES.........................................................29
6.1 Organization and Qualification of TCI........................................................29
6.2 Authority and Validity.......................................................................30
6.3 No Conflict; Required Consents...............................................................30
6.4 Assets.......................................................................................31
6.5 TCI System Franchises, TCI System Licenses, TCI System Contracts and TCI
Other Real Property Interests................................................................31
6.6 Real Property................................................................................32
6.7 Environmental................................................................................33
6.8 Compliance with Legal Requirements...........................................................34
6.9 Patents, Trademarks and Copyrights...........................................................35
6.10 Financial Statements; Undisclosed Liabilities; Absence of Certain Changes or
Events.......................................................................................36
6.11 Litigation...................................................................................36
6.12 Tax Returns; Other Reports...................................................................37
6.13 Employment Matters...........................................................................37
6.14 TCI Systems Information......................................................................38
6.15 Accounts Receivable..........................................................................39
</TABLE>
- iii -
<PAGE>
<TABLE>
<S> <C> <C>
6.16 Bonds; Letters of Credit.....................................................................39
6.17 Finders and Brokers..........................................................................39
SECTION 7. ADDITIONAL COVENANTS.........................................................................39
7.1 Access to Premises and Records...............................................................39
7.2 Continuity and Maintenance of Operations; Certain Deliveries and Notices.....................39
7.3 Employees....................................................................................41
7.4 Leased Vehicles; Other Capital Leases........................................................43
7.5 Required Consents, Estoppel Certificates, Franchise Renewal..................................43
7.6 Title Commitments and Surveys................................................................45
7.7 HSR Notification.............................................................................45
7.8 Transfer Taxes...............................................................................46
7.9 Distant Broadcast Signals....................................................................46
7.10 Programming..................................................................................46
7.11 Schedules....................................................................................46
7.12 Use of Names and Logos.......................................................................47
7.13 Transitional Billing Services................................................................48
7.14 Confidentiality and Publicity................................................................48
7.15 Bulk Transfers...............................................................................49
7.16 Allocation of Value to Exchanged Assets......................................................49
7.17 Lien Searches................................................................................49
7.18 Further Assurances...........................................................................49
7.19 Consents.....................................................................................49
7.20 Cooperation as to Rates and Fees.............................................................50
7.21 Satisfaction of Conditions. .................................................................51
7.22 Offers. .....................................................................................51
7.23 Environmental Reports. ......................................................................51
7.24 Franchise Consents...........................................................................52
7.25 Qualification as Deferred Like-Kind Exchange.................................................54
7.26 Ad Sales.....................................................................................55
SECTION 8. CONDITIONS PRECEDENT.........................................................................56
8.1 Conditions to Insight's Obligations..........................................................56
8.2 Conditions to TCI's Obligations..............................................................57
SECTION 9. THE CLOSING..................................................................................59
9.1 The Closing; Time and Place..................................................................59
9.2 TCI's Delivery Obligations...................................................................59
9.3 Insight's Delivery Obligations...............................................................61
SECTION 10. TERMINATION AND DEFAULT......................................................................63
10.1 Termination Events...........................................................................63
10.2 Effect of Termination........................................................................64
</TABLE>
- iv -
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION..............................................................................64
11.1 Survival of Representations and Warranties...................................................64
11.2 Indemnification by Indiana and Midwest.......................................................65
11.3 Indemnification by Insight...................................................................66
11.4 Third Party Claims...........................................................................66
11.5 Limitations on Indemnification - TCI.........................................................67
11.6 Limitations on Indemnification - Insight.....................................................68
11.7 Other Indemnification........................................................................68
SECTION 12. MISCELLANEOUS PROVISIONS.....................................................................68
12.1 Parties Obligated and Benefited..............................................................68
12.2 Notices......................................................................................69
12.3 Right to Specific Performance................................................................70
12.4 Waiver.......................................................................................70
12.5 Captions.....................................................................................70
12.6 Choice of Law................................................................................71
12.7 Terms........................................................................................71
12.8 Rights Cumulative............................................................................71
12.9 Time.........................................................................................71
12.10 Late Payments................................................................................71
12.11 Counterparts.................................................................................71
12.12 Entire Agreement.............................................................................71
12.13 Severability.................................................................................71
12.14 Construction.................................................................................71
12.15 Expenses.....................................................................................72
12.16 Risk of Loss.................................................................................72
12.17 Tax Consequences.............................................................................74
12.18 Commercially Reasonable Efforts..............................................................74
</TABLE>
- v -
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
<TABLE>
<CAPTION>
Schedules
- ---------
<S> <C>
Schedule 1.25 Insight Leased Property
Schedule 1.27 Insight Other Real Property Interests
Schedule 1.28 Insight Owned Property
Schedule 1.30 Insight System Contracts
Schedule 1.31 Insight System Franchises
Schedule 1.32 Insight System Licenses
Schedule 1.33 Insight Tangible Personal Property
Schedule 1.56 TCI Leased Property
Schedule 1.58 TCI Other Real Property Interests
Schedule 1.59 TCI Owned Property
Schedule 1.61 TCI System Contracts
Schedule 1.62 TCI System Franchises
Schedule 1.63 TCI System Licenses
Schedule 1.64 TCI Tangible Personal Property
Schedule 4.2 TCI Excluded Assets
Schedule 4.4 Insight Excluded Assets
Schedule 5.3 Insight Required Consents
Schedule 5.4 Insight Liens and Permitted Liens
Schedule 5.7 Insight Environmental Matters
Schedule 5.8 Insight Cost of Service Elections
</TABLE>
- vi -
<PAGE>
<TABLE>
<S> <C>
Schedule 5.10 Insight Financial Statements; Insight Changes or
Events
Schedule 5.11 Insight Litigation
Schedule 5.12 Insight Tax Matters
Schedule 5.13(a) Insight Employees
Schedule 5.13 Insight Plans; Employee Matters
Schedule 5.14 Insight Systems Information
Schedule 5.16 Insight Bonds
Schedule 6.3 TCI Required Consents
Schedule 6.4 TCI Liens and Permitted Liens
Schedule 6.7 TCI Environmental Matters
Schedule 6.8 TCI Cost of Service Elections
Schedule 6.10 TCI Financial Statements; TCI Changes or Events
Schedule 6.11 TCI Litigation
Schedule 6.13(a) TCI Employees
Schedule 6.13 TCI Plans; Employee Matters
Schedule 6.14 TCI Systems Information
Schedule 6.16 TCI Bonds
Exhibits
Exhibit A Insight Systems
Exhibit B TCI Systems
Exhibit 7.5(b) Form of Estoppel Certificate
</TABLE>
- vii -
<PAGE>
<TABLE>
<S> <C>
Exhibit 7.10 Form of Letter to Programmers
Exhibit 9.2(b)(1) Form of Bill of Sale and Assignment
Exhibit 9.2(b)(2) Form of Assumption Agreement
</TABLE>
- viii -
<PAGE>
ASSET EXCHANGE AGREEMENT
THIS ASSET EXCHANGE AGREEMENT ("Agreement") is made and entered into as
of the 14th day of May, 1998, by and among TCI of Indiana, Inc., an Indiana
corporation ("Indiana"), UACC Midwest, Inc., a Delaware corporation ("Midwest"
and, together with Indiana, "TCI") and Insight Communications Company, L.P., a
Delaware limited partnership ("Insight").
RECITALS
A. Insight owns and operates cable television systems which are
franchised or hold other operating authority and operate in and around Brigham
City, Sandy, and Vernal, Utah and the other communities in Utah listed on
Exhibit A (the "Insight Systems").
B. TCI owns and operates cable television systems which are franchised
or hold other operating authority and operate in and around Evansville and
Jasper, Indiana and the other communities in Indiana listed on Exhibit B (the
"TCI Systems").
C. This Agreement sets forth the terms and conditions on which Insight
will convey to Indiana and Midwest substantially all of the assets comprising or
used or useful in connection with Insight's Cable Business and Indiana and
Midwest will convey to Insight substantially all of the assets comprising or
used or useful in connection with TCI's Cable Business, all in such a manner as
to effect, to the extent reasonably possible, like-kind exchanges of such assets
under Section 1031 of the United States Internal Revenue Code, as amended (the
"Code").
AGREEMENTS
In consideration of the mutual covenants and promises set forth herein,
the parties agree as follows:
SECTION 1. DEFINITIONS
1.1 In addition to terms defined elsewhere in this Agreement, the
following capitalized terms or terms otherwise defined in this Section 1 shall
have the meanings set forth below:
1.2 1992 Cable Act. The Cable Television Consumer Protection and
Competition Act of 1992, as amended, and the FCC rules and regulations
promulgated thereunder.
Affiliate. With respect to any Person, any Person controlling,
controlled by or under common control with such Person; "control" means the
ownership, directly or indirectly, of voting securities representing the right
generally to elect a majority of the directors (or similar officials) of
<PAGE>
a Person or the possession, by contract or otherwise, of the authority to direct
the management and policies of a Person.
1.3 Assets. The Insight Assets or the TCI Assets or both, as the
context requires.
1.4 Basic Services. The lowest tier of cable television service offered
to subscribers of a System that includes the retransmission of local broadcast
signals as defined by the Cable Act and the 1992 Cable Act.
1.5 Business Day. Any day other than a Saturday, Sunday or a day on
which the banking institutions in Denver, Colorado or New York, New York are
required or authorized to be closed.
1.6 Cable Act. The Cable Communications Policy Act of 1984, as amended,
and the rules and regulations promulgated thereunder.
1.7 Cable Business. Insight's Cable Business or TCI's Cable Business,
as the context requires.
1.8 Closing Time. 11:59 P.M., Mountain Time, on the Closing Date.
1.9 Communications Act. The Communications Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
1.10 Contract. Any contract, mortgage, deed of trust, bond, indenture,
lease, license, note, franchise, certificate, option, warrant, right or other
instrument, document, obligation or agreement, whether written or oral.
1.11 Contribution. The transactions contemplated by the Contribution
Agreement among TCI, certain Affiliates of TCI, Insight and the Company dated as
of the date of this Agreement (the "Contribution Agreement") to be consummated
at the closing thereunder.
1.12 Equivalent Basic Subscribers (or "EBSs"). As of any date of
determination and for each franchise area served by a System, the sum of (a) the
total number of private residential customer accounts that are billed by
individual unit for at least Basic Services (regardless of whether such accounts
are in single-family homes or in individually billed units in apartment
buildings and other multi-unit buildings) (exclusive of (i) "second connects"
and "additional outlets" as such terms are commonly understood in the cable
television industry, and (ii) accounts that are not charged or are charged less
than the standard monthly service fees and charges then in effect for such
System for Basic Services) and (b) the quotient of (i) the total monthly
billings for sales of Basic Services and Expanded Basic Services by such System
for such franchise area during the most recent billing period ended prior to the
date of calculation to commercial, bulk-billed and other accounts not billed by
individual unit (whether on a discounted or non-discounted basis) and to private
residential customer accounts that are billed by individual unit but pay less
than the standard monthly service
- 2 -
<PAGE>
fees charged for Basic Services, but excluding billings in excess of a single
month's charges for any account, divided by (ii) the standard monthly combined
rate (without discount of any kind) charged by such System for such franchise
area to individually billed subscribers for the highest level of Basic Services
and Expanded Basic Services offered by such System in effect during such billing
period, which monthly rate will not be less than the applicable rate specified
in Schedule 5.14 (in the case of Insight) or Schedule 6.14 (in the case of TCI).
For purposes of calculating the number of EBSs, there will be excluded (i) all
accounts billed by individual unit that are, and all billings to any commercial,
bulk-billed and other accounts not billed by individual unit that are, more than
60 days past due in the payment of any amount in excess of the lesser of $10.00
or the standard rate charged for Basic Services at the time of determination,
(ii) any accounts billed by individual unit and all commercial, bulk-billed and
other accounts not billed by individual units that, as of the date of
calculation, have not paid in full the charges for at least one full month of
the subscribed service, (iii) that portion of the billings to all accounts
billed by individual unit included in clause (b) above and any commercial,
bulk-billed and other accounts not billed by individual unit representing an
installation or other non-recurring charge, a charge for equipment or for any
outlet or connection other than the first outlet or first connection in any
individually billed unit or, with respect to a bulk account, in any residential
unit (e.g., an individual apartment or rental unit), a charge for any tiered
service other than Expanded Basic Services (whether or not included within Pay
TV), any charge for Pay TV or a pass-through charge for sales taxes,
line-itemized franchise fees, fees charged by the FCC and the like, (iv) any
individually billed unit and all billings to any commercial, bulk-billed and
other accounts not billed by individual unit whose service is pending
disconnection for any reason and (v) any individually billed unit and all
billings to any commercial, bulk-billed or other accounts not billed by
individual unit that was solicited within the 60 day period preceding the
Closing Date to purchase such services by promotions or offers of discounts
other than those ordinarily made by the party for which the determination of
EBSs is being made. For purposes of this definition, payments on account of
monthly billings will be deemed due on the first day of the period for which the
service to which such billings relate is provided.
1.13 Environmental Law. Any Legal Requirement concerning the protection
of public or employee health, safety, welfare or the environment, including
Legal Requirements relating to emissions, discharges, releases or threatened
releases of Hazardous Substances into the environment, air (including both
ambient and within buildings and other structures), surface water, ground water
or land or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Substances.
1.14 ERISA. The Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder and published
interpretations with respect thereto.
1.15 ERISA Affiliate. As to any Person, any trade or business, whether
or not incorporated, which together with such Person would be deemed a single
employer as determined under Section 4001(a)(14) of ERISA.
- 3 -
<PAGE>
1.16 Expanded Basic Services. Any level of video programming service
greater than Basic Services provided over a cable television System, regardless
of service tier, other than Basic Services, any new product tier and Pay TV.
1.17 FCC. The Federal Communications Commission.
1.18 Financial Statements. Insight's Financial Statements or TCI's
Financial Statements, as the context requires.
1.19 GAAP. Generally accepted accounting principles as in effect from
time to time in the United States of America.
1.20 Governmental Authority. The United States of America, any state,
commonwealth, territory or possession of the United States of America and any
political subdivision or quasi-governmental authority of any of the same,
including any court, tribunal, department, commission, board, bureau, agency,
county, municipality, province, parish or other instrumentality of any of the
foregoing.
1.21 Hazardous Substances. (a) Any "hazardous waste" as defined by the
Resource Conservation and Recovery Act of 1976 (RCRA) (42 U.S.C. ss.ss. 6901 et
seq.), as amended, and the rules and regulations promulgated thereunder; (b) any
"hazardous substance" as defined by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. ss.ss. 9601 et seq.) (CERCLA),
as amended, and the rules and regulations promulgated thereunder; (c) any
substance regulated by the Toxic Substances Control Act (TSCA) (15 U.S.C.
ss.ss.2601 et seq.), or the Insecticide, Fungicide and Rodenticide Act (IFRA) (7
U.S.C. ss.ss.136 et seq.), each as amended, and the rules and regulations
promulgated thereunder; (d) asbestos or asbestos-containing material of any kind
or character; (e) polychlorinated biphenyls; (f) any substances regulated under
the provisions of Subtitle I of RCRA relating to underground storage tanks; (g)
any substance the presence, use, handling, treatment, storage or disposal of
which on real property is prohibited by any Environmental Law; and (h) any other
substance which by any Environmental Law requires special handling, reporting or
notification of any Governmental Authority in its collection, storage, use,
treatment or disposal.
1.22 HSR Act. The Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
1.23 Insight Assets. All assets, properties, privileges, rights,
interests and claims, real and personal, tangible and intangible, of every type
and description that are owned, leased, held for use or used in connection with
Insight's Cable Business and in which Insight or any Affiliate of Insight has
any right, title or interest or acquires any right, title or interest on or
before the Closing, including Insight Tangible Personal Property, Insight Owned
Real Property, Insight Leased Property, Insight Other Real Property Interests,
Insight System Franchises, Insight System Licenses, Insight
- 4 -
<PAGE>
System Contracts, Insight Books and Records and Insight Other Intangibles, but
excluding any Insight Excluded Assets.
1.24 Insight Books and Records. All engineering records, files, data,
drawings, blueprints, schematics, reports, lists, plans and processes and all
other files of correspondence, lists, records and reports concerning Insight's
Cable Business, including subscribers and prospective subscribers of the Insight
Systems, signal and program carriage and dealings with Governmental Authorities,
including all reports filed by or on behalf of Insight with the FCC and
statements of account filed by or on behalf of Insight with the U.S. Copyright
Office, but excluding any Insight Excluded Assets.
1.25 Insight Leased Property. All leasehold interests in real property
that is held for use or used in connection with Insight's Cable Business which
Insight or any Affiliate of Insight has or acquires prior to Closing, including
those described as Insight Leased Property on Schedule 1.25.
1.26 Insight Other Intangibles. All intangible assets other than
Insight System Franchises, Insight System Licenses and Insight System Contracts,
including subscriber lists, accounts receivable, claims (excluding any claims
relating to Insight Excluded Assets), patents, copyrights and going concern
value, if any, that are owned, held for use or used in connection with Insight's
Cable Business and in which Insight or any Affiliate of Insight has, or acquires
prior to Closing, any right, title or interest.
1.27 Insight Other Real Property Interests. All easements and rights of
access (other than those relating to multiple dwelling units) and other
interests in real property that are held for use or used in connection with
Insight's Cable Business and in which Insight or any Affiliate of Insight has,
or acquires prior to Closing, any right, title or interest, including those
interests described as Insight Other Real Property Interests on Schedule 1.27,
but not including Insight Leased Property or Insight Owned Property.
1.28 Insight Owned Property. All fee interests in real property that is
held for use or used in connection with Insight's Cable Business which Insight
or any Affiliate of Insight has or acquires prior to Closing, including those
described as Insight Owned Property on Schedule 1.28 and all improvements
thereon.
1.29 Insight Required Consents. Any and all consents, authorizations
and approvals required for (i) Insight to transfer the Insight Assets to TCI;
(ii) TCI to operate the Insight Systems and to own, lease, use and operate the
Insight Assets and the Insight Systems at the places and in the manner in which
the Insight Assets are used and the Insight Systems are operated as of the date
of this Agreement and as of the Closing; and (iii) TCI to assume and perform the
Insight System Franchises, the Insight System Licenses, the leases and other
documents evidencing Insight Leased Property and Insight Other Real Property
Interests and the Insight System Contracts, including those consents,
authorizations and approvals required under the Insight System Franchises, the
Insight
- 5 -
<PAGE>
System Licenses, the leases and other documents evidencing Insight Leased
Property and Insight Other Real Property Interests and the Insight System
Contracts.
1.30 Insight System Contracts. All pole line agreements, underground
conduit agreements, crossing agreements, multiple dwelling, bulk billing or
commercial service agreements, leased channel access agreements and other
Contracts (other than Insight System Franchises and Insight System Licenses)
held for use or used in connection with Insight's Cable Business and to which
Insight or any Affiliate of Insight is, or becomes prior to Closing, as
permitted by this Agreement, a party or bound, including those described on
Schedule 1.30.
1.31 Insight System Franchises. All franchise agreements, operating
permits or similar governing agreements, instruments, resolutions, statutes,
ordinances, approvals, authorizations and permits obtained from any franchising
authority in connection with Insight's Cable Business, including all amendments
and modifications thereto and all renewals thereof, including those listed on
Schedule 1.31.
1.32 Insight System Licenses. The intangible cable television channel
distribution rights, cable television relay service (CARS), business radio and
other licenses, copyright notices and other licenses, authorizations, consents
or permits issued by the FCC or any other Governmental Authority in connection
with Insight's Cable Business (other than Insight System Franchises, Insight
System Contracts and Insight Other Real Property Interests), including those
described on Schedule 1.32.
1.33 Insight Tangible Personal Property. All tangible personal property
that is owned, leased, held for use or used in connection with Insight's Cable
Business and in which Insight or any Affiliate of Insight has, or acquires prior
to Closing, any right, title or interest, including towers, tower equipment,
aboveground and underground cable, distribution systems, headend amplifiers,
line amplifiers, microwave equipment, converters, testing equipment, motor
vehicles, office equipment, computers and billing equipment, furniture,
fixtures, supplies, inventory and other physical assets, the principal items of
which, including all motor vehicles, are described on Schedule 1.33.
1.34 Insight's Cable Business. The cable television business and other
income-generating businesses related to the Insight Systems conducted by Insight
through the Insight Systems.
1.35 Judgment. Any judgment, writ, order, injunction, award or decree
of any court, judge, justice or magistrate, including any bankruptcy court or
judge or the arbitrator in any binding arbitration, and any order of or by any
Governmental Authority.
1.36 Knowledge. The actual knowledge of a particular matter of one or
more of the principal corporate personnel of such party involved in the
transactions contemplated by this Agreement or the general manager or one or
more of the managers of such party's Systems.
1.37 Leased Property. The Insight Leased Property or TCI Leased
Property or both, as the context requires.
- 6 -
<PAGE>
1.38 Legal Requirement. Applicable common law and any statute,
ordinance, code or other law, rule, regulation, order, technical or other
written standard, requirement, policy or procedure enacted, adopted,
promulgated, applied or followed by any Governmental Authority, including any
Judgment and all judicial decisions applying common law or interpreting any
other Legal Requirement, in each case, as amended.
1.39 Lien. Any security interest, security agreement, financing
statement filed with any Governmental Authority, conditional sale or other title
retention agreement, any lease, consignment or bailment given for purposes of
security, any mortgage, lien, indenture, pledge, option, encumbrance, adverse
interest, constructive trust or other trust, claim, attachment, exception to,
defect in or other condition affecting title or other ownership interest
(including but not limited to reservations, rights of entry, possibilities of
reverter, encroachments, protrusions, easements, rights-of-way, rights of first
refusal, restrictive covenants, leases and licenses) of any kind, which
constitutes an interest in or claim against property, whether arising pursuant
to any Legal Requirement, System License, System Franchise, System Contract or
otherwise.
1.40 Litigation. Any written claim, action, suit, proceeding,
arbitration, or hearing.
1.41 Losses. Any claims, losses, liabilities, damages, penalties, costs
and expenses, including interest that may be imposed in connection therewith,
expenses of investigation, reasonable fees and disbursements of counsel and
other experts, and the cost to any Person making a claim or seeking
indemnification under this Agreement with respect to funds expended by such
Person by reason of the occurrence of any event or the existence or assertion of
any Liens (other than Permitted Liens) with respect to which indemnification is
sought, except Losses incurred by a party or on behalf of such party in
asserting any claim for indemnification against the other party where it is
ultimately determined (including by agreement of the parties) that such party is
not entitled to indemnification from the other party (before giving effect to
the limitations on such indemnification obligations set forth in Sections 11.5
and 11.6).
1.42 Other Real Property Interests. The Insight Other Real Property
Interests or the TCI Other Real Property Interests or both, as the context
requires.
1.43 Owned Property. Insight Owned Property or TCI Owned Property or
both, as the context requires.
1.44 Pay TV. A la carte tiers or premium programming services selected
by and sold to subscribers on a per channel or per program basis.
1.45 Permitted Lien. Any (a) Lien securing Taxes, assessments and
governmental charges not yet due and payable, (b) zoning law or ordinance or any
similar Legal Requirement, (c) right reserved to any Governmental Authority to
regulate the affected property, (d) as to Owned Property and Other Real Property
Interests, any Lien not securing indebtedness or arising out of the obligation
to pay money that does not individually or in the aggregate interfere with the
right or ability to own,
- 7 -
<PAGE>
use or operate the Owned Property or Other Real Property Interests as they are
being used or operated or materially diminish the value of such Owned Property
or Other Real Property Interests, (e) in the case of Owned Property and Leased
Property, any lease or sublease by TCI or Insight in favor of a third party that
is disclosed in the Schedules to this Agreement, and (f) in the case of Leased
Property, (i) the rights of any lessor and (ii) any Lien granted by any lessor
of Leased Property; provided that "Permitted Lien" will not include any Lien
securing a debt or claim (other than inchoate materialmen's, mechanics',
workmen's, repairmen's or other like Liens arising in the ordinary course of
business or any Lien described in clause (f) above) or any Lien which could
prevent or impair in any way the conduct of the business of the affected System
as it is currently being conducted, and provided further that the classification
of any Lien as a "Permitted Lien" will not affect any liability which TCI may
have under this Agreement for any such Lien with respect to the exchange of the
TCI Assets or which Insight may have under this Agreement for any such Lien with
respect to the exchange of the Insight Assets, including pursuant to any
indemnity obligation under this Agreement.
1.46 Person. Any natural person, Governmental Authority, corporation,
general or limited partnership, limited liability company, joint venture, trust,
association or unincorporated entity of any kind.
1.47 Required Consents. The Insight Required Consents or the TCI
Required Consents, as the context requires.
1.48 System. Any of the Insight Systems or the TCI Systems or all of
them, as the context requires.
1.49 System Contracts. The Insight System Contracts or the TCI System
Contracts or both, as the context requires.
1.50 System Franchises. The Insight System Franchises or the TCI System
Franchises or both, as the context requires.
1.51 System Licenses. The Insight System Licenses or the TCI System
Licenses or both, as the context requires.
1.52 Tangible Personal Property. The Insight Tangible Personal Property
or the TCI Tangible Personal Property or both, as the context requires.
1.53 Taxes. All levies and assessments of any kind or nature imposed by
any Governmental Authority, including all income, sales, use, ad valorem, value
added, franchise, severance, net or gross proceeds, withholding, payroll,
employment, excise or property taxes and levies or assessments related to
unclaimed property, together with any interest thereon and any penalties,
additions to tax or additional amounts applicable thereto.
- 8 -
<PAGE>
1.54 TCI Assets. All assets, properties, privileges, rights, interests
and claims, real and personal, tangible and intangible, of every type and
description that are owned, leased, held for use or used in connection with
TCI's Cable Business and in which TCI or any Affiliate of TCI has any right,
title or interest or acquires any right, title or interest on or before the
Closing, including TCI Tangible Personal Property, TCI Owned Real Property, TCI
Leased Property, TCI Other Real Property Interests, TCI System Franchises, TCI
System Licenses, TCI System Contracts, TCI Books and Records and TCI Other
Intangibles, but excluding any TCI Excluded Assets.
1.55 TCI Books and Records. All engineering records, files, data,
drawings, blueprints, schematics, reports, lists, plans and processes and all
other files of correspondence, lists, records and reports concerning TCI's Cable
Business, including subscribers and prospective subscribers of the TCI Systems,
signal and program carriage and dealings with Governmental Authorities,
including all reports filed by or on behalf of TCI with the FCC and statements
of account filed by or on behalf of TCI with the U.S. Copyright Office, but
excluding any TCI Excluded Assets.
1.56 TCI Leased Property. All leasehold interests in real property that
is held for use or used in connection with TCI's Cable Business which TCI or any
Affiliate of TCI has or acquires prior to Closing, including those described as
TCI Leased Property on Schedule 1.56.
1.57 TCI Other Intangibles. All intangible assets other than TCI System
Franchises, TCI System Licenses and TCI System Contracts, including subscriber
lists, accounts receivable, claims (excluding any claims relating to TCI
Excluded Assets), patents, copyrights and going concern value, if any, that are
owned, held for use or used in connection with TCI's Cable Business and in which
TCI or any Affiliate of TCI has, or acquires prior to Closing, any right, title
or interest.
1.58 TCI Other Real Property Interests. All easements and rights of
access (other than those relating to multiple dwelling units) and other
interests in real property that are held for use or used in connection with
TCI's Cable Business and in which TCI or any Affiliate of TCI has, or acquires
prior to Closing, any right, title or interest, including those interests
described as TCI Other Real Property Interests on Schedule 1.58, but not
including TCI Leased Property or TCI Owned Property.
1.59 TCI Owned Property. All fee interests in real property that is
owned, held for use or used in connection with TCI's Cable Business which TCI or
any Affiliate of TCI has or acquires prior to Closing, including those described
as TCI Owned Property on Schedule 1.59 and all improvements thereon.
1.60 TCI Required Consents. Any and all consents, authorizations and
approvals required for (i) TCI to transfer the TCI Assets to Insight and Insight
to transfer the TCI Assets to Insight Communications of Indiana, LLC (the
"Company"); (ii) Insight and, following the transfer by Insight pursuant to the
Contribution Agreement, the Company, to operate the TCI Systems and to own,
lease, use and operate the TCI Assets and the TCI Systems at the places and in
the manner in which the TCI Assets are used and the TCI Systems are operated as
of the date of this Agreement
- 9 -
<PAGE>
and as of the Closing; and (iii) Insight and, following the transfer by Insight
pursuant to the Contribution Agreement, the Company, to assume and perform the
TCI System Franchises, the TCI System Licenses, the leases and other documents
evidencing TCI Leased Property or TCI Other Real Property Interests and the TCI
System Contracts, including those consents, authorizations and approvals
required under the TCI System Franchises, the TCI System Licenses, the leases
and other documents evidencing TCI Leased Property and TCI Other Real Property
Interests and the TCI System Contracts.
1.61 TCI System Contracts. All pole line agreements, underground
conduit agreements, crossing agreements, multiple dwelling, bulk billing or
commercial service agreements, leased channel access agreements and other
Contracts (other than TCI System Franchises and TCI System Licenses) held for
use or used in connection with TCI's Cable Business and to which TCI or any
Affiliate of TCI is, or becomes prior to Closing, as permitted by this
Agreement, a party or bound, including those described on Schedule 1.61.
1.62 TCI System Franchises. All franchise agreements, operating permits
or similar governing agreements, instruments, resolutions, statutes, ordinances,
approvals, authorizations and permits obtained from any franchising authority in
connection with TCI's Cable Business, including all amendments and modifications
thereto and all renewals thereof, including those listed on Schedule 1.62.
1.63 TCI System Licenses. The intangible cable television channel
distribution rights, cable television relay service (CARS), business radio and
other licenses, copyright notices and other licenses, authorizations, consents
or permits issued by the FCC or any other Governmental Authority in connection
with TCI's Cable Business (other than TCI System Franchises, TCI System
Contracts and TCI Other Real Property Interests), including those described on
Schedule 1.63.
1.64 TCI Tangible Personal Property. All tangible personal property
that is owned, leased, held for use or used in connection with TCI's Cable
Business and in which TCI or any Affiliate of TCI has, or acquires prior to
Closing, any right, title or interest, including towers, tower equipment,
aboveground and underground cable, distribution systems, headend amplifiers,
line amplifiers, microwave equipment, converters, testing equipment, motor
vehicles, office equipment, computers and billing equipment, furniture,
fixtures, supplies, inventory and other physical assets, the principal items of
which, including all motor vehicles, are described on Schedule 1.64.
1.65 TCI's Cable Business. The cable television business and other
income-generating businesses related to the TCI Systems conducted by TCI through
the TCI Systems.
1.66 Third Party. With respect to TCI, any Person other than TCI and
its Affiliates and, with respect to Insight, any Person other than Insight and
its Affiliates.
1.67 Transaction Documents. The instruments and documents described in
Sections 9.2 and 9.3 which are to be executed and delivered by or on behalf of
Insight or TCI in connection with
- 10 -
<PAGE>
this Agreement or the transactions contemplated hereby; provided, that for
purposes of Section 11, "Transaction Documents" does not include the Management
Agreements, it being agreed that the parties' indemnification rights and
obligations with respect to the matters covered by such agreements and other
rights and obligations with respect thereto shall be as specified in those
agreements.
1.68 Other Definitions. The following terms are defined in the Sections
or Recitals indicated:
Term Section or Recital
---- ------------------
Action 11.4
Adjustment Amount 3.2(i)
Agreement Preamble
Antitrust Division 7.7
Appraiser 7.16
Closing 9.1
Closing Date 9.1
Code Recital C
"commercially reasonable efforts" 12.18
Company 1.60
Contribution Agreement 1.11
Copyright Act 5.8(a)
Cost of Service Election 5.8(d)
EBS 1.12
Estoppel Certificate 7.5(b)
FAA 5.8(c)
Final Adjustment Certificate 3.3(b)
FTC 7.7
Hired Employee 7.3(g)
Hiring Party 7.3(g)
Indemnified Party 11.4
Indemnifying Party 11.4
Indiana Preamble
Initial Adjustment Certificate 3.3(a)
Insight Preamble
Insight Assumed Obligations and Liabilities 4.3
Insight Balance Sheet 5.10
Insight Damages 11.5
Insight Excluded Assets 4.4
Insight Matching Franchise 7.24(a)
Insight Plans 5.13(b)
Insight Retained Franchise 7.24(b)
- 11 -
<PAGE>
Insight Systems Recital A
Insight Title Policies 9.3(d)
Insight's Financial Statements 5.10
LLC Agreement4.2 Management Agreements 7.24(a)
Matching Franchise 7.24(a)
Midwest Preamble
Outside Closing Date 10.1(b)
Pending TCI Rate Order 6.8
Primary Transfer 7.24(d)
Prime Rate 12.10
Pro Rata Adjustments 3.3(a)
Retained Employees 7.3(a)
Retained Franchise 7.24(a)
Subsequent Transfer 7.24(e)
Surveys 7.6
Survival Period 11.1
Taking 12.16
TCI Preamble
TCI Assumed Obligations and Liabilities 4.1
TCI Balance Sheet 6.10
TCI Damages 11.6
TCI Excluded Assets 4.2
TCI Matching Franchise 7.24
TCI Plans 6.13(b)
TCI Retained Franchise 7.24(a)
TCI Systems Recital B
TCI Title Policies 9.2(d)
TCI's Financial Statement 6.10
Title Commitments 7.6
Title Company 7.6
Title Defect 7.6
Transitional Billing Services 7.13
WARN 5.13(a)
1.69 Accounting Terms. All accounting terms not otherwise defined in
this Agreement will have the meanings ascribed to them under GAAP.
SECTION 2. EXCHANGES
2.1 Exchanges.
- 12 -
<PAGE>
(a) Subject to the terms and conditions set forth in this
Agreement, at the Closing, (i) Indiana and Insight agree to exchange the TCI
Assets owned by Indiana (the Jasper TCI System as identified on the Schedules
hereto) for the Insight Assets that relate to the Vernal Insight System and to
the Tremonton, Brigham, Willard, Fielding, and Bear River headends that are part
of the Brigham City Insight System (as identified on the Schedules hereto), in
each case free and clear of all Liens (except Permitted Liens) and (ii) Midwest
and Insight agree to exchange the TCI Assets owned by Midwest (the Evansville
TCI System as identified on the Schedules hereto) for the Insight Assets that
relate to the Sandy Insight System and to the Hooper and Fruit Heights headends
that are part of the Brigham City Insight System (as identified on the Schedules
hereto), in each case free and clear of all Liens (except Permitted Liens).
Insight and Indiana with respect to the exchange transaction between them, and
Insight and Midwest with respect to the exchange transaction between them, agree
to use all reasonable efforts to structure the transactions in such a way that
each will be a tax free exchange of like-kind assets under Section 1031 of the
Code, the regulations promulgated thereunder, and judicial and administrative
interpretations thereof.
(b) To the maximum extent permitted by Section 1031 of the
Code, the regulations promulgated thereunder, and judicial and administrative
interpretations thereof, in each exchange (i) the TCI Tangible Personal Property
and the Insight Tangible Personal Property will be exchanged each for the other;
(ii) the TCI Owned Property, TCI Leased Property and TCI Other Property
Interests and the Insight Owned Property, Insight Leased Property and Insight
Other Real Property Interests will be exchanged each for the other; and (iii)
the TCI System Contracts, TCI System Franchises, TCI System Licenses and TCI
Other Intangibles and the Insight System Contracts, Insight System Franchises,
Insight System Licenses and Insight Other Intangibles will be exchanged each for
the other.
SECTION 3. CONSIDERATION
3.1 Value of Assets. The parties agree that the value of the TCI Assets
owned by Indiana and the value of the Insight Assets being transferred to
Indiana are equal; provided that at Closing the value of such Assets will be
subject to adjustment as provided in Section 3.2 and Section 3.3. The parties
further agree that the value of the TCI Assets owned by Midwest and the value of
the Insight Assets being transferred to Midwest are equal; provided that at
Closing the value of such Assets will be subject to adjustment as provided in
Section 3.2 and Section 3.3.
3.2 Adjustments to Value of Assets. The value of the TCI Assets and the
Insight Assets shall be adjusted as follows, it being agreed that
notwithstanding anything to the contrary set forth below, separate adjustments
will be made with respect to each exchange transaction:
(a) Appropriate adjustments on a pro rata basis as of the
Closing Time will be made with respect to each of TCI and Insight for all
prepaid expenses other than inventory (but only to the extent the full benefit
of such prepaid expenses will be realizable by the other party within 12 months
after the Closing Date), accrued expenses (including real and personal property
taxes), copyright fees and franchise or license fees or charges, prepaid income,
subscriber prepayments and,
- 13 -
<PAGE>
subject to paragraph (e) below, accounts receivable related to such party's
Cable Business to the extent specified in Section 3.2(e), all as determined in
accordance with GAAP consistently applied and to reflect the principle that all
expenses and income attributable to such party's Cable Business for the period
through and including the Closing Time are for the account of such party, and
all expenses and income attributable to such party's Cable Business for the
period after the Closing Time are for the account of the other party.
(b) All advance payments to, or funds of third parties on
deposit with, TCI or Insight as of the Closing Time and relating to such party's
Cable Business, including advance payments and deposits (including any accrued
interest on such deposits) by subscribers served by such party's Cable Business
for converters, encoders, decoders, cable television service and related sales,
shall be assumed by, and credited to the account of, the other party.
(c) There shall be credited to each party the economic value
of all accrued vacation time that such party credits after the Closing Time to
the employees of the other party that are hired by such party pursuant to
Section 7.3(g), where economic value is the amount equal to the cash
compensation that would be payable to each such employee at his or her level of
compensation on the Closing Date for a period equal to such employee's credited
accrued vacation.
(d) All deposits relating to the business and operations of
each party's Systems that are held by third parties as of the Closing Time for
the account of such party or as security for such party's performance of its
obligations, including deposits on leases and deposits for utilities, will be
credited to the account of such party in their full amounts and will become the
property of the other party; provided that no adjustment will be made for any
deposits the full benefit of which for contractual or other reasons cannot be
made available to the other party within 12 months following the Closing Time.
(e) Neither TCI nor Insight will receive credit for any of its
(i) accounts receivable resulting from cable television service sales any
portion of which is 60 days or more past due as of the Closing Date, or (ii)
accounts receivable from customers whose accounts are inactive or whose service
is pending disconnection for any reason as of the Closing Date. TCI and Insight
will receive credit for their accounts receivable resulting from cable
television service sales the entire portion of which are 0-59 days past due as
of the Closing Date in an amount equal to 99% of the face amount of such
accounts receivable. For purposes of making "past due" calculations under the
foregoing sentence, the billing statements of a System will be deemed to be due
and payable on the first day of the period during which the service to which
such billing statements relate is provided. TCI and Insight will receive credit
for their advertising accounts receivable as follows: (i) 100% of the face
amount of the advertising accounts receivable which are outstanding 30 days or
less from the invoice date, (ii) 95% of the face amount of all advertising
accounts receivable which are outstanding more than 30 but fewer than 61 days
from the invoice date, (iii) 80% of the face amount of all advertising accounts
receivable which are outstanding more than 60 but fewer than 91 days from the
invoice date, and (iv) 50% of the face amount of all advertising accounts
receivable which are outstanding more than 90 but fewer than 121 days from the
invoice date. Neither TCI nor Insight
- 14 -
<PAGE>
will receive credit for advertising accounts receivable which are outstanding
more than 120 days from the invoice date. Notwithstanding the foregoing, each of
TCI and Insight will receive credit for 100% of the face amount of their
advertising accounts receivable from national and regional representation
accounts, regardless of the age thereof. The obligations of Mountain Cable
Network, Inc., under the Advertising Availability Purchase and Sale Agreement
dated as of April 1, 1993 between it and Insight with respect to the period
prior to Closing are not affected by this Agreement.
(f) Each of TCI and Insight shall receive a credit equal to
the aggregate amount of all capital expenditures made by such party during the
period from January 1, 1998 through the Closing Date relating to (i) upgrades
and rebuilds of System plant capacity and associated items (including headend
sites and headend equipment to expand channel capacity), and (ii) the launch of
digital services, including the purchase of digital converters but not including
digital converters purchased in the ordinary course of business to replace lost,
stolen or defective digital converters.
(g) Any amounts paid, or accrued as a current liability, prior
to Closing by TCI or its Affiliates with respect to retroactive franchise fees
in respect of TCI's Systems or by Insight or its Affiliates with respect to
retroactive franchise fees in respect of Insight's Systems will be credited to
the account of TCI or Insight, as applicable, in their full amounts to the
extent that (i) such amounts can legally be passed through to and collected from
subscribers of the TCI Systems or the Insight Systems after Closing, and (ii) no
agreement has been entered into prohibiting the collection of such amounts, with
such amounts with respect to the TCI Systems being assets of Insight upon
collection and such amounts with respect to the Insight Systems being assets of
TCI upon collection.
(h) The adjustments provided for in this Section 3.2 will be
made without duplication. In addition, none of the adjustments provided for in
this Section 3.2 will be made with respect to any Excluded Asset or with respect
to any item of income or expense related to an Excluded Asset.
(i) The net amount of the adjustments calculated under this
Section 3.2 (the "Adjustment Amount"), as preliminarily determined pursuant to
Section 3.3, shall be paid by TCI or Insight, as applicable, to the other party
at the Closing by wire transfer of immediately available funds.
3.3 Calculation of Adjustments.
(a) Each party will estimate in good faith with respect to its
Systems, and set forth, together with a detailed statement of the calculation
thereof, the adjustments and prorations with respect to its Cable Business
prescribed by Section 3.2 (the "Pro Rata Adjustments"), in a certificate (the
"Initial Adjustment Certificate") executed by an authorized representative of
such party and delivered to the other party at least 10 Business Days prior to
the Closing. Each Initial Adjustment Certificate will be accompanied by
appropriate documentation, including an accounts receivable detail with relevant
aging information as of the Closing Time, in summary form,
- 15 -
<PAGE>
supporting the determination of the Pro Rata Adjustments proposed in such
certificate. Following receipt of such Initial Adjustment Certificate, the
recipient shall have five Business Days to review such schedule and supporting
information and to notify the preparer of such Initial Adjustment Certificate of
any disagreements with the preparer's estimates of its Pro Rata Adjustments. If
the recipient provides a notice of disagreement with the preparer's estimates of
such amounts within such five Business Day period, TCI and Insight shall
negotiate in good faith to resolve any such dispute and to reach an agreement
prior to the Closing on such estimated amounts as of the Closing Time. The
estimates so agreed upon by TCI and Insight or (if the parties do not reach such
an agreement on such estimated amounts set forth in the Initial Adjustments
Certificate prior to the Closing Date or if the recipient fails to provide a
notice of disagreement with the preparer's estimates of such amounts within the
time provided) the estimates of such Pro Rata Adjustments set forth in the
Initial Adjustments Certificate shall be the basis for determining the
preliminary Adjustment Amount payable pursuant to Section 3.2. All disagreements
that may exist with respect to the Initial Adjustment Certificate shall be
resolved in connection with the preparation of the Final Adjustment Certificate
pursuant to paragraph (b) below.
(b) Within 90 days after the Closing, each party will deliver
to the other a certificate (the "Final Adjustment Certificate") showing in full
detail its final determination of the Pro Rata Adjustments with respect to its
Systems, which certificate will be accompanied by appropriate documentation
supporting the amounts proposed in such certificate, including an accounts
receivable detail with relevant aging information as of the Closing Time, and
which will be executed by an officer of such party. Each party will review the
other's Final Adjustment Certificate and will give written notice to the other
party of any objections it has to the calculations shown in such certificate
within 30 days after its receipt thereof. TCI and Insight will endeavor in good
faith to resolve any such objections within 30 days after the receipt by the
parties of each other's objections. If any objections or disputes have not been
resolved at the end of such 30-day period, the disputed portions of the Pro Rata
Adjustments will be determined within the following 30 days by a partner in a
major accounting firm with substantial cable television audit experience which
is not the auditor of either Insight or TCI (or any Affiliate of either of them)
and the determination of such auditor will be final and will be binding upon all
parties. If Insight and TCI cannot agree with respect to the selection of an
auditor, Insight and TCI will each select an auditor and those two auditors will
select a third auditor whose determination will be final and will be binding
upon all parties. Insight and TCI will bear equally the expenses arising in
connection with an auditor's determination of disputed amounts, and payment of
the final Adjustment Amount (after taking into account any estimated Adjustment
Amount paid at the Closing) will be made by the party responsible therefor to
the other party in immediately available funds within 15 Business Days after the
final determination is made.
(c) Each party will provide to the other reasonable access to
all records in its possession which were used in the preparation of its Initial
Adjustment Certificate and Final Adjustment Certificate.
- 16 -
<PAGE>
SECTION 4. ASSUMED LIABILITIES AND EXCLUDED ASSETS
4.1 Indiana and Midwest Assumed Obligations and Liabilities. As of the
Closing, each of Indiana and Midwest will assume and after the Closing, each
will pay, discharge and perform the following, to the extent related to the
Assets received by it from Insight (the "TCI Assumed Obligations and
Liabilities"): (a) those obligations and liabilities accruing and relating to
periods after the Closing Time under or with respect to the Insight Assets
assigned and transferred to it at the Closing; (b) those obligations and
liabilities of Insight to customers of Insight's Cable Business for (i)
subscriber deposits related to the Insight Systems held by Insight as of the
Closing Date in the amount for which such party received credit under Section
3.2 and (ii) customer, advertising and other advance payments held by Insight as
of the Closing Date in the amount for which such party received credit under
Section 3.2; (c) all obligations and liabilities accruing and relating to
Insight's Cable Business prior to the Closing Time in respect of which such
party received a credit pursuant to Section 3.2; and (d) all other obligations
and liabilities accruing and relating to periods after the Closing Time and
arising out of such party's ownership of the Insight Assets assigned and
transferred to it at the Closing or the operation of the Insight Systems
assigned and transferred to it after the Closing Time, except to the extent that
such obligations or liabilities relate to any Insight Excluded Asset. All
obligations and liabilities, contingent, fixed or otherwise, arising out of or
relating to the Insight Assets or the Insight Systems other than the TCI Assumed
Obligations and Liabilities will remain and be the obligations and liabilities
solely of Insight including any obligation, liability or claim relating to or
arising pursuant to (x) rate refunds to subscribers of the Insight Systems with
respect to rates charged to such subscribers during periods through and
including the Closing Time, (y) litigation commenced prior to, or related to an
event occurring at any time prior to the Closing Time, or (z) any Insight
Excluded Asset.
4.2 TCI Excluded Assets. "TCI Excluded Assets" means all: (a)
programming (including cable guide Contracts) and retransmission consent
Contracts of TCI other than those listed on Schedule 1.61 (TCI System
Contracts), it being agreed that leased channel access agreements are not
programming agreements for purposes of this Section 4.2; (b) TCI Plans; (c)
insurance policies of TCI and rights and claims thereunder (except as otherwise
provided in Section 12.16); (d) bonds, letters of credit, surety instruments and
other similar items and any stocks, bonds, certificates of deposit and similar
investments of TCI; (e) cash and cash equivalents and notes receivable of TCI;
(f) TCI's trademarks, trade names, service marks, service names, logos and
similar proprietary rights, subject to Section 7.12; (g) subscriber billing
Contracts and related leased equipment and software of TCI, subject to Section
7.13; (h) all contracts and related accounts receivable for providing DMX
service to commercial accounts via direct broadcast satellite; (i) all TCI
Contracts relating to national advertising sales representation, including
Contracts with National Cable Communications or Cable Networks, Inc.; (j) all
agreements pursuant to which TCI has created, incurred, assumed or guaranteed
indebtedness for borrowed money or under which any Lien securing such
indebtedness has been or may be imposed on any TCI Asset; (k) any claims, rights
or choses in action of TCI related to the period prior to the Closing Time
(other than customer and advertising accounts receivable), including, without
limitation, any Litigation and the proceeds thereof and any claims, rights and
interest in and to any refunds of federal, state or local franchise, income or
other taxes or
- 17 -
<PAGE>
payments of any nature for the periods prior to the Closing Time, including
copyright fees; (l) any books and records that TCI is required by any Legal
Requirement to retain and any books of account, tax reports and returns and the
like related to the TCI Systems; provided that copies of such books and records
will be made available to Insight for a period of three years (and six years in
the case of tax reports and returns and underlying books and records, although
in the case of underlying books and records, the parties acknowledge that they
are not retained for periods for which an IRS field examination has been
completed) from the Closing Date upon reasonable request; (m) TCI's corporate
minute books and other books and records related to internal corporate matters
and financial relationships with TCI's lenders and affiliates; (n) any
employment, union, collective bargaining, compensation, bonus, deferred
compensation, noncompetition, confidentiality, consulting, agency or management
agreements of TCI; (o) all documents, reports and records relating to the
employees of the TCI Systems; provided that copies of such books and records
will be made available to Insight for a period of three years from the Closing
Date upon reasonable request by Insight accompanied by a waiver and release from
the employee whose records are sought in form and substance reasonably
satisfactory to TCI; (p) any agreement, right, asset or property owned, leased
or held by TCI that is not used or held for use in connection with the operation
of the TCI Systems; (q) TCI's rights under the @Home Distribution Agreement (as
defined in the Operating Agreement among, Insight, TCI and certain Affiliates of
TCI (the "LLC Agreement")), it being agreed that the parties' rights and
obligations with respect thereto shall be as specified in the LLC Agreement; and
(r) rights, assets and properties described on Schedule 4.2.
4.3 Insight Assumed Obligations and Liabilities. As of the Closing,
Insight will assume and after the Closing, Insight will pay, discharge and
perform the following (the "Insight Assumed Obligations and Liabilities"): (a)
those obligations and liabilities accruing and relating to periods after the
Closing Time under or with respect to the TCI Assets assigned and transferred to
Insight at the Closing; (b) those obligations and liabilities of TCI to
customers of TCI's Cable Business for (i) subscriber deposits related to the TCI
Systems held by TCI as of the Closing Date in the amount for which Insight
received credit under Section 3.2 and (ii) customer, advertising and other
advance payments held by TCI as of the Closing Date in the amount for which
Insight received credit under Section 3.2; (c) all obligations and liabilities
accruing and relating to TCI's Cable Business prior to the Closing Time in
respect of which Insight received a credit pursuant to Section 3.2; and (d) all
other obligations and liabilities accruing and relating to periods after the
Closing Time and arising out of Insight's ownership of the TCI Assets or
operation of the TCI Systems after the Closing Time, except to the extent that
such obligations or liabilities relate to any TCI Excluded Asset. It is
understood and agreed that following the Contribution, the Company shall assume
the Insight Assumed Obligations and Liabilities for the benefit of TCI and upon
such assumption, Insight shall have no further obligation or liability in
respect of the same to the extent assumed by the Company. All obligations and
liabilities, contingent, fixed or otherwise, arising out of or relating to the
TCI Assets or the TCI Systems other than the Insight Assumed Obligations and
Liabilities will remain and be the obligations and liabilities solely of TCI
including any obligation, liability or claim relating to or arising pursuant to
(x) rate refunds to subscribers of the TCI Systems with respect to rates charged
to such subscribers during periods through and including the Closing Time,
- 18 -
<PAGE>
(y) litigation commenced prior to, or related to an event occurring at any time
prior to the Closing Time, or (z) any TCI Excluded Asset.
4.4 Insight Excluded Assets. "Insight Excluded Assets" means all: (a)
programming (including cable guide Contracts) and retransmission consent
Contracts of Insight other than those listed on Schedule 1.30 (Insight System
Contracts), it being agreed that leased channel access agreements are not
programming agreements for purposes of this Section 4.2; (b) Insight Plans; (c)
insurance policies of Insight and rights and claims thereunder (except as
otherwise provided in Section 12.16); (d) bonds, letters of credit, surety
instruments and other similar items and any stocks, bonds, certificates of
deposit and similar investments of Insight; (e) cash and cash equivalents and
notes receivable of Insight; (f) Insight's trademarks, trade names, service
marks, service names, logos and similar proprietary rights, subject to Section
7.12; (g) subscriber billing Contracts and related leased equipment and software
of Insight, subject to Section 7.13; (h) all Insight Contracts relating to
national advertising sales representation; (i) all agreements pursuant to which
Insight has created, incurred, assumed or guaranteed indebtedness for borrowed
money or under which any Lien securing such indebtedness has been or may be
imposed on any Insight Asset; (j) any claims, rights or choses in action of
Insight related to the period prior to the Closing Time (other than customer and
advertising accounts receivable), including, without limitation, any Litigation
and the proceeds thereof and any claims, rights and interest in and to any
refunds of federal, state or local franchise, income or other taxes or payments
of any nature for the periods prior to the Closing Time, including copyright
fees; (k) any books and records that Insight is required by any Legal
Requirement to retain and any books of account, tax reports and returns and the
like related to the Insight Systems; provided that copies of such books and
records will be made available to TCI for a period of three years (and six years
in the case of tax reports and returns and underlying books and records,
although in the case of underlying books and records, the parties acknowledge
that they are not retained for periods for which an IRS field examination has
been completed) from the Closing Date upon reasonable request; (l) Insight's
partnership record books and other books and records related to internal
partnership matters and financial relationships with Insight's lenders and
affiliates; (m) any employment, union, collective bargaining, compensation,
bonus, deferred compensation, noncompetition, confidentiality, consulting,
agency or management agreements of Insight; (n) all documents, reports and
records relating to the employees of the Insight Systems; provided that copies
of such books and records will be made available to TCI for a period of three
years from the Closing Date upon reasonable request by TCI accompanied by a
waiver and release from the employee whose records are sought in form and
substance reasonably satisfactory to Insight; (o) any agreement, right, asset or
property owned, leased or held by Insight that is not used or held for use in
connection with the operation of the Insight Systems; and (p) rights, assets and
properties described on Schedule 4.4.
SECTION 5. INSIGHT'S REPRESENTATIONS AND WARRANTIES
Insight represents and warrants to TCI as of the date of this Agreement
(or, if a different date is specified in this Section 5 or in Insight's
Schedules, as of such specified date) as follows:
- 19 -
<PAGE>
5.1 Organization and Qualification of Insight. Insight is a limited
partnership duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite partnership power and authority
to own, lease and use the Insight Assets and to conduct Insight's Cable Business
as it is currently conducted. Insight is duly qualified to do business and is in
good standing under the laws of each jurisdiction in which the ownership,
leasing or use of the Insight Assets or the nature of its activities in
connection with the Insight Systems makes such qualification necessary, except
in any such jurisdiction where the failure to be so qualified and in good
standing would not have a material adverse effect on the ownership or operation
of Insight's Cable Business, the Insight Assets or Insight Systems or on the
ability of Insight to perform its obligations under this Agreement. Insight's
U.S. taxpayer identification number is 133290944.
5.2 Authority and Validity. Insight has all requisite partnership power
and authority to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement and the Transaction
Documents to which Insight is a party. The execution and delivery by Insight,
the performance by Insight under, and the consummation by Insight of the
transactions contemplated by, this Agreement and the Transaction Documents to
which Insight is a party have been duly and validly authorized by all required
partnership action by or on behalf of Insight. This Agreement has been, and when
executed and delivered by Insight the Transaction Documents will be, duly and
validly executed and delivered by Insight and the valid and binding obligations
of Insight, enforceable against Insight in accordance with their terms, except
as the same may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to the
enforcement of creditors' rights generally or by principles governing the
availability of equitable remedies.
5.3 No Conflict; Required Consents. Except for, and subject to receipt
of, the Insight Required Consents, all of which are listed on Schedule 5.3, and
the TCI Required Consents and the notification and expiration or earlier
termination of the waiting period under the HSR Act, the execution and delivery
by Insight, the performance of Insight under, and the consummation of the
transactions contemplated by, this Agreement and the Transaction Documents to
which Insight is a party do not and will not: (a) conflict with or violate any
provision of its agreement of limited partnership; (b) violate any provision of
any Legal Requirement; (c) require any consent, approval or authorization of, or
filing of any certificate, notice, application, report or other document with,
any Governmental Authority or other Person; or (d) (i) conflict with, violate,
result in a breach of or constitute a default under (without regard to
requirements of notice, lapse of time or elections of other Persons or any
combination thereof), (ii) permit or result in the termination, suspension or
modification of, (iii) result in the acceleration of (or give any Person the
right to accelerate) the performance of Insight under, (iv) result in the
creation or imposition of any Lien under any Insight System Franchise, Insight
System License or any Insight System Contract or other instrument evidencing any
of the Insight Assets or by which Insight or any of its assets is bound or
affected, except for purposes of clauses (c) and (d) such consents, approvals,
authorizations and filings that, if not obtained or made, would not, and such
violations, conflicts, breaches, defaults, terminations, suspensions,
modifications and accelerations as would not, individually or in the aggregate,
have a material adverse effect on any Insight System, Insight's Cable Business
or on the ability of Insight
- 20 -
<PAGE>
to perform its obligations under this Agreement or the Transaction Documents to
which Insight is a party.
5.4 Assets.
(a) Insight has good and valid title to (or, in the case of
Assets that are leased, valid leasehold interests in) the Insight Assets (other
than Insight Owned Real Property, Insight Leased Property and Insight Other Real
Property Interests, as to which representations and warranties in Section 5.6
apply). The Insight Assets are free and clear of all Liens, except (i) Permitted
Liens and (ii) Liens described on Schedule 5.4, all of which Liens on Schedule
5.4 will be terminated, released or, in the case of the rights of first refusal
listed on Schedule 5.4, waived, as appropriate, at or prior to the Closing.
Except as described on Schedule 1.33 (Insight Tangible Personal Property), the
Insight Tangible Personal Property is in good operating condition and repair
(ordinary wear and tear excepted).
(b) Except for items included in the Insight Excluded Assets,
the Insight Assets constitute all the assets necessary to permit TCI to conduct
Insight's Cable Business and to operate the Insight Systems substantially as
they are being conducted and operated on the date of this Agreement and in
compliance in all material respects with all applicable Legal Requirements,
Insight System Contracts, Insight System Licenses and Insight System Franchises
and to perform all of the TCI Assumed Obligations and Liabilities.
(c) Except as disclosed on Schedule 5.4, to the Knowledge of
Insight, no third party has been granted or applied for a cable television
franchise or is providing or intending to provide cable television services in
any of the communities or unincorporated areas currently served by Insight's
Cable Business.
5.5 Insight System Franchises, Insight System Licenses, Insight System
Contracts and Insight Other Real Property Interests.
(a) Except as described on Schedules 1.25 (Insight Leased
Property), 1.27 (Insight Other Real Property Interests), 1.30 (Insight System
Contracts), 1.31 (Insight System Franchises) and 1.32 (Insight System Licenses),
or as described on Schedule 4.4 (Insight Excluded Assets) or otherwise included
in the definition of Insight Excluded Assets, Insight is not bound or affected
by any of the following that relate primarily or in whole to Insight's Cable
Business: (i) leases of real or personal property; (ii) franchises for the
construction or operation of cable television systems or Contracts of
substantially equivalent effect; (iii) other licenses, authorizations, consents
or permits of the FCC or any other Governmental Authority; (iv) material
easements, rights of access, underground conduit agreements, crossing agreements
or other interests in real property; (v) pole line or attachment agreements;
(vi) multiple dwelling unit agreements, including bulk agreements, and
commercial service agreements; (vii) agreements pursuant to which the Insight
Systems receive or provide advertising sales representation services; (viii)
agreements pursuant to which an Insight System has constructed or agreed to
construct for third parties an institutional
- 21 -
<PAGE>
network or otherwise provides to third parties telecommunications services other
than one-way video; (ix) construction and development agreements (other than
installation agreements where services are provided in the ordinary course of
business on an as-needed basis); or (x) Contracts relating to the operation of
Insight's Cable Business other than those described in any other clause of this
Section which contemplate payments by or to Insight in any 12-month period
exceeding $25,000 individually or $150,000 in the aggregate or that have a
remaining term of two years or more as of the Closing Date. Except as described
on the Schedules to this Agreement, no Affiliate of Insight is a party to any
documents listed on such Schedules.
(b) Complete and correct copies of the Insight System
Franchises and Insight System Licenses have been delivered by Insight to TCI.
Except as set forth on Schedule 1.31 (Insight System Franchises), the Insight
System Franchises contain all of the commitments and obligations of Insight to
the applicable Governmental Authority granting such Franchises with respect to
the construction, ownership and operation of the Insight Systems. The Insight
System Franchises and Insight System Licenses are currently in full force and
effect and are valid and enforceable under all applicable Legal Requirements
according to their terms. There is no legal action, governmental proceeding or,
to Insight's Knowledge, investigation, pending or to Insight's Knowledge
threatened, to terminate, suspend or modify any Insight System Franchise or any
Insight System License and, except as set forth on Schedule 1.31, Insight is in
material compliance with the terms and conditions of all the Insight System
Franchises and Insight System Licenses and with other applicable requirements of
all Governmental Authorities (including the FCC and the Register of Copyrights)
relating to the Insight System Franchises and Insight System Licenses, including
all requirements for notification, filing, reporting, posting and maintenance of
logs and records. All areas served by the Insight Systems are served pursuant to
one of the Insight System Franchises except as set forth on Schedule 1.31.
(c) Complete and correct copies of all Insight System
Contracts required to be listed on Insight's Schedules (including all Contracts
relating to Leased Property and Other Real Property Interests described on
Schedule 1.27) have been provided to TCI. Such documents constitute the entire
agreement with the other party. Each such Insight System Contract is in full
force and effect and constitutes the valid, legal, binding and enforceable
obligation of Insight and Insight is not and to Insight's Knowledge, each other
party thereto is not in breach or default of any material terms or conditions
thereunder.
5.6 Real Property. All Insight Assets consisting of Insight Owned
Property, Insight Leased Property and material Insight Other Real Property
Interests are described on Schedules 1.25 (Insight Leased Property), 1.27
(Insight Other Real Property Interests) and 1.28 (Insight Owned Property).
Except as otherwise disclosed on Schedule 1.28 (Insight Owned Property), Insight
holds title to the Insight Owned Property free and clear of all Liens except (a)
Permitted Liens and (b) Liens described on Schedule 5.4, all of which Liens on
Schedule 5.4 will be terminated, released or, in the case of the rights of first
refusal listed on Schedule 5.4, waived, as appropriate, at or prior to the
Closing, and has the valid and enforceable right to use and possess such Insight
Owned Property, subject only to the above-referenced Liens. Except as otherwise
disclosed on Schedules
- 22 -
<PAGE>
1.25 (Insight Leased Property) and 1.27 (Insight Other Real Property Interests),
Insight has valid and enforceable leasehold interests in all Insight Leased
Property and, with respect to Insight Other Real Property Interests, has valid
and enforceable rights to use such Insight Other Real Property Interests,
subject only to the above-referenced Liens. Except for ordinary wear and tear
and routine repairs, all of the material improvements, leasehold improvements
and the premises of the Insight Owned Property and the premises demised under
the leases and other documents evidencing the Insight Leased Property are in
good condition and repair and are suitable for the purposes used. Each parcel of
Insight Owned Property and each parcel of Insight Leased Property and any
improvements thereon and their current use (x) has access to and over public
streets or private streets for which Insight has a valid right of ingress and
egress, (y) conforms in its current use and occupancy to all material zoning
requirements without reliance upon a variance issued by a Governmental Authority
or a classification of the parcel in question as a nonconforming use and (z)
conforms in its current use to all restrictive covenants, if any, or other Liens
affecting all or part of such parcel. Except where the failure of the
representations made in this sentence to be true and correct would not have a
material adverse effect on the Insight Assets or Insight's Cable Business, all
buildings, towers, guy wires and anchors, headend equipment, earth-receiving
dishes and related facilities used in the operations of the Insight Systems are
located entirely on Insight Owned Property or Insight Leased Property or other
real property in which Insight has an Insight Other Real Property Interest and
are maintained, placed and located in accordance with the provisions of all
applicable Legal Requirements, deeds, leases, licenses, permits or other legally
enforceable arrangements.
5.7 Environmental.
(a) To Insight's Knowledge, except as disclosed on Schedule
5.7, the Insight Owned Property and Insight Leased Property comply in all
material respects with and have previously been operated in compliance in all
material respects with all Environmental Laws. Insight has not, either directly
or indirectly (i) generated, stored, used, treated, handled, discharged,
released or disposed of any Hazardous Substances at, on, under, in or about, to
or from or in any other manner affecting, any Insight Owned Property or Insight
Leased Property, (ii) transported any Hazardous Substances to or from any
Insight Owned Property or Insight Leased Property or (iii) undertaken or caused
to be undertaken any other activities relating to the Insight Owned Property or
Insight Leased Property, which could reasonably give rise to any liability under
any Environmental Law and, to Insight's Knowledge, no other present or previous
owner, tenant, occupant or user of any Insight Owned Property or Insight Leased
Property or any other Person has committed or suffered any of the foregoing. To
Insight's Knowledge, no release of Hazardous Substances outside the Insight
Owned Property or Insight Leased Property has entered or threatens to enter any
Insight Owned Property or Insight Leased Property, nor is there any pending or
threatened Litigation based on Environmental Laws which arises from any
condition of the land adjacent to or immediately surrounding any Insight Owned
Property or Insight Leased Property. No Litigation based on Environmental Laws
which relates to any Insight Owned Property or Insight Leased Property or any
operations or conditions on it (1) has been asserted or conducted in the past
with respect to, or is currently pending against, Insight or, to Insight's
Knowledge, any other Person or (2) to Insight's Knowledge, is threatened or
contemplated.
- 23 -
<PAGE>
(b) To Insight's Knowledge, except as disclosed on Schedule
5.7, (i) no aboveground or underground storage tanks are currently or have been
located on any Insight Owned Property or Insight Leased Property, (ii) no
Insight Owned Property or Insight Leased Property has been used at any time as a
gasoline service station or any other facility for storing, pumping, dispensing
or producing gasoline or any other petroleum products or wastes and (iii) no
building or other structure on any Insight Owned Property or Insight Leased
Property contains asbestos, asbestos-containing material or material presumed to
be asbestos-containing material under any Environmental Law.
(c) Insight has provided TCI with complete and correct copies
of (i) all studies, reports, surveys or other written materials in Insight's
possession relating to the presence or alleged presence of Hazardous Substances
at, on, under or affecting the Insight Owned Property or Insight Leased
Property, (ii) all notices (other than general notices made by general
publication) or other materials in Insight's possession that were received from
any Governmental Authority having the power to administer or enforce any
Environmental Laws relating to current or past ownership, use or operation of
the Insight Owned Property or Insight Leased Property or activities at the
Insight Owned Property or Insight Leased Property and (iii) all materials in
Insight's possession relating to any Litigation or allegation by any private
third party concerning any Environmental Law.
5.8 Compliance with Legal Requirements.
(a) The ownership, leasing and use of the Insight Assets as
they are currently owned, leased and used and the conduct of Insight's Cable
Business and the operation of the Insight Systems as they are currently
conducted and operated do not violate or infringe in any material respect any
Legal Requirements currently in effect (other than Legal Requirements described
in Sections 5.7, 5.8(d) and 5.13, as to which the representations and warranties
set forth in those subsections shall apply), including (i) the Communications
Act, (ii) Section 111 of the U.S. Copyright Act of 1976, and the U.S. Copyright
Office rules and regulations promulgated thereunder (the "Copyright Act") and
(iii) all other applicable Legal Requirements relating to the construction,
maintenance, ownership and operation of the Insight Assets, the Insight Systems
and Insight's Cable Business. Insight has received no written notice of any
violation by Insight or Insight's Cable Business of any Legal Requirement
applicable to the operation of Insight's Cable Business as currently conducted,
or the Insight Systems as currently operated and to Insight's Knowledge, there
is no existing fact, circumstance or condition that could reasonably form the
basis for a finding by any Governmental Authority of any such violation.
(b) A valid request for renewal has been duly and timely filed
under Section 626 of the Communications Act with the proper Governmental
Authority with respect to all Insight System Franchises that have expired prior
to or will expire within 36 months after the date of this Agreement.
(c) Except as set forth in Schedule 5.8, (i) no written
notices or demands have been received from the FCC, from any television station,
or from any other Person or Governmental
- 24 -
<PAGE>
Authority (1) challenging the right of the Insight Systems to carry any
television broadcast station or deliver the same or (2) claiming that any
Insight System has failed to carry a television broadcast station required to be
carried pursuant to the Communications Act or has failed to carry a television
broadcast station on a channel designated by such station consistent with the
requirements of the Communications Act; (ii) all necessary Federal Aviation
Administration ("FAA") approvals have been obtained with respect to the height
and location of towers used in connection with the operation of the Insight
Systems and are listed in Schedule 5.8, and such towers are being operated in
compliance in all material respects with applicable FCC and FAA rules; and (iii)
Insight has received no written notice from any Governmental Authority with
respect to an intention to enforce customer service standards pursuant to the
1992 Cable Act and Insight has not agreed with any Governmental Authority to
establish customer service standards that exceed the FCC standards promulgated
pursuant to the 1992 Cable Act.
(d) Notwithstanding the foregoing, to Insight's Knowledge,
each Insight System is in compliance in all material respects with the
provisions of the 1992 Cable Act as such Legal Requirements relate to the rates
and other fees charged to subscribers of Insight's Cable Business. Insight has
used reasonable good faith efforts to establish rates charged to subscribers,
effective since September 1, 1993, that are or were allowable under the 1992
Cable Act and any authoritative interpretation thereof now or then in effect, to
the extent such rates are or were subject to regulation at such time by any
Governmental Authority, including any local franchising authority and/or the
FCC. Notwithstanding the foregoing, Insight makes no representation or warranty
that any of its rates that are not subject to rate regulation would be allowable
if such rates were subject to regulation and makes no representation or warranty
that the rates charged to subscribers would be allowable under any rules and
regulations of the FCC or any authoritative interpretation thereof, promulgated
after the Closing Date. Insight has delivered to TCI complete and correct copies
of all FCC Forms and other information reasonably requested by TCI relating to
rate regulation generally or specific rates charged to subscribers with respect
to the Insight Systems. Except as set forth on Schedule 5.8, Insight has not
made any election with respect to any cost of service proceeding conducted in
accordance with Part 76.922 of Title 47 of the Code of Federal Regulations or
any similar proceeding with respect to any of the Insight Systems (a "Cost of
Service Election"). Insight has not entered into and is not subject to any
so-called social contract or proposed resolution with the FCC with respect to
rates charged for cable television services in the Insight Systems and is not
currently negotiating or anticipating entering into or being subject to the
same. Except as otherwise described on Schedule 5.8, as of the date of this
Agreement, (i) to the Knowledge of Insight, there are no outstanding or
unresolved proceedings or investigations (other than those affecting the cable
industry generally) dealing with or otherwise affecting the rates that any cable
television system included in the Insight Systems can charge (whether for
programming, equipment, installation, service or otherwise), (ii) no cable
television system included in the Insight Systems is subject to any currently
effective order issued by a Governmental Authority that reduced the rates that
it may charge (whether for programming, equipment, installation, service, or
otherwise), (iii) no local franchising authority has been certified by the FCC
as a rate regulating authority with respect to any of the Insight Systems and
(iv) there is no unresolved complaint pending with respect to the CPST tier of
any Insight System and no rate order with respect to the Insight Systems that is
being appealed.
- 25 -
<PAGE>
5.9 Patents, Trademarks and Copyrights. Insight has deposited with the
U.S. Copyright Office all statements of account and other documents and
instruments, and has paid all royalties, supplemental royalties, fees and other
sums to the U.S. Copyright Office under the Copyright Act with respect to the
business and operations of the Insight Systems as are required to obtain, hold
and maintain the compulsory license for cable television systems prescribed in
Section 111 of the Copyright Act. To Insight's Knowledge, there is no inquiry,
claim, action or demand pending before the U.S. Copyright Office or from any
other Person which questions the copyright filings or payments made by Insight
with respect to the Insight Systems. Insight has delivered to TCI complete and
correct copies of all current reports and filings for the past three years, made
or filed pursuant to copyright rules and regulations with respect to Insight's
Cable Business. Insight does not possess any patent, patent right, trademark or
copyright related to or material to the operation of the Insight Systems and
Insight is not a party to any license or royalty agreement with respect to any
such patent, patent right, trademark or copyright, except for licenses
respecting program material and obligations under the Copyright Act applicable
to cable television systems generally. The Insight Systems and Insight's Cable
Business have been operated in such a manner so as not to violate or infringe
upon the rights, or give rise to any rightful claim of any Person for copyright,
trademark, service mark, patent or license infringement or the like.
5.10 Financial Statements; Undisclosed Liabilities; Absence of Certain
Changes or Events. Insight has delivered to TCI complete and correct copies of
an unaudited trial balance sheet for each Insight System as of April 21, 1998
and an unaudited income and expense summary statement for each Insight System
for the year ended December 31, 1997 and the three-month period ended March 31,
1997, including all notes and schedules thereto (all of such financial
statements and notes being hereinafter referred to as "Insight's Financial
Statements"). Insight's Financial Statements are in accordance with the books
and records of Insight, were prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, and, except as may be
described therein, present fairly the financial condition of Insight at the
dates and for the periods indicated, subject only to standard year-end
adjustments and the omission of footnotes. The unaudited trial balance sheets of
Insight as of April 21, 1998 are herein called the "Insight Balance Sheets." At
the date of the Insight Balance Sheets, Insight had no material liabilities
required by GAAP to be reflected or reserved against therein that were not fully
reflected or reserved against on the Insight Balance Sheets, other than
liabilities as set forth on Schedule 5.10. Except as set forth on Schedule 5.10,
since the date of the Insight Balance Sheets through the date of this Agreement:
(x) Insight has not incurred any obligation or liability (contingent or
otherwise), except normal trade or business obligations incurred in the ordinary
course of business, the performance of which will not, to Insight's Knowledge,
individually or in the aggregate, have a material adverse effect on the
financial condition of Insight or the results of operations of Insight's Cable
Business; (y) there has been no material adverse change in the Insight Assets
comprising any Insight System or in the business, condition, financial or
otherwise, or liabilities of Insight's Cable Business or any Insight System and,
to Insight's Knowledge, no fact or condition exists or is contemplated or
threatened which would result in such a change in the future; and (z) Insight's
Cable Business has been conducted only in the ordinary course of business
consistent with past practice. For the purpose of this Agreement, the impact of
general economic conditions (including changes in capital and
- 26 -
<PAGE>
financial markets), governmental legislation and regulations and other events
which affect the cable industry as a whole in the State of Utah or the United
States, shall not be considered in determining whether there has been a material
adverse change in the business, condition, financial or otherwise or liabilities
of Insight's Cable Business or any Insight System or the Insight Assets.
5.11 Litigation. Except as set forth in Schedule 5.11: (a) there is no
Litigation pending or, to Insight's Knowledge, threatened, and, to Insight's
Knowledge, there is no investigation pending or threatened, by or before any
Governmental Authority or private arbitration tribunal against Insight which, if
adversely determined, would materially adversely affect the financial condition
or operations of Insight's Cable Business, Insight Systems, the Insight Assets
or the ability of Insight to perform its obligations under this Agreement, or
which, if adversely determined, would result in the modification, revocation,
termination, suspension or other limitation of any of the Insight System
Franchises, Insight System Licenses, Insight System Contracts or leases or other
documents evidencing the Insight Leased Property or the Insight Other Real
Property Interests; and (b) there is not in existence any Judgment requiring
Insight to take any action of any kind with respect to the Insight Assets or the
operation of the Insight Systems, or to which Insight (with respect to the
Insight Systems), the Insight Systems or the Insight Assets are subject or by
which they are bound or affected.
5.12 Tax Returns; Other Reports. Insight has duly and timely filed in
correct form all federal, state, local and foreign Tax returns and other Tax
reports required to be filed by Insight, and has timely paid all Taxes which
have become due and payable, whether or not so shown on any such return or
report, the failure of which to be filed or paid could adversely affect or
result in the imposition of a Lien upon the Insight Assets or that could impose
on TCI any transferee liability for any taxes, penalties or interest due or to
become due from Insight, except such amounts as are being contested diligently
and in good faith and are not in the aggregate material. Except as set forth on
Schedule 5.12, Insight has received no notice of, nor does Insight have any
Knowledge of, any deficiency, assessment or audit, or proposed deficiency,
assessment or audit from any taxing Governmental Authority which could affect or
result in the imposition of a Lien upon the Insight Assets.
5.13 Employment Matters.
(a) Schedule 5.13(a) contains a complete and correct list of
the names and positions of all employees engaged principally in Insight's Cable
Business as of the date set forth on Schedule 5.13(a). Insight has complied in
all material respects with all applicable Legal Requirements relating to the
employment of labor, including, the Worker Adjustment and Retraining
Notification Act, 29 U.S.C. Section 2101, et seq. ("WARN"), ERISA, continuation
coverage requirements with respect to group health plans and those relating to
wages, hours, collective bargaining, unemployment insurance, worker's
compensation, equal employment opportunity, age and disability discrimination,
immigration control and the payment and withholding of Taxes.
- 27 -
<PAGE>
(b) Each employee benefit plan (as defined in Section 3(3) of
ERISA) or any multi-employer plan (as defined in Section 3(37) of ERISA) with
respect to which Insight or any of its ERISA Affiliates has any liability or in
which any employees or agents, or any former employees or agents, of Insight or
any of its ERISA Affiliates participate is set forth in Schedule 5.13 (the
"Insight Plans"). Neither Insight, any of its ERISA Affiliates nor any Insight
Plan is in material violation of any provision of the Code or ERISA. No
"reportable event" (as defined in Section 4043 of ERISA) has occurred and is
continuing with respect to any Insight Plan and no "prohibited transaction" (as
defined in Section 406 of ERISA) has occurred with respect to any Insight Plan
which reasonably could result in material liability to Insight or any of its
ERISA Affiliates. No material "accumulated funding deficiency" or "withdrawal
liability" (as defined in Section 302 of ERISA) exists with respect to any of
the Insight Plans. After the Closing, TCI will not be required, under ERISA, the
Code or any collective bargaining agreement, to establish, maintain or continue
any Plan currently maintained by Insight or any of its ERISA Affiliates.
(c) Except as set forth on Schedule 5.13, there are no
collective bargaining agreements applicable to any Person employed by Insight
that renders services in connection with the Insight Systems and Insight has no
duty to bargain with any labor organization with respect to any such Person.
There are not pending any unfair labor practice charges against Insight, any
demand for recognition or any other effort of or request or demand from, a labor
organization for representative status with respect to any Person employed by
Insight that renders services in connection with the Insight Systems. Except as
described on Schedule 5.13, Insight has no employment agreements, either written
or oral, with any employee of the Insight Systems and none of the employment
agreements listed on Schedule 5.13 requires Insight or will require TCI to
employ any Person after the Closing.
(d) Insight is not aware of the existence of any governmental
inspection, investigation, audit or examination of any Insight Plan or of any
facts which would lead it to believe that any such governmental inspection,
investigation, audit or examination is pending or threatened. There exists no
action, suit or claim (other than routine claims for benefits) with respect to
any Insight Plan pending or to the knowledge of Insight threatened against any
of such plans and Insight possesses no knowledge of any facts which could give
rise to any such action, suit or claim. Each Insight Plan that is intended to be
tax-qualified, and each amendment thereto, is the subject of a favorable
determination letter, and no plan amendment that is not the subject of a
favorable determination letter would affect the validity of any Insight Plan's
letter. At all times prior to the Closing, each Insight Plan, to the extent such
plan is intended to be tax-qualified, satisfies all minimum coverage and minimum
participation requirements, if any, imposed on such Insight Plan by the
applicable terms of the Code and ERISA.
5.14 Insight Systems Information. Schedule 5.14 sets forth a materially
true and accurate description of the following information relating to Insight's
Cable Business as of the most recent monthly report generated by Insight in the
ordinary course of business containing the information required to prepare such
Schedule 5.14 (which date is specified in Schedule 5.14) provided that such date
is no earlier than two months prior to the date of this Agreement:
- 28 -
<PAGE>
(a) the approximate number of miles (both underground and
aerial) of plant included in the Insight Assets;
(b) the number of Equivalent Basic Subscribers (including the
number that are residential and the number that are bulk-billed) served by the
Insight Systems for each Insight System service area (by franchise area or
community);
(c) the approximate number of single family homes and
residential dwelling units passed by the Insight Systems;
(d) a description of basic and optional or tier services
available from the Insight Systems, the rates charged by Insight for each and
the number of EBSs receiving each optional or tier service;
(e) the stations and signals carried by the Insight Systems
and the channel position of each such signal and station and the basis for
carriage of all television broadcast signals; and
(f) the cities, towns, villages, townships, boroughs, counties
or other communities served by the Insight Systems (with or without the
requirement of a franchise) that have been, or are required to be, registered
with the FCC pursuant to Section 76.12 of its rules, including each C.U.I.D.
number.
5.15 Accounts Receivable. Insight's accounts receivable for its Cable
Business are actual and bona fide receivables representing obligations for the
total dollar amount of such receivables, as shown on the books of Insight, that
resulted from the regular course of Insight's Cable Business. Such receivables
are subject to no offset or reduction of any nature, except for a reserve for
uncollectible amounts consistent with the reserve established by Insight in
Insight's Financial Statements and those credits or reductions to such accounts
made in the ordinary course of business.
5.16 Bonds; Letters of Credit. Except as set forth on Schedule 5.16,
there are no franchise, construction, fidelity, performance, or other bonds,
guaranties in lieu of bonds or letters of credit posted by Insight in connection
with its operation or ownership of any of the Insight Systems or Insight Assets.
5.17 Finders and Brokers. Insight has not employed any financial
advisor, broker or finder or incurred any liability for any financial advisory,
brokerage, finder's or similar fee or commission in connection with the
transactions contemplated by this Agreement for which TCI could be liable.
SECTION 6. TCI'S REPRESENTATIONS AND WARRANTIES
Each of Indiana and Midwest severally represents and warrants to
Insight, as of the date of this Agreement (or, if a different date is specified
in this Section 6 or in the TCI's Schedules, as of
- 29 -
<PAGE>
such specified date) as follows; provided, that each makes the following
representations and warranties only with respect to itself and its own Assets,
Systems and Cable Business.
6.1 Organization and Qualification of TCI. Indiana is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Indiana and Midwest is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and each has all
requisite corporate power and authority to own, lease and use the TCI Assets
owned, leased or used by it and to conduct TCI's Cable Business as it is
currently conducted. TCI is duly qualified to do business and is in good
standing under the laws of each jurisdiction in which the ownership, leasing or
use of its TCI Assets or the nature of its activities in connection with the TCI
Systems makes such qualification necessary, except in any such jurisdiction
where the failure to be so qualified and in good standing would not have a
material adverse effect on the ownership or operation of TCI's Cable Business,
the TCI Assets or TCI Systems or on the ability of TCI to perform its
obligations under this Agreement. Indiana's U.S. taxpayer identification number
is 841038399 and Midwest's U.S. taxpayer identification number is 061116778.
6.2 Authority and Validity. TCI has all requisite corporate power and
authority to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement and the Transaction
Documents to which TCI is a party. The execution and delivery by TCI, the
performance by TCI under, and the consummation by TCI of the transactions
contemplated by, this Agreement and the Transaction Documents to which TCI is a
party have been duly and validly authorized by all required corporate action by
or on behalf of TCI, subject to TCI obtaining board of director approval for the
same. This Agreement has been, and when executed and delivered by TCI the
Transaction Documents will be, duly and validly executed and delivered by TCI
and the valid and binding obligations of TCI, enforceable against TCI in
accordance with their terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to the enforcement of creditors' rights generally
or by principles governing the availability of equitable remedies and subject to
TCI obtaining board of director approval for the same.
6.3 No Conflict; Required Consents. Except for, and subject to receipt
of, the TCI Required Consents, all of which are listed on Schedule 6.3, and the
Insight Required Consents and the notification and expiration or earlier
termination of the waiting period under the HSR Act, the execution and delivery
by TCI, the performance of TCI under, and the consummation of the transactions
contemplated by, this Agreement and the Transaction Documents to which TCI is a
party do not and will not: (a) conflict with or violate any provision of its
charter or bylaws; (b) violate any provision of any Legal Requirement; (c)
require any consent, approval or authorization of, or filing of any certificate,
notice, application, report or other document with, any Governmental Authority
or other Person; or (d) (i) conflict with, violate, result in a breach of or
constitute a default under (without regard to requirements of notice, lapse of
time or elections of other Persons or any combination thereof), (ii) permit or
result in the termination, suspension or modification of, (iii) result in the
acceleration of (or give any Person the right to accelerate) the performance of
TCI under, (iv) result in the creation or imposition of any Lien under any TCI
- 30 -
<PAGE>
System Franchise, TCI System License or any TCI System Contract or other
instrument evidencing any of the TCI Assets or by which TCI or any of its assets
is bound or affected, except for purposes of clauses (c) and (d) such consents,
approvals, authorizations and filings, that, if not obtained or made, would not,
and such violations, conflicts, breaches, defaults, terminations, suspensions,
modifications and accelerations as would not, individually or in the aggregate,
have a material adverse effect on any TCI System, TCI's Cable Business or on the
ability of TCI to perform its obligations under this Agreement or the
Transaction Documents to which TCI is a party.
6.4 Assets.
(a) TCI has good and valid title to (or, in the case of Assets
that are leased, valid leasehold interests in) the TCI Assets (other than TCI
Owned Real Property, TCI Leased Property and TCI Other Real Property Interests,
as to which representations and warranties in Section 6.6 apply). The TCI Assets
are free and clear of all Liens, except (i) Permitted Liens and (ii) Liens
described on Schedule 6.4, all of which Liens on Schedule 6.4 will be
terminated, released or, in the case of the rights of first refusal listed on
Schedule 6.4, waived, as appropriate, at or prior to the Closing. Except as
described on Schedule 1.64 (TCI Tangible Personal Property), the TCI Tangible
Personal Property is in good operating condition and repair (ordinary wear and
tear excepted).
(b) Except for items included in the TCI Excluded Assets, the
TCI Assets constitute all the assets necessary to permit Insight to conduct
TCI's Cable Business and to operate the TCI Systems substantially as they are
being conducted and operated on the date of this Agreement and in compliance in
all material respects with all applicable Legal Requirements, TCI System
Contracts, TCI System Licenses and TCI System Franchises and to perform all of
the Insight Assumed Obligations and Liabilities.
(c) Except as disclosed on Schedule 6.4, to the Knowledge of
TCI, no third party has been granted or applied for a cable television franchise
or is providing or intending to provide cable television services in any of the
communities or unincorporated areas currently served by TCI's Cable Business.
6.5 TCI System Franchises, TCI System Licenses, TCI System Contracts
and TCI Other Real Property Interests.
(a) Except as described on Schedules 1.56 (TCI Leased
Property), 1.58 (TCI Other Real Property Interests), 1.61 (TCI System
Contracts), 1.62 (TCI System Franchises) and 1.63 (TCI System Licenses) or as
described on Schedule 4.2 (TCI Excluded Assets) or otherwise included in the
definition of TCI Excluded Assets, TCI is not bound or affected by any of the
following that relate primarily or in whole to TCI's Cable Business: (i) leases
of real or personal property; (ii) franchises for the construction or operation
of cable television systems or Contracts of substantially equivalent effect;
(iii) other licenses, authorizations, consents or permits of the FCC or any
other Governmental Authority; (iv) material easements, rights of access,
underground conduit agreements, crossing agreements or other interests in real
property; (v) pole line or attachment
- 31 -
<PAGE>
agreements; (vi) multiple dwelling unit agreements, including bulk agreements,
and commercial service agreements; (vii) agreements pursuant to which the TCI
Systems receive or provide advertising sales representation services; (viii)
agreements pursuant to which a TCI System has constructed or agreed to construct
for third parties an institutional network or otherwise provide to third parties
telecommunications services other than one-way video; (ix) construction and
development agreements (other than installation agreements where services are
provided in the ordinary course of business on an as-needed basis); or (x)
Contracts relating to the operation of TCI's Cable Business other than those
described in any other clause of this Section which contemplate payments by or
to TCI in any 12-month period exceeding $25,000 individually or $150,000 in the
aggregate or that have a remaining term of two years or more as of the Closing
Date. Except as described on the Schedules to this Agreement, no Affiliate of
TCI is a party to any documents listed on such Schedules.
(b) Complete and correct copies of the TCI System Franchises
and TCI System Licenses have been delivered by TCI to Insight. Except as set
forth on Schedule 1.62 (TCI System Franchises), the TCI System Franchises
contain all of the commitments and obligations of TCI to the applicable
Governmental Authority granting such Franchises with respect to the
construction, ownership and operation of the TCI Systems. The TCI System
Franchises and TCI System Licenses are currently in full force and effect and
are valid and enforceable under all applicable Legal Requirements according to
their terms. There is no legal action, governmental proceeding or, to TCI's
Knowledge, investigation, pending or to TCI's Knowledge threatened, to
terminate, suspend or modify any TCI System Franchise or TCI System License and
TCI is in material compliance with the terms and conditions of all the TCI
System Franchises and TCI System Licenses and with other applicable requirements
of all Governmental Authorities (including the FCC and the Register of
Copyrights) relating to the TCI System Franchises and TCI System Licenses,
including all requirements for notification, filing, reporting, posting and
maintenance of logs and records. All areas served by the TCI Systems are served
pursuant to one of the TCI System Franchises except as set forth on Schedule
1.62.
(c) Complete and correct copies of all TCI System Contracts
required to be listed on TCI's Schedules (including all Contracts relating to
Leased Property and Other Real Property Interests described on Schedule 1.58)
have been provided to Insight. Such documents constitute the entire agreement
with the other party. Each such TCI System Contract is in full force and effect
and constitutes the valid, legal, binding and enforceable obligation of TCI and
TCI is not and to TCI's Knowledge, each other party thereto is not in breach or
default of any material terms or conditions thereunder.
6.6 Real Property. All TCI Assets consisting of TCI Owned Property, TCI
Leased Property and material TCI Other Real Property Interests are described on
Schedules 1.56 (TCI Leased Property), 1.58 (TCI Other Real Property Interests)
and 1.59 (TCI Owned Property). Except as otherwise disclosed on Schedule 1.59
(TCI Owned Property), TCI holds title to the TCI Owned Property free and clear
of all Liens except (a) Permitted Liens and (b) Liens described on Schedule 6.4,
all of which Liens on Schedule 6.4 will be terminated, released or, in the case
of the
- 32 -
<PAGE>
rights of first refusal listed on Schedule 6.4, waived, as appropriate, at or
prior to the Closing, and has the valid and enforceable right to use and possess
such TCI Owned Property, in each case subject only to the above-referenced
Liens. Except as otherwise disclosed on Schedules 1.56 (TCI Leased Property) and
1.58 (TCI Other Real Property Interests); TCI has valid and enforceable
leasehold interests in all TCI Leased Property and, with respect to TCI Other
Real Property Interests, has valid and enforceable rights to use all TCI Other
Real Property Interests subject, subject only to the above-referenced Liens.
Except for ordinary wear and tear and routine repairs, all of the material
improvements, leasehold improvements and the premises of the TCI Owned Property
and the premises demised under the leases and other documents evidencing the TCI
Leased Property are in good condition and repair and are suitable for the
purposes used. Each parcel of TCI Owned Property and each parcel of TCI Leased
Property and any improvements thereon and their current use (x) has access to
and over public streets or private streets for which TCI has a valid right of
ingress and egress, (y) conforms in its current use and occupancy to all
material zoning requirements without reliance upon a variance issued by a
Governmental Authority or a classification of the parcel in question as a
nonconforming use and (z) conforms in its current use to all restrictive
covenants, if any, or other Liens affecting all or part of such parcel. Except
where the failure of the representations made in this sentence to be true and
correct would not have a material adverse effect on the TCI Assets or TCI's
Cable Business, all buildings, towers, guy wires and anchors, headend equipment,
earth-receiving dishes and related facilities used in the operations of the TCI
Systems are located entirely on TCI Owned Property or TCI Leased Property or
other real property in which TCI has a TCI Other Real Property Interest and are
maintained, placed and located in accordance with the provisions of all
applicable Legal Requirements, deeds, leases, licenses, permits or other legally
enforceable arrangements.
6.7 Environmental.
(a) To TCI's Knowledge, except as disclosed on Schedule 6.7,
the TCI Owned Property and TCI Leased Property comply in all material respects
with and has previously been operated in compliance in all material respects
with all Environmental Laws. TCI has not either directly or indirectly (i)
generated, stored, used, treated, handled, discharged, released or disposed of
any Hazardous Substances at, on, under, in or about, to or from or in any other
manner affecting, any TCI Owned Property or TCI Leased Property, (ii)
transported any Hazardous Substances to or from any TCI Owned Property or TCI
Leased Property or (iii) undertaken or caused to be undertaken any other
activities relating to the TCI Owned Property or TCI Leased Property, which
could reasonably give rise to any liability under any Environmental Law and, to
TCI's Knowledge, no other present or previous owner, tenant, occupant or user of
any TCI Owned Property or TCI Leased Property or any other Person has committed
or suffered any of the foregoing. To TCI's Knowledge, no release of Hazardous
Substances outside the TCI Owned Property or TCI Leased Property has entered or
threatens to enter any TCI Owned Property or TCI Leased Property, nor is there
any pending or threatened Litigation based on Environmental Laws which arises
from any condition of the land adjacent to or immediately surrounding any TCI
Owned Property or TCI Leased Property. No Litigation based on Environmental Laws
which relates to any TCI Owned Property or TCI Leased Property or any operations
or conditions on it (1) has been asserted or
- 33 -
<PAGE>
conducted in the past with respect to, or is currently pending against. TCI or,
to TCI's Knowledge, any other Person, or (2) to TCI's Knowledge, is threatened
or contemplated.
(b) To TCI's Knowledge, except as disclosed on Schedule 6.7,
(i) no aboveground or underground storage tanks are currently or have been
located on any TCI Owned Property or TCI Leased Property, (ii) no TCI Owned
Property or TCI Leased Property has been used at any time as a gasoline service
station or any other facility for storing, pumping, dispensing or producing
gasoline or any other petroleum products or wastes and (iii) no building or
other structure on any TCI Owned Property or TCI Leased Property contains
asbestos, asbestos-containing material or material presumed to be
asbestos-containing material under any Environmental Law.
(c) TCI has provided Insight with complete and correct copies
of (i) all studies, reports, surveys or other written materials in TCI's
possession relating to the presence or alleged presence of Hazardous Substances
at, on, under or affecting the TCI Owned Property or TCI Leased Property, (ii)
all notices (other than general notices made by general publication) or other
materials in TCI's possession that were received from any Governmental Authority
having the power to administer or enforce any Environmental Laws relating to
current or past ownership, use or operation of the TCI Owned Property or TCI
Leased Property or activities at the TCI Owned Property or TCI Leased Property
and (iii) all materials in TCI's possession relating to any Litigation or
allegation by any private third party concerning any Environmental Law.
6.8 Compliance with Legal Requirements.
(a) The ownership, leasing and use of the TCI Assets as they
are currently owned, leased and used and the conduct of TCI's Cable Business and
the operation of the TCI Systems as they are currently conducted and operated do
not violate or infringe in any material respect any Legal Requirements currently
in effect (other than Legal Requirements described in Sections 6.7, 6.8(d) and
6.13, as to which the representations and warranties set forth in those
subsections shall apply), including (i) the Communications Act, (ii) Section 111
of the Copyright Act and (iii) all other applicable Legal Requirements relating
to the construction, maintenance, ownership and operation of the TCI Assets, the
TCI Systems and TCI's Cable Business. TCI has received no written notice of any
violation by TCI or TCI's Cable Business of any Legal Requirement applicable to
the operation of TCI's Cable Business as currently conducted, or the TCI Systems
as currently operated and to TCI's Knowledge, there is no existing fact,
circumstance or condition that could reasonably form the basis for a finding by
any Governmental Authority of any such violation.
(b) A valid request for renewal has been duly and timely filed
under Section 626 of the Communications Act with the proper Governmental
Authority with respect to all TCI System Franchises that have expired prior to
or will expire within 36 months after the date of this Agreement.
(c) Except as set forth in Schedule 6.8, (i) no written
notices or demands have been received from the FCC, from any television station,
or from any other Person or Governmental
- 34 -
<PAGE>
Authority (1) challenging the right of the TCI Systems to carry any television
broadcast station or deliver the same or (2) claiming that any TCI System has
failed to carry a television broadcast station required to be carried pursuant
to the Communications Act or has failed to carry a television broadcast station
on a channel designated by such station consistent with the requirements of the
Communications Act; (ii) all necessary FAA approvals have been obtained with
respect to the height and location of towers used in connection with the
operation of the TCI Systems and are listed in Schedule 6.8, and such towers are
being operated in compliance in all material respects with applicable FCC and
FAA rules; and (iii) TCI has received no written notice from any Governmental
Authority with respect to an intention to enforce customer service standards
pursuant to the 1992 Cable Act and TCI has not agreed with any Governmental
Authority to establish customer service standards that exceed the FCC standards
promulgated pursuant to the 1992 Cable Act.
(d) Notwithstanding the foregoing, to TCI's Knowledge, each
TCI System is in compliance in all material respects with the provisions of the
1992 Cable Act as such Legal Requirements relate to the rates and other fees
charged to subscribers of TCI's Cable Business. TCI has used reasonable good
faith efforts to establish rates charged to subscribers, effective since
September 1, 1993, that are or were allowable under the 1992 Cable Act and any
authoritative interpretation thereof now or then in effect, to the extent such
rates are or were subject to regulation at such time by any Governmental
Authority, including any local franchising authority and/or the FCC.
Notwithstanding the foregoing, TCI makes no representation or warranty that any
of its rates that are not subject to rate regulation would be allowable if such
rates were subject to regulation and makes no representation or warranty that
the rates charged to subscribers would be allowable under any rules and
regulations of the FCC or any authoritative interpretation thereof, promulgated
after the Closing Date. TCI has delivered to Insight complete and correct copies
of all FCC Forms and other information reasonably requested by Insight relating
to rate regulation generally or specific rates charged to subscribers with
respect to the TCI Systems. TCI has not entered into and is not subject to any
so-called social contract or proposed resolution with the FCC with respect to
rates charged for cable television services in the TCI Systems that would be
applicable to such Systems following Closing and is not currently negotiating or
anticipating entering into or being subject to any new social contract with
respect to the TCI Systems; provided, that certain of the TCI Systems are
affected by FCC Order 97-324 (adopted 9/10/97) that is currently pending
approval before the FCC (the "Pending TCI Rate Order"). Except as set forth on
Schedule 6.8, TCI has not made any Cost of Service Election with respect to any
of the TCI Systems. Except as otherwise described on Schedule 6.8 and except
with respect to the Pending TCI Rate Order, as of the date of this Agreement,
(i) to the Knowledge of TCI, there are no outstanding or unresolved proceedings
or investigations (other than those affecting the cable industry generally)
dealing with or otherwise affecting the rates that any cable television system
included in the TCI Systems can charge (whether for programming, equipment,
installation, service or otherwise), (ii) no cable television system included in
the TCI Systems is subject to any currently effective order issued by a
Governmental Authority that reduced the rates that it may charge (whether for
programming, equipment, installation, service, or otherwise), (iii) no local
franchising authority has been certified by the FCC as a rate regulating
authority with respect to any of the TCI Systems (iv) there is no unresolved
- 35 -
<PAGE>
complaint pending with respect to the CPST tier of any TCI System and no rate
order with respect to the TCI Systems is being appealed.
6.9 Patents, Trademarks and Copyrights. TCI has deposited with the U.S.
Copyright Office all statements of account and other documents and instruments,
and has paid all royalties, supplemental royalties, fees and other sums to the
U.S. Copyright Office under the Copyright Act with respect to the business and
operations of the TCI Systems as are required to obtain, hold and maintain the
compulsory license for cable television systems prescribed in Section 111 of the
Copyright Act. To TCI's Knowledge, there is no inquiry, claim, action or demand
pending before the U.S. Copyright Office or from any other Person which
questions the copyright filings or payments made by TCI with respect to the TCI
Systems. TCI has delivered to Insight complete and correct copies of all current
reports and filings for the past three years, made or filed pursuant to
copyright rules and regulations with respect to TCI's Cable Business. TCI does
not possess any patent, patent right, trademark or copyright related to or
material to the operation of the TCI Systems and TCI is not a party to any
license or royalty agreement with respect to any such patent, patent right,
trademark or copyright, except for licenses respecting program material and
obligations under the Copyright Act applicable to cable television systems
generally. The TCI Systems and TCI's Cable Business have been operated in such a
manner so as not to violate or infringe upon the rights, or give rise to any
rightful claim of any Person for copyright, trademark, service mark, patent or
license infringement or the like.
6.10 Financial Statements; Undisclosed Liabilities; Absence of Certain
Changes or Events. TCI has delivered to Insight complete and correct copies of
an unaudited balance sheet for each TCI System as of December 31, 1997 and an
unaudited statement of operations for the year ended December 31, 1997 for each
System, including all notes and Schedules thereto (all of such financial
statements and notes being hereinafter referred to as "TCI's Financial
Statements"). TCI's Financial Statements are in accordance with the books and
records of TCI, were prepared in accordance with GAAP, applied on a consistent
basis throughout the periods covered thereby, present fairly the financial
condition of TCI with respect to the TCI Systems at the dates and for the
periods indicated, subject, in the case of unaudited TCI Financial Statements,
only to standard year-end adjustments and the omission of footnotes. The
unaudited balance sheets of TCI as of December 31, 1997 are herein called the
"TCI Balance Sheets." At the date of the TCI Balance Sheets, TCI had no material
liabilities with respect to the Systems required by GAAP to be reflected or
reserved against therein that were not fully reflected or reserved against on
the TCI Balance Sheets, other than liabilities as set forth on Schedule 6.10.
Except as set forth on Schedule 6.10, since the date of the TCI Balance Sheets
through the date of this Agreement: (x) TCI has not incurred any obligation or
liability (contingent or otherwise), except normal trade or business obligations
incurred in the ordinary course of business, the performance of which will not,
to TCI's Knowledge, individually or in the aggregate, have a material adverse
effect on the financial condition of TCI or the results of operations of TCI or
TCI's Cable Business; (y) there has been no material adverse change in the TCI
Assets comprising any TCI System or in the business, condition, financial or
otherwise, or liabilities of TCI's Cable Business or any TCI System and, to
TCI's Knowledge, no fact or condition exists or is contemplated or threatened
which would result in such a change in the future; and (z) TCI's Cable Business
has
- 36 -
<PAGE>
been conducted only in the ordinary course of business consistent with past
practice. For the purpose of this Agreement, the impact of general economic
conditions (including changes in capital and financial markets), governmental
legislation and regulations and other events which affect the cable industry as
a whole in the State of Indiana or the United States, shall not be considered in
determining whether there has been a material adverse change in the business,
condition, financial or otherwise or liabilities of TCI's Cable Business or any
TCI System or the TCI Assets.
6.11 Litigation. Except as set forth in Schedule 6.11: (a) there is no
Litigation pending or, to TCI's Knowledge, threatened, and, to TCI's knowledge,
there is no investigation pending or threatened, by or before any Governmental
Authority or private arbitration tribunal against TCI which, if adversely
determined, would materially adversely affect the financial condition or
operations of TCI's Cable Business, TCI Systems, the TCI Assets or the ability
of TCI to perform its obligations under this Agreement, or which, if adversely
determined, would result in the modification, revocation, termination,
suspension or other limitation of any of the TCI System Franchises, TCI System
Licenses, TCI System Contracts or leases or other documents evidencing the TCI
Leased Property or the TCI Other Real Property Interests; and (b) there is not
in existence any Judgment requiring TCI to take any action of any kind with
respect to the TCI Assets or the operation of the TCI Systems, or to which TCI
(with respect to the TCI Systems), the TCI Systems or the TCI Assets are subject
or by which they are bound or affected.
6.12 Tax Returns; Other Reports. TCI has duly and timely filed in
correct form all federal, state, local and foreign Tax returns and other Tax
reports required to be filed by TCI, and has timely paid all Taxes which have
become due and payable, whether or not so shown on any such return or report,
the failure of which to be filed or paid could adversely affect or result in the
imposition of a Lien upon the TCI Assets or that could impose on Insight any
transferee liability for any taxes, penalties or interest due or to become due
from TCI, except such amounts as are being contested diligently and in good
faith and are not in the aggregate material. TCI has received no notice of, nor
does TCI have any Knowledge of, any deficiency, assessment or audit, or proposed
deficiency, assessment or audit from any taxing Governmental Authority which
could affect or result in the imposition of a Lien upon the TCI Assets.
6.13 Employment Matters.
(a) Schedule 6.13(a) contains a complete and correct list of
the names and positions of all employees engaged principally in TCI's Cable
Business as of the date set forth on Schedule 6.13(a). TCI has complied in all
material respects with all applicable Legal Requirements relating to the
employment of labor, including WARN, ERISA, continuation coverage requirements
with respect to group health plans and those relating to wages, hours,
collective bargaining, unemployment insurance, worker's compensation, equal
employment opportunity, age and disability discrimination, immigration control
and the payment and withholding of Taxes.
(b) Each employee benefit plan (as defined in Section 3(3) of
ERISA) or any multi-employer plan (as defined in Section 3(37) of ERISA) with
respect to which TCI or any of its
- 37 -
<PAGE>
ERISA Affiliates has any liability or in which any employees or agents, or any
former employees or agents, of TCI or any of its ERISA Affiliates participate is
set forth in Schedule 6.13 (the "TCI Plans"). Neither TCI, any of its ERISA
Affiliates nor any TCI Plan is in material violation of any provision of the
Code or ERISA. No "reportable event" (as defined in Section 4043 of ERISA) has
occurred and is continuing with respect to any TCI Plan and no "prohibited
transaction" (as defined in Section 406 of ERISA) has occurred with respect to
any TCI Plan which reasonably could result in material liability to TCI or any
of its ERISA Affiliates. No material "accumulated funding deficiency" or
"withdrawal liability" (as defined in Section 302 of ERISA) exists with respect
to any of the TCI Plans. After the Closing, Insight will not be required, under
ERISA, the Code or any collective bargaining agreement, to establish, maintain
or continue any Plan currently maintained by TCI or any of its ERISA Affiliates.
(c) Except as set forth on Schedule 6.13, there are no
collective bargaining agreements applicable to any Person employed by TCI that
renders services in connection with the TCI Systems and TCI has no duty to
bargain with any labor organization with respect to any such Person. There are
not pending any unfair labor practice charges against TCI, any demand for
recognition or any other effort of or request or demand from, a labor
organization for representative status with respect to any Person employed by
TCI that renders services in connection with the TCI Systems. Except as
described on Schedule 6.13, TCI has no employment Contracts, either written or
oral, with any employee of the TCI Systems and none of the employment Contracts
listed on Schedule 6.13 requires TCI or will require Insight to employ any
Person after the Closing.
(d) TCI is not aware of the existence of any governmental
inspection, investigation, audit or examination of any TCI Plan or of any facts
which would lead it to believe that any such governmental inspection,
investigation, audit or examination is pending or threatened. There exists no
action, suit or claim (other than routine claims for benefits) with respect to
any TCI Plan pending or to the knowledge of TCI threatened against any of such
plans and TCI possesses no knowledge of any facts which could give rise to any
such action, suit or claim. Each TCI Plan that is intended to be tax-qualified
is the subject of a favorable determination letter or IRS opinion or
notification letter. At all times prior to the Closing, each TCI Plan, to the
extent such plan is intended to be tax-qualified, satisfies all minimum coverage
and minimum participation requirements, if any, imposed on such TCI Plan by the
applicable terms of the Code and ERISA.
6.14 TCI Systems Information. Schedule 6.14 sets forth a materially
true and accurate description of the following information relating to TCI's
Cable Business as of the most recent monthly report generated by TCI in the
ordinary course of business containing the information required to prepare such
Schedule 6.14 (which date is specified in Schedule 6.14) provided that such date
is no earlier than two months prior to the date of this Agreement:
(a) the approximate number of miles (both underground and
aerial) of plant included in the TCI Assets;
- 38 -
<PAGE>
(b) the number of Equivalent Basic Subscribers (including the
number that are residential and the number that are bulk-billed) served by the
TCI Systems for each TCI System service area (by franchise area or community);
(c) the approximate number of single family homes and
residential dwelling units passed by the TCI Systems;
(d) a description of basic and optional or tier services
available from the TCI Systems, the rates charged by TCI for each and the number
of EBSs receiving each optional or tier service;
(e) the stations and signals carried by the TCI Systems and
the channel position of each such signal and station and the basis for carriage
of all television broadcast signals; and
(f) the cities, towns, villages, townships, boroughs,
counties, or other communities served by the TCI Systems (with or without the
requirement of a franchise) that have been, or are required to be, registered
with the FCC pursuant to Section 76.12 of its rules, including each C.U.I.D.
number.
6.15 Accounts Receivable. TCI's accounts receivable for its Cable
Business are actual and bona fide receivables representing obligations for the
total dollar amount of such receivables, as shown on the books of TCI, that
resulted from the regular course of TCI's Cable Business. Such receivables are
subject to no offset or reduction of any nature, except for a reserve for
uncollectible amounts consistent with the reserve established by TCI in TCI's
Financial Statements and those credits or reductions to such accounts made in
the ordinary course of business.
6.16 Bonds; Letters of Credit. Except as set forth on Schedule 6.16,
there are no franchise, construction, fidelity, performance, or other bonds,
guaranties in lieu of bonds or letters of credit posted by TCI in connection
with its operation or ownership of any of the TCI Systems or TCI Assets.
6.17 Finders and Brokers. TCI has not employed any financial advisor,
broker or finder or incurred any liability for any financial advisory,
brokerage, finder's or similar fee or commission in connection with the
transactions contemplated by this Agreement for which Insight could be liable.
SECTION 7. ADDITIONAL COVENANTS
7.1 Access to Premises and Records. Between the date of this Agreement
and the Closing Date each of TCI and Insight will give to the other and its
representatives full access during normal business hours to all the premises and
books and records of its Cable Business and to all its Assets and Systems'
personnel and will furnish to the other and its representatives all such
documents, financial information and other information regarding its Cable
Business and its Assets
- 39 -
<PAGE>
as the other from time to time reasonably may request; provided that no
investigation by TCI or Insight will affect or limit the scope of any of the
representations, warranties, covenants and indemnities of the other party in
this Agreement or in any Transaction Document or limit such party's liability
for breach of any of the foregoing.
7.2 Continuity and Maintenance of Operations; Certain Deliveries and
Notices. Between the date of this Agreement and the Closing, TCI with respect to
TCI's Cable Business, the TCI Systems and the TCI Assets and Insight with
respect to Insight's Cable Business, the Insight Systems and the Insight Assets:
(a) will conduct its Cable Business and operate its Systems
only in the usual, regular and ordinary course and consistent with past
practices, including continuing to make ordinary marketing, advertising and
promotional expenditures, and, to the extent consistent with such conduct and
operation, will use its commercially reasonable efforts to (i) preserve its
current business intact in all material respects, including preserving existing
relationships with franchising authorities, suppliers, customers and others
having business dealings with its Systems, and (ii) keep available the services
of its employees and agents providing services in connection with the Cable
Business;
(b) will maintain its Assets in good repair, order and
condition, ordinary wear and tear excepted; will maintain equipment and
inventory for its Systems at not less than normal historical levels consistent
with past practices; will maintain in full force and effect policies of
insurance with respect to its Cable Business consistent with past practices; and
will maintain its books, records and accounts with respect to its Assets and the
operation of its Systems in the usual, regular and ordinary manner on a basis
consistent with past practices;
(c) except with respect to Excluded Assets, will not (i)
modify, terminate, renew, suspend, abrogate or enter into any System Contract or
other instrument that would be included in such party's Assets, other than in
the ordinary course of business provided that the other party's consent, not to
be unreasonably withheld or delayed, will be required to modify, terminate,
renew, suspend, abrogate or enter into any retransmission consent or programming
agreement, any System Franchise, any lease or document evidencing Leased
Property or any other agreement that contemplates payments to or by the
transferring party in any 12-month period exceeding $25,000 individually or
$150,000 in the aggregate; (ii) take or omit to take any action that would
result in the condition set forth in Section 8.1(a) with respect to TCI or
Section 8.2(a) with respect to Insight not being satisfied at any time prior to
the Closing; (iii) engage in any marketing, subscriber installation,
disconnection or collection practices other than in the ordinary course of
business consistent with its past practices; (iv) make any Cost of Service
Election; (v) enter into any agreement with or commitment to any competitive
access providers with respect to any System; (vi) sell, transfer or assign any
portion of its Assets other than sales in the ordinary course of business and
assets sold or disposed of and replaced by other assets of comparable utility
and value or permit the creation of a Lien, other than a Permitted Lien, on any
Asset; (vii) engage in any hiring or employee compensation practices that are
inconsistent with past practices except for changes in such practices
implemented by such party and its Affiliates on a company-wide basis; or (viii)
take any actions that
- 40 -
<PAGE>
would cause the transactions contemplated hereby to fail to qualify as like-kind
exchanges under Section 1031 of the Code;
(d) will promptly deliver to the other true and complete
copies of all quarterly financial statements and all monthly and quarterly
operating reports with respect to the operation of the Cable Business prepared
in the ordinary course of business by or for such party at any time from the
date of this Agreement until the Closing;
(e) will give or cause to be given to the other and its
counsel, accountants and other representatives, as soon as reasonably possible
but in any event prior to the date of submission to the appropriate Governmental
Authority, copies of all FCC Forms 1200, 1205, 1210, 1215, 1220, 1225, 1235 and
1240 or any other FCC forms required to be filed with any Governmental Authority
under the 1992 Cable Act with respect to rates and prepared with respect to any
of its Systems, such forms to be reasonably satisfactory in form and substance
to the other;
(f) will duly and timely file a valid notice of renewal under
Section 626 of the Cable Act with the appropriate Governmental Authority with
respect to any System Franchise that will expire within 36 months after any date
between the date of this Agreement and the Closing Date;
(g) will promptly notify the other of any fact, circumstance,
event or action by it or otherwise (i) which if known at the date of this
Agreement would have been required to be disclosed by it in or pursuant to this
Agreement or (ii) the existence, occurrence or taking of which would result in
the condition set forth in Section 8.1(a) with respect to TCI or Section 8.2(a)
with respect to Insight not being satisfied at any time prior to the Closing,
and, with respect to clause (ii), will use its commercially reasonable efforts
to remedy the same, subject to Section 12.16; and
(h) will consult the other prior to decreasing or increasing
the rate charged for any level of Basic Services, Expanded Basic Services or Pay
TV and prior to adding, deleting, retiering or repackaging any programming
services; provided that the other's consent is not required for any such action
and provided that TCI does not need to consult Insight with respect to its
scheduled June 1998 rate increases.
7.3 Employees.
(a) Each party may, but shall have no obligation to employ or
offer employment to any employee of the other party's Cable Business. Not more
than 60 days after the date of this Agreement, each party shall provide to the
other a list of all active employees of their respective Systems as of a recent
date, showing then-current positions and rates of compensation and indicating
which of such employees such party desires to retain as its employees (the
"Retained Employees"). Within 30 days after receipt of this list, the party
receiving such list will provide to the other in writing a list of employees
that such party or its Affiliates may desire to employ following the Closing
(subject to the satisfaction of such party's conditions for employment), which
list shall not
- 41 -
<PAGE>
include any Retained Employees. At Closing, each party shall terminate the
employment of all its employees who were employed incidental to the conduct of
such party's Cable Business other than Retained Employees and any other
employees not hired by the other party that such party determines to retain.
(b) Each party will pay to all employees of its Cable Business
all compensation, including salaries, commissions, bonuses, deferred
compensation, severance, insurance, vacation (except for accrued vacation
included in the adjustments calculated pursuant to Section 3.2(c) to be carried
over pursuant to Section 7.3(g)), sick pay and other compensation or benefits to
which they are entitled for periods through and including the Closing Time in
accordance with the terms and conditions of any arrangement providing for such
compensation or benefits, including, without limitation, all amounts, if any,
payable on account of the termination of their employment. Each party agrees to
cooperate in all reasonable respects with the other party to allow such party to
evaluate and interview employees of the Cable Business in order to make hiring
decisions. Such cooperation shall include but not be limited to allowing the
other party to contact employees during normal business hours and making
personnel records available.
(c) Each party will be responsible for the maintenance and
distribution of benefits accrued under any employee benefit plan (as defined in
ERISA) maintained by such party pursuant to the provisions of any Legal
Requirement and of such plans. Neither party will assume any obligation or
liability for any such accrued benefits or any fiduciary or administrative
responsibility to account for or dispose of any such accrued benefits under any
employee benefit plans maintained by the other party.
(d) All claims and obligations under, pursuant to or in
connection with any welfare, medical, insurance, disability or other employee
benefit plans of either party or arising under any Legal Requirement affecting
employees of such party incurred through and including the Closing Date or
resulting from or arising from events or occurrences occurring or commencing
through and including the Closing Date will remain the responsibility of such
party, whether or not such employees are hired by the other party after the
Closing. Neither party will have and assume any obligation or liability under or
in connection with any such plan maintained by the other party.
(e) Each party will remain solely responsible for, and will
indemnify and hold harmless the other from and against all Losses arising from
or with respect to, all salaries and all severance, vacation (except for accrued
vacation included in the adjustments calculated pursuant to Section 3.2(c)),
medical, sick, holiday, continuation coverage and other compensation or benefits
to which its employees may be entitled, whether or not such employees may be
hired by the other party, as a result of their employment by it through and
including the Closing Time, the termination of their employment at the Closing
Time, the obligation, if any, to notify and/or bargain with any labor
organization, the consummation of the transactions contemplated hereby or
pursuant to any applicable Legal Requirement (including without limitation WARN)
or otherwise relating to their employment through and including the Closing
Time.
- 42 -
<PAGE>
(f) Each party will retain full responsibility and liability
for offering and providing "continuation coverage" of any "qualified
beneficiary" who is covered by a "group health plan" sponsored or contributed to
by such party and who has experienced a "qualifying event" or is receiving
"continuation coverage" through and including the Closing Date. "Continuation
coverage," "qualified beneficiary," "group health plan," and "qualifying event"
shall have the meanings given such terms under Code Section 4980B.
(g) Notwithstanding anything to the contrary herein, each
party (a "Hiring Party") shall (i) credit each employee of the other party who
becomes an employee of such Hiring Party after the Closing Time (a "Hired
Employee") the lesser of the amount of vacation accrued by him or her as an
employee of the other party through and including the Closing Time or the amount
of accrued vacation permitted to be accrued by similarly situated employees of
the Hiring Party in accordance with the Hiring Party's standard practices; (ii)
permit each Hired Employee and their dependents to participate in the Hiring
Party's employee benefit plans to the same extent as similarly situated
employees of the Hiring Party and their dependents; (iii) give each Hired
Employee credit for his or her past service with the other party at the Closing
Time (including past service with any prior owner or operator of such party to
the extent such Hired Employee previously received credit for such service) for
purposes of eligibility and vesting under the Hiring Party's employee benefit
and other plans to the same extent as other similarly situated employees of the
Hiring Party; (iv) not subject any Hired Employee to any waiting periods or
limitations on benefits for pre-existing conditions under the Hiring Party's
employee benefit plans, including any group health and disability plans, except
to the extent such employees were subject to such limitations under the other
party's employee benefit plans and (v) give credit under the Hiring Party's
group health plans for any deductible previously met by a Hired Employee under
the other party's group health plan.
(h) If the Hiring Party discharges without cause within 90
days after the Closing any Hired Employee and such Hired Employee would have
been entitled to severance payments pursuant to the other party's severance
benefits plan if such Hired Employee had been discharged without cause at
Closing by the other party as of the Closing Time, then the Hiring Party shall
pay severance benefits to such Hired Employee in accordance with the other
party's severance benefit plan to the extent such plan would have paid severance
to such Hired Employee. Any employee that is hired by the Company at Closing
will not be deemed to have been discharged by Insight by virtue of such hiring
but the obligations of Insight as Hiring Party shall also apply to the Company.
(i) Nothing in this Section 7.3 or elsewhere in this Agreement
shall be deemed to make any employee of the parties a third party beneficiary of
this Agreement.
7.4 Leased Vehicles; Other Capital Leases. Each party will pay the
remaining balances on any leases for vehicles included in its Tangible Personal
Property and will deliver valid and good title to such vehicles free and clear
of all Liens (other than Permitted Liens) to the other party at the Closing.
- 43 -
<PAGE>
7.5 Required Consents, Estoppel Certificates, Franchise Renewal.
(a) Each party will use its commercially reasonable efforts to
obtain in writing as promptly as possible and at its expense, all of its
Required Consents in form and substance reasonably satisfactory to the other
party, and will deliver to the other party copies of such Required Consents
promptly after they are obtained by such party; provided however that each party
will afford the other party the opportunity to review, approve and revise the
form of Required Consent prior to delivery to the party whose consent is sought.
Each party will cooperate with the other party in its efforts to obtain its
Required Consents, but neither party will be required to accept or agree or
accede to any condition to transfer of any Asset, or any modifications or
amendments to any of the System Franchises, System Licenses, System Contracts or
leases or documents evidencing Leased Property or Other Real Property Interests
of its Cable Business that, in either case, would make, or are reasonably likely
to make, the underlying instrument materially more onerous in any respect or
that would materially reduce, or are reasonably likely to materially reduce, the
benefits available under the instrument in respect of which the consent relates.
As soon as practicable after the date of this Agreement, but in any event no
later than 45 days after the date of this Agreement, the parties will cooperate
with each other to complete, execute and deliver, or cause to be completed,
executed and delivered to the appropriate Governmental Authority, a request for
such Governmental Authority's consent to transfer each System Franchise as to
which such consent is required.
(b) Each party will use its commercially reasonable efforts to
obtain a certificate executed by the lessor of each parcel of Leased Property
substantially in the form of Exhibit 7.5(b), the substance of which may be
included as part of the consent obtained pursuant to Section 7.5(a) (an
"Estoppel Certificate").
(c) Each party will use commercially reasonable efforts to
obtain and cooperate with the other party to obtain renewals or extensions of
any System Franchise for which a valid notice of renewal pursuant to the formal
renewal procedures established by Section 626 of the Cable Act has not been
timely delivered to the appropriate Governmental Authority for a period expiring
no earlier than three years after the date of this Agreement.
(d) Each party will use commercially reasonable efforts to
obtain and cooperate with the other party to obtain renewals or extensions for a
period expiring no earlier than two years after the date of this Agreement of
any System Franchise which is expired or has a term of less than one year
remaining as of the date of this Agreement.
(e) Each party will cooperate with the other party in its
efforts to obtain renewals or extensions of any System Franchises pursuant to
Section 7.5(c) or (d), but neither party will be required to accept or agree or
accede to any renewal or extended System Franchise that contains terms that
would make, or are reasonably likely to make, the System Franchise that is being
renewed or extended materially more onerous in any respect or that would
materially reduce, or are reasonably likely to materially reduce, the benefits
available under the System Franchise that is being renewed or extended.
- 44 -
<PAGE>
(f) Notwithstanding Section 7.5(a), no party will have any
further obligation to obtain Required Consents: (i) with respect to license
agreements relating to pole attachments where the licensing party will not,
after the assigning party's exercise of commercially reasonable efforts, consent
to an assignment of such license agreement but requires that the proposed
assignee enter into a new agreement with such licensing authority, in which case
the proposed assignee shall use its commercially reasonable efforts to enter
into such agreement prior to the Closing or as soon as practicable thereafter
and the party to the license agreement will cooperate with and assist the other
party in obtaining such agreements; provided however that the proposed
assignee's commercially reasonable efforts shall not require it to take any
action of the type that such party is not required to take pursuant to this
Section 7.5; and (ii) for any business radio license which such party reasonably
expects can be obtained within 120 days after the Closing and so long as a
temporary authorization is available to the other party under FCC rules with
respect thereto.
7.6 Title Commitments and Surveys. Insight and TCI each will provide to
the other, within 60 days after the date of this Agreement, (a) current
commitments to issue title insurance policies on the 1992 ALTA owner's form (or
its local equivalent in any state in which ALTA policies are not available)
("Title Commitments") by an agent writing for Old Republic Insurance Company,
Chicago Title Insurance Company or another nationally-recognized title insurance
company (the "Title Company") and containing policy limits and other terms
reasonably acceptable to the other, and, legible photocopies of all recorded
items described as exceptions therein, committing to insure fee simple title in
the other party to each parcel of the Owned Property and easements that provide
access to such Owned Real Property included in its Assets, subject only to
Permitted Liens, and (b) surveys of each parcel of Owned Property in such form
as is necessary to obtain the title insurance to be issued pursuant to the Title
Commitments with the standard printed exceptions relating to survey matters
deleted (the "Surveys"), certified to the other party and to the Title Company
issuing a Title Commitment. The cost to obtain such Title Commitments and
Surveys and other documents required by the Title Company to issue such policies
and Surveys shall be split equally between Insight and TCI; provided however
that (x) each party shall pay for the cost to delete or insure over any Title
Defects relating to its Owned Property and (y) the requesting party will pay the
premiums and charges for any additional endorsements such party requests with
respect to any Title Policy other than the endorsements to delete the standard
survey exceptions from such Title Policy and to delete or insure over any Title
Defects. If Insight or TCI notifies the other within 30 days following its
receipt of both the Title Commitments and the Surveys of any Lien (other than a
Permitted Lien or a Lien set forth in Schedules 5.4 or 6.4, as applicable) or
other matter affecting title to Owned Property of the other which prevents
access to or which could prevent or impede in any way the use or operation of
any parcel of Owned Property for the purposes for which it is currently used or
operated by the other (each a "Title Defect"), the other will exercise
commercially reasonable efforts to (i) remove such Title Defect, or (ii) with
the consent of the objecting party, cause the Title Company to commit to insure
over each such Title Defect prior to the Closing. If such Title Defect cannot be
removed prior to Closing or the Title Company does not commit to insure over
such Title Defect prior to Closing and if the objecting party elects to waive
such Title Defect and proceed towards consummation of the transaction in
accordance with this Agreement in its reasonable discretion, the objecting party
and the party that owns such property shall enter into
- 45 -
<PAGE>
a written agreement at Closing containing the commitment of the party that owns
such property to use commercially reasonable efforts to remedy the Title Defect
following Closing on terms satisfactory to the objecting party, in its
reasonable discretion.
7.7 HSR Notification. As soon as practicable but in any event no later
than 60 days after the date of this Agreement, Insight and TCI will each
complete and file, or cause to be completed and filed, any notification and
report required to be filed under the HSR Act and each such filing shall request
early termination of the waiting period imposed by the HSR Act. The parties
shall use their commercially reasonable efforts to respond as promptly as
reasonably practicable to any inquiries received from the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division") for additional information or documentation and to
respond as promptly as reasonably practicable to all inquiries and requests
received from any other Governmental Authority in connection with antitrust
matters. The parties shall use their respective commercially reasonable efforts
to overcome any objections which may be raised by the FTC, the Antitrust
Division or any other Governmental Authority having jurisdiction over antitrust
matters. Notwithstanding the foregoing, no party shall be required to make any
significant change in the operations or activities of the business (or any
material assets employed therein) of such party or any of its Affiliates, if a
party determines in good faith that such change would be materially adverse to
the operations or activities of the business (or any material assets employed
therein) of such party or any of its Affiliates having significant assets, net
worth or revenue. Each of the parties will coordinate with the other party with
respect to its filings and will cooperate to prevent inconsistencies between
their respective filings and will furnish to each other such necessary
information and reasonable assistance as the other may reasonably request in
connection with its preparation of necessary filings or submissions under the
HSR Act. Notwithstanding anything to the contrary in this Agreement if either
party determines in its reasonable business judgment that a request for
additional data and information in connection with the HSR Act is unduly
burdensome, either party may terminate this Agreement by notifying the other
party within 30 days following the unduly burdensome request.
7.8 Transfer Taxes. All sales, use or excise Taxes arising from or
payable by reason of the transfer of any of the TCI Assets and the Insight
Assets will be shared equally by TCI and Insight. All transfer and similar Taxes
or assessments, including transfer and recording fees and similar assessments
for or under System Franchises, System Licenses and System Contracts, arising
from or payable by reason of the conveyance of the TCI Assets and the Insight
Assets will be paid by TCI with respect to the TCI Assets and by Insight with
respect to the Insight Assets.
7.9 Distant Broadcast Signals. Unless otherwise restricted or
prohibited by any Governmental Authority or applicable Legal Requirement, if
requested by the party to which a System will be transferred under this
Agreement, the transferor of such System will delete prior to the Closing Date
any distant broadcast signals which the transferee determines will result in
unacceptable liability on the part of the transferee for copyright payments with
respect to continued carriage of such signals after the Closing.
- 46 -
<PAGE>
7.10 Programming. Not later than 20 Business Days prior to the Closing,
Insight will deliver a letter in the form attached as Exhibit 7.10 to all
programmers from which Insight purchases programming and will execute and
deliver to TCI such other documents as may be reasonably requested by TCI to
comply with the requirements of its programming Contracts and channel line-up
requirements with respect to acquisitions and divestitures of cable television
systems. TCI will execute and deliver such documents as may be reasonably
requested by Insight to comply with the requirements of its programming
Contracts and channel line-up requirements with respect to acquisitions and
divestitures of cable television systems. Neither party will be required to make
any payments to the other's programmers in the fulfillment of its obligations
under this Section 7.10.
7.11 Schedules.
(a) TCI and Insight acknowledge that this Agreement was signed
and delivered without Schedules attached hereto and that they have not reached
final agreement on, among other things, which of their agreements will be
Excluded Assets. TCI and Insight agree to negotiate in good faith to reach
agreement on the Schedules to this Agreement on or before June 1, 1998 and in
connection therewith to supply to the other party such information and copies of
agreements as the other party may reasonably request in connection with its
review of such Schedules. Neither party may refuse to accept the other party's
Schedules based upon any exception to the other party's representations and
warranties that was previously disclosed to such party or based upon any
exception to the other party's representations and warranties that was not
previously disclosed to such party but that would not have a material adverse
effect on the Assets, Systems or Cable Business to be transferred to such party.
If TCI and Insight do not reach agreement on the Schedules to this Agreement on
or before June 1, 1998, either party may terminate this Agreement upon written
notice to the other party given at any time after June 1, 1998 but prior to such
agreement being reached. Once TCI and Insight reach agreement on the Schedules
to this Agreement, the Schedules will be deemed to have been part of this
Agreement effective as of the date hereof.
(b) Not less than ten Business Days prior to Closing, each
party will deliver to the other revised copies of each of its Schedules included
in this Agreement, except for Schedules 5.14 and 6.14 or Schedules 5.13(a) and
6.13(a), in each case updated and marked to show any changes occurring between
the date of this Agreement and the date of delivery (it being agreed that a
complete set of Schedules shall be delivered pursuant to this Section 7.11, not
just individual schedules that have been changed); provided however that for
purposes of such party's representations and warranties and covenants in this
Agreement, all references to the Schedules will mean the version of the
Schedules attached to this Agreement on the date of signing, and provided
further that if the effect of any such updates to Schedules is to disclose any
one or more additional properties, privileges, rights, interests or claims
acquired or arising after the date of this Agreement as Assets, the party to
whom such Assets would otherwise be transferred at the Closing will have the
right (to be exercised by written notice to the other party at or before
Closing) to cause any one or more of such items to be designated as and deemed
to constitute Excluded Assets for all purposes under this Agreement unless such
items are Contracts that were not required to be scheduled or that were entered
into after the date of this Agreement in accordance with the terms of this
Agreement.
- 47 -
<PAGE>
Without changing the result set forth in the preceding sentence that a party's
updated Schedules do not serve to update such party's representations and
warranties, the updated Schedules delivered pursuant to this Section shall be
accompanied by an officer's certificate of the party delivering such Schedules,
certifying that the information set forth in such Schedules is true and accurate
in all material respects as of the date of delivery thereof and that all
information required to be given in the Schedules "as of the date of this
Agreement" has been updated to the date of delivery of the updated Schedules or
other date permitted to be specified in such Schedules.
7.12 Use of Names and Logos. For a period of 90 days after the Closing,
Insight and TCI will be entitled to use the trademarks, trade names, service
marks, service names, logos and similar proprietary rights of the other to the
extent incorporated in or on the Assets transferred to it at the Closing,
provided that each will exercise reasonable efforts to remove all such names,
marks, logos and similar proprietary rights of the other from the Assets by such
earlier date as reasonably practicable following the Closing. Notwithstanding
the foregoing, the transferee party will not be required to remove or
discontinue using any such name or mark that is affixed to converters or other
items in or to be used in customer homes or properties, or as are used in
similar fashion making such removal or discontinuation impracticable for the
transferee party.
7.13 Transitional Billing Services. Insight and TCI will each provide
to the other access to and the right to use its billing system computers,
software and related fixed assets in connection with the Systems acquired by the
other party for a period of up to 180 days following the Closing to allow for
conversion of existing billing arrangements ("Transitional Billing Services").
All Transitional Billing Services that are requested by a party will be provided
on terms and conditions reasonably satisfactory to each party; provided however
that the amount to be paid by the party receiving Transitional Billing Services
will not exceed the cost to the other party of providing such Transitional
Billing Services. Each party will notify the other party at least 45 days prior
to the Closing of the cost to such party of providing such Transitional Billing
Services.
7.14 Confidentiality and Publicity.
(a) Each party will use commercially reasonable efforts to
assure that any non-public information that such party may obtain from the other
in connection with this Agreement with respect to the other's Cable Business and
Systems (it being understood and agreed that all proprietary information of the
transferring party that is included among the Assets of such transferring party
shall become the proprietary information of the transferee party at Closing)
will be kept confidential and, such party will not disclose, and will cause its
employees, consultants, advisors and agents not to disclose, any such
information to any other Person (other than its directors, officers and
employees and representatives of its advisers and lenders whose knowledge
thereof is necessary in order to facilitate the consummation of the transactions
contemplated hereby) or use, and will cause its employees, consultants, advisors
and agents not to use, such information to the detriment of the other; provided
that (i) such party may use and disclose any such information once it has been
publicly disclosed (other than by such party in breach of its obligations under
this Section) or which rightfully has come into the possession of such party
(other than from the other
- 48 -
<PAGE>
party) and (ii) to the extent that such party may, in the reasonable opinion of
its counsel, be compelled by Legal Requirements to disclose any of such
information, such party may disclose such information if it will have used all
reasonable efforts, and will have afforded the other the opportunity, to obtain
an appropriate protective order or other satisfactory assurance of confidential
treatment, for the information compelled to be disclosed. The obligation of
either party to hold information in confidence pursuant to this Section will be
satisfied if such party exercises the same care with respect to such information
as it would exercise to preserve the confidentiality of its own similar
information. In the event of termination of this Agreement, each party will use
all reasonable efforts to cause to be delivered to the other, and retain no
copies of, any documents, work papers and other materials obtained by such party
or on its behalf from the other, whether so obtained before or after the
execution hereof.
(b) Neither party will issue any press release or make any
other public announcement or any oral or written statement to its or the other
party's employees concerning this Agreement and the transactions contemplated
hereby, except as required by applicable Legal Requirements, without the prior
written consent and approval of the other, which consent and approval may not be
unreasonably withheld.
7.15 Bulk Transfers. Insight and TCI each waives compliance by the
other with Legal Requirements relating to bulk transfers applicable to the
transactions contemplated hereby.
7.16 Allocation of Value to Exchanged Assets. Following Closing, the
parties agree to jointly hire an appraiser (the "Appraiser") to prepare, not
later than 60 days after the Closing, a written report regarding the value to be
allocated to the tangible personal property included in the Assets pursuant to
Internal Revenue Service regulations relating to like-kind exchanges of assets
under Section 1031 of the Code. The fees of the Appraiser will be split equally
between TCI and Insight. The parties agree that for purposes of Sections 1031
and 1060 of the Code and the regulations thereunder, each will report the
transactions contemplated by this Agreement in accordance with the values
determined by the Appraiser. Liabilities assumed or taken subject to by each
party are being exchanged each for the other to the maximum extent permitted
under Section 1031 of the Code and regulations thereunder. Each party promptly
will give the other notice of any disallowance or challenge of asset values by
the Internal Revenue Service or any state or local tax authority.
7.17 Lien Searches. Within 45 days after the execution of this
Agreement, each party will obtain at its expense and deliver to the other party,
the results of a lien search conducted by a professional search company of
records in the offices of the secretaries of state in each state and county
clerks in each county where there exists any of its Owned Property or Tangible
Personal Property, and in the state and county where such party's principal
offices are located, including copies of all financing statements or similar
notices or filings (and any continuation statements) discovered by such search
company. Each party will be required to update its lien search and deliver the
results thereof to the other party at least 10 Business Days prior to the date
scheduled for Closing.
- 49 -
<PAGE>
7.18 Further Assurances. At, and after the Closing, each of Insight and
TCI at the request of the other, will promptly execute and deliver, or cause to
be executed and delivered, to the other all such documents and instruments, in
addition to those otherwise required by this Agreement, in form and substance
reasonably satisfactory to the other as the other may reasonably request in
order to carry out or evidence the terms of this Agreement or to collect on
behalf of the transferee party any accounts receivable or other claims included
in the Insight Assets or the TCI Assets. Without limiting the generality of the
foregoing, Insight and TCI will take, or cause to be taken, all actions
consistent with the terms of this Agreement, including execution and delivery of
any documents or instruments, as the other may reasonably request to effect the
qualification of the transactions contemplated hereby as a like-kind exchange
under Section 1031 of the Code.
7.19 Consents. If and to the extent Insight or TCI shall have waived
satisfaction of the condition to Closing set forth in Section 8.1(e) or Section
8.2(e), respectively, subsequent to the Closing, subject to Section 7.24, each
of TCI with respect to the TCI Systems and the TCI Assets and Insight with
respect to the Insight Systems and the Insight Assets will continue to use
commercially reasonable efforts to obtain in writing as promptly as possible any
Required Consent which was not obtained on or before the Closing and will
deliver copies of the same, reasonably satisfactory in form and substance, to
the other. The obligations set forth in this Section will survive the Closing
and will not be merged in the consummation of the transactions contemplated
hereby.
7.20 Cooperation as to Rates and Fees.
(a) Each party shall diligently pursue any current rate
proceedings and shall make available to the other party upon request copies of
any documents, correspondence or notices sent by or received by such party in
connection with the current rate proceedings or any rate regulatory matter with
respect to its Systems instituted after the date of this Agreement.
(b) Prior to Closing, without the prior consent of the other
party, neither party shall settle any rate proceeding with respect to its
Systems if such settlement would (i) impose upon the other party any liability,
or (ii) adversely affect the rates to be charged by the other party during the
post-Closing time period unless such party compensates the other party therefor
in the manner agreed by the parties, or if the parties do not agree, as
determined by an independent auditor in accordance with the procedures
established in Section 3.3(b), it being agreed, without in any way affecting
TCI's indemnification obligations, that Insight's consent is not required to
settle the Pending TCI Rate Order in accordance with its current terms. TCI will
notify Insight of any material changes to the Pending TCI Rate Order after the
date of this Agreement.
(c) After Closing and except with respect to the Pending TCI
Rate Order, notwithstanding the terms of Section 11.4 hereof, the transferee of
a System shall have the right at its own expense to assume control of the
defense of any rate proceeding with respect to such System that remains pending
as of Closing or that arises after Closing but relates to the pre-Closing
operation of a System. The transferee of a System shall notify the other party
regarding the commencement of any such rate proceeding relating to the
pre-Closing operation of such System.
- 50 -
<PAGE>
In any such rate proceeding involving a System, the transferor of such System
shall cooperate in such proceeding and promptly deliver to the other party all
information reasonably requested by the other party as necessary or helpful in
such proceeding.
(i) If the transferee of a System elects to assume
control of the defense of any such rate proceeding, then (1) the other party
shall have the right to participate, at its expense, in the defense in such rate
proceeding, and (2) the transferee shall have the right to settle any rate
proceeding relating to the pre-Closing operation of a System unless under such
settlement the other party would be required to bear liability with respect to
the pre-Closing time period, in which event such settlement shall require the
other party's prior written consent, which consent shall not be unreasonably
withheld.
(ii) If the transferee of a System does not elect to
assume control of the defense of any such rate proceeding, then (1) the
transferee shall have the right to participate, at its expense, in the defense
in such rate proceeding, and (2) without the prior consent of the transferee,
the other party shall not settle such rate proceeding if such settlement would
require the transferee to bear any liability or would adversely affect the rates
to be charged by the transferee unless the other party compensates the
transferee therefor in the manner agreed by the parties, or if the parties do
not so agree, as determined by an independent auditor in accordance with the
procedures established in Section 3.3(b).
(d) If TCI is required following Closing pursuant to any Legal
Requirement, settlement or otherwise to reimburse to any subscribers of the TCI
Systems any subscriber payments previously made by them, including fees for
cable television service, late fees and similar payments, Insight agrees that it
will make such reimbursement through Insight's billing system on terms specified
by TCI and TCI will pay Insight for all such payments made by Insight following
Closing and for Insight's reasonable out-of-pocket expenses incurred in
connection therewith. Without limiting the foregoing, Insight will provide TCI
with all information in Insight's possession that is reasonably required by TCI
in connection with such reimbursement.
(e) If Insight is required following Closing pursuant to any
Legal Requirement, settlement or otherwise to reimburse to any subscribers of
the Insight Systems any subscriber payments previously made by them, including
fees for cable television service, late fees and similar payments, TCI agrees
that it will make such reimbursement through TCI's billing system on terms
specified by Insight and Insight will pay TCI for all such payments made by TCI
following Closing and for TCI's reasonable out-of-pocket expenses incurred in
connection therewith. Without limiting the foregoing, TCI will provide Insight
with all information in TCI's possession that is reasonably required by Insight
in connection with such reimbursement.
7.21 Satisfaction of Conditions. Each party will use its commercially
reasonable efforts to satisfy, or to cause to be satisfied, the conditions to
the obligations of the other party to consummate the transactions contemplated
by this Agreement, as set forth in Section 8, with "commercially reasonable
efforts" being determined with respect to any particular matter as set forth
- 51 -
<PAGE>
elsewhere in this Agreement. Without limiting the foregoing, each party agrees
to cooperate with the other in its efforts to obtain any required retransmission
consents prior to Closing.
7.22 Offers. Neither party will offer its Assets or Cable Business for
sale, entertain offers for such Assets or Cable Business or otherwise negotiate
for the sale of such Assets or Cable Business or make information about such
Assets or Cable Business available to any third party in connection with the
possible sale of such Assets or Cable Business prior to the Closing Date or the
date this Agreement is terminated in accordance with its terms.
7.23 Environmental Reports. Each party may obtain at its expense, such
environmental assessments and reports with respect to the real property that it
is acquiring as it may determine. Without limiting the generality of the
foregoing, if requested by either party, the other party shall give such
requesting party and all environmental engineers and consultants acting on its
behalf such access during normal business hours to the sites and facilities
relating to the other party's Systems as is reasonably required to permit such
engineers and consultants to conduct the physical on-site inspections and
prepare the environmental surveys and assessments with respect to such sites and
facilities as the requesting party shall reasonably request. If the results of a
party's environmental investigation reveal a matter that would be a breach of
the other party's representations given with respect to environmental matters,
without taking into account the Knowledge limitations in such representations,
such party shall have the right to terminate this Agreement, by written notice
given to the other party not later than 120 days after the date of this
Agreement unless the other party agrees to, and by Closing does, make
satisfactory arrangements, as reasonably determined by the party that
commissioned the investigation, to either fix the problem or indemnify the party
that commissioned the environmental investigation
7.24 Franchise Consents. Notwithstanding anything to the contrary in
this Section 7.24, the 95% tests provided for herein shall be made separately
with respect to each of the exchange transactions contemplated by this Agreement
and the other provisions of this Section 7.24 shall be applied separately with
respect to each exchange transaction. If by the date that is 210 days after the
date of this Agreement (i) the aggregate number of TCI EBSs located in areas
that are served without a franchise or that are served pursuant to TCI System
Franchises that either do not require consent or as to which Required Consents
have been obtained is at least 95% of the number of EBSs for all TCI Systems (it
being agreed that 95% for this purpose is 43,845 EBSs as to the Midwest/Insight
exchange transaction and 16,186 EBSs as to the Indiana/Insight exchange
transaction); (ii) the aggregate number of Insight EBSs located in areas that
are served without a franchise or that are served pursuant to Insight System
Franchises that either do not require consent or as to which Required Consents
have been obtained is at least 95% of the number of EBSs for all Insight Systems
(it being agreed that 95% for this purpose is 39,093 EBSs as to the
Midwest/Insight exchange transaction and 14,017 EBSs as to the Indiana/Insight
exchange transaction); (iii) all conditions precedent to the obligations of the
parties have been satisfied or waived by the applicable parties (other than any
condition that all Required Consents for System Franchises have been obtained
and any conditions precedent that are to be satisfied at Closing by delivery of
documents), and (iv) the System Franchises for which consents have not then been
obtained do not, and applicable Legal
- 52 -
<PAGE>
Requirements do not, in the reasonable judgment of the party transferring such
System Franchises, prohibit the actions contemplated by this Section 7.24, then
the following shall occur:
(a) With respect to each TCI System Franchise for which a TCI
Required Consent has not been obtained as of the Closing Date (including any TCI
Assets that are located in the franchise area for such franchise or relate
exclusively to such franchise, a "TCI Retained Franchise"), the parties will
negotiate in good faith to reach agreement on an Insight System Franchise
(including any Insight Assets that are located in the franchise area for such
franchise or relate exclusively to such franchise, an "Insight Matching
Franchise") that is to the greatest extent possible, like kind to such TCI
Retained Franchise for purposes of Section 1031 of the Code. An Insight Matching
Franchise may also be an Insight Retained Franchise. For purposes of this
Section 7.24 a "Retained Franchise" means either a TCI Retained Franchise or an
Insight Retained Franchise or both, as the context requires, and a "Matching
Franchise" means either a TCI Matching Franchise or an Insight Matching
Franchise or both, as the context requires.
(b) With respect to each Insight System Franchise for which an
Insight Required Consent has not been obtained as of the Closing Date (including
any Insight Assets that are located in the franchise area for such franchise or
relate exclusively to such franchise, an "Insight Retained Franchise"), the
parties will negotiate in good faith to reach agreement on a TCI System
Franchise (including any TCI Assets that are located in the franchise area for
such franchise or relate exclusively to such franchise, a "TCI Matching
Franchise") that is to the greatest extent possible, like kind to such Insight
Retained Franchise for purposes of Section 1031 of the Code. A TCI Matching
Franchise may also be a TCI Retained Franchise.
(c) The parties shall negotiate in good faith to reach
agreement on one or more management agreements pursuant to which the intended
transferee of each Retained Franchise will manage such Retained Franchise for a
management fee equal to 3% of gross revenues and the intended transferee of each
Matching Franchise will manage such Matching Franchise in exchange for a
management fee equal to 3% of gross revenues, which management agreements shall
also contain any required signal sharing arrangements that the parties, each
acting in good faith, may determine to be necessary (the "Management
Agreements").
(d) At the Closing, Insight and TCI shall transfer, convey and
assign (the "Primary Transfer") all of the TCI System Assets other than any TCI
Retained Franchises or TCI Matching Franchises and all of the Insight System
Assets other than any Insight Retained Franchises or Insight Matching
Franchises.
(e) Following the Closing of the Primary Transfer, the parties
will continue to use commercially reasonable efforts to obtain Required Consents
for all TCI Retained Franchises and Insight Retained Franchises. Within ten
Business Days of obtaining a Required Consent for a Retained Franchise, the
parties will assign and transfer, each to the other, such Retained Franchise for
the Matching Franchise (a "Subsequent Transfer"), free and clear of all Liens
other than Permitted Liens. If the Matching Franchise for a Retained Franchise
was also a Retained Franchise,
- 53 -
<PAGE>
the transfer of such Retained Franchise shall be delayed until the earlier of
two years from the Closing Date or five Business Days after the date on which
consent to transfer such Matching Franchise is obtained.
(f) All references in this Agreement to the Closing and the
Closing Date will mean the Closing and Closing Date of the Primary Transfer
except as specifically provided otherwise in this Section 7.24(f). Without
limiting the foregoing, all representations and warranties (except as to those
Required Consents that have not been obtained) made in connection with the
Retained Franchises and the Matching Franchises will be made as of the Closing
Date rather than the Subsequent Transfer date and the covenants in Section 7
will not apply to the Retained Franchises or the Matching Franchises following
the Closing Date; provided, that the parties will negotiate in good faith to
include appropriate covenants in the Management Agreement that will apply to the
Retained Franchises and the Matching Franchises following Closing. The closing
conditions in Section 8 will not apply to any Retained Franchise or Matching
Franchise transfer; provided, that the parties will negotiate in good faith to
include appropriate conditions to the later transfer of the Retained Franchises
and the Matching Franchises in the Management Agreements, including appropriate
provisions reflecting the fact that the risk of loss with respect to Retained
Franchises and Matching Franchises remains with the transferor thereof until
such assets are actually transferred to the intended transferee. Notwithstanding
the foregoing, the adjustments provided for in Section 3 will be made as of the
Subsequent Closing Date for both the Retained Franchises and the Matching
Franchises.
(g) If (i) the Required Consents have not been obtained for
any Retained Franchise (including a Matching Franchise that is a Retained
Franchise) within two years following the Closing Date or (ii) a Retained
Franchise (including a Matching Franchise that is a Retained Franchise) is
revoked as a result of the transactions described in this Section 7.24 or (iii)
a court orders the termination of the Management Agreement with respect to a
Retained Franchise (including a Matching Franchise that is a Retained Franchise)
within two years following the Closing Date, the party that owns the Matching
Franchise (including a Matching Franchise that is a Retained Franchise for which
consent to transfer has then been obtained) for each such Retained Franchise
(including a Matching Franchise that is a Retained Franchise) will transfer such
Matching Franchise (including a Matching Franchise that is a Retained Franchise
for which consent to transfer has then been obtained) to the other party for an
amount of cash equal to the fair market value of such Matching Franchise as
mutually agreed to by the parties each acting reasonably and in good faith and
will have no further obligation to purchase the Retained Franchise (including a
Matching Franchise that is a Retained Franchise) from the other party. The
parties shall negotiate in good faith to include provisions in the Management
Agreements that deal with the obligations of TCI and Insight to defend any
challenge raised with respect to a Retained Franchise and the Management
Agreements shall provide that the cost of any such challenge will be split
equally by TCI and Insight.
(h) If the provisions of this Section 7.24 become operative,
the parties agree to use commercially reasonable efforts and act in good faith
in taking such actions and negotiating such additional provisions or other
agreements, including amendments to this Agreement, as may be
- 54 -
<PAGE>
necessary or appropriate to carry out the intent of this Section 7.24, including
without limitation, keeping franchise transfers effective.
7.25 Qualification as Deferred Like-Kind Exchange.
(a) Notwithstanding anything in this Agreement to the
contrary, (i) prior to the end of the Insight Exchange Period (as defined
below), Insight shall have no rights to receive, pledge, borrow, or otherwise
obtain the benefits of the sale proceeds for an Insight Matching System (which
sale shall not occur prior to the end of the Insight Exchange Period); (ii)
prior to the date on which the Subsequent Transfer of a TCI Retained Franchise
occurs pursuant to Section 7.24(g) (which may occur prior to the end of the
Insight Exchange Period). Insight shall have no rights to receive, pledge,
borrow, or otherwise obtain the benefits of such TCI Retained Franchise; (iii)
prior to the end of the TCI Exchange Period (as defined below), TCI shall have
no rights to receive, pledge, borrow, or otherwise obtain the benefits of the
sale proceeds for a TCI Matching System (which sale shall not occur prior to the
end of the TCI Exchange Period); and (iv) prior to the date on which the
Subsequent Transfer occurs pursuant to Section 7.24(g) (which may occur prior to
the end of the TCI Exchange Period), TCI shall have no rights to receive,
pledge, borrow, or otherwise obtain the benefits of such Insight Retained
Franchise. This Section 7.25(a) is intended to meet the requirements of Treasury
Regulation Section 1.1031(k)-1 and shall be interpreted consistently with
therewith.
(b) To ensure that Insight will be able to satisfy the
requirements of Treasury Regulation Section 1.1031(k)-1, within 40 days
following the date on which the Primary Transfer occurs, TCI will furnish to
Insight a detailed description of each of the assets that are part of the TCI
Retained Franchises and the TCI Matching Franchises, which description shall
satisfy, to the greatest extent possible, the requirements of Treasury
Regulation 1.1031(k)-1(c)(3). Thereafter, within 45 days following the date on
which the Primary Transfer occurs, Insight shall deliver to TCI a written notice
signed by Insight setting forth such detailed description and identifying such
assets as replacement property for the Insight Assets.
(c) To ensure that TCI will be able to satisfy the
requirements of Treasury Regulation Section 1.1031(k)-1, within 40 days
following the date on which the Primary Transfer occurs, Insight will furnish to
TCI a detailed description of each of the assets that are part of the Insight
Retained Franchises and the Insight Matching Franchises, which description shall
satisfy, to the greatest extent possible, the requirements of Treasury
Regulation Section 1.1031(k)-1. Thereafter, within 45 days following the date on
which the Primary Transfer occurs, TCI shall deliver to Insight a written notice
signed by TCI setting forth such detailed description and identifying such
assets as replacement property for the TCI Assets.
(d) The "Insight Exchange Period" means the period beginning
on the date on which the Primary Transfer occurs and ending at midnight on the
earlier of (x) 180 days after the date on which the Primary Transfer occurs, or
(y) the due date (including extensions) of Insight's federal income tax return
for the taxable year of Insight that includes the Primary Transfer. The
- 55 -
<PAGE>
"TCI Exchange Period" means the period beginning on the date on which the
Primary Transfer occurs and ending at midnight on the earlier of (x) 180 days
after the date on which the Primary Transfer occurs, or (y) the due date
(including extensions) of TCI's federal income tax return for the taxable year
of TCI that includes the Primary Transfer.
7.26 Ad Sales. Midwest recently sold its cable television system
serving Caldwell County, Dawson Springs, Henderson, Henderson County, Hopkins
County, Providence, St. Charles and Webster County, Kentucky to InterMedia
Partners of Kentucky, L.P. ("InterMedia"). In connection with such sale, Midwest
or its Affiliates agreed to continue to provide advertising sales representation
services to such system and to other systems in Kentucky owned by InterMedia and
its affiliates. Insight agrees to negotiate in good faith with Midwest to enter
into an agreement whereby Midwest or its Affiliates would subcontract the
advertising sales representation services for the areas identified in this
Section 7.26 to Insight or otherwise arrange for such services to be provided by
Insight on Midwest or its Affiliate's behalf from the Evansville ad sales
office.
SECTION 8. CONDITIONS PRECEDENT
8.1 Conditions to Insight's Obligations. Subject to Section 7.24, the
obligations of Insight to consummate the transactions contemplated by this
Agreement are subject to the satisfaction at or before the Closing of the
following conditions, any of which may be waived by Insight.
(a) Accuracy of Representations and Warranties. The
representations and warranties of TCI in this Agreement and in any Transaction
Document, if specifically qualified by materiality, are true in all respects
and, if not so qualified, are true in all material respects, in each case at and
as of the Closing with the same effect as if made at and as of the Closing.
(b) Performance of Agreements. TCI has performed in all
material respects all obligations and agreements and complied in all material
respects with all covenants in this Agreement and in any Transaction Document to
be performed and complied with by it at or before the Closing.
(c) Deliveries. TCI has delivered the items and documents
required to be delivered by it pursuant to this Agreement, including those
required under Section 9.2.
(d) Legal Proceedings. No action, suit or proceeding is
pending or threatened by or before any Governmental Authority and no Legal
Requirement has been enacted, promulgated or issued or become or deemed
applicable to any of the transactions contemplated by this Agreement by any
Governmental Authority, which would (i) prohibit Insight's ownership or
operation of all or a material portion of any TCI System, TCI's Cable Business
or the TCI Assets, (ii) compel Insight to dispose of or hold separately all or a
material portion of any TCI System, TCI's Cable Business or the TCI Assets as a
result of any of the transactions contemplated by this Agreement, (iii) if
determined adversely to Insight's interest, materially impair the ability of
Insight to realize the benefits of the transactions contemplated by this
Agreement or have a material adverse effect on the
- 56 -
<PAGE>
right of Insight to exercise full rights of ownership of the TCI Systems or (iv)
prevent or make illegal the consummation of any transactions contemplated by
this Agreement.
(e) Consents. Subject to Section 7.24, Insight has received
evidence, in form and substance reasonably satisfactory to it, that the
following TCI Required Consents have been obtained without the imposition of any
condition or any modification that in either case makes, or is reasonably likely
to make, the underlying instrument materially more onerous in any respect or
materially reduces in any respect, or is reasonably likely to materially reduce
in any respect, the benefits available under the instrument in respect of which
the consent relates: TCI Required Consents for the TCI System Franchises, the
TCI System Licenses, and any TCI Leased Property or TCI Other Real Property
Interest on which a headend, tower or other reception site is located. In
addition, subject to Section 7.24, the Insight Required Consents for the Insight
System Franchises and Insight System Licenses shall have been obtained.
(f) No Material Adverse Change. There has not been any
material adverse change in the TCI Assets or the financial condition or
operations of TCI's Cable Business or the TCI Systems since the date of this
Agreement. In making the determination required by the preceding sentence, the
last sentence of Section 6.10 shall be applicable.
(g) Subscribers. The TCI Systems are serving at least 56,000
Equivalent Basic Subscribers as of the Closing Date.
(h) HSR Act. All filings required under the HSR Act have been
made and the applicable waiting period has expired or been earlier terminated.
(i) Franchise Renewals. Any TCI System Franchise for which a
valid notice of renewal pursuant to the formal renewal procedures established by
Section 626 of the Cable Act has not been timely delivered to the appropriate
Governmental Authority has been renewed or extended for a period expiring no
earlier than three years after the Closing Date, such renewal or extension being
on terms that would not make, or are not reasonably likely to make, the System
Franchise that is being renewed or extended materially more onerous in any
respect and that would not materially reduce, or are not reasonably likely to
materially reduce, the benefits available under the System Franchise that is
being renewed or extended.
(j) Contribution. All of the conditions to Insight's
obligation to consummate the Contribution shall have been satisfied or waived
(other than those based on acts to be performed at such closing) by Insight in
accordance with the terms of the Contribution Agreement (taking into account the
provisions of Section 7.24 thereof as they modify the condition in Section
8.1(e) thereof) and TCI shall stand ready, willing and able to consummate the
Contribution in accordance with the terms and conditions set forth in the
Contribution Agreement.
(k) Retransmission Consents. With respect to any
retransmission consent agreements for broadcast signals carried on the TCI
Systems on the date of this Agreement and on
- 57 -
<PAGE>
the date of the Closing that are included as part of the TCI Excluded Assets,
all required retransmission consents for continued carriage of such broadcast
signals by the Company have been obtained on terms and conditions reasonably
acceptable to Insight.
(l) Management Agreements. If Section 7.24 has become
operative, the parties shall have reached agreement on the Management Agreements
and other agreements contemplated thereby.
8.2 Conditions to TCI's Obligations. Subject to Section 7.24, the
obligations of TCI to consummate the transactions contemplated by this Agreement
are subject to the satisfaction at or before the Closing of the following
conditions, any of which may be waived by TCI.
(a) Accuracy of Representations and Warranties. The
representations and warranties of Insight in this Agreement and in any
Transaction Document, if specifically qualified by materiality, are true in all
respects and, if not so qualified, are true in all material respects, in each
case at and as of the Closing with the same effect as if made at and as of the
Closing.
(b) Performance of Agreements. Insight has performed in all
material respects all obligations and agreements and complied in all material
respects with all covenants in this Agreement and in any Transaction Document to
be performed and complied with by it at or before the Closing.
(c) Deliveries. Insight has delivered the items and documents
required to be delivered by it pursuant to this Agreement, including those
required under Section 9.3.
(d) Legal Proceedings. No action, suit or proceeding is
pending or threatened by or before any Governmental Authority and no Legal
Requirement has been enacted, promulgated or issued or become or deemed
applicable to any of the transactions contemplated by this Agreement by any
Governmental Authority, which would (i) prohibit TCI's ownership or operation of
all or a material portion of any Insight System, Insight's Cable Business or the
Insight Assets, (ii) compel TCI to dispose of or hold separately all or a
material portion of any Insight System, Insight's Cable Business or Insight
Assets as a result of any of the transactions contemplated by this Agreement,
(iii) if determined adversely to TCI's interest, materially impair the ability
of TCI to realize the benefits of the transactions contemplated by this
Agreement or have a material adverse effect on the right of TCI to exercise full
rights of ownership of the Insight Systems or (iv) prevent or make illegal the
consummation of any transactions contemplated by this Agreement.
(e) Consents. Subject to Section 7.24, TCI has received
evidence, in form and substance reasonably satisfactory to it, that the
following Insight Required Consents have been obtained without the imposition of
any condition or any modification that in either case makes, or is reasonably
likely to make, the underlying instrument materially more onerous in any respect
or materially reduces in any respect, or is reasonably likely to materially
reduce in any respect, the benefits available under the instrument in respect of
which the consent relates: Insight Required
- 58 -
<PAGE>
Consents for the Insight System Franchises, the Insight System Licenses, and any
Insight Leased Property or Insight Other Real Property Interest on which a
headend, tower or other reception site is located. In addition, subject to
Section 7.24, the TCI Required Consents for the TCI System Franchises and TCI
System Licenses shall have been obtained and all required TCI board of director,
membership or partnership approvals shall have been obtained.
(f) No Material Adverse Change. There has not been any
material adverse change in the Insight Assets or the financial condition or
operations of Insight's Cable Business or the Insight Systems since the date of
this Agreement. In making the determination required by the preceding sentence,
the last sentence of Section 5.10 shall be applicable.
(g) Subscribers. The Insight Systems are serving at least
50,000 Equivalent Basic Subscribers as of the Closing Date.
(h) HSR Act. All filings required under the HSR Act have been
made and the applicable waiting period has expired or been earlier terminated.
(i) Franchise Renewals. Any Insight System Franchise for which
a valid notice of renewal pursuant to the formal renewal procedures established
by Section 626 of the Cable Act has not been timely delivered to the appropriate
Governmental Authority has been renewed or extended for a period expiring no
earlier than three years after the Closing Date, such renewal or extension being
on terms that would not make, or are not reasonably likely to make, the System
Franchise that is being renewed or extended materially more onerous in any
respect and that would not materially reduce, or are not reasonably likely to
materially reduce, the benefits available under the System Franchise that is
being renewed or extended.
(j) Contribution. All of the conditions to TCI's obligation to
consummate the Contribution shall have been satisfied or waived (other than
those based on acts to be performed at such closing) by TCI in accordance with
the terms of the Contribution Agreement (taking into account the provisions of
Section 7.24 thereof as they modify the condition in Section 8.2(e) thereof) and
Insight shall stand ready, willing and able to consummate the Contribution in
accordance with the terms and conditions set forth in the Contribution
Agreement.
(k) Retransmission Consents. With respect to any
retransmission consent agreements for broadcast signals carried on the Insight
Systems on the date of this Agreement and on the date of the Closing that are
included as part of the Insight Excluded Assets, all required retransmission
consents for continued carriage of such broadcast signals by TCI have been
obtained on terms and conditions reasonably acceptable to TCI.
(l) Management Agreements. If Section 7.24 has become
operative, the parties shall have reached agreement on the Management Agreements
and other agreements contemplated thereby.
- 59 -
<PAGE>
SECTION 9. THE CLOSING
9.1 The Closing; Time and Place. Subject to Section 7.24, the closing
of the transactions contemplated by this Agreement (the "Closing") will take
place at a date (the "Closing Date") and time mutually determined by TCI and
Insight, which Closing Date shall be within ten days after the date on which all
conditions set forth in Sections 8.1 and 8.2 (other than those based on acts to
be performed at the Closing) have either been satisfied or waived in writing by
the party entitled to the benefit of such condition.
9.2 TCI's Delivery Obligations. At the Closing, TCI will deliver or
cause to be delivered to Insight the following.
(a) Closing Payment. Amounts, if any, payable by TCI to
Insight pursuant to Section 3.
(b) Bill of Sale and Assignment and Assumption Agreement. An
executed Bill of Sale and Assignment and an executed Assumption Agreement in the
forms of Exhibit 9.2(b)(1) and Exhibit 9.2(b)(2), respectively, from each of
Indiana and Midwest and such other instruments of transfer, assignment or
assumption, in form and substance mutually satisfactory to TCI and Insight, as
Insight may reasonably require to further document the transfer and assignment
of the TCI Assets to Insight and TCI's assumption of the TCI Assumed Obligations
and Liabilities.
(c) Deeds. A special or limited warranty deed in a form
reasonably acceptable to Insight (and complying with applicable state laws) with
respect to each parcel of TCI Owned Property, duly executed and acknowledged and
in recordable form, warranting only to defend title to such TCI Owned Property
in the peaceable possession of Insight against all Persons claiming by, through
or under Indiana or Midwest, as applicable, subject however, to any Permitted
Liens and any Title Defects insured over pursuant to Section 7.6, and in form
sufficient to permit the applicable Title Company to issue the TCI Title
Policies referred to in paragraph (d) below to Insight, together with any title
affidavit reasonably required by the title insurer that does not expand the
aforesaid limited or special warranty of TCI.
(d) Title Policies. A policy of title insurance issued by an
eligible Title Company for each parcel of TCI Owned Property, updated to the
Closing Date, containing such endorsements as are required or permitted by
Section 7.6, deleting the survey exception and otherwise consistent with the
form and substance prescribed by Section 7.6 and the Title Commitments
contemplated thereby (the "TCI Title Policies"), or the irrevocable written
commitment of the Title Company to deliver the TCI Title Policies, provided that
with respect to each Title Defect affecting the TCI Owned Property, either (i)
the TCI Title Policy relating to the affected parcel of TCI Owned Property shall
not contain an exception for such Title Defect, or (ii) if Insight has consented
as provided in Section 7.6, such TCI Title Policy shall contain an endorsement
insuring over such Title Defect, or (iii) if, in lieu of a TCI Title Policy
satisfying either of the two preceding requirements, Insight has
- 60 -
<PAGE>
agreed to accept a written agreement of Indiana or Midwest, as applicable, as
contemplated in the last sentence of Section 7.6, TCI shall have executed and
delivered such an agreement.
(e) Estoppel Certificates. Each TCI Estoppel Certificate
obtained pursuant to Section 7.5(b).
(f) Lien Releases. Evidence reasonably satisfactory to Insight
that all Liens (other than Permitted Liens) affecting or encumbering the TCI
Assets have been terminated, released or waived, as appropriate, or original,
executed instruments in form reasonably satisfactory to Insight effecting such
terminations, releases or waivers.
(g) Vehicle Titles. Title certificates to all vehicles
included among the TCI Assets, endorsed for transfer of valid and good title to
Insight free and clear of all Liens (other than Permitted Liens), and separate
bills of sale therefor or other transfer documentation, if required by the laws
of the States in which such vehicles are titled.
(h) Evidence of Authorization Actions. Certified resolutions
of the Board of Directors or other evidence reasonably satisfactory to Insight
that TCI has taken all corporate action necessary to authorize the execution of
this Agreement and the Transaction Documents and the consummation of the
transactions contemplated hereby.
(i) FIRPTA Certificate. A FIRPTA Non-Foreign Seller
Certificate from each of Indiana and Midwest certifying that neither is a
foreign person within the meaning of Section 1445 of the Code reasonably
satisfactory in form and substance to Insight.
(j) Officer's Certificate. A certificate from each of Indiana
and Midwest executed by an executive officer of Indiana or Midwest, as
applicable, dated the Closing Date, reasonably satisfactory in form and
substance to Insight certifying (i) that the conditions specified in Sections
8.1(a) and 8.1(b) have been satisfied as to Indiana or Midwest, as applicable;
and (ii) the total number of EBSs for all the TCI Systems owned by Indiana or
Midwest, as applicable, estimated in good faith as of the Closing Date.
(k) Documents and Records. All TCI Books and Records,
including a list of all pending subscriber hook-ups, disconnect and repair
orders, supply orders and any other lists reasonably necessary to the operation
of the TCI Systems. Delivery of the foregoing will be deemed made to the extent
such TCI Books and Records are then located at any of the offices included in
the TCI Owned Property or TCI Leased Property.
(l) Other. Such other documents and instruments as may be
reasonably necessary to effect the intent of this Agreement and consummate the
transactions contemplated hereby, including any documents requested under
Section 7.10 and a signature page to the Management Agreements, if applicable.
- 61 -
<PAGE>
9.3 Insight's Delivery Obligations. At the Closing, except as otherwise
provided below, Insight will deliver or cause to be delivered to TCI the
following.
(a) Closing Payments. Amounts, if any, payable by Insight to
TCI pursuant to Section 3.
(b) Bill of Sale and Assignment and Assumption Agreement. An
executed Bill of Sale and Assignment and an executed Assumption Agreement in the
forms of Exhibit 9.2(b)(1) and Exhibit 9.2(b)(2), respectively, for each of the
exchange transactions, and such other instruments of transfer, assignment or
assumption for each exchange transaction, in form and substance mutually
satisfactory to Insight and TCI, as TCI may reasonably require to further
document the transfer and assignment of the Insight Assets to TCI and Insight's
assumption of the Insight Assumed Obligations and Liabilities.
(c) Deeds. A special or limited warranty deed in a form
reasonably acceptable to TCI (and complying with applicable state laws) with
respect to each parcel of Insight Owned Property, duly executed and acknowledged
and in recordable form, warranting only to defend title to such Insight Owned
Property in the peaceable possession of Indiana or Midwest, as applicable,
against all Persons claiming by, through or under Insight, subject however, to
any Permitted Liens and any Title Defects insured over pursuant to Section 7.6,
and in form sufficient to permit the applicable Title Company to issue the
Insight Title Policies referred to in paragraph (d) below to Indiana or Midwest,
as applicable, together with any title affidavit reasonably required by the
title insurer that does not expand the aforesaid limited or special warranty of
Insight.
(d) Title Policies. A policy of title insurance issued by an
eligible Title Company for each parcel of Insight Owned Property, updated to the
Closing Date, containing such endorsements as are required or permitted by
Section 7.6, deleting the survey exception and otherwise consistent with the
form and substance prescribed by Section 7.6 and the Title Commitments
contemplated thereby (the "Insight Title Policies"), or the irrevocable written
commitment of the Title Company to deliver the Insight Title Policies, provided
that with respect to each Title Defect affecting the Insight Owned Property,
either (i) the Insight Title Policy relating to the affected parcel of Insight
Owned Property shall not contain an exception for such Title Defect, or (ii) if
TCI has consented as provided in Section 7.6, such Insight Title Policy shall
contain an endorsement insuring over such Title Defect, or (iii) if, in lieu of
a Insight Title Policy satisfying either of the two preceding requirements, TCI
has agreed to accept a written agreement of Insight as contemplated in the last
sentence of Section 7.6, Insight shall have executed and delivered such an
agreement.
(e) Estoppel Certificates. Each Insight Estoppel Certificate
obtained pursuant to Section 7.5(b).
(f) Lien Releases. Evidence reasonably satisfactory to TCI
that all Liens (other than Permitted Liens) affecting or encumbering the Insight
Assets have been terminated, released
- 62 -
<PAGE>
or waived, as appropriate, or original, executed instruments in form reasonably
satisfactory to TCI effecting such terminations, releases or waivers.
(g) Vehicle Titles. Title certificates to all vehicles
included among the Insight Assets, endorsed for transfer of valid and good title
to Indiana or Midwest, as applicable, free and clear of all Liens (other than
Permitted Liens) and separate bills of sale therefor or other transfer
documentation, if required by the laws of the States in which such vehicles are
titled.
(h) Evidence of Authorization Actions. Evidence reasonably
satisfactory to TCI that Insight has taken all action necessary to authorize the
execution of this Agreement and the Transaction Documents and the consummation
of the transactions contemplated hereby.
(i) FIRPTA Certificate. A FIRPTA Non-Foreign Seller
Certificate certifying that Insight is not a foreign person within the meaning
of Section 1445 of the Code reasonably satisfactory in form and substance to
TCI.
(j) Officer's Certificates. A certificate executed by an
executive officer of the ultimate corporate general partner of Insight dated the
Closing Date, reasonably satisfactory in form and substance to TCI certifying
(i) that the conditions specified in Sections 8.2(a) and 8.2(b) have been
satisfied; and (ii) the total number of EBSs for all the Insight systems,
estimated in good faith as of the Closing Date.
(k) Documents and Records. All Insight Books and Records,
including a list of all pending subscriber hook-ups, disconnect and repair
orders, supply orders and any other lists reasonably necessary to the operation
of the Insight Systems. Delivery of the foregoing will be deemed made to the
extent such Insight Books and Records are then located at any of the offices
included in the Insight Owned Property or Insight Leased Property.
(l) Other. Such other documents and instruments as may be
reasonably necessary to effect the intent of this Agreement and consummate the
transactions contemplated hereby, including any documents requested under
Section 7.10 and a signature page to the Management Agreements, if applicable.
SECTION 10. TERMINATION AND DEFAULT
10.1 Termination Events. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned:
(a) at any time by the mutual agreement of Insight and TCI;
(b) prior to the Primary Transfer, by either Insight or TCI at
any time (if such party itself is not then in material breach of any of its
covenants,
- 63 -
<PAGE>
agreements or other obligations contained in this Agreement), if the other is in
material breach or default of any of its covenants, agreements or other
obligations herein, or if any of its representations herein if specifically
qualified by materiality, is not true in all respects or, if qualified by
materiality, is not true in all material respects when made or when otherwise
required by this Agreement to be true, if the non-breaching party provides the
breaching party with prompt written notice that provides a reasonably detailed
explanation of the facts and circumstances surrounding such breach or default;
provided that such party shall have no right to terminate if (i) the breaching
Party cures such breach or default within 30 days after its receipt of such
written notice, unless such breach or default cannot be cured within such 30-day
period; or (ii) the breach or default is capable of being cured prior to the one
year anniversary of the date of this Agreement (the "Outside Closing Date") and
the breaching party commences to cure such breach or default within such 30-day
period and diligently continues to take all action reasonably necessary to cure
such breach or default prior to the Outside Closing Date and such breach or
default is cured prior to the Outside Closing Date; or
(c) prior to the Primary Transfer, by either Insight or TCI
upon written notice to the other given not earlier than the Outside Closing
Date, if any of the conditions to its obligations set forth in Sections 8.1 and
8.2, respectively, are not satisfied on or before the Outside Closing Date for
any reason other than a material breach or default by the terminating party of
its respective covenants, agreements or other obligations under this Agreement,
or if any of its representations herein, if specifically qualified by
materiality, is not true in all respects or, if qualified by materiality, is not
true in all material respects when made or when otherwise required by this
Agreement to be true; or
(d) by either Insight or TCI, by written notice to the other
party, if the Contribution Agreement has been terminated prior to any closing
thereunder in accordance with its terms; or
(e) if TCI does not notify Insight on or before June 1, 1998
that its representations in Section 6.2 are no longer subject to TCI obtaining
board of director, membership or partnership approval and that the obligations
of TCI LLC and TCI Communications, Inc. under the LLC Agreement are no longer
subject to those entities obtaining board of director, membership or partnership
approval, as applicable, Insight may terminate this Agreement by written notice
to TCI given at any time after June 1, 1998 but before TCI notifies Insight that
is has obtained such approvals; provided, that upon such notice by TCI to
Insight the condition to TCI's obligations in Section 8.2(e) regarding all
required TCI board of director, membership or partnership approvals having been
obtained shall be deemed irrevocably satisfied; or
(f) as otherwise provided in this Agreement.
10.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 10.1, all obligations of the parties under this Agreement will
terminate, except for the obligations set forth in Sections 7.14 and 12.15.
Notwithstanding the preceding sentence, termination of this Agreement pursuant
to Sections 10.1(b) or 10.1(c) or 10.1(d) or 12.16 will not limit or impair any
remedies that
- 64 -
<PAGE>
any of TCI or Insight may have with respect to a breach or default by the other
of its covenants, agreements or obligations under this Agreement prior to
Closing.
SECTION 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
11.1 Survival of Representations and Warranties. The representations
and warranties of TCI and Insight in this Agreement and in the Transaction
Documents and the covenants of TCI and Insight in this Agreement and the
Transaction Documents to be performed prior to the Closing will survive until
the first anniversary of the Closing Date except that (a) all such
representations and warranties with respect to Taxes, rates, Environmental Laws,
ERISA, employment matters or copyright matters will survive until 60 days after
the expiration of the applicable statute of limitations (including any
extensions) for such Taxes, rates, Environmental Laws, ERISA, employment matters
or copyright matters, respectively, and (b) the representations and warranties
as to title to the Assets in Sections 5.4(a) and 6.4(a), respectively, and as to
title to Owned Property set forth in Sections 5.6 and 6.6, respectively, and in
the special warranty deed or deeds delivered with respect to Owned Property will
survive the Closing and the delivery of such deeds and will continue in full
force and effect without limitation with the understanding that, notwithstanding
any language contained in any such deed, the representations and warranties as
to title to Owned Property set forth in Sections 5.6 and 6.6, respectively, will
not be merged into any such deed or other Transaction Document. The periods of
survival of the representations and warranties and of the covenants to be
performed prior to the Closing prescribed by this Section 11.1 are referred to
as the "Survival Period." The liabilities of each party under its respective
representations and warranties and its respective covenants to be performed
prior to the Closing will expire as of the expiration of the applicable Survival
Period; provided however that such expiration will not include, extend or apply
to any such representation or warranty or covenant, the breach of which has been
asserted by a party in a written notice to the other party before such
expiration or about which a party has given the other party written notice
before such expiration indicating that facts or conditions exist that, with the
passage of time or otherwise, can reasonably be expected to result in a breach
(and describing such potential breach in reasonable detail). The covenants and
agreements of each party in this Agreement and in the Transaction Documents to
be performed after the Closing will survive the Closing and will continue in
full force and effect in accordance with their terms. The Survival Periods and
the other provisions of this Section 11 shall apply to any Retained Franchise or
Matching Franchise, measured as of the Closing Date of the Primary Transfer;
provided, that the party making such claim shall notify the other party of such
claim within the applicable Survival Period but may not collect its Losses until
ownership of the applicable Retained Franchise or Matching Franchise is
transferred to it, with its Losses being determined as of the date ownership is
transferred to it.
11.2 Indemnification by Indiana and Midwest. From and after the
Closing, each of Indiana and Midwest will severally indemnify, defend and hold
harmless Insight and its partners and its and their respective Affiliates, and
the members, partners, shareholders, officers, directors, employees, agents,
successors and assigns of them and any Person claiming by or through any of
them, as the
- 65 -
<PAGE>
case may be, from and against any and all Losses arising out of or
resulting from (a) any breach of any representation or warranty made by such
party in this Agreement or any Transaction Document; (b) any breach of any
covenant, agreement or obligation of such party contained in this Agreement or
any Transaction Document; (c) any act or omission of such party with respect to,
or any event or circumstance related to, the ownership or operation of such
party's TCI Assets or the conduct of such party's TCI's Cable Business, which
act, omission, event or circumstance occurred or existed prior to or at the
Closing Time, without regard to whether a claim with respect to such matter is
asserted before or after the Closing Time, including any matter described on
Schedule 6.11; (d) any liability or obligation of such party not included in the
Insight Assumed Obligations and Liabilities; (e) any Title Defect relating to
any of such party's TCI Owned Property that is not deleted as an exception in,
or insured over by, the applicable TCI Title Policy; (f) any claim that the
transactions contemplated by this Agreement to be performed by such party
violate WARN or any Legal Requirement or any bulk transfer or fraudulent
conveyance laws of any jurisdiction; (g) any claim relating to "continuation
coverage" under Code Section 4980B with respect to former employees of such
party at and after the Closing Time or that Insight is deemed to be a successor
employer of such party under Code Section 4980B; (h) any claim by a third party
relating to the presence, generation, removal or transportation of a Hazardous
Substance on or from any of such party's TCI Owned Property or TCI Leased
Property through and including the Closing Time, including the costs in response
to a third party claim of removal or clean-up of such Hazardous Substance and
other compliance with the provisions of any Environmental Laws (whether before
or after Closing); (i) any rate refund or credit, penalty and/or interest
payment with respect thereto ordered by any Governmental Authority with respect
to such party's TCI Systems for periods through and including the Closing Time;
or (j) the failure of such party to perform the TCI Assumed Obligations and
Liabilities assumed by it.
In the event that an indemnified item arises under both clause (a) and under one
or more of clauses (b) through (j) of this Section, Insight's rights to pursue
its claim under clauses (b) through (j) as applicable will exist notwithstanding
the expiration of the Survival Period applicable to such claim under clause (a).
11.3 Indemnification by Insight. From and after the Closing, Insight
will indemnify, defend and hold harmless TCI and its shareholders and its and
their respective Affiliates and the members, partners, shareholders, officers,
directors, employees, agents, successors and assigns of them and any Person
claiming by or through any of them, as the case may be, from and against any and
all Losses arising out of or resulting from (a) any breach of any representation
or warranty made by Insight in this Agreement or any Transaction Document; (b)
any breach of any covenant, agreement or obligation of Insight contained in this
Agreement or any Transaction Document; (c) any act or omission of Insight with
respect to, or any event or circumstance related to, the ownership or operation
of the Insight Assets or the conduct of Insight's Cable Business, which act,
omission, event or circumstance occurred or existed prior to or at the Closing
Time, without regard to whether a claim with respect to such matter is asserted
before or after the Closing Time, including any matter described on Schedule
5.11; (d) any liability or obligation not included in the TCI Assumed
Obligations and Liabilities; (e) any Title Defect relating to any Insight Owned
Property
- 66 -
<PAGE>
that is not deleted as an exception in, or insured over by, the
applicable Insight Title Policy; (f) any claim that the transactions
contemplated by this Agreement violate WARN or any similar Legal Requirement or
any bulk transfer or fraudulent conveyance laws of any jurisdiction; (g) any
claim relating to "continuation coverage" under Code Section 4980B with respect
to former employees of Insight at and after the Closing Time or that TCI is
deemed to be a successor employer of Insight under Code Section 4980B; (h) any
claim by a third party relating to the presence, generation, removal or
transportation of a Hazardous Substance on or from any of the Insight Owned
Property or Insight Leased Property through and including the Closing Time,
including the costs in response to a third party claim of removal or clean-up of
such Hazardous Substance and other compliance with the provisions of any
Environmental Laws (whether before or after Closing); (i) any rate refund or
credit, penalty and/or interest payment with respect thereto ordered by any
Governmental Authority with respect to the Insight Systems for periods through
and including the Closing Time; or (j) the failure of Insight to perform the
Insight Assumed Obligations and Liabilities.
In the event that an indemnified item arises under both clause (a) and under one
or more of clauses (b) through (j) of this Section, TCI's rights to pursue its
claim under clauses (b) through (j) as applicable will exist notwithstanding the
expiration of the Survival Period applicable to such claim under clause (a).
11.4 Third Party Claims. Promptly after the receipt by either party of
notice of any claim, action, suit or proceeding by any third party
(collectively, an "Action"), which Action is subject to indemnification under
this Agreement, such party (the "Indemnified Party") will give reasonable
written notice to the party from whom indemnification is claimed (the
"Indemnifying Party"). The Indemnified Party will be entitled, at the sole
expense and liability of the Indemnifying Party, to exercise full control of the
defense, compromise or settlement of any such Action unless the Indemnifying
Party, within a reasonable time after the giving of such notice by the
Indemnified Party, (a) admits in writing to the Indemnified Party the
Indemnifying Party's liability to the Indemnified Party for such Action under
the terms of this Section 11, (b) notifies the Indemnified Party in writing of
the Indemnifying Party's intention to assume such defense, (c) provides evidence
reasonably satisfactory to the Indemnified Party of the Indemnifying Party's
ability to pay the amount, if any, for which the Indemnified Party may be liable
as a result of such Action and (d) retains legal counsel reasonably satisfactory
to the Indemnified Party to conduct the defense of such Action. The other party
will cooperate with the party assuming the defense, compromise or settlement of
any such Action in accordance with this Agreement in any manner that such party
reasonably may request. If the Indemnifying Party so assumes the defense of any
such Action, the Indemnified Party will have the right to employ separate
counsel and to participate in (but not control) the defense, compromise or
settlement of the Action, but the fees and expenses of such counsel will be at
the expense of the Indemnified Party unless (x) the Indemnifying Party has
agreed to pay such fees and expenses, (y) any relief other than the payment of
money damages is sought against the Indemnified Party or (z) the Indemnified
Party will have been advised by its counsel that there may be one or more
defenses available to it which are different from or additional to those
available to the Indemnifying Party, and in any such case that portion of the
fees and expenses of such separate counsel that are reasonably related to
matters covered by the indemnity provided in
- 67 -
<PAGE>
this Section 11 will be paid by the Indemnifying Party. No Indemnified Party
will settle or compromise any such Action for which it is entitled to
indemnification under this Agreement without the prior written consent of the
Indemnifying Party, unless the Indemnifying Party has failed, after reasonable
notice, to undertake control of such Action in the manner provided in this
Section 11.4. No Indemnifying Party will settle or compromise any such Action
(A) in which any relief other than the payment of money damages is sought
against any Indemnified Party or (B) in the case of any Action relating to the
Indemnified Party's liability for any Tax, if the effect of such settlement
would be an increase in the liability of the Indemnified Party for the payment
of any Tax for any period beginning after the Closing Date, unless the
Indemnified Party consents in writing to such compromise or settlement.
11.5 Limitations on Indemnification - TCI. TCI will not be liable to
Insight with respect to any matter or claim for which indemnification could be
sought pursuant to Section 11.2(a) or (b) for (a) any Losses of or to Insight or
any other Person entitled to indemnification from TCI or (b) any Losses
incidental to or relating to or resulting from any of the foregoing (the items
described in clauses (a) and (b) collectively being referred to for purposes of
this Section 11 as "Insight Damages") unless the amount of Insight Damages for
which TCI would, but for the provisions of this Section, be liable exceeds, on
an aggregate basis, $250,000, in which case TCI will be liable for all such
Insight Damages from dollar zero, which will be due and payable within 15 days
after TCI's receipt of a statement therefor. TCI will not have any liability
under Section 11.2(a) or (b) to the extent that the aggregate amount of Losses
otherwise subject to its indemnification obligation thereunder exceeds
$10,000,000. The limitations set forth in this Section 11.5 do not apply to (i)
the Pro Rata Adjustments to the extent they are included in the calculation of
Pro Rata Adjustments pursuant to Sections 3.2 and 3.3 or (ii) any claim made
pursuant to Sections 11.2(c)-(j), including, without limitation, any Losses
related to any liability or obligation for late fees; any liability or
obligation with respect to paying franchise fees on franchise fees; subscriber
refunds, including pursuant to the Pending TCI Rate Order; or TCI litigation
listed in the Schedules to this Agreement. The limitations in this Section 11.5
apply to Indiana and Midwest on an aggregate basis; e.g., if the amount of
Insight Damages claimed against Indiana are $125,000 and the amount of Insight
Damages claimed against Midwest are $126,000, the basket will have been met.
Similarly, if Insight recovers Losses from Indiana under Sections 11.2(a) or (b)
of $10,000,000, the cap will have been met and Insight will not be able to
recover any Losses under Sections 11.2(a) or (b) from Midwest unless the
limitations on liability are not applicable to such Losses as specified above.
11.6 Limitations on Indemnification - Insight. Insight will not be
liable to TCI with respect to any matter or claim for which indemnification
could be sought pursuant to Section 11.3(a) or (b) for (a) any Losses of or to
TCI or any other Person entitled to indemnification from Insight or (b) any
Losses incidental to or relating to or resulting from any of the foregoing (the
items described in clauses (a) and (b) collectively being referred to for
purposes of this Section 11 as "TCI Damages") unless the amount of TCI Damages
for which Insight would, but for the provisions of this Section, be liable
exceeds, on an aggregate basis, $250,000, in which case Insight will be liable
for all such TCI Damages from dollar zero, which will be due and payable within
15 days after Insight's receipt of a statement therefor. Insight will not have
any liability under Section 11.3(a) or
- 68 -
<PAGE>
(b) to the extent that the aggregate amount of Losses otherwise subject to its
indemnification obligations thereunder exceeds $5,000,000. The limitations set
forth in this Section 11.6 do not apply to (i) the Pro Rata Adjustments to the
extent they are included in the calculation of Pro Rata Adjustments pursuant to
Section 3.2 and 3.3 or (ii) any claims made pursuant to Sections 11.3(c)-(j),
including, without limitation, any Losses related to any liability or obligation
for late fees; any liability or obligation with respect to paying franchise fees
on franchise fees; subscriber refunds or Insight litigation listed in the
Schedules to this Agreement.
11.7 Other Indemnification. The provisions of Sections 11.1, 11.5 and
11.6 will be applicable to any claim for indemnification made under any other
provision of this Agreement and all references in Sections 11.1, 11.5 and 11.6
to Sections 11.2 and 11.3 will be deemed to be references to such other
provisions of this Agreement.
SECTION 12. MISCELLANEOUS PROVISIONS
12.1 Parties Obligated and Benefited. Subject to the limitations set
forth below, this Agreement will be binding upon the parties and their
respective assigns and successors in interest and will inure solely to the
benefit of the parties and their respective assigns and successors in interest,
and no other Person will be entitled to any of the benefits conferred by this
Agreement. Without the prior written consent of the other parties, no party will
assign any of its rights under this Agreement or delegate any of its duties
under this Agreement, provided that a party may, without the consent of any
other party, prior to Closing assign all of such party's rights and obligations
under this Agreement to any Affiliate of such party; provided such assignee can
make all of the representations and warranties applicable to the assigning party
hereunder (other than those relating to jurisdiction of incorporation), the
assigning party can provide reasonable assurances that such assignee can
otherwise perform the covenants, agreements and obligations applicable to the
assigning party hereunder and such assignment would not materially delay or
hinder the consummation of the transactions contemplated by this Agreement. In
addition, after the Closing, without the consent of TCI, Insight may assign all
of its rights and obligations under this Agreement to the Company (provided
that, without limiting the Company's indemnification rights, Insight shall
retain its indemnification rights against TCI as if they had not been assigned
and provided further that Insight may not assign its rights and obligations
under Sections 7.24 and 7.25 or under any other Section of this Agreement
insofar as such Section relates to the Retained Franchises and Matching
Franchises until such time as the transactions contemplated by Section 7.24 have
been consummated with respect to a given franchise) and either party may grant
to its lenders a security interest in the indemnification rights hereunder
inuring to the benefit of such party. No assignment by either party of its
rights hereunder shall release such party from its obligations hereunder.
Notwithstanding the foregoing, Insight may also assign all of its rights under
this Agreement (provided that, without limiting the Company's indemnification
rights, Insight shall retain its indemnification rights against TCI as if they
had not been assigned and provided further that Insight may not assign its
rights under Sections 7.24 and 7.25 or under any other Section of this Agreement
insofar as such Section relates to the Retained Franchises and Matching
Franchises until such time as the transactions contemplated by Section 7.24 have
been consummated with respect to a given franchise), but not its obligations
- 69 -
<PAGE>
under this Agreement, to a qualified intermediary (as defined in the Code). If
Insight elects to assign such rights under this Agreement to a qualified
intermediary, TCI will pay for the reasonable costs incurred by Insight in
connection with such assignment; provided, that TCI shall be entitled to select
the qualified intermediary.
12.2 Notices. Any notice, request, demand, waiver or other
communication required or permitted to be given under this Agreement will be in
writing and will be deemed to have been duly given only if delivered in person
or by first class, prepaid, registered or certified mail, or sent by courier or,
if receipt is confirmed, by telecopier:
To TCI at:
c/o Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: William R. Fitzgerald
Telecopy: (303) 267-6672
With a copy similarly addressed to the attention of
Legal Department
To Insight at:
Insight Communications Company, L.P.
126 East 56th Street
New York, New York
Attention: Michael S. Willner
Telecopy: (212) 371-1549
With a copy to:
Cooperman, Levitt, Winikoff & Newman
800 Third Avenue
New York, New York 10022
Attention: Robert Winikoff, Esq.
Telecopy: (212) 755-2839
and
- 70 -
<PAGE>
Dow, Lohnes & Albertson PLLC
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: Leonard J. Baxt, Esq.
Telecopy: (202) 776-2222
Any party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section. All notices
will be deemed to have been received on the date of delivery, which in the case
of deliveries by telecopier will be the date of the sender's confirmation.
12.3 Right to Specific Performance. The parties acknowledge that the
unique nature of the Assets to be exchanged by the parties pursuant to this
Agreement renders money damages an inadequate remedy for the breach by the
parties of its obligations under this Agreement, and the parties agree that in
the event of such breach, the parties will upon proper action instituted by
either of them, be entitled to a decree of specific performance of this
Agreement.
12.4 Waiver. This Agreement or any of its provisions may not be waived
except in writing. The failure of any party to enforce any right arising under
this Agreement on one or more occasions will not operate as a waiver of that or
any other right on that or any other occasion.
12.5 Captions. The section and other captions of this Agreement are for
convenience only and do not constitute a part of this Agreement.
12.6 Choice of Law. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES UNDER
IT WILL BE GOVERNED BY AND CONSTRUED IN ALL RESPECTS IN ACCORDANCE WITH THE LAWS
OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE CONFLICTS OF LAWS RULES OF
DELAWARE.
12.7 Terms. Terms used with initial capital letters or otherwise
defined in this Agreement will have the meanings specified, applicable to both
singular and plural forms, for all purposes of this Agreement. The word
"include" and derivatives of that word are used in this Agreement in an
illustrative sense rather than limiting sense.
12.8 Rights Cumulative. All rights and remedies of each of the parties
under this Agreement will be cumulative, and the exercise of one or more rights
or remedies will not preclude the exercise of any other right or remedy
available under this Agreement or applicable law.
12.9 Time. Time is of the essence under this Agreement. If the last day
permitted for the giving of any notice or the performance of any act required or
permitted under this Agreement falls on a day which is not a Business Day, the
time for the giving of such notice or the performance of such act will be
extended to the next succeeding Business Day.
- 71 -
<PAGE>
12.10 Late Payments. If a party fails to pay any other party any
amounts when due under this Agreement, the amounts due will bear interest from
the due date to the date of payment at the annual rate publicly announced from
time to time by The Bank of New York as its prime rate (the "Prime Rate") plus
2%, adjusted as and when changes in the Prime Rate are made.
12.11 Counterparts. This Agreement may be executed in counterparts,
each of which will be deemed an original.
12.12 Entire Agreement. Except for the Contribution Agreement, this
Agreement (including the Transaction Documents and the Schedules and Exhibits
referred to in this Agreement, which are incorporated in and constitute a part
of this Agreement) contains the entire agreement of the parties and supersedes
all prior oral or written agreements and understandings with respect to the
subject matter. This Agreement may not be amended or modified except by a
writing signed by the parties.
12.13 Severability. Any term or provision of this Agreement which is
invalid or unenforceable will be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining rights
of the Person intended to be benefitted by such provision or any other
provisions of this Agreement.
12.14 Construction. This Agreement has been negotiated by the parties
and their respective legal counsel, and legal or equitable principles that might
require the construction of this Agreement or any provision of this Agreement
against the party drafting this Agreement will not apply in any construction or
interpretation of this Agreement.
12.15 Expenses. Except as otherwise expressly provided in this
Agreement (which expenses the parties shall pay as so provided), each party will
pay all of its expenses, including attorneys' and accountants' fees, in
connection with the negotiation of this Agreement, the performance of its
obligations and the consummation of the transactions contemplated by this
Agreement.
12.16 Risk of Loss.
(a) The risk of any loss or damage to the Insight Assets or
TCI Assets resulting from fire, theft or other casualty (except reasonable wear
and tear) will be borne by Insight or TCI, respectively, at all times through
and including the Closing. If any such loss or damage is sufficiently
substantial so as to preclude and prevent resumption of normal operations of any
material portion of a System or the replacement or restoration of the lost or
damaged property within twenty days or, if earlier, prior to the Outside Closing
Date, Insight or TCI as appropriate, will immediately notify the other in
writing of that fact and subject to the other provisions of this Section 12.16,
Insight, in the event of loss or damage to the Insight Assets, or TCI, in the
event of loss or damage to the TCI Assets, as appropriate, will use its
commercially reasonable efforts to repair, replace and restore the lost or
damaged property to its former condition as soon as practicable at its
- 72 -
<PAGE>
sole expense, subject to Section 12.16(b), including applying any insurance
proceeds to restore such assets to their prior condition.
(b) If the aggregate cost to repair, replace or restore the
lost or damaged property to its former condition would exceed $2,000,000,
Insight, in the event of loss or damage to the Insight Assets, or TCI, in the
event of loss or damage to the TCI Assets, as appropriate, may, subject to the
other party's right to consummate the Closing as described below, elect to
terminate this Agreement by written notice to the other party at any time within
ten days of the occurrence of the event of loss or damage, and upon such
termination both parties will stand fully released and discharged of any and all
obligations under this Agreement (except with respect to any then existing
breaches by either such party).
(c) If any such loss or damage to the TCI Assets is
sufficiently substantial so as to preclude and prevent resumption of normal
operations of any material portion of a TCI System or the repair, replacement or
restoration of the lost or damaged property within twenty days, or if earlier,
the Outside Closing Date and TCI is not obligated to correct the problem because
the cost would exceed $2,000,000, and TCI elects not to repair, replace and
restore the lost or damaged property, Insight may elect to terminate this
Agreement upon written notice to TCI at any time within ten days after it
receives written notice from TCI of the occurrence of the event of such loss or
damage and the fact that TCI is not obligated to correct the problem and TCI has
elected not to correct the problem, and upon such termination both parties will
stand fully released and discharged of any and all obligations under this
Agreement (except with respect to any then existing breaches by either such
party). In the absence of a timely election to terminate this Agreement, Insight
shall be deemed to have waived such loss or damage and to have elected to
consummate the Closing in accordance with all of the remaining provisions of
this Agreement and notwithstanding TCI's election to terminate this Agreement
pursuant to Section 12.16(b), Insight may elect to consummate the Closing in
accordance with all of the remaining provisions of this Agreement, in which
event at the closing the amount of any insurance deductible payable by TCI and
all insurance proceeds payable as a result of the occurrence of the event
resulting in such loss or damage to the TCI Assets (in each case to the extent
not used to repair, replace or restore such lost or damaged TCI Assets), except
for any proceeds from business interruption insurance relating to the loss of
revenue for the period through and including the Closing Time, will be delivered
by TCI to Insight or the rights to such proceeds will be assigned by TCI to
Insight if not yet paid over to TCI, and upon such delivery or assignment and
consummation of the Closing TCI shall have no additional liability to Insight in
respect of any such loss or damage to the TCI Assets.
(d) If any such loss or damage to the Insight Assets is
sufficiently substantial so as to preclude and prevent resumption of normal
operations of any material portion of an Insight System or the repair,
replacement or restoration of the lost or damaged property within twenty days,
or if earlier, the Outside Closing Date, and Insight is not obligated to correct
the problem because the cost would exceed $2,000,000, and Insight elects not to
repair, replace and restore the lost or damaged property, TCI may elect to
terminate this Agreement upon written notice to Insight at any time within ten
days after it receives written notice from Insight of the occurrence of the
event of
- 73 -
<PAGE>
such loss or damage and the fact that Insight is not obligated to correct the
problem and has elected not to correct the problem, and upon such termination
both parties will stand fully released and discharged of any and all obligations
under this Agreement (except with respect to any then existing breaches by
either such party). In the absence of a timely election to terminate this
Agreement, TCI shall be deemed to have waived such loss or damage and to have
elected to consummate the Closing in accordance with all of the remaining
provisions of this Agreement, and notwithstanding Insight's election to
terminate this Agreement pursuant to Section 12.16(b), TCI may elect to
consummate the Closing in accordance with all of the remaining provisions of
this Agreement in which event at the Closing the amount of any insurance
deductible payable by TCI and all insurance proceeds payable as a result of the
occurrence of the event resulting in such loss or damage to the Insight Assets
(in each case to the extent not used to repair, replace or restore such lost or
damaged Insight Assets), except for any proceeds from business interruption
insurance relating to the loss of revenue for the period through and including
the Closing Time, will be delivered by Insight to TCI or the rights to such
proceeds will be assigned by Insight to TCI if not yet paid over to Insight, and
upon such delivery or assignment and consummation of the Closing Insight shall
have no additional liability to TCI in respect of any such loss or damage to the
Insight Assets.
If, prior to the Closing, any part of or interest in any material
Insight Assets or any material TCI Assets is taken or condemned as a result of
the exercise of the power of eminent domain, or if a Governmental Authority
having such power informs Insight or TCI that it intends to condemn all or any
part of any material Assets of such party (such event being called, in either
case, a "Taking"), then the other party may terminate this Agreement. If the
other party does not elect to terminate this Agreement, then (a) the other party
will have the sole right, in the name of the party if the other party so elects,
to negotiate for, claim, contest and receive all damages with respect to the
Taking, (b) the party will be relieved of its obligation to convey to the party
the Assets or interests that are the subject of the Taking, (c) at the Closing
the party will assign to the other party all of the party's rights to all
damages payable with respect to the Taking and (d) following the Closing, the
party will give the other party such further assurances of such rights and
assignment with respect to the Taking as the other party may from time to time
reasonably request.
12.17 Tax Consequences. No party to this Agreement makes any
representation or warranty, express or implied, with respect to the Tax
implications of any aspect of this Agreement on any other party to this
Agreement, and all parties expressly disclaim any such representation or
warranty with respect to any Tax consequences arising under this Agreement. Each
party has relied solely on its own Tax advisors with respect to the Tax
implications of this Agreement.
12.18 Commercially Reasonable Efforts. For purposes of this Agreement,
unless a different standard is expressly provided with respect to any particular
matter, "commercially reasonable efforts" will not be deemed to require a party
to undertake extraordinary measures, including the initiation or prosecution of
legal proceedings or the payment of amounts in excess of normal and usual filing
fees and processing fees, if any.
- 74 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
TCI OF INDIANA, INC.
By:______________________________________________________
Name: William R. Fitzgerald
Title: Vice President
UACC MIDWEST, INC.
By:______________________________________________________
Name: William R. Fitzgerald
Title: Vice President
INSIGHT COMMUNICATIONS
COMPANY, L.P.
By: ICC Associates, L.P., its general partner
By: Insight Communications, Inc., its
general partner
By:______________________________________________________
Name:____________________________________________________
Title:___________________________________________________
- 75 -
<PAGE>
Exhibit 2.6
- --------------------------------------------------------------------------------
ASSET EXCHANGE AGREEMENT
BY AND BETWEEN
INSIGHT COMMUNICATIONS COMPANY, L.P.
AND
COXCOM, INC.
DATED AS OF
NOVEMBER 26, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
1. Definitions..............................................................................................1
1.1. Accounts Receivable.............................................................................1
1.2. Affiliate.......................................................................................1
1.3. Assets..........................................................................................1
1.4. Basic Cable Service.............................................................................2
1.5. Basic Equivalent Customer.......................................................................2
1.6. Business Day....................................................................................2
1.7. Cable Act.......................................................................................2
1.8. Closing.........................................................................................2
1.9. Communications Act..............................................................................3
1.10. Compensation Arrangement........................................................................3
1.11. Contracts.......................................................................................3
1.12. Employee Plan...................................................................................3
1.13. Encumbrance.....................................................................................3
1.14. Environmental Law...............................................................................3
1.15. ERISA...........................................................................................4
1.16. FAA.............................................................................................4
1.17. FCC.............................................................................................4
1.18. Franchises......................................................................................4
1.19. GAAP............................................................................................4
1.20. Governmental Authority..........................................................................4
1.21. Governmental Permits............................................................................4
1.22. Hazardous Substances............................................................................4
1.23. HSR Act.........................................................................................5
1.24. Intangibles.....................................................................................5
1.25. Legal Requirement...............................................................................5
1.26. Material Adverse Effect.........................................................................5
1.27. Multiemployer Plan..............................................................................5
1.28. Permitted Encumbrances..........................................................................5
1.29. Person..........................................................................................6
1.30. Real Property...................................................................................6
1.31. Required Consents...............................................................................6
1.32. Service Area....................................................................................6
1.33. System..........................................................................................6
1.34. Tangible Personal Property......................................................................6
1.35. Other Definitions...............................................................................6
2. Exchange of Assets.......................................................................................7
2.1. Exchange........................................................................................7
2.2. Inclusion of Assets.............................................................................7
2.3. Value of Exchanged Assets.......................................................................8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
3. Additional Consideration.................................................................................8
3.1. Cash Consideration..............................................................................8
3.2. Adjustments to Cash Consideration...............................................................8
3.3. Determination of Adjustments to Cash Consideration.............................................10
4. Assumed Liabilities and Excluded Assets.................................................................11
4.1. Assignment and Assumption......................................................................11
4.2. Excluded Assets................................................................................12
5. Representations and Warranties of Insight...............................................................13
5.1. Organization, Standing and Authority...........................................................13
5.2. Authorization and Binding Obligation...........................................................13
5.3. No Consents; Absence of Conflicting Agreements.................................................13
5.4. Governmental Permits...........................................................................14
5.5. Real Property..................................................................................14
5.6. Tangible Personal Property.....................................................................15
5.7. Contracts......................................................................................15
5.8. Complete System................................................................................16
5.9. Trademarks, Trade Names and Copyrights.........................................................16
5.10. Information on Insight System..................................................................16
5.11. Financial Statements...........................................................................17
5.12. Employee Benefit Plans.........................................................................18
5.13. Labor Relations................................................................................18
5.14. Tax Returns; Other Reports.....................................................................19
5.15. Claims and Legal Actions.......................................................................19
5.16. Environmental Matters..........................................................................20
5.17. Compliance with Laws...........................................................................20
5.18. Conduct of Business in Ordinary Course.........................................................21
5.19. FCC and Copyright Compliance...................................................................21
5.20. Accounts Receivable............................................................................22
5.21. Transactions with Affiliates...................................................................22
5.22. Disclosure.....................................................................................23
5.23. Cure...........................................................................................23
6. Representations and Warranties of Cox...................................................................23
6.1. Organization, Standing and Authority...........................................................23
6.2. Authorization and Binding Obligation...........................................................23
6.3. No Consents; Absence of Conflicting Agreements.................................................23
6.4. Governmental Permits...........................................................................24
6.5. Real Property..................................................................................24
6.6. Tangible Personal Property.....................................................................25
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
6.7. Contracts......................................................................................25
6.8. Complete System................................................................................26
6.9. Trademarks, Trade Names and Copyrights.........................................................26
6.10. Information on Cox System......................................................................26
6.11. Financial Statements...........................................................................27
6.12. Employee Benefit Plans.........................................................................28
6.13. Labor Relations................................................................................28
6.14. Tax Returns; Other Reports.....................................................................29
6.15. Claims and Legal Actions.......................................................................29
6.16. Environmental Matters..........................................................................30
6.17. Compliance with Laws...........................................................................30
6.18. Conduct of Business in Ordinary Course.........................................................31
6.19. FCC and Copyright Compliance...................................................................31
6.20. Accounts Receivable............................................................................32
6.21. Transactions with Affiliates...................................................................32
6.22. Disclosure.....................................................................................32
6.23. Cure...........................................................................................33
7. Covenants of Transferor and Transferee..................................................................33
7.1. Access to Premises and Records.................................................................33
7.2. Continuity and Maintenance of Operations.......................................................33
7.3. Employee Benefit Matters.......................................................................34
7.4. Broker's Fees..................................................................................36
7.5. Required Consents and Estoppel Certificates....................................................36
7.6. Title Commitments and Surveys..................................................................37
7.7. Environmental Investigations...................................................................38
7.8. HSR Notification...............................................................................38
7.9. No Shop........................................................................................39
7.10. Notification of Certain Matters................................................................39
7.11. Risk of Loss; Condemnation.....................................................................39
7.12. Transfer Taxes, Fees and Expenses..............................................................40
7.13. Noncompetition; Nonsolicitation................................................................40
7.14. Cooperation; Satisfaction of Conditions........................................................41
7.15. Confidentiality................................................................................41
7.16. Publicity......................................................................................41
7.17. Billing Services...............................................................................42
7.18. Delivery of Financial Information..............................................................42
7.19. Franchise Renewals.............................................................................42
7.20. Use of Transferor's Name.......................................................................42
8. Closing.................................................................................................43
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
9. Conditions to Closing...................................................................................43
9.1. Conditions to the Obligations of Transferee and Transferor.....................................43
9.2. Conditions to the Obligations of Cox...........................................................43
9.3. Conditions to the Obligations of Insight. ....................................................45
9.4. Waiver of Conditions...........................................................................48
10. Franchise Consents......................................................................................48
11. Termination.............................................................................................48
11.1. Events of Termination..........................................................................48
11.2. Liabilities in Event of Termination............................................................48
11.3. Procedure Upon Termination.....................................................................49
12. Survival; Indemnification...............................................................................49
12.1. Survival of Representations and Warranties.....................................................49
12.2. Indemnification by Transferor..................................................................49
12.3. Indemnification by Transferee..................................................................50
12.4. Procedure for Indemnification..................................................................50
12.5. Limitations on Liability.......................................................................51
13. Miscellaneous...........................................................................................52
13.1. Parties Obligated and Benefitted...............................................................52
13.2. Notices........................................................................................52
13.3. Right to Specific Performance..................................................................53
13.4. Waiver.........................................................................................54
13.5. Captions.......................................................................................54
13.6. Choice of Law..................................................................................54
13.7. Terms..........................................................................................54
13.8. Rights Cumulative..............................................................................54
13.9. Further Actions................................................................................54
13.10. Time of the Essence............................................................................54
13.11. Late Payments..................................................................................54
13.12. Counterparts...................................................................................54
13.13. Entire Agreement...............................................................................54
13.14. Severability...................................................................................55
13.15. Construction...................................................................................55
</TABLE>
iv
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
A List of Communities Served by the Insight System
B List of Communities Served by the Cox System
C Valuation of Exchanged Assets
D Assumed Liabilities
E Excluded Assets
F Form of Opinion of Insight's Counsel
G Form of Opinion of Insight's FCC Counsel
H Form of Opinion of Cox's Counsel
I Form of Opinion of Cox's FCC Counsel
SCHEDULES
5.3 Insight Required Consents
5.4 Insight Governmental Permits
5.5 Insight Real Property
5.6 Insight Tangible Personal Property
5.7 Insight Contracts
5.9 Insight Trademarks, Trade Names and Copyrights
5.10.1 Insight System Information
5.10.3 Insight Rate Information
5.10.4 Insight Channel Line-up Information
5.10.5 Insight Access Issues
5.10.6 Insight Bonds, Surety Instruments and Letters of Credit
5.11.1 Insight Financial Statements
5.11.2 Insight Undisclosed Liabilities
5.12 Insight Employee Benefit Plans
5.13 Insight Employees
5.14 Insight Tax Matters
5.15 Insight Litigation
5.16 Insight Environmental Matters
5.17 Insight Notice of Noncompliance
5.18 Insight Exceptions to Conduct of Business in Ordinary Course
5.19 Insight FCC Compliance
5.21 Insight Transactions with Affiliates
6.3 Cox Required Consents
6.4 Cox Governmental Permits
6.5 Cox Real Property
v
<PAGE>
6.6 Cox Tangible Personal Property
6.7 Cox Contracts
6.9 Cox Trademarks, Trade Names and Copyrights
6.10.1 Cox System Information
6.10.3 Cox Rate Information
6.10.4 Cox Channel Line-up Information
6.10.5 Cox Access Issues
6.10.6 Cox Bonds, Surety Instruments and Letters of Credit
6.11.1 Cox Financial Statements
6.11.2 Cox Undisclosed Liabilities
6.12 Cox Employee Benefit Plans
6.13 Cox Employees
6.14 Cox Tax Matters
6.15 Cox Litigation
6.16 Cox Environmental Matters
6.17 Cox Notice of Noncompliance
6.18 Cox Exceptions to Conduct of Business in Ordinary Course
6.19 Cox FCC Compliance
6.21 Cox Transactions with Affiliates
7.2 A Insight Exceptions to Operations in Ordinary Course
7.2 B Cox Exceptions to Operations in Ordinary Course
vi
<PAGE>
ASSET EXCHANGE AGREEMENT
This Asset Exchange Agreement (this "Agreement") is dated this 26th day
of November, 1997, by and between Insight Communications Company, L.P., a
Delaware limited partnership ("Insight") and CoxCom, Inc., a Delaware
corporation ("Cox").
RECITALS
A. Insight owns and operates the cable television system serving the
areas in and around Phoenix, Arizona (the "Insight System"), such areas being
more specifically listed on Exhibit A.
B. Cox owns and operates the cable television system serving the areas
in and around Lafayette, Indiana (the "Cox System"), such areas being more
specifically listed on Exhibit B.
C. Insight and Cox desire to exchange on the Closing Date the assets of
the Insight System and the assets of the Cox System in a transaction intended to
qualify, to the extent possible, as a tax-free exchange of like-kind assets
pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended (the
"Code"), on the terms and conditions set forth herein.
AGREEMENT
In consideration of the above recitals and the mutual agreements stated
in this Agreement, the parties agree as follows:
1. Definitions. All defined terms in this Agreement apply equally to
both Insight and Cox. When it is the parties' intent to limit the scope of any
defined term solely to one party, such intent is indicated by referring
specifically to one party or the other, (e.g., "Insight Service Area" or "Cox
Assets"). The term "Transferor" shall refer equally to Insight and Cox insofar
as the term refers to the party transferring assets to the other party. The term
"Transferee" shall refer equally to Insight and Cox insofar as the term refers
to the party receiving assets from the other party.
1.1. Accounts Receivable. The rights of Transferor to payment
for services billed by or on behalf of Transferor in connection with its
operation of Transferor's System in the ordinary course of business and unpaid
as of the Closing Date, as reflected on the billing records relating to
Transferor's System.
1.2. Affiliate. With respect to any Person, any other Person
controlling, controlled by or under common control with such Person, with
"control" for such purpose meaning the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities or voting interests,
by contract or otherwise.
1.3. Assets. All properties, privileges, rights, interests and
claims, real and personal, tangible and intangible, of every type and
description that are owned, leased, held or used in connection with the cable
television business activities conducted by Transferor through the System in and
around the Service Area in which Transferor has any right, title or interest or
in which Transferor acquires any right, title or interest on or before the
Closing Date, including Real Property, Tangible Personal Property,
<PAGE>
Governmental Permits, Contracts, Intangibles and Accounts Receivable, but
excluding any Excluded Assets.
1.4. Basic Cable Service. The tier of cable television service
which includes principally the retransmission of local broadcast signals as
defined by the Cable Act.
1.5. Basic Equivalent Customer. An active customer for Basic
Cable Service either in a single household, commercial establishment or in a
multi-unit dwelling (including a hotel unit); provided, however, that the number
of Basic Equivalent Customers shall be determined by dividing the gross revenue
for Basic Cable Service (but not revenues from CPS tier, premium services,
installation or other non-recurring charges, converter rental, new product tier
or from any outlet or connection other than such customer's first (except in the
case of a hotel unit), or from any pass-through charge for sales taxes,
line-itemized franchise fees, fees charged by the FCC and the like) attributable
to all active customers of the System during the most recent billing period
ended prior to the date of calculation (but excluding billings in excess of a
single month's charge) by the rate charged for Basic Cable Service during that
billing period to individual households as reflected on the System's rate card
then in effect. For purposes of this definition (i) an "active customer" shall
mean any person, commercial establishment or multi-unit dwelling at any given
time that is paying for and receiving Basic Cable Service from the System who
has an account that is not more than 60 days past due (except for amounts which
are past due pending the resolution of a bona fide dispute or past-due amounts
of $10 or less, provided such account is otherwise current), provided that for
purposes of this definition, an "active customer" does not include (a) any
person, commercial establishment or multi-unit dwelling that as of the date of
calculation has not paid in full, without discount, the charges for at least one
month of Basic Cable Service, including deposit and installation charges, if any
(unless deposits or installation charges are discounted or waived pursuant to
marketing programs conducted in the ordinary course of business consistent with
past practices) due in connection with such customer's initially obtaining cable
television service from the System, or (b) any customer that comes within the
definition of "active customer" because such customer's account (or any part
thereof) has been compromised or written off, other than in the ordinary course
of business consistent with past practices for reasons such as service
interruptions, but not for the purpose of making such customer qualify as a
Basic Equivalent Customer; and (ii) the number of days past due of a customer
account shall be determined from the first day of the period for which the
applicable billing relates.
1.6. Business Day. Any day other than Saturday, Sunday or a
day on which banking institutions in New York, New York are required or
authorized to be closed.
1.7. Cable Act. The Cable Communications Policy Act of 1984 as
amended by the Cable Television Consumer Protection and Competition Act of 1992,
as may be further amended, and the rules and regulations thereunder, as in
effect from time to time.
1.8. Closing. The consummation of the transactions
contemplated by this Agreement, as described in Section 8, the date of which is
referred to as the "Closing Date."
2
<PAGE>
1.9. Communications Act. The Communications Act of 1934, as
amended, and the rules and regulations thereunder, as in effect from time to
time.
1.10. Compensation Arrangement. Any written plan or
compensation arrangement other than an Employee Plan or a Multiemployer Plan
which provides to employees or former employees of Transferor or any entity
related to Transferor (under the terms of Sections 414(b), (c), (m) or (o) of
the Code) any compensation or other benefits, whether deferred or not, in excess
of base salary or wages and excluding overtime pay, including, but not limited
to, any bonus (including any bonus given to motivate employees to work for
Transferor through Closing), incentive plan, stock rights plan, deferred
compensation arrangement, stock purchase plan, severance pay plan and any other
perquisites and employee fringe benefit plan.
1.11. Contracts. All pole attachment and conduit agreements,
personal property leases, wire-crossing agreements, subscriber agreements
(including multi-dwelling unit and commercial agreements), maintenance
agreements, retransmission consent agreements and must carry elections, all as
listed on Schedule 5.7 (Insight System) and Schedule 6.7 (Cox System) and other
agreements, written or oral (including any amendments and other modifications
thereto) to which Transferor is a party and that relate to the Assets or the
business and operations of the System (excluding the Governmental Permits and
programming agreements (other than retransmission consents, must carry elections
and lease access agreements) and any contracts listed on Exhibit E), and are (i)
in effect on the date hereof, other than those that expire by their terms and
are not renewed prior to Closing, or (ii) entered into by Transferor in the
ordinary course of business and as permitted by this Agreement between the date
hereof and the Closing Date.
1.12. Employee Plan. Any pension, retirement, profit-sharing,
deferred compensation, vacation, severance, bonus, incentive, medical, vision,
dental, disability, life insurance or any other employee benefit plan as defined
in Section 3(3) of ERISA (other than a Multiemployer Plan) to which Transferor
or any entity related to Transferor (under the terms of Sections 414(b), (c),
(m) or (o) of the Code) contributes or to which Transferor or any entity related
to Transferor (under the terms of Sections 414(b), (c), (m) or (o) of the Code)
sponsors, maintains or otherwise is bound.
1.13. Encumbrance. Any claim, liability, mortgage, lien,
security interest, security agreement, conditional sale or other title retention
agreement, limitation, pledge, option, charge, assessment, restrictive
agreement, restriction, encumbrance, adverse interest, restriction on transfer
or any exception to or defect in title or other ownership interest (including
reservations, rights of way, possibilities of reverter, encroachments,
easements, rights of entry, restrictive covenants, leases and licenses).
1.14. Environmental Law. Any Legal Requirement pertaining to
land use, air, soil, surface water, groundwater (including protection, cleanup,
removal, remediation or damage thereof), public or employee health or safety or
any other environmental matter, including, without limitation, the following
laws as the same may be amended from time to time: (i) Clean Air Act (42 U.S.C.
3
<PAGE>
Section 7401, et seq.), (ii) Clean Water Act (33 U.S.C. Section 1251, et seq.),
(iii) Resource Conservation and Recovery Act (42 U.S.C. Section 6901, et seq.),
(iv) Comprehensive Environmental Response Compensation Liability Act, as amended
(42 U.S.C. Section 9601, et seq.) ("CERCLA"), (v) Safe Drinking Water Act (42
U.S.C. Section 300f, et seq.), (vi) Toxic Substance Control Act (15 U.S.C.
Section 2601, et seq.), (vii) Rivers and Harbors Act (33 U.S.C. Section 401, et
seq.), (viii) Endangered Species Act (16 U.S.C. Section 1531, et seq.), and (ix)
Occupational Safety and Health Act (29 U.S.C. Section 651, et seq.), together
with any other applicable federal, state or local laws relating to emissions,
discharges, releases or threatened releases of any Hazardous Substance into
ambient air, land, surface water, ground water, personal property or structures,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, discharge or handling of any Hazardous
Substance.
1.15. ERISA. The Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations thereunder, as in effect from
time to time.
1.16. FAA. The Federal Aviation Administration.
1.17. FCC. The Federal Communications Commission.
1.18. Franchises. All franchise agreements, franchise
applications, operating permits and similar governing agreements, instruments,
resolutions, statutes, ordinances, approvals, authorizations and similar rights
obtained from any Governmental Authority which are necessary or required in
order to operate a cable television system and provide cable television services
including all amendments thereto and renewals or modifications thereof, as
listed on Schedule 5.4 (Insight System) and Schedule 6.4 (Cox System).
1.19. GAAP. Generally accepted accounting principles as in
effect from time to time in the United States of America.
1.20. Governmental Authority. (i) The United States of
America, (ii) any state, commonwealth, territory or possession of the United
States of America and any political subdivision thereof (including counties,
municipalities and the like) or (iii) any agency, authority or instrumentality
of any of the foregoing, including any court, tribunal, department, bureau,
commission, board, arbitrator or panel of arbitrators.
1.21. Governmental Permits. All Franchises and other
approvals, authorizations, permits, licenses (including without limitation
domestic satellite earth station and business radio), registrations,
qualifications, leases, variances and similar rights obtained from any
Governmental Authority authorizing, permitting or governing the provision of
cable television services, as described on Schedule 5.4 (Insight System) or
Schedule 6.4 (Cox System).
1.22. Hazardous Substances. Any pollutant, contaminant,
hazardous or toxic substance, material, constituent or waste or any pollutant
that is labeled or regulated as such terms are defined in any Environmental Law
or that is labeled or regulated as such by any Governmental
4
<PAGE>
Authority including, without limitation, asbestos and asbestos-containing
materials and any material or substance that is: (i) designated as a "hazardous
substance" pursuant to Section 307 of the Federal Water Pollution Control Act,
33 U.S.C. Section 1251, et seq. (33 U.S.C. Section 1317), (ii) defined as a
"hazardous waste" pursuant to Section 1004 of the Federal Solid Waste Disposal
Act, 42 U.S.C. Section 6901, et seq. (42 U.S.C. Section 6903), (iii) defined as
a "hazardous substance" pursuant to Section 101 of CERCLA or (iv) is so
designated or defined under any other applicable Legal Requirements.
1.23. HSR Act. The Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations thereunder, as in effect
from time to time.
1.24. Intangibles. All intangible assets owned, used or held
for use in the business or operations of the System, including Transferor's
proprietary information, technical information and data, machinery and equipment
warranties, maps, computer disks and tapes, plans, diagrams, blue prints and
schematics, filings with the Governmental Authorities and the FCC relating to
the System, all books and records relating to the business or operations of the
System (subject to Section 4.2.3), executed copies of the Contracts and all
correspondence and memoranda relating thereto, customer records and all records
required by the Governmental Authorities to be kept by the System, claims
(excluding any claims relating to Excluded Assets), patents, copyrights,
licenses, choses in action and going concern value, if any.
1.25. Legal Requirement. Any statute, ordinance, code, law,
rule, regulation, order or other requirement, standard or procedure enacted,
adopted or applied by any Governmental Authority, including judicial decisions
applying common law or interpreting any other Legal Requirement.
1.26. Material Adverse Effect. A material adverse effect on
the aggregate operations, assets or financial condition of the Transferor's
System, taken as a whole, other than matters affecting the cable television
industry generally (including without limitation legislative, regulatory or
litigation matters) and matters relating to or arising from national economic
conditions (including financial and capital markets).
1.27. Multiemployer Plan. A plan, as defined in ERISA Sections
3(37) or 4001(a)(3), to which Transferor or any trade or business which would be
considered a single employer with Transferor under Section 4001(b)(1) of ERISA
contributed, contributes or is required to contribute.
1.28. Permitted Encumbrances. The following Encumbrances: (i)
statutory landlord's liens and liens for current taxes, assessments and
governmental charges not yet due and payable (or being contested in good faith
by appropriate proceedings), (ii) zoning laws and ordinances and similar Legal
Requirements, (iii) statutory liens or other encumbrances that are minor or
technical defects in title that individually or in the aggregate do not
adversely affect the value, marketability or utility of the Assets as presently
utilized, (iv) such liens, liabilities or encumbrances as are Assumed
Liabilities; (v) leased interests in property owned by others and leased
interests in
5
<PAGE>
property leased to others; (vi) rights reserved to any Governmental Authority to
regulate the affected property and (vii) as to interests in Real Property, any
easements, rights-of-way, servitudes, permits, restrictions and minor
imperfections or irregularities in title which are reflected in the public
records and which do not individually or in the aggregate interfere as of the
Closing Date with the right or ability to own, use or operate the Real Property
as presently utilized.
1.29. Person. Any natural person, corporation, partnership,
trust, unincorporated organization, association, limited liability company,
Governmental Authority or other entity.
1.30. Real Property. All of Transferor's interests in real
property (as well as all appurtenances, improvements and fixtures located on
such realty), including fee interests, leasehold interests and easements used in
the operation of the System, including without limitation those described on
Schedule 5.5 (Insight System) or Schedule 6.5 (Cox System), plus such additions
thereto and deletions therefrom arising in the ordinary course of business and
as permitted by this Agreement between the date hereof and the Closing Date.
1.31. Required Consents. All Franchises, licenses,
authorizations, approvals and consents required under Governmental Permits,
Contracts or otherwise for (i) Transferor to transfer the Assets and the
business and operations of the System to Transferee, (ii) Transferee to conduct
the business and operations of the System and to own, lease, use and operate the
Assets at the places and in the manner in which the business and operations of
the System are conducted by the Transferor as of the date of this Agreement and
on the Closing Date and (iii) Transferee to assume and perform the Governmental
Permits and Contracts in accordance with the terms hereof.
1.32. Service Area. When used in reference to Insight, the
term "Service Area" shall mean the area in which Insight operates the Insight
System as described on Exhibit A. When used in reference to Cox the term
"Service Area" shall mean the area in which Cox operates the Cox System as
described on Exhibit B.
1.33. System. The Insight System or the Cox System.
1.34. Tangible Personal Property. All of the machinery,
equipment, tools, vehicles, furniture, leasehold improvements, office equipment,
plant, inventory, spare parts, supplies and other tangible personal property
which are owned, leased or held by Transferor and used or held for use as of the
date hereof in the conduct of the business and operations of the System, plus
such additions thereto and deletions therefrom arising in the ordinary course of
business and as permitted by this Agreement between the date hereof and the
Closing Date exclusive of Excluded Assets.
1.35. Other Definitions. The following terms are defined in
the Sections indicated:
Term Section
---- -------
Antitrust Division 7.8
Assumed Liabilities 4.1
6
<PAGE>
Cash Consideration 3.1
CERCLA 1.14
Claimant 12.4.1
Closing Date 1.8
Code Recitals
Copyright Act 5.19.3
Cox Early Shortfall 3.2.6
Cox Easements 6.5
Cox Employees 6.13
Cox Financial Statements 6.11.1
Cox Related Agreements 6.2
Cox System Recitals
Cox System Shortfall 3.2.6
Excluded Assets 4.2
Final Report 3.3.2
FTC 7.8
Indemnifying Party 12.4.1
Insight Early Shortfall 3.2.7
Insight Easements 5.5
Insight Employees 5.13
Insight Financial Statements 5.11.1
Insight Related Agreements 5.2
Insight System Recitals
Insight System Shortfall 3.2.7
Preliminary Report 3.3.1
Prime Rate 13.11
Survival Period 12.1
Taking 7.11.2
Threshold Amount 12.5.1
Transferee 1
Transferor 1
2. Exchange of Assets.
2.1. Exchange. Subject to the terms and conditions set forth
in this Agreement, Insight and Cox agree to cause to be exchanged simultaneously
at Closing the Insight Assets for the Cox Assets.
2.2. Inclusion of Assets. With the exception of the Excluded
Assets, and except as otherwise specifically provided in this Agreement, all of
the Assets are intended to be transferred, assigned and conveyed to Transferee,
whether or not described in the Schedules.
7
<PAGE>
2.3. Value of Exchanged Assets. As described in more detail on
Exhibit C and as permitted by Section 1031 of the Code and regulations
promulgated thereunder, (i) the Insight Tangible Personal Property shall be
exchanged for the Cox Tangible Personal Property, (ii) the Insight Real Property
shall be exchanged for the Cox Real Property and (iii) the Insight Governmental
Permits, Contracts and other Intangibles shall be exchanged for the Cox
Governmental Permits, Contracts and other Intangibles. As soon as practicable
after the execution of this Agreement, Insight and Cox agree to engage Bond &
Pecaro to provide an independent appraisal of the Cox Assets and the Insight
Assets. The parties shall cause Bond & Pecaro to consult with both Insight and
Cox during the preparation of the appraisals, and to deliver drafts and the
final appraisals to Insight and Cox simultaneously. The parties shall each bear
one-half of the expense of such independent appraisals. Insight and Cox shall
not take any position inconsistent with such valuations, shall file with the
appropriate Governmental Authority all tax returns, reports or similar filings
with respect to the transaction contemplated by this Agreement, including all
federal, state and local tax returns on a basis consistent with such valuations,
and each promptly shall give to the other notice of any disallowance of or
challenge to such reporting by any taxing Governmental Authority.
3. Additional Consideration.
3.1. Cash Consideration. In addition to the consideration
referenced in Section 2.1 and subject to Section 3.2 below, Cox shall pay or
cause to be paid to Insight at Closing $12,700,000 in cash by federal wire
transfer of immediately available funds (the "Cash Consideration"), or at
Insight's direction, to a Qualified Intermediary (as defined in Treas. Reg.
Section 1.1031(k) - 1(g)) for purposes of acquiring replacement property with
the Cash Consideration.
3.2. Adjustments to Cash Consideration.
3.2.1. Appropriate adjustments on a pro rata basis as
of the Closing Date will be made for all prepaid expenses, accrued expenses
(including real and personal property taxes), assessments levied against the
assets, accrued vacation, prepaid income and similar prepaid and deferred items,
all as determined in accordance with GAAP consistently applied, and to reflect
the principle that all expenses, costs or liabilities and income attributable to
the business and operations of the System for the period prior to the Closing
Date are for the account of Transferor, and all expenses, costs or liabilities
and income attributable to the business and operations of the System for the
period on and after the Closing Date are for the account of Transferee.
3.2.2. All advance payments to, or funds of third
parties on deposit with, Transferor as of the Closing Date, relating to the
business and operations of the System, including advance payments by advertisers
and advance payments and deposits by customers served by the System for
converters, encoders, decoders, cable television service and related sales, will
be retained by Transferor and Transferee shall receive a credit for assuming the
obligations relating to such advance payments and deposits.
3.2.3. All deposits relating to the business and
operations of the System that are held by third parties as of the Closing Date
for the account of Transferor or as security for
8
<PAGE>
Transferor's performance of its obligations (other than with respect to Excluded
Assets and any other deposits the full benefit of which for contractual or other
reasons cannot be made available to Transferee following the Closing Date),
including deposits on leases and deposits for utilities, will be credited to the
account of Transferor in their full amounts and will become the property of
Transferee.
3.2.4. Transferor shall receive a credit for customer
Accounts Receivable assigned to Transferee at Closing as follows: (i) 100% of
the face amount of the customer Accounts Receivable which are outstanding 30
days or less from the first day of the period to which any outstanding bill
relates, and (ii) 85% of the face amount of all customer Accounts Receivable
which are outstanding more than 30 but fewer than 61 days from the first day of
the period to which any outstanding bill relates. Transferor will receive no
credit for any customer Accounts Receivable (y) the portion of which is 61 days
or more past due from the first date of the period to which any outstanding bill
relates or (z) from customers whose accounts are inactive or whose service is
pending disconnection for any reason as of the Closing Date.
3.2.5. Cox shall receive a credit for advertising
Accounts Receivable assigned to Insight at Closing as follows: (i) 100% of the
face amount of the advertising Accounts Receivable which are outstanding 30 days
or less from the invoice date, (ii) 95% of the face amount of all advertising
Accounts Receivable which are outstanding more than 30 but fewer than 61 days
from the invoice date, (iii) 80% of the face amount of all advertising Accounts
Receivable which are outstanding more than 60 but fewer than 91 days from the
invoice date, (iv) 50% of the face amount of all advertising Accounts Receivable
which are outstanding more than 90 but fewer than 121 days from the invoice
date. Cox shall receive no credit for advertising Accounts Receivable which are
outstanding more than 120 days from the invoice date. Notwithstanding the
foregoing, Cox shall receive a credit for advertising Accounts Receivable
assigned to Insight at Closing of 100% of the face amount of the advertising
Accounts Receivable from national and regional representation accounts,
regardless of the age thereof. Insight shall receive a credit for advertising
Accounts Receivable assigned to Cox through Closing in an amount equal to 100%
of any advertising commissions due or payable to Insight under that certain
Agreement in effect between Insight and Dimension Media Services, Inc. for
advertising services provided prior to the Closing Date.
3.2.6. If the number of Basic Equivalent Customers
served by the Cox System on the Closing Date is fewer than 38,300 (such
difference referred to herein as the "Cox System Shortfall"), the Cash
Consideration shall be increased by an amount equal to the Cox System Shortfall
multiplied by $2,110. Notwithstanding the foregoing, if the Closing Date occurs
on or prior to December 19, 1997 and the number of Basic Equivalent Customers
served by the Cox System is fewer than 38,100 (such difference referred to
herein as the "Cox Early Shortfall"), the Cash Consideration shall be increased
by an amount equal to the Cox Early Shortfall multiplied by $2,110.
3.2.7. If the number of Basic Equivalent Customers
served by the Insight System on the Closing Date is fewer than 36,250 (such
difference referred to herein as the "Insight System Shortfall), the Cash
Consideration shall be decreased on the following basis. If the Insight
9
<PAGE>
System Shortfall is less than 150 Basic Equivalent Customers, the Cash
Consideration will be decreased by an amount equal to the Insight System
Shortfall multiplied by $1,000. If the Insight System Shortfall is 150 Basic
Equivalent Customers or greater, the Cash Consideration will be decreased by an
amount equal to (i) $1,000 for each of such 150 Basic Equivalent Customers, plus
(ii) $2,580 for each Basic Equivalent Customers fewer than 36,100.
Notwithstanding the foregoing, if the Closing Date occurs on or prior to
December 19, 1997 and the number of Basic Equivalent Customers served by the
Insight System is fewer than 36,050 (such difference referred to herein as the
"Insight Early Shortfall"), the Cash Consideration shall be decreased on the
following basis. If the Insight Early Shortfall is less than 150 Basic
Equivalent Customers, the Cash Consideration will be decreased by an amount
equal to the Insight Early Shortfall multiplied by $1,000. If the Insight Early
Shortfall is 150 Basic Equivalent Customers or greater, the Cash Consideration
will be decreased by an amount equal to (i) $1,000 for each of such 150 Basic
Equivalent Customers plus (ii) $2,580 for each Basic Equivalent Customers fewer
than 35,900.
3.2.8. The aggregate number of Basic Equivalent
Customers in Transferor's System shall be estimated as of Closing in
Transferor's Preliminary Report delivered to Transferee in accordance with
Section 3.3.1, and thereafter subject to post-Closing verification and
adjustment under Section 3.3.2.
3.2.9. The net amount of the adjustments, if any,
provided for in this Section 3.2 shall be treated as an adjustment to the Cash
Consideration paid at Closing.
3.3. Determination of Adjustments to Cash Consideration.
Preliminary and final adjustments to the Cash Consideration will be determined
as follows:
3.3.1. At least seven Business Days prior to the
Closing, Transferor will deliver to Transferee a report with respect to
Transferor's System (the "Preliminary Report"), showing in detail Transferor's
good faith estimate of the adjustments referred to in Section 3.2, which are
calculated in accordance with such Section as of the Closing Date (or as of any
other date(s) agreed by the parties) together with any documents substantiating
the determination of the adjustments to the Cash Consideration proposed in the
Preliminary Report. The Preliminary Report will include a schedule setting forth
advance payments and deposits made to or by Transferor, as well as Accounts
Receivable information relating to the business or operations of the System
(showing sums due and their respective aging as of the Closing Date). The net
adjustment shown in the Preliminary Reports will be reflected as an adjustment
to the Cash Consideration payable at the Closing; provided, that if Transferee
advises Transferor that it believes any item on Transferor's Preliminary Report
is materially incorrect, the parties shall, in good faith, attempt to resolve
such item prior to Closing; provided, that in the event not resolved, the
Closing shall proceed on the basis of Transferor's Preliminary Report with
respect to such item.
3.3.2. Within 90 days after the Closing, Transferor
will deliver to Transferee a report with respect to the Transferor's System (the
"Final Report"), similarly certified by Transferor, showing in detail the final
determination of any adjustments which were not calculated as of the Closing
Date and containing any corrections to the Preliminary Report, together with any
10
<PAGE>
documents substantiating the final calculation of the adjustments proposed in
the Final Report. Transferee will provide Transferor with reasonable access to
all records which Transferee has in its possession and which are necessary for
Transferor to prepare the Final Report.
3.3.3. Within 30 days after receipt of the Final
Report, each Transferee will give each Transferor written notice of such
Transferee's objections, if any, to the other's Final Report. If there are no
objections to the Final Reports, the net amount of any adjustments to the Cash
Consideration paid at Closing reflected in the Final Reports shall be promptly
paid by the appropriate party. If there are objections to either Final Report,
the parties shall use good faith efforts to jointly resolve the objections
within 60 days of Transferor's receipt of Transferee's written notice of
objections, which resolution, if achieved, shall be binding upon both parties to
this Agreement and not be subject to dispute or review. If the parties cannot
resolve the discrepancies to their mutual satisfaction within such 60-day
period, the parties shall, within the following 10 days, jointly designate a
national independent public accounting firm to be retained to review the Final
Reports together with the notice(s) of objections and any other relevant
documents. The parties agree that the foregoing independent public accounting
firm shall not be one that is regularly engaged by either party or by U.S. West,
Inc., or MediaOne or their Affiliates. The cost of retaining such independent
public accounting firm shall be borne equally by the parties. Such firm shall
report its conclusions as to adjustments pursuant to this Section 3.3 which
shall be conclusive on all parties to this Agreement and not be subject to
dispute or review. If, after resolution of the Final Reports, an additional
adjustment to the Cash Consideration is appropriate with respect to the amount
of the adjustments paid or credited at the Closing, the appropriate party shall
promptly pay such amount.
4. Assumed Liabilities and Excluded Assets.
4.1. Assignment and Assumption. Transferor will assign, and
Transferee will assume and perform, the Assumed Liabilities (the "Assumed
Liabilities"), which are defined as: (i) Transferor's obligations to customers
of the System for (A) customer deposits held by Transferor as of the Closing
Date and which are refundable, in the amount for which Transferee received
credit under Section 3.2, (B) customer, advertising and other advance payments
held by Transferor as of the Closing Date for services to be rendered by
Transferee on or after the Closing Date, in the amount for which Transferee
received credit under Section 3.2 and (C) the delivery of cable television
service to cable television service customers and the exhibition of advertising
for advertising customers of the System on or after the Closing Date and (ii)
obligations accruing and relating to periods on or after the Closing Date under
Governmental Permits and Contracts and (iii) such other liabilities as are
described on Exhibit D hereto. Transferee will not assume or have any
responsibility for any liabilities or obligations of Transferor other than the
Assumed Liabilities, including, without limitation, any liability for rate
refunds. In no event will Transferee assume or have any responsibility for any
liabilities or obligations associated with the Excluded Assets or accruing or
related to periods prior to the Closing Date (except for Assumed Liabilities).
11
<PAGE>
4.2. Excluded Assets. The Assets shall exclude the following
assets, which will be retained by the Transferor (the "Excluded Assets"):
4.2.1. Transferor's cash on hand as of the Closing Date
and all other cash or cash equivalents in any of Transferor's bank or savings
accounts, including without limitation, customer advance payments and deposits
for which Transferee gets credit;
4.2.2. Any and all bonds, surety instruments, insurance
policies and all rights and claims thereunder, letters of credit or other
similar items and any cash surrender value in regard thereto, and any stocks,
bonds, certificates of deposit and similar investments;
4.2.3. Any books and records that Transferor is required
by law to retain and any books of account, tax reports and returns and the like
related to the Assets and business and operations of the System and any
correspondence or memoranda relating to the foregoing, subject to the right of
Transferee to have access to and to copy such documents for a reasonable period,
not to exceed three years (six years in the case of tax reports and returns and
underlying books and records, although in the case of underlying books and
records, the parties acknowledge that they are not retained for periods for
which an IRS field examination has been completed) from the Closing Date, and
Transferor's corporate minute books and other books and records related to
internal corporate matters and financial relationships with Transferor's lenders
and affiliates;
4.2.4. Any claims, rights and interest in and to any
refunds of federal, state or local franchise, income or other taxes or fees of
any nature whatsoever for periods prior to the Closing Date including, without
limitation, fees paid to the U.S. Copyright Office;
4.2.5. All programming agreements and all master
retransmission consent agreements (other than those retransmission agreements,
must carry notices and leased access agreements listed on Schedule 5.7 (Insight
System) and Schedule 6.7 (Cox System)) of Transferor including those relating to
or benefitting the System;
4.2.6. Except as provided in Section 7.20, all owned or
licensed trademarks, trade names, service marks, service names, logos and
similar proprietary rights of the Transferor, whether or not used in the
business or operations of the System;
4.2.7. Except as provided on Schedule 5.6 with respect to
Insight, and on Schedule 6.6 with respect to Cox, all tangible and intangible
personal property owned, leased or licensed by Transferor or any of Transferor's
Affiliates that is used or held for use in one or more of the System but also
jointly and primarily used or held for use in the ordinary course in cable
television systems or other operations of Transferor or its Affiliates other
than the System;
4.2.8. Except to the extent provided in Section 7.3, any
Employee Plan, Compensation Arrangement or Multiemployer Plan;
12
<PAGE>
4.2.9. All rights to receive fees or services from any
Affiliate of Transferor and any obligations or liabilities owing to any
Affiliate of Transferor;
4.2.10. Any and all assets and rights of Transferor
unrelated to and not used in the business and operations of the System; and
4.2.11. The assets listed on Exhibit E hereto.
5. Representations and Warranties of Insight. To induce Cox to enter
into this Agreement, Insight represents and warrants to Cox regarding the
business or operations of the Insight System and the Insight Assets, as of the
date of this Agreement and as of the Closing Date, as follows:
5.1. Organization, Standing and Authority. Insight is a
limited partnership duly organized, validly existing and in good standing under
the laws of the state of Delaware and is qualified to conduct business as a
foreign limited partnership in Arizona, and as of Closing Insight will be
qualified to conduct business as a foreign limited partnership in Indiana.
Insight has the requisite partnership power and authority (i) to own, lease and
use the Insight Assets as presently owned, leased and used by it and (ii) to
conduct the business and operations of the Insight System owned by it as
presently conducted by it.
5.2. Authorization and Binding Obligation. Insight has the
power and authority to execute and deliver this Agreement and all other
agreements, instruments and certificates contemplated hereby and thereby to be
executed by it (collectively, the "Insight Related Agreements") and to carry out
and perform all of its other obligations under the terms of this Agreement and
the Insight Related Agreements. All partnership action by Insight necessary for
the authorization, execution, delivery and performance by Insight of this
Agreement and the Insight Related Agreements has been taken and such action has
not been rescinded, repealed or amended. This Agreement has been duly executed
and delivered by Insight and this Agreement and the Insight Related Agreements
constitute or will, when executed and delivered, constitute the valid and
legally binding obligations of Insight, enforceable against it in accordance
with their respective terms, except (i) as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect affecting the enforcement of creditors' rights generally and (ii)
as the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
5.3. No Consents; Absence of Conflicting Agreements. Except
for the Insight Required Consents listed on Schedule 5.3, the Cox Required
Consents and compliance with the HSR Act, no consent, approval, permit or
authorization of, or declaration to or filing with any Governmental Authority or
any other third party is required to consummate this Agreement and the Insight
Related Agreements and the transactions contemplated hereby and thereby. Subject
to obtaining the Insight Required Consents listed on Schedule 5.3 and compliance
with the HSR Act, the execution, delivery and performance of this Agreement by
Insight will not: (i) violate the limited partnership agreement of Insight, (ii)
violate any Legal Requirement applicable to Insight with respect to the Insight
Assets or the business or operations of the Insight System or (iii) conflict
with,
13
<PAGE>
constitute grounds for termination of, result in a breach of, constitute a
default under, accelerate or permit the acceleration of any performance required
by the terms of, or result in the creation or imposition of any Encumbrance
under, any agreement, instrument, license or permit to which Insight is a party
or may be bound and by which the Insight Assets or the business or operations of
the Insight System are affected.
5.4. Governmental Permits. Schedule 5.4 includes a true and
complete list of all Insight Franchises and all other Insight Governmental
Permits. True and complete copies of the Insight Governmental Permits disclosed
on Schedule 5.4 (together with any and all amendments and any proposals or
material correspondence thereto) have been delivered to Cox. Except as set forth
on Schedule 5.4, the Insight Franchises contain all of the commitments and
obligations of Insight to the applicable Governmental Authorities with respect
to the construction, ownership and operation of the Insight System. Except as
set forth on Schedule 5.4, the Insight Governmental Permits are valid under all
applicable Legal Requirements according to their terms and are currently in full
force and effect. Except as listed on Schedule 5.4, there is no legal action,
governmental proceeding or investigation pending or, to the knowledge of
Insight, threatened, to terminate, suspend or modify any Insight Governmental
Permit and Insight is, and to the knowledge of Insight, each other party thereto
is, in compliance in all material respects with the terms and conditions of all
the Insight Governmental Permits and with other applicable requirements of all
Governmental Authorities relating to the Insight Governmental Permits, including
all requirements for notification, filing, reporting, posting and maintenance of
logs and records. Except as set forth on Schedule 5.4, no person (including any
Governmental Authority) has as of the date hereof any right to acquire any
interest in the Insight System or the Insight Assets (including any right of
first refusal or similar right), other than rights of condemnation or eminent
domain afforded by law or upon the termination of or default under any
Franchise. The Insight Franchises marked with a double asterisk on Schedule 5.4
constitute all of the communities where the local franchising or other
regulatory authority has certified to regulate rates charged to customers of the
Insight System pursuant to the Cable Act or where a customer service rate
complaint is pending before the FCC.
5.5. Real Property. Schedule 5.5 contains a list of all Real
Property owned, leased or occupied by Insight and all material easements or
other interests in Real Property to which Insight is a party as of the date
hereof. Insight has delivered to Cox true and complete copies of all deeds and
leases pertaining to such Real Property. As to the Real Property which is
designated in Schedule 5.5 as being owned in fee simple by Insight, except as
set forth in Schedule 5.5, Insight has good and marketable title in fee simple
to such premises and all buildings, improvements and fixtures thereon, free and
clear of all Encumbrances, except for Permitted Encumbrances. As to the Real
Property which is designated in Schedule 5.5 as being leased by Insight, Insight
is the sole owner of the leasehold interest in such Real Property, each such
lease is valid and subsisting and in full force and effect and, as of the date
hereof, no other party to such lease has given written notice to Insight of or
made a written claim with respect to any breach or default thereof and Insight
is not aware of any fact giving rise to a breach or default thereof. Except as
otherwise disclosed in Schedule 5.5, all Real Property listed on Schedule 5.5
(i) is in reasonable operating condition and repair (subject to normal wear and
tear) consistent with its present use, (ii) is available for immediate
14
<PAGE>
use in the conduct of the business or operations of the Insight System, (iii)
complies in all material respects with all applicable building or zoning codes
and the regulations of any Governmental Authority having jurisdiction, (iv) has
full legal and practical access to public roads or streets and has all utilities
and services necessary for the proper and lawful conduct and operation of the
Insight System as presently utilized. All buildings, towers, guy wires and
anchors, earth receiving dishes and facilities are located entirely on the
Insight Real Property, and together with all pole attachments, cable plant and
cable installations, equipment and facilities used in connection with the
Insight System are maintained, placed and located in all material respects in
accordance with the provisions of all applicable Legal Requirements, deeds,
leases, licenses, permits or other legally enforceable arrangements. No
condemnation of any of the Insight Real Property has occurred, is pending or, to
the knowledge of Insight, threatened. Except as set forth on Schedule 5.5, each
Person upon or under whose property any of the Insight Assets are located,
maintained, installed or operated (other than drop lines to customer dwellings)
has granted to Insight such easements, licenses or rights of way as are
necessary for the location, maintenance, installation and operation of such
Insight Assets upon, over or under such property (the "Insight Easements").
5.6. Tangible Personal Property. Except with respect to leased
property, Insight has good title to all Insight Tangible Personal Property, and
as of the Closing Date none of the Insight Tangible Personal Property will be
subject to any Encumbrance, except for Permitted Encumbrances. Except as set
forth in Schedule 5.6, the Insight Tangible Personal Property is in reasonable
operating condition and repair (subject to normal wear and tear), and is
available for immediate use in the conduct of the business or operations of the
Insight System except for that which is subject to routine maintenance or
repair. All items of cable plant, earth station and headend equipment included
in the Insight Tangible Personal Property (i) have been maintained in a manner
consistent in all material respects with generally accepted standards of good
engineering practice and (ii) will permit the Insight System to operate in
accordance with the terms of the Insight Governmental Permits. The amount of the
Insight System inventory on the Closing Date will be sufficient to permit the
continued maintenance and operation of the Insight System for at least a 30-day
period. Schedule 5.6 contains a list of all material items of machinery,
equipment, vehicles, plant and other tangible personal property (including all
converters and all items of personal property valued at $1,000 or more) used or
held for use by Insight in the operation of the Insight System.
5.7. Contracts. Schedule 5.7 contains a true and correct list
of all Insight Contracts except for: (i) subscription agreements for cable
television services provided by the Insight System with residential or
commercial customers and bulk-billed customers charged less than $500 per month,
(ii) oral employment contracts and miscellaneous service contracts terminable at
will without penalty and (iii) other contracts not involving either liabilities
under such contract exceeding $15,000 per year or any material nonmonetary
obligation. Insight has delivered to Cox true and complete copies of all written
Insight Contracts listed in Schedule 5.7. All of the Insight Contracts listed in
Schedule 5.7 are valid and binding and, to the knowledge of Insight, in full
force and effect and legally enforceable in accordance with their terms upon the
other parties thereto. There is not under any Insight Contract any default by
Insight or, to the knowledge of Insight, any other party thereto or event which,
after notice or lapse of time, or both, would constitute such a default. To the
15
<PAGE>
knowledge of Insight (x) there has not been any threatened cancellation of any
Insight Contracts (other than the cancellation of cable service by customers at
normal and customary levels), (y) there are no outstanding disputes thereunder
and (z) there is no basis for any claim of breach or default thereunder.
5.8. Complete System. Except for those assets which are
Insight Excluded Assets, the Insight Assets comprise all of the assets necessary
to conduct the business and operations of the Insight System as presently
conducted.
5.9. Trademarks, Trade Names and Copyrights. Schedule 5.9 is a
true and complete list of all material copyrights, trademarks, trade names,
patents and other similar intangible property rights and interests owned by
Insight, or under which Insight is licensed and used in the conduct of the
business and operations of the Insight System except as provided by Section
4.2.6. All of the Intangibles and all of the intangible property rights listed
in Schedule 5.9 as owned by Insight are owned by Insight free and clear of all
Encumbrances, except for Permitted Encumbrances. All of the intangible property
rights listed in Schedule 5.9 as licensed to Insight are valid and enforceable.
Insight is not aware that it is infringing upon or otherwise acting adversely to
any trademarks, trade names, copyrights, patents, patent applications, know-how,
methods or processes owned by any other person or persons, and there is no claim
or action pending, or to the knowledge of Insight, threatened, with respect
thereto.
5.10. Information on Insight System.
5.10.1. Schedule 5.10.1 lists the following information
for the Insight System as of August 31, 1997 (i) the approximate total number of
miles of fully completed and operational trunk and distribution cable, the
approximate number of miles of aerial plant and the approximate number of miles
of underground plant, (ii) the approximate number of dwellings (as defined
below) and commercial premises passed, (iii) the total number of Basic
Equivalent Customers, (iv) the bandwidth capacity of the Insight System
specified in MHz, and (v) the number of channels activated throughout the
Insight System (i.e., over 100% of the plant miles).
5.10.2. As used in this Section 5.10, "dwellings" means
a home or other residential unit that can be legally serviced by the System by
using no more than 150 feet of drop cable.
5.10.3. The rates charged to customers for each class of
service (including equipment, installation and late fees) for the Insight System
as of the date of this Agreement, are set forth in Schedule 5.10.3.
5.10.4. The Insight System duly and properly carries and
delivers the channels indicated in Schedule 5.10.4. Insight has obtained all
required FCC clearances for the operation of the Insight System in all necessary
aeronautical frequency bands.
16
<PAGE>
5.10.5. To its knowledge, except as described in
Schedule 5.10.5, Insight has not been denied access to any multiple dwelling
unit or paid for access to any multiple dwelling unit, subdivision or private
development in the Insight Service Area.
5.10.6. Except as described in Schedule 5.10.6, there
are no franchise, construction, fidelity, performance, or other bonds, surety
instruments, letters of credit or other similar items posted or delivered by
Insight in connection with the Insight System or the Insight Assets.
5.11. Financial Statements.
5.11.1. Schedule 5.11.1 contains true and complete
copies of (i) unaudited financial statements of Insight with respect to the
Insight System containing statement of assets and liabilities and statement of
income and expenses as of and for the 12 months ended December 31, 1996; and
(ii) an unaudited statement of assets and liabilities and statement of income
and expenses of the System for the eight-month period ended August 31, 1997,
(collectively, the "Insight Financial Statements"). The Insight Financial
Statements are prepared in accordance with GAAP consistently applied, except (i)
for the absence of an owner's equity section and related balances within the
statements of assets and liabilities, (ii) for the absence of statements of cash
flows and footnotes, and (iii) with respect to the interim Financial Statements,
subject to normal recurring year-end adjustments, which are not expected to be
material in amount. The Insight Financial Statements are in accordance with the
books and records of Insight and present fairly in all material respects the
operating income and financial condition of the Insight System as of their
respective dates and the results of operations for the periods then ended. None
of the Insight Financial Statements materially understates the true costs and
expenses of conducting the business or operations of the Insight System or
materially inflates the revenue of the Insight System because of the provision
of services or the bearing of costs or expenses or the payment of fees by any
other person or for any other reason.
5.11.2. Insight has no liability or obligation related
to the Insight Assets or the Insight System (whether accrued, absolute,
contingent or otherwise) which is of a nature required to be reflected in
financial statements prepared in accordance with GAAP, consistently applied,
including without limitation any liability that might result from an audit of
its tax returns, except for (i) the liabilities and obligations of Insight that
are disclosed or reserved against in the Insight Financial Statements, to the
extent and in the amounts so disclosed or reserved against and (ii) liabilities
incurred or accrued in the ordinary course of business since the date of the
most recent Insight Financial Statements. Other than as set forth in Schedule
5.11.2, Insight has no liabilities or obligations secured by the Insight Assets
or otherwise related to the Insight System undisclosed in the Insight Financial
Statements (whether or not GAAP requires their disclosure) that exceed in the
aggregate $50,000.
5.11.3. Insight is not in default with respect to any
liabilities or obligations which are related to the Insight Assets or the
Insight System, and all such liabilities or obligations shown or reflected in
the Insight Financial Statements and such liabilities incurred or accrued
17
<PAGE>
subsequent to the date of the most recent Insight Financial Statements have
been, or are being, paid and discharged in the ordinary course of business
consistent with past practice.
5.12. Employee Benefit Plans.
5.12.1. All Employee Plans and Compensation Arrangements
providing benefits to employees or former employees of the Insight System are
listed and described in Schedule 5.12, and copies of any such Employee Plans and
Compensation Arrangements (and any related insurance policies, trusts, etc.),
including all amendments thereto, have been made available to Cox, along with
copies of any currently available employee handbooks and any other documents
used to describe such Employee Plans and Compensation Arrangements to the
covered individuals. Except as disclosed in Schedule 5.12, there is not now in
effect or to become effective after the date of this Agreement, any new Employee
Plan or Compensation Arrangement or any amendment to an existing Employee Plan
or Compensation Arrangement which will materially affect the benefits of
employees, former employees or independent contractors of the Insight System.
5.12.2. Each Employee Plan and Compensation Arrangement
has been adopted, amended and administered in compliance in all material
respects with its own terms and, where applicable, ERISA, the Code, the Age
Discrimination in Employment Act and any other applicable Legal Requirements.
5.12.3. No Multiemployer Plan provides or has ever
provided benefits to any employee or former employee of the Insight System.
5.12.4. Except as disclosed in Schedule 5.12, neither
Insight nor any entity under common control with Insight (under Sections
414(b),(c),(m) and (o) of the Code) is aware of the existence of any
governmental audit or examination of any Employee Plan or Compensation
Arrangement or of any facts which would lead them to believe that any such audit
or examination is pending or threatened. There exists no action, suit or claim
(other than routine claims for benefits) with respect to any Employee Plan or
Compensation Arrangement pending, or to the knowledge of Insight and each entity
under common control with Insight (under Sections 414(b), (c), (m) and (o) of
the Code), threatened against any Employee Plan or Compensation Arrangement.
5.12.5. No reportable event, as defined under Title IV
of ERISA, will occur as a result of the transactions contemplated by this
Agreement.
5.12.6. At all times on or prior to the Closing, the
Employee Plans, to the extent such Employee Plans are intended to be
tax-qualified, satisfy all coverage and minimum participation requirements, if
any, imposed on such Employee Plans by the applicable terms of the Code or
ERISA.
5.13. Labor Relations. Schedule 5.13 lists the names,
positions and dates of hire (and Insight has delivered to Cox annual salary
information accurate as of the date hereof) of all
18
<PAGE>
persons employed by Insight directly and principally in connection with the
operation of the Insight System (the "Insight Employees"). Insight has no
written or oral contracts of employment with any Insight Employee, other than
(i) oral employment agreements terminable at will without penalty or (ii) those
listed in Schedule 5.7. Insight in the operation of the Insight System has
complied in all material respects with all applicable Legal Requirements
relating to the employment of labor, including those related to wages, hours,
collective bargaining, occupational safety, discrimination and the payment of
social security and other payroll related taxes. Insight is not a party to any
collective bargaining agreement or other contract with any labor organization
regarding any of the Insight Employees, and Insight has not recognized or agreed
to recognize and is not required to recognize any union or other collective
bargaining representative of the Insight Employees. Except as set forth in
Schedule 5.13, within the 60-month period ending on the date hereof, no union or
other collective bargaining representative claims to represent or has been
certified as representing any of the Insight Employees, nor has Insight received
any requests from any party for recognition as a representative of the Insight
Employees for collective bargaining purposes. Except as set forth in Schedule
5.13, the Insight Employees are not engaged in or subject to any organizing
activity with respect to any labor organization and, to the knowledge of
Insight, no such activity is threatened. Except as set forth in Schedule 5.13,
there is no strike, work slowdown, picketing or any other labor disputes or
controversies or proceedings pending or threatened between Insight and any of
the Insight Employees or any labor union or collective bargaining representative
claiming to represent any of the Insight Employees. Insight has no employment
agreement of any kind, oral or written, express or implied, that would require
Cox to employ any Person after the Closing Date.
5.14. Tax Returns; Other Reports. Insight has duly and timely
filed in proper form all income, franchise, sales, use, property, excise,
payroll and other tax returns and all other reports (whether or not relating to
taxes) relating to the Insight System required to be filed with the appropriate
Governmental Authority. All taxes, fees and assessments of whatever nature due
and payable by Insight relating to the Insight System have been paid, except
such amounts as are being contested diligently and in good faith and are not in
the aggregate material. Except as set forth in Schedule 5.14, there are no
pending state or local sales tax audits relating to the Insight System. Except
as set forth in Schedule 5.14, Insight has not received any property, sales and
use, or franchise fee or tax audit notice or any other notice or assessment to
the effect that there is any unpaid interest, penalty or taxes due or claimed to
be due from Insight with respect to the Insight Assets or the business or
operations of the Insight System.
5.15. Claims and Legal Actions. Except as set forth in
Schedule 5.15, and except as may affect the cable industry generally, there is
no (i) legal action, counterclaim, suit, arbitration, (ii) to the knowledge of
Insight, claim or governmental investigation or (iii) other legal,
administrative or tax proceeding, nor any order, decree or judgment, in progress
or pending, or to the knowledge of Insight, threatened against or relating to
the Insight Assets or the business or operations of the Insight System.
19
<PAGE>
5.16. Environmental Matters.
5.16.1. The Insight Real Property is in compliance with
and, to the knowledge of Insight, has previously been operated in compliance in
all material respects with, all Environmental Laws. Except as set forth in
Schedule 5.16, Insight has not generated, released, stored, used, treated,
handled, discharged or disposed of any Hazardous Substances at, on, under, in or
about, or in any other manner affecting, any Insight Real Property, transported
any Hazardous Substances to or from any Insight Real Property or discharged any
Hazardous Substances from any Insight Real Property into any body of water,
directly or indirectly, or undertaken or caused to be undertaken any other
activities relating to the Insight Real Property, which would support a material
claim or cause of action under any Environmental Law, and, to the knowledge of
Insight, no other present or previous owner, tenant, occupant or user of any
Insight Real Property or any other Person has committed or suffered any of the
foregoing. To the knowledge of Insight, no release of Hazardous Substances
outside the Insight Real Property has entered or threatens to enter any Insight
Real Property nor is there any pending or threatened claim based on
Environmental Laws that arises from any condition of the land surrounding any
Insight Real Property. No claim or investigation based on Environmental Laws
which relates to any Insight Real Property or any operations or conditions on it
(i) has been asserted or conducted in the past or is currently pending against
or with respect to Insight or, to the knowledge of Insight, any other Person or
(ii) to the knowledge of Insight, is threatened or contemplated.
5.16.2. Except as set forth in Schedule 5.16, to the
knowledge of Insight, (i) no underground storage tanks are currently or have
been located on any Insight Real Property, (ii) no Insight Real Property has
been used at any time as a gasoline service station or any other facility for
storing, pumping, dispensing or producing gasoline or any other petroleum
products or wastes, (iii) no building or other structure on any Insight Real
Property contains friable asbestos, and (iv) there are no incinerators or
cesspools on the Insight Real Property and all domestic waste is discharged into
a public sanitary sewer system.
5.16.3. Insight has provided Cox with complete and
correct copies of (i) all studies, reports, surveys or other materials in the
possession of Insight relating to the presence or alleged presence of Hazardous
Substances at, on or affecting the Insight Real Property, (ii) all notices or
other materials in the possession of Insight that were received during the past
two years from any Governmental Authority having the power to administer or
enforce any Environmental Laws relating to current or past ownership, use or
operation of the Insight Real Property or activities at the Insight Real
Property and (iii) all materials in the possession of Insight relating to any
claim, allegation or action by any private third party under any Environmental
Law.
5.17. Compliance with Laws. Insight has complied in all
material respects and is in compliance in all material respects with all Legal
Requirements applicable to the Insight System in the operation of the business
and the ownership of the Insight Assets. Except as set forth in Schedule 5.17,
Insight has received no notice claiming a violation by the Insight System of any
20
<PAGE>
Legal Requirement applicable to the Insight System as currently conducted and to
the knowledge of Insight there is no basis for any claim that such a violation
exists.
5.18. Conduct of Business in Ordinary Course. Except as set
forth on Schedule 5.18, since December 31, 1996, Insight has conducted the
business and operations of the Insight System only in the ordinary and usual
course substantially in the same manner as previously conducted, and Insight has
not:
5.18.1. Made any material increase in compensation
payable or to become payable to any of the Insight Employees or made any
material change in personnel policies, insurance benefits, Employee Plans or
Compensation Arrangements, or any other compensation arrangements affecting the
Insight Employees;
5.18.2. Sold, transferred, leased to others or otherwise
disposed of, pledged or encumbered any of the Insight Assets except for (i)
security interests created pursuant to Insight's banking arrangements, and (ii)
inventory sold or used in the ordinary course of business consistent with past
practices or for assets sold or disposed of and replaced by other assets of
comparable utility and value;
5.18.3. Made, or committed to make, any material capital
expenditures or capital additions or betterments to the Insight System or the
Insight Assets; or
5.18.4. Suffered any changes, events or conditions which
have materially and adversely affected the Insight Assets or the Insight System.
5.19. FCC and Copyright Compliance.
5.19.1. Except as disclosed in Schedule 5.19, the
operation of the Insight System has been, and is, in compliance in all material
respects with the Communications Act and the rules and regulations of the FCC.
Insight has made all filings required to be made with the FCC (including cable
television registration statements, annual reports and aeronautical frequency
usage notices) and has provided all notices to customers required under the
Communications Act and the FCC's rules and regulations. Insight is and since
1989 has been certified as in compliance with the FCC's equal employment
opportunity rules and the Insight System is in compliance in all material
respects with all signal leakage criteria prescribed by the FCC.
5.19.2. Insight has complied in all material respects
with the must carry and retransmission consent provisions of the Cable Act and
the FCC rules and regulations promulgated thereunder as such provisions relate
to the Insight System. Except as set forth in Schedule 5.19, no written notices
or demands have been received from the FCC, from any television station, or from
any other Person, station, Governmental Authority or unit challenging the right
of the Insight System to carry any signal or deliver the same. Insight has used
commercially reasonable efforts to establish rates charged to customers that
would be allowable under rules and regulations promulgated by the
21
<PAGE>
FCC under the Cable Act, and any authoritative interpretation thereof, if such
rates were subject to regulation by any Governmental Authority, including the
local franchising authority and/or the FCC, and, to the knowledge of Insight,
such rates as computed under the FCC's rules and regulations are permitted rates
except as set forth in Schedule 5.19. Insight has delivered to Cox complete and
correct copies of all FCC 393 Forms and FCC 1200 Series Forms provided to local
franchising authorities or the FCC with respect to the Insight System and copies
of all material correspondence with any Governmental Authority relating to rate
regulation generally or specific rates charged to customers with respect to the
Insight System, including, without limitation, copies of any complaints and
responses filed with the FCC with respect to any rates charged to customers of
the Insight System. Insight makes no representation or warranty with respect to
the effect of the cable television industry-wide dispute concerning music
licensing fees.
5.19.3. Insight has deposited with the U.S. Copyright
Office all statements of account and other documents and instruments, and paid
all royalties, supplemental royalties, fees and other sums to the U.S. Copyright
Office under the Copyright Act of 1976, as amended (the "Copyright Act"), with
respect to the business and operations of the Insight System as are required to
obtain, hold and maintain the compulsory license for cable television systems
prescribed in Section 111 of the Copyright Act. Insight and the Insight System
are in compliance in all material respects with the Copyright Act and the rules
and regulations of the U.S. Copyright Office, except as to potential copyright
liability arising from the performance, exhibition or carriage of any music on
the Insight System. To the knowledge of Insight, there is no inquiry, claim,
action or demand pending before the U.S. Copyright Office or from any other
party which questions the copyright filings or payments made by Insight with
respect to the Insight System.
5.19.4. All necessary FAA approvals have been obtained
with respect to the height and location of towers used in connection with the
operation of the Insight System and are listed in Schedule 5.19. The towers are
being operated in compliance in all material respects with applicable FCC and
FAA rules.
5.19.5. A request for renewal has been timely filed
pursuant to Section 626(a) of the Cable Act with the proper Governmental
Authority with respect to any Insight Franchise expiring within 30 months after
the date of this Agreement.
5.20. Accounts Receivable. All of the Accounts Receivable
which are the subject of the adjustments provided in Sections 3.2.4 and 3.2.5
have arisen from bona fide transactions in the ordinary course of Insight's
business consistent with past practice.
5.21. Transactions with Affiliates. Except as set forth on
Schedule 5.21, there is no lease, sublease, indebtedness, contract, agreement,
commitment, understanding, or other arrangement of any kind whatsoever entered
into by Insight relating to the Insight System with any Affiliates.
22
<PAGE>
5.22. Disclosure. All of the Insight Schedules to this
Agreement are true, accurate and complete. No representation or warranty by
Insight in this Agreement or in any Insight Schedule or Insight Exhibit to this
Agreement, or any statement, list or certificate furnished or to be furnished by
Insight pursuant to this Agreement, contains or will contain any untrue
statement of material fact, or omits or will omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein in light of the circumstances in which made not misleading.
5.23. Cure. For all purposes under this Agreement, the
existence or occurrence of any events or circumstances that constitute or cause
a breach of a representation or warranty of Insight made in this Agreement
(including, without limitation, the schedules hereto) on the date such
representation or warranty is made shall not constitute a breach of such
representation or warranty if such event or circumstance is cured within 30 days
after notice of its existence or occurrence, but in no event later than 10 days
prior to the date scheduled for Closing.
6. Representations and Warranties of Cox. To induce Insight to enter
into this Agreement, Cox represents and warrants to Insight regarding the
business or operations of the Cox System and the Cox Assets, as of the date of
this Agreement and as of the Closing Date, as follows:
6.1. Organization, Standing and Authority. Cox is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, and is qualified to conduct business as a foreign
corporation in Indiana and Arizona. Cox has the requisite corporate power and
authority (i) to own, lease and use the Cox Assets as presently owned, leased
and used by it and (ii) to conduct the business and operations of the Cox System
owned by it as presently conducted by it.
6.2. Authorization and Binding Obligation. Cox has the power
and authority to execute and deliver this Agreement and all other agreements,
instruments and certificates contemplated hereby and thereby to be executed by
it (collectively, the "Cox Related Agreements") and to carry out and perform all
of its other obligations under the terms of this Agreement and the Cox Related
Agreements. All corporate action by Cox necessary for the authorization,
execution, delivery and performance by Cox of this Agreement and the Cox Related
Agreements has been taken and such corporate action has not been rescinded,
repealed or amended. This Agreement has been duly executed and delivered by Cox
and this Agreement and the Cox Related Agreements constitute or will, when
executed and delivered, constitute the valid and legally binding obligations of
Cox, enforceable against it in accordance with their respective terms, except
(i) as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect affecting the enforcement
of creditors' rights generally and (ii) as the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
6.3. No Consents; Absence of Conflicting Agreements. Except
for the Cox Required Consents listed on Schedule 6.3, the Insight Required
Consents and compliance with the
23
<PAGE>
HSR Act, no consent, approval, permit or authorization of, or declaration to or
filing with any Governmental Authority or any other third party is required to
consummate this Agreement and the Cox Related Agreements and the transactions
contemplated hereby and thereby. Subject to obtaining the Cox Required Consents
listed on Schedule 6.3 and compliance with the HSR Act, the execution, delivery
and performance of this Agreement by Cox will not: (i) violate the Articles of
Incorporation or Bylaws of Cox, (ii) violate any Legal Requirement applicable to
Cox with respect to the Cox Assets or the business or operations of the Cox
System or (iii) conflict with, constitute grounds for termination of, result in
a breach of, constitute a default under, accelerate or permit the acceleration
of any performance required by the terms of, or result in the creation or
imposition of any Encumbrance under, any agreement, instrument, license or
permit to which Cox is a party or may be bound and by which the Cox Assets or
the business or operations of the Cox System are affected.
6.4. Governmental Permits. Schedule 6.4 includes a true and
complete list of all Cox Franchises and all other Cox Governmental Permits. True
and complete copies of the Cox Governmental Permits disclosed on Schedule 6.4
(together with any and all amendments and any proposals or material
correspondence thereto) have been delivered to Insight. Except as set forth on
Schedule 6.4, the Cox Franchises contain all of the commitments and obligations
of Cox to the applicable Governmental Authorities with respect to the
construction, ownership and operation of the Cox System. Except as set forth on
Schedule 6.4, the Cox Governmental Permits are valid under all applicable Legal
Requirements according to their terms and are currently in full force and
effect. Except as listed on Schedule 6.4, there is no legal action, governmental
proceeding or investigation pending or, to the knowledge of Cox, threatened, to
terminate, suspend or modify any Cox Governmental Permit and Cox is, and to the
knowledge of Cox, each other party thereto is, in compliance in all material
respects with the terms and conditions of all the Cox Governmental Permits and
with other applicable requirements of all Governmental Authorities relating to
the Cox Governmental Permits, including all requirements for notification,
filing, reporting, posting and maintenance of logs and records. Except as set
forth on Schedule 6.4, no person (including any Governmental Authority) has as
of the date hereof any right to acquire any interest in the Cox System or the
Cox Assets (including any right of first refusal or similar right), other than
rights of condemnation or eminent domain afforded by law or upon the termination
of or default under any Franchise. The Cox Franchises marked with an asterisk on
Schedule 6.4 constitute all of the communities where the local franchising or
other regulatory authority has certified to regulate rates charged to customers
of the Cox System pursuant to the Cable Act or where a customer service rate
complaint is pending before the FCC.
6.5. Real Property. Schedule 6.5 contains a list of all Real
Property owned, leased or occupied by Cox and all material easements or other
interests in Real Property to which Cox is a party as of the date hereof. Cox
has delivered to Insight true and complete copies of all deeds and leases
pertaining to such Real Property. As to the Real Property which is designated in
Schedule 6.5 as being owned in fee simple by Cox, except as set forth in
Schedule 6.5, Cox has good and marketable title in fee simple to such premises
and all buildings, improvements and fixtures thereon, free and clear of all
Encumbrances, except for Permitted Encumbrances. As to the Real Property
24
<PAGE>
which is designated in Schedule 6.5 as being leased by Cox, Cox is the sole
owner of the leasehold interest in such Real Property, each such lease is valid
and subsisting and in full force and effect and, as of the date hereof, no other
party to such lease has given written notice to Cox of or made a written claim
with respect to any breach or default thereof and Cox is not aware of any fact
giving rise to a breach or default thereof. Except as otherwise disclosed in
Schedule 6.5, all Real Property listed on Schedule 6.5 (i) is in reasonable
operating condition and repair (subject to normal wear and tear) consistent with
its present use, (ii) is available for immediate use in the conduct of the
business or operations of the Cox System, (iii) complies in all material
respects with all applicable building or zoning codes and the regulations of any
Governmental Authority having jurisdiction, (iv) has full legal and practical
access to public roads or streets and has all utilities and services necessary
for the proper and lawful conduct and operation of the Cox System as presently
utilized. All buildings, towers, guy wires and anchors, earth receiving dishes
and facilities are located entirely on the Cox Real Property, and together with
all pole attachments, cable plant and cable installations, equipment and
facilities used in connection with the Cox System are maintained, placed and
located in all material respects in accordance with the provisions of all
applicable Legal Requirements, deeds, leases, licenses, permits or other legally
enforceable arrangements. No condemnation of any of the Cox Real Property has
occurred, is pending or, to the knowledge of Cox, threatened. Except as set
forth on Schedule 6.5, each Person upon or under whose property any of the Cox
Assets are located, maintained, installed or operated (other than drop lines to
customer dwellings) has granted to Cox such easements, licenses or rights of way
as are necessary for the location, maintenance, installation and operation of
such Cox Assets upon, over or under such property (the "Cox Easements").
6.6. Tangible Personal Property. Except with respect to leased
property, Cox has good title to all Cox Tangible Personal Property, and as of
the Closing Date none of the Cox Tangible Personal Property will be subject to
any Encumbrance, except for Permitted Encumbrances. Except as set forth in
Schedule 6.6, the Cox Tangible Personal Property is in reasonable operating
condition and repair (subject to normal wear and tear), and is available for
immediate use in the conduct of the business or operations of the Cox System
except for that which is subject to routine maintenance or repair. All items of
cable plant, earth station and headend equipment included in the Cox Tangible
Personal Property (i) have been maintained in a manner consistent in all
material respects with generally accepted standards of good engineering practice
and (ii) will permit the Cox System to operate in accordance with the terms of
the Cox Governmental Permits. The amount of the Cox System inventory on the
Closing Date will be sufficient to permit the continued maintenance and
operation of the Cox System for at least a 30-day period. Schedule 6.6 contains
a list of all material items of machinery, equipment, vehicles, plant and other
tangible personal property (including all converters and all items of personal
property valued at $1,000 or more) used or held for use by Cox in the operation
of the Cox System.
6.7. Contracts. Schedule 6.7 contains a true and correct list
of all Cox Contracts except for: (i) subscription agreements for cable
television services provided by the Cox System with residential or commercial
customers and bulk-billed customers charged less than $500 per month, (ii) oral
employment contracts and miscellaneous service contracts terminable at will
without penalty and (iii) other contracts not involving either liabilities under
such contract exceeding $15,000 per
25
<PAGE>
year or any material nonmonetary obligation. Cox has delivered to Insight true
and complete copies of all written Cox Contracts listed in Schedule 6.7. All of
the Cox Contracts listed in Schedule 6.7 are valid and binding and, to the
knowledge of Cox, in full force and effect and legally enforceable in accordance
with their terms upon the other parties thereto. There is not under any Cox
Contract any default by Cox or, to the knowledge of Cox, any other party thereto
or event which, after notice or lapse of time, or both, would constitute such a
default. To the knowledge of Cox (x) there has not been any threatened
cancellation of any Cox Contracts (other than the cancellation of cable service
by customers at normal and customary levels), (y) there are no outstanding
disputes thereunder and (z) there is no basis for any claim of breach or default
thereunder.
6.8. Complete System. Except for those assets which are Cox
Excluded Assets, the Cox Assets comprise all of the assets necessary to conduct
the business and operations of the Cox System as presently conducted.
6.9. Trademarks, Trade Names and Copyrights. Schedule 6.9 is a
true and complete list of all material copyrights, trademarks, trade names,
patents and other similar intangible property rights and interests owned by Cox,
or under which Cox is licensed and used in the conduct of the business and
operations of the Cox System except as provided by Section 4.2.6. All of the
Intangibles and all of the intangible property rights listed in Schedule 6.9 as
owned by Cox are owned by Cox free and clear of all Encumbrances, except for
Permitted Encumbrances. All of the intangible property rights listed in Schedule
6.9 as licensed to Cox are valid and enforceable. Cox is not aware that it is
infringing upon or otherwise acting adversely to any trademarks, trade names,
copyrights, patents, patent applications, know-how, methods or processes owned
by any other person or persons, and there is no claim or action pending, or to
the knowledge of Cox, threatened, with respect thereto.
6.10. Information on Cox System.
6.10.1. Schedule 6.10.1 lists the following information
for the Cox System as of August 31, 1997 (i) the approximate total number of
miles of fully completed and operational trunk and distribution cable, the
approximate number of miles of aerial plant and the approximate number of miles
of underground plant, (ii) the approximate number of dwellings (as defined
below) and commercial premises passed, (iii) the total number of Basic
Equivalent Customers, (iv) the bandwidth capacity of the Cox System specified in
MHz, and (v) the number of channels activated throughout the Cox System (i.e.,
over 100% of the plant miles).
6.10.2. As used in this Section 6.10, "dwellings" means
a home or other residential unit that can be legally serviced by the System by
using no more than 300 feet of drop cable.
6.10.3. The rates charged to customers for each class of
service (including equipment, installation and late fees) for the Cox System as
of the date of this Agreement, are set forth in Schedule 6.10.3.
26
<PAGE>
6.10.4. The Cox System duly and properly carries and
delivers the channels indicated in Schedule 6.10.4. Cox has obtained all
required FCC clearances for the operation of the Cox System in all necessary
aeronautical frequency bands.
6.10.5. To its knowledge, except as described in
Schedule 6.10.5, Cox has not been denied access to any multiple dwelling unit or
paid for access to any multiple dwelling unit, subdivision or private
development in the Cox Service Area.
6.10.6. Except as described in Schedule 6.10.6, there
are no franchise, construction, fidelity, performance, or other bonds, surety
instruments, letters of credit or other similar items posted or delivered by Cox
in connection with the Cox System or the Cox Assets.
6.11. Financial Statements.
6.11.1. Schedule 6.11.1 contains true and complete
copies of (i) unaudited financial statements of Cox with respect to the Cox
System containing balance sheet and statement of income as of and for the 12
months ended December 31, 1996; and (ii) an unaudited balance sheet and
statement of income of the System for the eight-month period ended August 31,
1997 (collectively, the "Cox Financial Statements"). The Cox Financial
Statements are prepared in accordance with GAAP consistently applied, except for
the absence of statements of cash flows and footnotes, and, with respect to the
interim Financial Statements, subject to normal recurring year-end adjustments,
which are not expected to be material in amount. The Cox Financial Statements
are in accordance with the books and records of Cox and present fairly in all
material respects the operating income and financial condition of the Cox System
as of their respective dates and the results of operations for the periods then
ended. None of the Cox Financial Statements materially understates the true
costs and expenses of conducting the business or operations of the Cox System or
materially inflates the revenue of the Cox System because of the provision of
services or the bearing of costs or expenses or the payment of fees by any other
person or for any other reason.
6.11.2. Cox has no liability or obligation related to
the Cox Assets or the Cox System (whether accrued, absolute, contingent or
otherwise) which is of a nature required to be reflected in financial statements
prepared in accordance with GAAP, consistently applied, including without
limitation any liability that might result from an audit of its tax returns,
except for (i) the liabilities and obligations of Cox that are disclosed or
reserved against in the Cox Financial Statements, to the extent and in the
amounts so disclosed or reserved against and (ii) liabilities incurred or
accrued in the ordinary course of business since the date of the most recent Cox
Financial Statements. Other than as set forth in Schedule 6.11.2, Cox has no
liabilities or obligations secured by the Cox Assets or otherwise related to the
Cox System undisclosed in the Cox Financial Statements (whether or not GAAP
requires their disclosure) that exceed in the aggregate $50,000.
6.11.3. Cox is not in default with respect to any
liabilities or obligations which are related to the Cox Assets or the Cox
System, and all such liabilities or obligations shown or reflected in the Cox
Financial Statements and such liabilities incurred or accrued subsequent to the
27
<PAGE>
date of the most recent Cox Financial Statements have been, or are being, paid
and discharged in the ordinary course of business consistent with past practice.
6.12. Employee Benefit Plans.
6.12.1. All Employee Plans and Compensation Arrangements
providing benefits to employees or former employees of the Cox System are listed
and described in Schedule 6.12, and copies of any such Employee Plans and
Compensation Arrangements (and any related insurance policies, trusts, etc.),
including all amendments thereto, have been made available to Insight along with
copies of any currently available employee handbooks and any other documents
used to describe such Employee Plans and Compensation Arrangements to the
covered individuals. Except as disclosed in Schedule 6.12, there is not now in
effect or to become effective after the date of this Agreement, any new Employee
Plan or Compensation Arrangement or any amendment to an existing Employee Plan
or Compensation Arrangement which will materially affect the benefits of
employees, former employees or independent contractors of the Cox System.
6.12.2. Each Employee Plan and Compensation Arrangement
has been adopted, amended and administered in compliance in all material
respects with its own terms and, where applicable, ERISA, the Code, the Age
Discrimination in Employment Act and any other applicable Legal Requirements.
6.12.3. No Multiemployer Plan provides or has ever
provided benefits to any employee or former employee of the Cox System.
6.12.4. Except as disclosed in Schedule 6.12, neither
Cox nor any entity under common control with Cox (under Sections 414(b),(c),(m)
and (o) of the Code) is aware of the existence of any governmental audit or
examination of any Employee Plan or Compensation Arrangement or of any facts
which would lead them to believe that any such audit or examination is pending
or threatened. There exists no action, suit or claim (other than routine claims
for benefits) with respect to any Employee Plan or Compensation Arrangement
pending, or to the knowledge of Cox and each entity under common control with
Cox (under Sections 414(b), (c), (m) and (o) of the Code), threatened against
any Employee Plan or Compensation Arrangement.
6.12.5. No reportable event, as defined under Title IV
of ERISA, will occur as a result of the transactions contemplated by this
Agreement.
6.12.6. At all times on or prior to the Closing, the
Employee Plans, to the extent such Employee Plans are intended to be
tax-qualified, satisfy all coverage and minimum participation requirements, if
any, imposed on such Employee Plans by the applicable terms of the Code or
ERISA.
6.13. Labor Relations. Schedule 6.13 lists the names,
positions and dates of hire (and Cox has delivered to Insight annual salary
information accurate as of the date hereof) of all
28
<PAGE>
persons employed by Cox directly and principally in connection with the
operation of the Cox System (the "Cox Employees"). Cox has no written or oral
contracts of employment with any Cox Employee, other than (i) oral employment
agreements terminable at will without penalty or (ii) those listed in Schedule
6.7. Cox in the operation of the Cox System has complied in all material
respects with all applicable Legal Requirements relating to the employment of
labor, including those related to wages, hours, collective bargaining,
occupational safety, discrimination and the payment of social security and other
payroll related taxes. Cox is not a party to any collective bargaining agreement
or other contract with any labor organization regarding any of the Cox
Employees, and Cox has not recognized or agreed to recognize and is not required
to recognize any union or other collective bargaining representative of the Cox
Employees. Except as set forth in Schedule 6.13 , within the 60-month period
ending on the date hereof, no union or other collective bargaining
representative claims to represent or has been certified as representing any of
the Cox Employees, nor has Cox received any requests from any party for
recognition as a representative of the Cox Employees for collective bargaining
purposes. Except as set forth in Schedule 6.13, the Cox Employees are not
engaged in or subject to any organizing activity with respect to any labor
organization and, to the knowledge of Cox, no such activity is threatened.
Except as set forth in Schedule 6.13, there is no strike, work slowdown,
picketing or any other labor disputes or controversies or proceedings pending or
threatened between Cox and any of the Cox Employees or any labor union or
collective bargaining representative claiming to represent any of the Cox
Employees. Cox has no employment agreement of any kind, oral or written, express
or implied, that would require Insight to employ any Person after the Closing
Date.
6.14. Tax Returns; Other Reports. Cox has duly and timely
filed in proper form all income, franchise, sales, use, property, excise,
payroll and other tax returns and all other reports (whether or not relating to
taxes) relating to the Cox System required to be filed with the appropriate
Governmental Authority. All taxes, fees and assessments of whatever nature due
and payable by Cox relating to the Cox System have been paid, except such
amounts as are being contested diligently and in good faith and are not in the
aggregate material. Except as set forth in Schedule 6.14, there are no pending
state or local sales tax audits relating to the Cox System. Except as set forth
in Schedule 6.14, Cox has not received any property, sales and use, or franchise
fee or tax audit notice or any other notice or assessment to the effect that
there is any unpaid interest, penalty or taxes due or claimed to be due from Cox
with respect to the Cox Assets or the business or operations of the Cox System.
6.15. Claims and Legal Actions. Except as set forth in
Schedule 6.15, and except as may affect the cable industry generally, there is
no (i) legal action, counterclaim, suit, arbitration, (ii) to the knowledge of
Cox, claim or governmental investigation or (iii) other legal, administrative or
tax proceeding, nor any order, decree or judgment, in progress or pending, or to
the knowledge of Cox, threatened against or relating to the Cox Assets or the
business or operations of the Cox System.
29
<PAGE>
6.16. Environmental Matters.
6.16.1. The Cox Real Property is in compliance with and,
to the knowledge of Cox, has previously been operated in compliance in all
material respects with, all Environmental Laws. Except as set forth in Schedule
6.16, Cox has not generated, released, stored, used, treated, handled,
discharged or disposed of any Hazardous Substances at, on, under, in or about,
or in any other manner affecting, any Cox Real Property, transported any
Hazardous Substances to or from any Cox Real Property or discharged any
Hazardous Substances from any Cox Real Property into any body of water, directly
or indirectly, or undertaken or caused to be undertaken any other activities
relating to the Cox Real Property, which would support a material claim or cause
of action under any Environmental Law, and, to the knowledge of Cox, no other
present or previous owner, tenant, occupant or user of any Cox Real Property or
any other Person has committed or suffered any of the foregoing. To the
knowledge of Cox, no release of Hazardous Substances outside the Cox Real
Property has entered or threatens to enter any Cox Real Property nor is there
any pending or threatened claim based on Environmental Laws that arises from any
condition of the land surrounding any Cox Real Property. No claim or
investigation based on Environmental Laws which relates to any Cox Real Property
or any operations or conditions on it (i) has been asserted or conducted in the
past or is currently pending against or with respect to Cox or, to the knowledge
of Cox, any other Person or (ii) to the knowledge of Cox, is threatened or
contemplated.
6.16.2. Except as set forth in Schedule 6.16, to the
knowledge of Cox, (i) no underground storage tanks are currently or have been
located on any Cox Real Property, (ii) no Cox Real Property has been used at any
time as a gasoline service station or any other facility for storing, pumping,
dispensing or producing gasoline or any other petroleum products or wastes,
(iii) no building or other structure on any Cox Real Property contains friable
asbestos, and (iv) there are no incinerators or cesspools on the Cox Real
Property and all domestic waste is discharged into a public sanitary sewer
system.
6.16.3. Cox has provided Insight with complete and
correct copies of (i) all studies, reports, surveys or other materials in the
possession of Cox relating to the presence or alleged presence of Hazardous
Substances at, on or affecting the Cox Real Property, (ii) all notices or other
materials in the possession of Cox that were received during the past two years
from any Governmental Authority having the power to administer or enforce any
Environmental Laws relating to current or past ownership, use or operation of
the Cox Real Property or activities at the Cox Real Property and (iii) all
materials in the possession of Cox relating to any claim, allegation or action
by any private third party under any Environmental Law.
6.17. Compliance with Laws. Cox has complied in all material
respects and is in compliance in all material respects with all Legal
Requirements applicable to the Cox System in the operation of the business and
the ownership of the Cox Assets. Except as set forth in Schedule 6.17, Cox has
received no notice claiming a violation by the Cox System of any Legal
Requirement applicable to the Cox System as currently conducted and to the
knowledge of Cox there is no basis for any claim that such a violation exists.
30
<PAGE>
6.18. Conduct of Business in Ordinary Course. Except as set
forth on Schedule 6.18, since December 31, 1996, Cox has conducted the business
and operations of the Cox System only in the ordinary and usual course
substantially in the same manner as previously conducted, and Cox has not:
6.18.1. Made any material increase in compensation
payable or to become payable to any of the Cox Employees or made any material
change in personnel policies, insurance benefits, Employee Plans or Compensation
Arrangements, or any other compensation arrangements affecting the Cox
Employees;
6.18.2. Sold, transferred, leased to others or otherwise
disposed of, pledged or encumbered any of the Cox Assets except for inventory
sold or used in the ordinary course of business consistent with past practices
or for assets sold or disposed of and replaced by other assets of comparable
utility and value;
6.18.3. Made, or committed to make, any material capital
expenditures or capital additions or betterments to the Cox System or the Cox
Assets; or
6.18.4. Suffered any changes, events or conditions which
have materially and adversely affected the Cox Assets or the Cox System.
6.19. FCC and Copyright Compliance.
6.19.1. Except as disclosed in Schedule 6.19, the
operation of the Cox System has been, and is, in compliance in all material
respects with the Communications Act and the rules and regulations of the FCC.
Cox has made all filings required to be made with the FCC (including cable
television registration statements, annual reports and aeronautical frequency
usage notices) and has provided all notices to customers required under the
Communications Act and the FCC's rules and regulations. Cox is and since 1989
has been certified as in compliance with, the FCC's equal employment opportunity
rules and the Cox System is in compliance in all material respects with all
signal leakage criteria prescribed by the FCC.
6.19.2. Cox has complied in all material respects with
the must carry and retransmission consent provisions of the Cable Act and the
FCC rules and regulations promulgated thereunder as such provisions relate to
the Cox System. Except as set forth in Schedule 6.19, no written notices or
demands have been received from the FCC, from any television station, or from
any other Person, station, Governmental Authority or unit challenging the right
of the Cox System to carry any signal or deliver the same. Cox has used
commercially reasonable efforts to establish rates charged to customers that
would be allowable under rules and regulations promulgated by the FCC under the
Cable Act, and any authoritative interpretation thereof, if such rates were
subject to regulation by any Governmental Authority, including the local
franchising authority and/or the FCC, and, to the knowledge of Cox, such rates
as computed under the FCC's rules and regulations are permitted rates except as
set forth in Schedule 6.19. Cox has delivered to Insight complete and
31
<PAGE>
correct copies of all FCC 393 Forms and FCC 1200 Series Forms provided to local
franchising authorities or the FCC with respect to the Cox System and copies of
all material correspondence with any Governmental Authority relating to rate
regulation generally or specific rates charged to customers with respect to the
Cox System, including, without limitation, copies of any complaints and
responses filed with the FCC with respect to any rates charged to customers of
the Cox System. Cox makes no representation or warranty with respect to the
effect of the cable television industry-wide dispute concerning music licensing
fees.
6.19.3. Cox has deposited with the U.S. Copyright Office
all statements of account and other documents and instruments, and paid all
royalties, supplemental royalties, fees and other sums to the U.S. Copyright
Office under the Copyright Act with respect to the business and operations of
the Cox System as are required to obtain, hold and maintain the compulsory
license for cable television systems prescribed in Section 111 of the Copyright
Act. Cox and the Cox System are in compliance in all material respects with the
Copyright Act and the rules and regulations of the U.S. Copyright Office, except
as to potential copyright liability arising from the performance, exhibition or
carriage of any music on the Cox System. To the knowledge of Cox, there is no
inquiry, claim, action or demand pending before the U.S. Copyright Office or
from any other party which questions the copyright filings or payments made by
Cox with respect to the Cox System.
6.19.4. All necessary FAA approvals have been obtained
with respect to the height and location of towers used in connection with the
operation of the Cox System and are listed in Schedule 6.19. The towers are
being operated in compliance in all material respects with applicable FCC and
FAA rules.
6.19.5. A request for renewal has been timely filed
pursuant to Section 626(a) of the Cable Act with the proper Governmental
Authority with respect to any Cox Franchise expiring within 30 months after the
date of this Agreement.
6.20. Accounts Receivable. All of the Accounts Receivable
which are the subject of the adjustments provided in Sections 3.2.4 and 3.2.5
have arisen from bona fide transactions in the ordinary course of Cox's business
consistent with past practice.
6.21. Transactions with Affiliates. Except as set forth on
Schedule 6.21, there is no lease, sublease, indebtedness, contract, agreement,
commitment, understanding, or other arrangement of any kind whatsoever entered
into by Cox relating to the Cox System with any Affiliates.
6.22. Disclosure. All of the Cox Schedules to this Agreement
are true, accurate and complete. No representation or warranty by Cox in this
Agreement or in any Cox Schedule or Cox Exhibit to this Agreement, or any
statement, list or certificate furnished or to be furnished by Cox pursuant to
this Agreement, contains or will contain any untrue statement of material fact,
or omits or will omit to state a material fact required to be stated therein or
necessary to make the statements contained therein in light of the circumstances
in which made not misleading.
32
<PAGE>
6.23. Cure. For all purposes under this Agreement, the
existence or occurrence of any events or circumstances that constitute or cause
a breach of a representation or warranty of Cox made in this Agreement
(including, without limitation, the schedules hereto) on the date such
representation or warranty is made shall not constitute a breach of such
representation or warranty if such event or circumstance is cured within 30 days
after notice of its existence or occurrence, but in no event later than 10 days
prior to the date scheduled for Closing.
7. Covenants of Transferor and Transferee.
7.1. Access to Premises and Records. Between the date of
execution and delivery of this Agreement and the Closing Date, Transferor will
provide Transferee and its representatives full access at reasonable times and
with the prior permission of Transferor, which shall not be unreasonably
withheld, to all the premises, employees and books and records of the business
and operations of the System and to all the Assets and will furnish to
Transferee and its representatives all information regarding the business and
operations of the System, including without limitation, the personnel records of
the employees engaged in the operations of the System and the Assets as
Transferee may from time to time reasonably request but excluding any medical
records that Transferor is prohibited by applicable law from disclosing to
Transferee. Notwithstanding any investigation that Transferee may conduct of the
business and operations of the System and the Assets, Transferee may fully rely
on Transferor's representations, warranties, covenants and indemnities, which
will not be waived or affected by or as a result of such investigation. For a
period of three years (six years in the case of tax reports and returns and
underlying books and records, although in the case of underlying books and
records, the parties acknowledge that they are not retained for periods for
which an IRS field examination has been completed) after the Closing, upon prior
notice and during normal business hours, each party will provide the other party
and its successors or permitted assigns reasonable assistance with and access to
all of the books, records, reports, Contracts and other information from files
and records transferred from such party at the Closing, for purposes of
examining, preparing extracts and photocopying such materials.
7.2. Continuity and Maintenance of Operations. Except as
disclosed in Schedule 7.2 A (Insight) and 7.2 B (Cox), or as Transferee may
otherwise agree in writing, until the Closing:
7.2.1. Transferor will continue to operate the System in
the ordinary course consistent with past practices (including completing line
extensions, placing conduit or cable in new developments and fulfilling
installation requests) and will use its commercially reasonable efforts to keep
available the services of its employees employed in connection with the System
and to preserve any beneficial business relationships with customers, suppliers
and others having business dealings with Transferor relating to the System.
Without limiting the generality of the foregoing, Transferor will maintain (i)
the Assets in reasonable operating condition and repair, (ii) bonds and
insurance as in effect on the date of this Agreement, (iii) inventories of
equipment and supplies at levels consistent with prior practice, and (iv) all of
its business books, records and files in the ordinary course of business in
accordance with past practices. Transferor will not itself, and will not permit
any of its officers, directors, shareholders, agents or employees or Affiliates
to, pay any of
33
<PAGE>
Transferor's customer Accounts Receivable (other than for their own residences)
prior to the Closing Date. Transferor will continue to implement its procedures
for disconnection and discontinuance of service to customers whose accounts are
delinquent in accordance with those procedures in effect on the date of this
Agreement.
7.2.2. Except to the extent required by law (of which
Transferor shall give notice to Transferee) after the date of this Agreement,
Transferor will not, without the prior written consent of Transferee (which will
not be unreasonably withheld or delayed): (i) change customer rates other than
scheduled rate increases described in Schedule 7.2 A or 7.2 B, as appropriate,
for any tier of service or charges for remotes or installation, make channel
additions, channel substitutions, change the channel lineups or implement any
retiering or repackaging of cable television programming offered by the
Transferor's System, or change billing, collection, installation, disconnection,
marketing or promotional practices; (ii) sell, transfer, lease, assign or
otherwise dispose of any of the Assets (except for assets consumed in the
ordinary course of business or in conjunction with the acquisition of
replacement property of equivalent kind and value); (iii) create, assume or
permit to exist any Encumbrance on any Asset, except for Permitted Encumbrances;
(iv) amend or terminate or permit cancellation of any of the Governmental
Permits, Contracts or any other material contract or agreement (other than those
constituting Excluded Assets and other than in the ordinary course of business)
which affects or is related to the System; (v) enter into any contract or
commitment or incur any indebtedness or other liability or obligation of any
kind relating to the System which will be an Assumed Liability of Transferee
involving an expenditure in excess of $30,000; (vi) engage in any selling or
marketing campaigns or promotional activities not in the ordinary course of
business, consistent with past practice; (vii) take or omit to take any
commercially reasonable action that would cause Transferor to be in breach of
any of its representations or warranties in this Agreement; or (viii) other than
in the ordinary course of business and consistent with prior practice make any
material increase in compensation payable or to become payable to Transferor's
employees employed at the System or make any material change in personnel
policies.
7.2.3. Transferor shall not, without the prior written
consent of Transferee (which shall not be unreasonably withheld or delayed)
enter into any new contract or amendment or renewal of any existing contract
with any broadcaster concerning retransmission consents relating to the System.
7.3. Employee Benefit Matters.
7.3.1. As of the Closing Date, Transferee shall become the
employer of all of the Transferor's employees employed at the System, including
individuals on approved leave of absence or short-term (but not long-term)
disability leave (other than those management employees indicated with an
asterisk ("*") on Schedules 5.13 and 6.13, respectively). Transferee agrees that
it will provide Transferor with notice of which management employees of
Transferor's System marked with an asterisk Transferee intends to hire at least
45 days before the Closing Date.
34
<PAGE>
7.3.2. As of the Closing Date, Insight or Cox, as
applicable, in its capacity as Transferor shall terminate the employment of all
employees of Transferor engaged in the operations of the System. Insight or Cox,
as applicable, in its capacity as Transferor shall be responsible for and shall
cause to be discharged and satisfied in full all amounts owed to any of its
employees, including without limitation, any wages, salaries, sick pay, accrued
vacation in excess of the amount Transferee assumes pursuant to Section 7.3.4
below, payments under any employment, incentive, compensation or bonus
agreements, benefits under any Employee Plan or Compensation Arrangement or any
other payments on account of termination. Insight or Cox, as applicable, in its
capacity as Transferor shall retain full responsibility and liability for
"continuation coverage" to any "qualified beneficiary" who is covered by a
"group health plan" sponsored or contributed to by Transferor and who has
experienced a "qualifying event" or is receiving "continuation coverage" on or
prior to the Closing Date. "Continuation coverage," "qualified beneficiary,"
"qualifying event" and "group health plan" all shall have the meanings given
such terms under Section 4980B of the Code and Section 601 et seq. of ERISA.
7.3.3. Insight or Cox, as applicable, in its capacity as
Transferee shall offer health plan coverage, on terms and conditions determined
by Transferee, to all of the full-time employees of the System who become
employees of Transferee as of the Closing Date. For purposes of providing such
coverage, Insight or Cox, as applicable, in its capacity as Transferee shall
waive all preexisting condition limitations for all employees of the System,
which are covered by the Transferor's health care plan as of the Closing Date
(other than known preexisting conditions which were excluded by Transferor's
health care plan) and shall provide such health care coverage effective as of
the Closing Date without the application of any eligibility period for coverage.
In addition, Insight or Cox, as applicable, in its capacity as Transferee shall
credit all payments made by employees of Transferor toward deductible,
co-payment and out-of-pocket limits under Transferor's health care plans for the
plan year which includes the Closing Date as if such payments had been made for
similar purposes under Transferee's health care plans during the plan year which
includes the Closing Date, with respect to employees of the System employed by
Transferee as of the Closing Date.
7.3.4. For each employee of Transferor whom Transferee
hires on the Closing Date, Insight or Cox, as applicable, in its capacity as
Transferee shall (i) provide to such employee the same amount of paid vacation
as that employee had accrued but not taken as an employee of Transferor as of
the Closing Date; provided, that the amount of accrued vacation provided to such
employee by Transferee under this Section 7.3.4 shall be limited to the maximum
amount of vacation permitted to be accrued by employees of the Transferee in
accordance with Transferee's standard practices and to the extent Transferee
received a credit therefor pursuant to Section 3.2; (ii) permit such employee to
participate in Transferee's employee benefit plans to the same extent as
similarly situated employees of Transferee and their dependants; and (iii) give
such employee credit for his or her past service with Transferor as of the
Closing Date (including past service with any prior owner or operator of
Transferor's System to the extent data with respect to such past service credit
is provided to Transferee within a reasonably practicable period of time after
the Closing) for purposes of eligibility and vesting, but not for benefit
accrual purposes, under
35
<PAGE>
Transferee's Employee Plans and Compensation Arrangements in accordance with
Transferee's standard practices; provided, that no past service credits shall be
required with respect to the Transferee's post-retirement medical benefits. For
a period of 180 days after Closing, Transferee shall pay each employee of
Transferor hired by Transferee as of Closing, a salary equal to or greater than
the salary paid to each such employee by Transferor at the time of Closing.
7.3.5. If the parties mutually agree to an asset
transfer, Insight or Cox, as applicable, in its capacity as Transferor shall
cooperate with Transferee in arranging transfers from Transferor's 401(k) plan
to Transferee's 401(k) plan (including participant loans) with respect to those
employees of the System who become employed by Transferee following the Closing
in accordance with this Section 7.3.
7.3.6. If Insight or Cox, as applicable, in its capacity
as Transferee discharges without cause within 180 days of Closing any former
employees of Transferor hired by Transferee at Closing, and such employees would
have been entitled to severance payments pursuant to Transferor's severance
benefits plan if such employees had been discharged without cause by Transferor
in accordance with Section 7.3.2 and not been hired by Transferee as of Closing,
then Insight or Cox, as applicable, in its capacity as Transferee shall pay
severance benefits to such employees in accordance with Transferor's severance
benefit plan listed on Schedule 5.12 (Insight System) or Schedule 6.12 (Cox
System) to the extent such plan would have paid severance to any such employees
if they had not been hired by Transferee at Closing.
7.3.7. This Section 7.3 shall operate exclusively for
the benefit of Transferor and Transferee and not for the benefit of any other
person including, without limitation, any current, former or retired employee of
Transferor or Transferee.
7.4. Broker's Fees. Each party hereto represents and warrants
to the other that neither it nor any Person acting on its behalf has incurred
any liability for any finders' or brokers' fees or commissions in connection
with the transaction contemplated by this Agreement. Each party agrees to
indemnify and hold harmless the other against any fee, commission, loss or
expense arising out of any claim by any other broker or finder employed or
alleged to have been employed by it without regard to any Threshold Amount or
limitation of liability.
7.5. Required Consents and Estoppel Certificates.
7.5.1. Transferor will use its commercially reasonable
efforts to obtain, as soon as possible and at its expense, all the Required
Consents in connection with the transfer of Transferor's System to Transferee,
in form and substance reasonably satisfactory to Transferee; provided that
Transferor's commercially reasonable efforts shall not require Transferor to
make any payments to any person from whom such Required Consents are sought
(other than normal or customary application and filing fees, administrative
costs or professional fees and expenses related to obtaining such consents).
Transferee will cooperate with Transferor to obtain all Required Consents, but
Transferee will not be required to (i) make any payment to any Person from whom
36
<PAGE>
such Required Consent is sought, or (ii) accept any changes in, or the
imposition of any adverse condition to, any Contract or Governmental Permit as a
condition to obtaining any Required Consent other than changes to any Contract
or Governmental Permit that do not impose any monetary obligations (except for
increased Franchise fee payments to the maximum extent permitted by applicable
law) or material nonmonetary obligations upon Transferee or significantly expand
the rights of the other contracting party or the franchising authority from whom
such consent is sought. Transferee agrees that it will not, without the prior
written consent of Transferor (which may be withheld at Transferor's sole
discretion), seek amendments or modifications to existing Franchises or
Contracts. Transferee will, at Transferor's request, promptly furnish Transferor
with copies of such documents and information with respect to Transferee,
including financial information and information relating to the cable and other
operations of Transferee and any of its Affiliates or related companies, as
Transferor may reasonably request in connection with the obtaining of any
consents to the transactions contemplated by this Agreement or as may be
reasonably requested by any Person in connection with any consent or approval of
such Person to the transactions contemplated by this Agreement. Transferor also
will use its commercially reasonable efforts to obtain, at its expense, such
estoppel certificates or similar documents from lessors and other Persons who
are parties to Contracts as Transferee may reasonably request or which are
necessary to effect a transfer.
7.5.2. Notwithstanding the foregoing, Transferor will
have no further obligation to obtain Required Consents: (i) with respect to
license agreements relating to pole attachments where the licensing party will
not consent to an assignment of such license agreement but requires that
Transferee enter into a new agreement with such licensing authority, in which
case Transferee shall use its reasonable efforts to enter into such agreement
effective as of the Closing Date and Transferor will cooperate with and assist
Transferee in obtaining such agreements; provided however that Transferee's
commercially reasonable efforts shall not require Transferee to take any action
of the type that Transferor is not required to take pursuant to Subsection 7.5.1
hereof; and (ii) for any business radio license which Transferor reasonably
expects can be obtained within 120 days after the Closing and so long as a
temporary authorization is available to Transferee under FCC rules with respect
thereto.
7.5.3. The parties will each cooperate with the other to
assist in completing and will complete and file, or cause to be completed and
filed with the appropriate Governmental Authority, an FCC Form 394 with respect
to each System as to which such Form 394 is required.
7.5.4. Transferee shall take all commercially reasonable
action and execute and deliver all reasonably necessary documents to ensure that
on the Closing Date Transferee has delivered such bonds, letters of credit,
indemnity agreements and similar instruments in such amounts and in favor of
such franchisors or other persons requiring the same in connection with the
Franchises and Contracts being assumed by Transferee at Closing.
7.6. Title Commitments and Surveys. As soon as practicable,
but no later than 30 days after the date hereof, Transferee shall order at its
own expense (i) commitments for owner's (or
37
<PAGE>
lessee's, as appropriate) title insurance policies on such parcels of Real
Property as Transferee desires to insure, and (ii) an ALTA survey on such
parcels of Real Property as Transferee desires to obtain surveys. The title
commitment will evidence a commitment to issue an ALTA title insurance policy
from a national title insurer, insuring good, marketable and indefeasible fee
simple (or leasehold, if applicable) title to each such parcel of Real Property
for such amounts as Transferee directs and will contain no exceptions except for
Permitted Encumbrances and such other exceptions as Transferee deems acceptable.
Transferor shall cooperate with Transferee in obtaining such title commitments
and surveys.
7.7. Environmental Investigations.
7.7.1. As soon as practicable after the date of this
Agreement (but in no event more than 45 days after the date of this Agreement),
Transferee may retain a reputable, nationally- or regionally-known environmental
audit company, at its own expense, to conduct a Phase I environmental audit of
the Real Property (which shall include a limited asbestos survey) to be
transferred to Transferee at Closing, or on such parcels of the Real Property as
Transferee may determine. Transferor will comply with any reasonable request for
information made by Transferee or its agents in connection with any such
investigation and shall afford Transferee and its agents access to all areas of
the Real Property, at reasonable times and in a reasonable manner in connection
with any such investigation.
7.7.2. In the event that as a result of any of the
Phase I environmental investigations, Transferee's environmental expert
determines that further investigation is recommended or remedial action by
Transferor is required by law, Transferee shall promptly notify Transferor. If
Transferee's environmental expert determines as a result of such Phase I or
further investigation that remedial action is required by Transferor, Transferor
shall have the right to engage a nationally- or regionally-known reputable
environmental auditing company reasonably acceptable to Transferee to provide a
second opinion, in which case the parties agree to use an average of the two
estimates for purposes of clauses (i) and (ii) below. Subsequent to the
determination of the estimates of the remediation costs, the parties shall
proceed as follows: (i) Transferor shall cause such remedial action to be
performed in accordance with all applicable Environmental Laws, if the aggregate
cost thereof is $2,000,000 or less; and (ii) if the cost of such remedial action
exceeds $2,000,000 and Transferor does not elect to cause remedial action to be
performed in accordance with applicable Environmental Laws, Transferee may elect
either to terminate this Agreement, or to accept a transfer of the Assets
without such remedial action having been taken, subject to a $2,000,000
adjustment to the Cash Consideration paid at Closing. If Transferor remediates
or Transferee accepts the transfer of the Assets subject to an adjustment in
Cash Consideration pursuant to clause (ii), then Transferee shall not be
entitled to rely for any purpose on the representations and warranties of
Transferor to the extent they relate to the specific environmental problem
requiring remediation and the specific property subject to the remediation
requirement.
7.8. HSR Notification. As soon as practicable, but not later
than 20 days after the date of this Agreement, each party will complete and
file, or cause to be completed and filed, any
38
<PAGE>
notification and report required to be filed under the HSR Act with respect to
the transactions contemplated hereby. Each of the parties will cooperate to
prevent inconsistencies between their respective filings and will furnish to
each other such necessary information and reasonable assistance as the other may
reasonably request in connection with its preparation of necessary filings or
submissions under the HSR Act. The parties shall use commercially reasonable
efforts to respond as promptly as reasonably practicable to any inquiries
received from the Federal Trade Commission (the "FTC") and the Antitrust
Division of the Department of Justice (the "Antitrust Division") for additional
information or documentation and to respond as promptly as reasonably
practicable to all inquiries and requests received from any other Governmental
Authority in connection with antitrust matters. The parties shall use their
respective commercially reasonable efforts to overcome any objections which may
be raised by the FTC, the Antitrust Division or any other Governmental Authority
having jurisdiction over antitrust matters. Notwithstanding anything to the
contrary in this Agreement, if either party, in its reasonable business
judgment, considers the imposition of a condition upon the transactions by a
Governmental Authority to be materially adverse to such party, such party may
terminate this Agreement. Each Transferee will pay the filing fees payable by
such Transferee in connection with Transferee's filing under the HSR Act.
7.9. No Shop. None of Transferor, its Affiliates or any agent
or representative of any of them will, during the period commencing on the date
of this Agreement and ending with the earlier to occur of the Closing or the
termination of this Agreement, directly or indirectly (i) solicit or initiate
the submission of proposals or offers from any Person for, (ii) participate in
any discussions pertaining to or (iii) furnish any information to any Person
other than Transferee relating to, any direct or indirect acquisition or
purchase of all or any portion of the Assets, the System or a controlling
interest in the stock of Transferor.
7.10. Notification of Certain Matters. Transferor will
promptly notify Transferee of any fact, event, circumstance or action (i) which,
if known on the date of this Agreement, would have been required to be disclosed
to Transferee pursuant to this Agreement or (ii) the existence or occurrence of
which would cause any of Transferor's representations or warranties under this
Agreement not to be correct and complete.
7.11. Risk of Loss; Condemnation.
7.11.1. Transferor will bear the risk of any loss or
damage to the Assets resulting from fire, theft or other casualty (except
reasonable wear and tear) at all times prior to the Closing. If any such loss or
damage is so substantial as to (i) prevent normal operation of any material
portion of the System or the replacement or restoration of the lost or damaged
property within 20 days after the occurrence of the event resulting in such loss
or damage, or (ii) result in a Material Adverse Effect, Transferor will (a)
immediately notify Transferee of that fact and (b) either party may elect to
terminate this Agreement. If either party elects so to terminate this Agreement,
Transferee and Transferor will be discharged of any and all obligations
hereunder (other than any obligations arising from a breach by either party of
this Agreement). If both parties mutually elect to consummate the transactions
contemplated by this Agreement notwithstanding such loss or
39
<PAGE>
damage and do so, all insurance proceeds payable as a result of the occurrence
of the event resulting in such loss or damage will be delivered by Transferor to
Transferee, or the rights to such proceeds will be assigned by Transferor to
Transferee if not yet paid over to Transferor, and Transferor will pay to
Transferee an amount equal to the difference between the amount of such
insurance proceeds and the full replacement cost of the damaged or lost Assets
as reasonably agreed to by the parties.
7.11.2. If, prior to the Closing, all or any part of
or interest in the Assets is taken or condemned as a result of the exercise of
the power of eminent domain, or if a Governmental Authority having such power
informs Transferor or Transferee that it intends to condemn all or any part of
or interest in the Assets, and such taking is so substantial as to prevent
normal operation of any material portion of the System (such event being called,
in either case, a "Taking"), then either party may terminate this Agreement. If
both parties mutually elect to consummate the transactions contemplated by this
Agreement, notwithstanding such Taking, then (i) Transferee will have the sole
right, in the name of Transferor, if Transferee so elects, to negotiate for,
claim, contest and receive all damages with respect to the Taking, (ii)
Transferor will be relieved of its obligation to convey to Transferee the Assets
or interests that are the subject of the Taking, (iii) at the Closing,
Transferor will assign to Transferee all of Transferor's rights to all damages
payable with respect to such Taking and will pay to Transferee all damages
previously paid to Transferor with respect to the Taking and (iv) following the
Closing, Transferor will give Transferee such further assurances of such rights
and assignment with respect to the taking as Transferee may from time to time
reasonably request.
7.12. Transfer Taxes, Fees and Expenses. Transferor will be
responsible for the payment of any federal, state or local sales, income, use,
transfer, excise, documentary or license taxes or fees or any other charge
(including filing fees) imposed by any Governmental Authority with respect to
the transfer of Transferor's Assets to Transferee pursuant to this Agreement.
Except as otherwise provided in this Agreement, each party shall pay its own
expenses incurred in connection with the authorization, preparation, execution
and performance of this Agreement, including all fees and expenses of counsel,
accountants, agents and other representatives.
7.13. Noncompetition; Nonsolicitation.
7.13.1. Each of Cox and Insight, in its capacity as
Transferor, covenants and agrees that, unless Transferee shall otherwise give
its prior written consent, for a period of two years from the Closing Date
neither it nor any of its Affiliates shall own, manage, operate, control or
engage, directly or indirectly in the business of operating a multichannel
wireline video cable television system, multipoint distribution system,
multichannel multipoint distribution system, cable satellite master antenna
television system, or direct broadcast satellite system within the Transferor's
Service Area. Notwithstanding the foregoing, nothing herein shall be construed
to prohibit or restrict (A) Cox from participating in the management or
operations or acting as a distributor of Primestar Partners, L.P., its
successors and assigns, offering direct broadcast satellite service nationwide,
including within the Cox Service Area or (B) either party from owning a
company's securities listed on a national securities exchange or the National
Association of Securities Dealers Automated Quotations System, which constitutes
less than 5% of the outstanding voting stock of such company.
40
<PAGE>
7.13.2. Transferor covenants that from and after the
Closing Date and for a period of one year after the Closing Date it shall not
solicit or otherwise actively attempt to hire any of the employees of Transferee
employed at the Transferor's System as of the Closing Date; provided, however,
that nothing herein shall prohibit Transferor from general advertising for
personnel not specifically targeting any of such employees.
7.14. Cooperation; Satisfaction of Conditions. Each party
shall cooperate fully with the other and their respective counsel, accountants
and other business personnel in connection with any action required to be taken
as part of their respective obligations under this Agreement, and each party
shall execute such other documents as may be necessary and desirable to the
implementation and consummation of this Agreement, and otherwise use diligent
efforts to consummate the transaction contemplated hereby and to fulfill their
obligations hereunder. Except as otherwise expressly provided herein, each party
will use its commercially reasonable efforts to satisfy, or to cause to be
satisfied, the conditions to the obligations of the other party to consummate
the transactions contemplated by this Agreement, as set forth in Section 9,
provided that Transferee will not be required to agree to any increase in the
amount payable with respect to, or any modification that makes more burdensome
in any material respect, any of the Assumed Liabilities.
7.15. Confidentiality. Each party shall keep secret and hold
in confidence for a period of two years following the date hereof, any and all
information relating to the other party that is confidential to such other party
(it being understood and agreed that all proprietary information of Transferor
that is included among the Assets shall become the proprietary information of
Transferee upon Closing), other than the following: (i) information that has
become generally available to the public other than as a result of a disclosure
by such party; (ii) information already known to Transferee (without obligation
of confidentiality) prior to its disclosure by Transferor, (iii) information
that becomes available to such party or an agent of such party on a
nonconfidential basis from a third party not known to have an obligation of
confidentiality to a party to this Agreement; (iv) information that is required
to be disclosed by applicable law, regulation, judicial order or pursuant to any
listing agreement with, or the rules or regulations of, any securities exchange
on which securities of such party or any such affiliate are or may become listed
or traded; and (v) disclosures made by any party as shall be reasonably
necessary in connection with obtaining the Required Consents; provided, however,
in connection with disclosure of confidential information under (iv) and (v)
hereof, the disclosing party shall give the other party hereto timely prior
notice of the anticipated disclosure and the parties shall cooperate in
designing reasonable procedural and other safeguards to preserve, to the maximum
extent possible, the confidentiality of such material.
7.16. Publicity. No party hereto will issue any press release
or otherwise make any public statement with respect to this Agreement and the
transactions contemplated hereby without the prior consent of the other party
(which consent shall not be unreasonably withheld), except as may be required by
applicable Legal Requirements, in which event the party required to make the
release or announcement shall, if possible, allow the other party reasonable
time to comment on such release or announcement or obtain a protective order at
its own expense in advance of such issuance.
41
<PAGE>
7.17. Billing Services. At Closing, Transferor and Transferee
will execute and deliver to the other an Agreement to Provide Billing Services
in a form mutually agreeable to the parties. The Agreement to Provide Billing
Services will provide that Transferor or its agent will perform billing services
for Transferee with respect to the System received by Transferee for up to 180
days immediately following Closing and Transferee will pay Transferor a fee of
75(cents) per customer per month for such services.
7.18. Delivery of Financial Information. Transferor shall
deliver to Transferee within 30 days after the end of each month ending between
the date of this Agreement and the Closing Date a statement of income and
expense of the Transferor's System for the month previously ended and such other
financial information (including information on payables and receivables)
relating to the Transferor's System as Transferee may reasonably request. The
income statements delivered by Transferor to Transferee pursuant to this Section
shall be in accordance with the books and records of the Transferor's System and
shall present fairly in all material respects the results of operations of the
Transferor's System for the year-to-date periods then ended. Promptly after the
preparation thereof, Transferor shall deliver to Transferee copies of any other
information relating to the Transferor's System regularly prepared by Transferor
for its internal use as Transferee may reasonably request; provided that
Transferor shall not be required to make and shall not be deemed to make any
representation or warranty concerning any such information delivered to
Transferee (other than the information furnished to Transferee is a true and
complete copy of the information prepared by Transferor for its internal use).
7.19. Franchise Renewals. Transferor shall timely file all
requests for renewal under Section 626(a) of the Cable Act with the proper
Governmental Authority with respect to each Franchise expiring within 30 months
after the Closing, provided that Transferor shall consult with Transferee prior
to the filing of any such renewal requests. Transferor shall use commercially
reasonable efforts to pursue all requests for renewal in consultation with
Transferee.
7.20. Use of Transferor's Name. For a period of 90 days after
the Closing Date, Transferee may continue (but only to the extent reasonably
necessary) to operate the System using Transferor's name and all derivations and
abbreviations of such name and related trade names and marks in use in the
System on the Closing Date, such use to be in a manner consistent with the way
in which Transferor has used the marks. Within 90 days after the Closing Date,
Transferee will discontinue using and will dispose of all items of stationery,
business cards and literature bearing such names or marks. Notwithstanding the
foregoing, Transferee will not be required to remove or discontinue using any
such name or mark that is affixed to converters or other items in or to be used
in customer homes or properties, or as are used in similar fashion making such
removal or discontinuation impracticable for Transferee. Transferor will be
entitled to indemnification (as provided in Section 12.3) with respect to
Transferee's misuse of such names and marks.
42
<PAGE>
8. Closing.
The Closing of the transactions contemplated by this Agreement
will be held on a date acceptable to the parties that is within 30 days after
all conditions to the Closing contained in this Agreement (other than those
based on acts to be performed at the Closing) have been satisfied or waived. The
Closing will be held at 10:00 a.m. local time at the offices of Cooperman Levitt
Winikoff Lester & Newman, P.C., 800 Third Avenue, New York, New York 10022, or
will be conducted by mail or at such place and time as the parties may agree.
Notwithstanding the foregoing, the parties agree that the Closing shall be
deemed effective as of 12:01 a.m. on the day on which the Closing deliveries are
consummated, and all references herein that relate to the date and time of
Closing, including provisions dealing with adjustments to the Cash
Consideration, shall refer to such effective date and time.
9. Conditions to Closing.
9.1. Conditions to the Obligations of Transferee and
Transferor. The obligations of each party to consummate the transactions
contemplated by this Agreement to take place at the Closing are subject to the
satisfaction or waiver, to the extent permitted by applicable Legal
Requirements, at or prior to the Closing Date of each of the following
conditions:
9.1.1. All filings under the HSR Act have been made
and the applicable waiting period has expired or been earlier terminated without
the receipt of any objection or the commencement of any threat of litigation by
any Governmental Authority of competent jurisdiction to restrain the
consummation of the transactions contemplated by this Agreement.
9.1.2. No action, suit or proceeding is pending or
threatened by or before any Governmental Authority to enjoin, restrain, prohibit
or obtain substantial damages in respect of any of the transactions contemplated
by this Agreement, or which would (i) prohibit Transferee's ownership or
operation of all or a material portion of the business or operations of the
Transferor's System or the Transferor's Assets, (ii) compel Transferee to
dispose of or hold separate all or a material portion of the System, the
business or operations of the Transferor's System or the Transferor's Assets as
a result of any of the transactions contemplated by this Agreement or (iii)
otherwise prevent or make illegal the consummation of any transactions
contemplated by this Agreement.
9.2. Conditions to the Obligations of Cox. The obligations of
Cox to consummate the transactions contemplated by this Agreement to take place
at the Closing are subject to the satisfaction or waiver (by Cox), to the extent
permitted by applicable Legal Requirements, at or prior to the Closing Date, of
each of the following conditions:
9.2.1. All representations and warranties of Insight
contained in this Agreement are true and correct on and as of the Closing Date
with the same effect as if made on and as of the Closing Date except (i) for
changes permitted or contemplated by this Agreement, (ii)
43
<PAGE>
where such changes or breaches would not individually or in the aggregate have a
Material Adverse Effect on the Insight System or (iii) where such changes or
breaches would not, individually or in the aggregate, materially adversely
affect Insight's ability to perform its obligations hereunder.
9.2.2. Insight in all material respects has performed
and complied with each obligation, agreement, covenant and condition required by
this Agreement to be performed or complied with by Insight at or prior to the
Closing.
9.2.3. Between the date of this Agreement and the
Closing Date, there shall have been no changes, events or conditions to or
affecting the Insight System which have had a Material Adverse Effect.
9.2.4. Insight has executed (or caused to be
executed) and delivered to Cox each of the following items:
(i) duly executed warranty bills of sale,
motor vehicle titles, assignments and
other transfer documents which shall be
sufficient to vest good title to the
Insight Assets in the name of Cox or
its permitted assignees, free and clear
of any Encumbrances other than
Permitted Encumbrances;
(ii) a limited or special warranty deed in a
form reasonably acceptable to Cox (and
complying with applicable state laws
and customary practice) with respect to
each parcel of owned Insight Real
Property, duly executed and
acknowledged and in recordable form,
warranting good and marketable fee
simple title to such Insight Real
Property against all persons claiming
by, through or under Insight, subject
only to Permitted Encumbrances, and in
form sufficient to permit the title
company to issue the title policy
described in Section 7.6 to Cox with
respect to such Insight Real Property
together with any title affidavit
reasonably required by the title
insurer provided any such title
affidavit shall not expand the
aforesaid limited or special warranty
of Insight;
(iii) an affidavit of Insight, under penalty
of perjury, that Insight is not a
"foreign person" (as defined in the
Foreign Investment in Real Property Tax
Act and applicable regulations) and
that Cox is not required to withhold
any portion of the consideration
payable under this Agreement under the
provisions of such Act; and
44
<PAGE>
(iv) such other transfer instruments as Cox
may deem necessary or advisable to
transfer the Insight Assets to Cox and
to perfect Cox's rights in the Insight
Assets.
9.2.5. Subject to Article 10 below, Insight has
delivered to Cox evidence, in form and substance satisfactory to Cox as
described in Section 7.5.1, that all of the Required Consents noted with an
asterisk (*) on Schedule 5.3, have been obtained or given and are in full force
and effect.
9.2.6. The Insight System shall have no less than
30,813 Basic Equivalent Customers and the Insight System shall have annualized
aggregate operating cash flows for the three calendar months ending immediately
prior to the month in which the Closing Date occurs of no less than $7,300,000.
For purposes of this Section 9.2.6, "operating cash flows" means the operating
cash flows as are commonly presented in the Insight System's monthly financial
statements, plus an amount equal to the allocated corporate overhead for the
same period as presented in such monthly financial statements.
9.2.7. Cox shall have received the opinion of
Cooperman Levitt Winikoff Lester & Newman, P.C., counsel for Insight, and of
Fleischman & Walsh, FCC counsel for Insight, dated the Closing Date, in the
forms set forth in Exhibit F and Exhibit G, respectively.
9.2.8. Insight has delivered releases, in form
satisfactory to Cox, of all Encumbrances affecting any of the Insight Assets
other than Permitted Encumbrances.
9.2.9. Cox has received the title insurance
commitments, if any, described in Section 7.6.
9.2.10. Insight has delivered to Cox the following:
(i) a certificate, dated the Closing Date, signed by an officer of Insight,
without personal liability, stating that to his or her knowledge, the conditions
set forth in Sections 9.2.1, 9.2.2 and 9.2.3 are satisfied.
9.2.11. Insight has delivered to Cox a certificate,
dated as of the Closing Date, executed by the Secretary of Insight, without
personal liability: (i) certifying that the resolutions, as attached to such
certificate, were duly adopted by Insight in accordance with Insight's
partnership agreement, authorizing and approving the execution of this Agreement
and the consummation of the transaction contemplated hereby and that such
resolutions remain in full force and effect; and (ii) certifying as to the
incumbency of each signatory to this Agreement and any ancillary agreements
executed by Insight.
9.3. Conditions to the Obligations of Insight. The obligations
of Insight to consummate the transactions contemplated by this Agreement to take
place at the Closing are subject to the satisfaction or waiver (by Insight), to
the extent permitted by applicable Legal Requirements, at or prior to the
Closing Date, of each of the following conditions:
45
<PAGE>
9.3.1. All representations and warranties of Cox
contained in this Agreement are true and correct on and as of the Closing Date
with the same effect as if made on and as of the Closing Date except (i) for
changes permitted or contemplated by this Agreement, (ii) where such changes or
breaches would not individually or in the aggregate have a Material Adverse
Effect on the Cox System or (iii) where such changes or breaches would not,
individually or in the aggregate, materially adversely affect Cox's ability to
perform its obligations hereunder.
9.3.2. Cox in all material respects has performed and
complied with each obligation, agreement, covenant and condition required by
this Agreement to be performed or complied with by Cox at or prior to the
Closing.
9.3.3. Between the date of this Agreement and the
Closing Date, there shall have been no changes, events or conditions to or
affecting the Cox System which have had a Material Adverse Effect.
9.3.4. Cox has executed (or caused to be executed)
and delivered to Insight each of the following items:
(i) duly executed warranty bills of sale,
motor vehicle titles, assignments and
other transfer documents which shall
be sufficient to vest good title to
the Cox Assets in the name of Insight
or its permitted assignees, free and
clear of any Encumbrances other than
Permitted Encumbrances;
(ii) a limited or special warranty deed in
a form reasonably acceptable to
Insight (and complying with applicable
state laws and customary practice)
with respect to each parcel of owned
Cox Real Property, duly executed and
acknowledged and in recordable form,
warranting good and marketable fee
simple title to such Cox Real Property
against all persons claiming by,
through or under Cox, subject only to
Permitted Encumbrances, and in form
sufficient to permit the title company
to issue the title policy described in
Section 7.6 to Insight with respect to
such Cox Real Property together with
any title affidavit reasonably
required by the title insurer provided
any such title affidavit shall not
expand the aforesaid limited or
special warranty of Cox;
(iii) an affidavit of Cox, under penalty of
perjury, that Cox is not a "foreign
person" (as defined in the Foreign
Investment in Real Property Tax Act
and applicable regulations) and that
Insight is not required to withhold
any portion of the
46
<PAGE>
consideration payable under this
Agreement under the provisions of such
Act; and
(iv) such other transfer instruments as
Insight may deem necessary or
advisable to transfer the Cox Assets
to Insight and to perfect Insight's
rights in the Cox Assets.
9.3.5. Subject to Article 10 below, Cox has delivered
to Insight evidence, in form and substance satisfactory to Insight as described
in Section 7.5.1, that all of the Required Consents noted with an asterisk (*)
on Schedule 6.3 have been obtained or given and are in full force and effect.
9.3.6. The Cox System shall have no less than 32,555
Basic Equivalent Customers and the Cox System shall have annualized aggregate
operating cash flows for the three calendar months ending immediately prior to
the month in which the Closing Date occurs of no less than $7,400,000. For
purposes of this Section 9.3.6, "operating cash flows" means the operating cash
flows as are commonly presented in the Cox System's monthly financial
statements, plus an amount equal to the allocated corporate overhead for the
same period as presented in such monthly financial statements.
9.3.7. Cox shall have paid the Cash Consideration
required to be paid at the Closing, as adjusted in accordance with this
Agreement.
9.3.8. Insight shall have received the opinion of
Dow, Lohnes & Albertson, counsel for Cox, dated the Closing Date, in the forms
set forth in Exhibit H and Exhibit I.
9.3.9. Cox has delivered releases, in form
satisfactory to Insight, of all Encumbrances affecting any of the Cox Assets
other than Permitted Encumbrances.
9.3.10. Insight has received the title insurance
commitments, if any, described in Section 7.6.
9.3.11. Cox has delivered to Insight the following:
(i) a certificate, dated the Closing Date, signed by an officer of Cox, without
personal liability, stating that to his or her knowledge, the conditions set
forth in Sections 9.3.1, 9.3.2 and 9.3.3 are satisfied.
9.3.12. Cox has delivered to Insight a certificate,
dated as of the Closing Date, executed by the Secretary of Cox, without personal
liability: (i) certifying that the resolutions, as attached to such certificate,
were duly adopted by Cox's Board of Directors, authorizing and approving the
execution of this Agreement and the consummation of the transaction contemplated
hereby and that such resolutions remain in full force and effect; and (ii)
certifying as to the incumbency of each signatory to this Agreement and any
ancillary agreements executed by Cox.
47
<PAGE>
9.4. Waiver of Conditions. Any party may waive in writing any
or all of the conditions to its obligations under this Agreement.
10. Franchise Consents. In order to avoid the situation where the
entire like-kind exchange of assets contemplated by this Agreement is delayed
pending the receipt of a small number of Franchise Required Consents, the
parties agree that at such time as (i) the aggregate number of Basic Equivalent
Customers covered by Insight Franchises that either do not require consent or as
to which Required Consents have been obtained shall equal 90% of the aggregate
number of Basic Equivalent Customers for the Insight System indicated in Section
3.2.7 (i.e., 90% of 36,250 or 32,625); (ii) the aggregate number of Basic
Equivalent Customers covered by Cox Franchises that either do not require
consent or as to which Required Consents have been obtained shall equal 90% of
the aggregate number of Basic Equivalent Customers for the Cox System indicated
in Section 3.2.6 (i.e., 90% of 38,300 or 34,470); and (iii) all conditions
precedent to Closing contained in Article 9 (other than the conditions contained
in Sections 9.2.5 and 9.3.5 as they relate to Franchise Required Consents) above
have been satisfied or waived, the parties shall discuss in good faith the
alternatives available to them, including the possibility of a partial or
bifurcated consummation of the transaction contemplated herein.
11. Termination.
11.1. Events of Termination. This Agreement may be terminated
and the transactions contemplated by this Agreement may be abandoned at any time
prior to the Closing:
11.1.1. by the mutual written consent of the parties;
11.1.2. by any party, if the transactions contemplated
by this Agreement to take place at the Closing have not been consummated by May
31, 1998 for any reason other than (i) a material breach or material default by
such party in the performance of any of its obligations under this Agreement, or
(ii) the failure of any representation or warranty of such party to be accurate
resulting in a Material Adverse Effect;
11.1.3. by Transferee under the conditions described in
Section 7.7.2; or
11.1.4. by Transferor or Transferee under the conditions
described in Section 7.11.
11.2. Liabilities in Event of Termination. The termination of
this Agreement will in no way limit any obligation or liability of any party
based on or arising from a breach or default by such party with respect to any
of its representations, warranties, covenants or agreements contained in this
Agreement, except that Transferee will have no liability in any event upon
exercise of its right to terminate pursuant to Section 11.1.3 or 11.1.4. The
parties recognize that in the event a party hereto should refuse to perform
under the provisions of this Agreement, monetary damages
48
<PAGE>
alone will not be adequate. The nonbreaching party shall therefore be entitled,
in addition to any other remedies which may be available, including money
damages, to obtain specific performance of the terms of this Agreement. In the
event of any action to enforce this Agreement, the breaching party hereby waives
the defense that there is an adequate remedy at law. In the event of a breach or
default which results in the filing of a lawsuit for damages, specific
performance or other remedy, the nonbreaching party shall be entitled to
reimbursement by the breaching party of reasonable legal fees and expenses
actually incurred by the nonbreaching party.
11.3. Procedure Upon Termination. In the event of the
termination of this Agreement by Transferee or Transferor pursuant to this
Section 11, notice of such termination will promptly be given by the terminating
party to the other.
12. Survival; Indemnification.
12.1. Survival of Representations and Warranties. All
representations, warranties, covenants and agreements contained in this
Agreement or in documents or instruments delivered pursuant hereto shall be
deemed continuing representations, warranties, covenants and agreements, and
shall survive the Closing Date for a period ending on the first anniversary of
the Closing Date (the "Survival Period") unless a longer period of survival is
otherwise provided for in this Agreement; provided, however, that the
representations and warranties regarding taxes, third-party claims and
environmental matters contained in Sections 5.14, 5.15, 5.16, 6.14, 6.15 and
6.16 shall survive until 60 days after the expiration of all applicable statutes
of limitation and the representations and warranties regarding title to the
Assets, contained in Sections 5.5, 5.6, 5.9, 6.5, 6.6 and 6.9, shall survive
indefinitely. The written assertion of any claim by Transferor or Transferee
against the other hereunder with respect to the breach or alleged breach of any
representation, warranty, covenant or agreement shall extend the period during
which such representation, warranty, covenant or agreement survives through the
date such claim is conclusively resolved.
12.2. Indemnification by Transferor. Transferor will
indemnify, defend and hold harmless Transferee and its shareholders and its and
their respective Affiliates, and the shareholders, partners, directors,
officers, employees, agents, successors and assigns of any of such Persons, from
and against:
12.2.1. all losses, damages, liabilities, deficiencies
or obligations of or to Transferee or any such other indemnified Person
resulting from or arising out of (i) any breach of any representation or
warranty made by Transferor in this Agreement, (ii) any breach of any covenant,
agreement or obligation of Transferor contained in this Agreement, (iii) other
than Assumed Liabilities, any act or omission of Transferor with respect to, or
any event or circumstance related to, the ownership or operation of the Assets
or the conduct of the business or operations of the System, which act, omission,
event or circumstance occurred or existed prior to the Closing Date, without
regard to whether a claim with respect to such matter is asserted before or
after the Closing Date, including any matter described on Schedule 5.15
(Insight) or Schedule 6.15 (Cox), (iv) any
49
<PAGE>
claimed violation of any bulk transfer or fraudulent conveyance laws of any
jurisdiction arising out of the transactions contemplated by this Agreement, or
(v) any of Transferor's Employee Plans or Compensation Arrangements; and
12.2.2. all claims, actions, suits, proceedings,
demands, judgments, assessments, fines, refunds, interest, penalties, costs and
expenses (including, without limitation, settlement costs and reasonable legal,
accounting, experts' and other fees, costs and expenses) incident or relating to
or resulting from any of the foregoing.
In the event that an indemnified item arises under both (A) clause (i) or (ii)
and (B) under one or more of clauses (iii) through (v) of Section 12.2.1,
Transferee's rights to pursue its claim under clauses (iii) through (v), as
applicable, will exist notwithstanding the expiration of the Survival Period
applicable to such claim under clause (i) and/or (ii).
12.3. Indemnification by Transferee. Transferee will
indemnify, defend and hold harmless Transferor and its and their respective
Affiliates, and the shareholders, partners, directors, officers, employees,
agents, successors and assigns of any such Persons, from and against:
12.3.1. all losses, damages, liabilities,
deficiencies or obligations of or to Transferor or any such other indemnified
Person resulting from or arising out of (i) any breach of any covenant,
agreement or obligation of Transferee contained in this Agreement or (ii) the
failure by Transferee to perform any of its obligations in respect of the
Assumed Liabilities after Closing; and
12.3.2. all claims, actions, suits, proceedings,
demands, judgments, assessments, fines, interest, penalties, costs and expenses
(including, without limitation, settlement costs and reasonable legal,
accounting, experts' and other fees, costs and expenses) incident or relating to
or resulting from any of the foregoing.
In the event that an indemnified item arises under both clause (i) and under
clause (ii) of Section 12.3.1, Transferor's rights to pursue its claim under
clause (ii) will exist notwithstanding the expiration of the Survival Period
applicable to such claim under clause (i).
12.4. Procedure for Indemnification. The procedure for
indemnification shall be as follows:
12.4.1. The party claiming indemnification (the
"Claimant") shall promptly give notice to the party from whom indemnification is
claimed (the "Indemnifying Party") of any claim, whether between the parties or
brought by a third party, specifying (i) the factual basis for such claim and
(ii) the amount of the claim. If the claim relates to an action, suit or
proceeding filed by a third party against Claimant, such notice shall be given
by Claimant within ten days after written notice of such action, suit or
proceeding was given to Claimant; provided, however, that failure of the
Claimant to give the Indemnifying Party notice as provided herein shall not
relieve the
50
<PAGE>
Indemnifying Party of its obligations hereunder, except to the extent that such
failure to give notice shall prejudice any defense or claim available to the
Indemnifying Party.
12.4.2. Following receipt of notice from the Claimant
of a claim, the Indemnifying Party shall have 30 days to make such investigation
of the claim as the Indemnifying Party deems necessary or desirable. For the
purposes of such investigation, the Claimant agrees to make available to the
Indemnifying Party and/or its authorized representative(s) the information
relied upon by the Claimant to substantiate the claim. If the Claimant and the
Indemnifying Party agree at or prior to the expiration of said 30-day period (or
any mutually agreed upon extension thereof) to the validity and amount of such
claim, the Indemnifying Party shall immediately pay to the Claimant the full
amount of the claim subject to the terms and in accordance with the procedures
set forth herein. If the Claimant and the Indemnifying Party do not agree within
said period (or any mutually agreed upon extension thereof), the Claimant may
seek appropriate legal remedy.
12.4.3. With respect to any claim by a third party as
to which the Claimant is entitled to indemnification hereunder, the Indemnifying
Party shall have the right at its own expense, to participate in or assume
control of the defense of such claim, and the Claimant shall cooperate fully
with the Indemnifying Party. If the Indemnifying Party elects to assume control
of the defense of any third-party claim, the Claimant shall have the right to
participate in the defense of such claim at its own expense. If the Indemnifying
Party does not elect to assume control or otherwise participate in the defense
of any third party claim, it shall be bound by the results obtained by the
Claimant with respect to such claim.
12.4.4. If a claim, whether between the parties or by
a third party, requires immediate action, the parties will make every effort to
reach a decision with respect thereto as expeditiously as possible.
12.4.5. The Indemnifying Party shall be entitled to
settle a claim without the consent of the Claimant if Claimant is
unconditionally released and the remedy is payment of funds only.
12.5. Limitations on Liability.
12.5.1. Except as provided in the following sentence,
neither party shall be required to indemnify the other under this Article 12
with respect to claims arising from a breach of representation, warranty,
covenant or agreement until the aggregate amount of all such claims exceeds
$200,000 (the "Threshold Amount"), and if such claims exceed the Threshold
Amount, the party shall be entitled to recover all of its losses, including,
without limitation, the amount of the Threshold Amount. In the event Claimant is
entitled to indemnification from the Indemnifying Party because Claimant's
claims exceed the Threshold Amount, the parties agree to net the amount of any
claims for which the Indemnifying Party may be entitled to be indemnified by
Claimant even if the amount of such claims is less than the Threshold Amount;
provided, however, that such net settlement of indemnifiable claims shall not
prejudice or be construed to limit additional and
51
<PAGE>
subsequent indemnification claims by either party and the limitation of the
Threshold Amount shall not be applied to or have any further effect with respect
to any such additional and subsequent indemnification claims. (For example, if
Party A has indemnity claims totalling $250,000 against Party B and at the time
Party A seeks to recover such amount from Party B, Party B has a total of
$150,000 in indemnity claims against Party A, the two amounts shall be offset
and such claims would be satisfied by the payment of $100,000 from Party B to
Party A.) Except as specified in the following sentence, for purposes of this
Article 12 only, in determining whether or not any misrepresentation or breach
of warranty exists, any materiality qualifications (e.g., "material,"
"materially" or "in all material respects") contained in the representations and
warranties shall be disregarded. Notwithstanding the preceding sentence, the
materiality qualifications contained in the following representations and
warranties shall be considered for all purposes, including this Article 12, and
not disregarded: Sections 5.5 (first sentence), 5.6 (fifth sentence), 5.9 (first
sentence), 5.18.1, 5.18.3, 6.5 (first sentence), 6.6 (fifth sentence), 6.9
(first sentence), 6.18.1 and 6.18.3.
12.5.2. A party's liability under this Article 12
shall be limited to losses or damages not exceeding in the aggregate
$10,000,000.
12.5.3. In the absence of fraud, the sole and
exclusive remedy of any party for any misrepresentation or any breach of a
warranty or covenant set forth in or made pursuant to this Agreement shall be a
claim for indemnification under and pursuant to this Article 12.
12.5.4. Notwithstanding the foregoing, the
limitations contained in this Section 12.5 shall not apply to indemnification
claims brought by Transferee relating to liabilities of Transferor (including,
without limitation, rate refund liability) that are not Assumed Liabilities.
13. Miscellaneous.
13.1. Parties Obligated and Benefitted. Subject to the
limitations set forth below, this Agreement will be binding upon the parties and
their respective assigns and successors in interest and will inure solely to the
benefit of the parties and their respective assigns and successors in interest,
and no other Person will be entitled to any of the benefits conferred by this
Agreement. Without the prior written consent of the other party, neither party
will assign any of its rights under this Agreement or delegate any of its duties
under this Agreement except either party, without prior written consent of the
other party, may assign its rights under this Agreement to a Qualified
Intermediary (as defined in Treas. Reg. Section 1.1031(k)-1(g)).
13.2. Notices. All notices, demands and requests required or
permitted to be given under the provisions of this Agreement shall be (i) in
writing; (ii) delivered by personal delivery, facsimile transmission (to be
followed promptly by written confirmation mailed by certified mail as provided
below) or sent by commercial delivery service or certified mail, return receipt
requested; (iii) deemed to have been given on the date of personal delivery, the
date of transmission and receipt of facsimile transmissions, or the date set
forth in the records of the delivery service or on the return receipt; and (iv)
addressed as follows:
52
<PAGE>
If to Insight:
Insight Communications Company, L.P
126 East 56th Street
New York, New York 10022
Attn: Michael S. Willner
Fax: (212) 371-1549
With a copy to:
Robert L. Winikoff, Esq.
Cooperman Levitt Winikoff Lester & Newman, P.C.
800 Third Avenue
New York, New York 10022
Fax: (212) 755-2839
If to Cox:
CoxCom, Inc.
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attn: Mr. John M. Dyer
Fax: (404) 847-6336
With a copy to:
Thomas J. Peters IV, Esq.
Dow, Lohnes & Albertson, PLLC
One Ravinia Drive, Suite 1600
Atlanta, Georgia 30346
Fax: (770) 901-8874
or to any such other persons or addresses as the parties may from time to time
designate in writing delivered in accordance with this Section 13.2.
13.3. Right to Specific Performance. Transferor acknowledges
that the subject matter of this Agreement is unique, and in the case of any
breach of the terms, covenants or conditions to this Agreement by Transferor,
Transferee will have, in addition to all other remedies available at law or
equity, the right to a decree of specific performance of this Agreement upon
proper action instituted by Transferee.
53
<PAGE>
13.4. Waiver. This Agreement or any of its provisions may not
be waived except in writing. The failure of any party to enforce any right
arising under this Agreement on one or more occasions will not operate as a
waiver of that or any other right on that or any other occasion.
13.5. Captions. The article and section captions of this
Agreement are for convenience only and do not constitute a part of this
Agreement.
13.6. Choice of Law. This agreement and the rights of the
parties under it will be governed by and construed in all respects in accordance
with the laws of the State of Delaware without regard to the conflicts of law
principles of such State.
13.7. Terms. Terms used with initial capital letters will have
the meanings specified, applicable to both singular and plural forms, for all
purposes of this Agreement. The word "include" and derivatives of that word are
used in this Agreement in an illustrative sense rather than limiting sense.
13.8. Rights Cumulative. All rights and remedies of each of
the parties under this Agreement will be cumulative, and the exercise of one or
more rights or remedies will not preclude the exercise of any other right or
remedy available under this Agreement or applicable law.
13.9. Further Actions. Transferor and Transferee will execute
and deliver to the other, from time to time at or after the Closing, for no
additional consideration and at no additional cost to the requesting party, such
further assignments, certificates, instruments, records, or other documents,
assurances or things as may be reasonably necessary to give full effect to this
Agreement and to allow each party fully to enjoy and exercise the rights
accorded and acquired by it under this Agreement.
13.10. Time of the Essence. Time is of the essence under this
Agreement. If the last day permitted for the giving of any notice or the
performance of any act required or permitted under this Agreement falls on a day
that is not a Business Day, the time for the giving of such notice or the
performance of such act will be extended to the next succeeding Business Day.
13.11. Late Payments. If either party fails to pay the other
any amounts when due under this Agreement, the amounts due will bear interest
from the due date to the date of payment at the annual rate publicly announced
from time to time by Bank of New York as its prime rate (the "Prime Rate") plus
3%, adjusted as and when changes in the Prime Rate are made.
13.12. Counterparts. This Agreement may be executed in one or
more counterparts, each of which will be deemed an original.
13.13. Entire Agreement. This Agreement (including the
Schedules and Exhibits referred to in this Agreement, which are incorporated in
and constitute a part of this Agreement) contain the entire agreement of the
parties and supersede all prior oral or written agreements and
54
<PAGE>
understanding with respect to the subject matter. This Agreement may not be
amended or modified except in writing signed by the parties.
13.14. Severability. Any term or provision of this Agreement
which is invalid or unenforceable will be ineffective to the extent of such
invalidity or unenforceability without rendering invalid or unenforceable the
remaining rights of the Person intended to be benefited by such provision or any
other provisions of this Agreement; provided however that the economic and legal
substance of the transactions contemplated by this Agreement is not affected in
any manner that is materially adverse to any party affected by such invalidity
or unenforceability.
13.15. Construction. This Agreement has been negotiated by
Transferee and Transferor and their respective legal counsel, and legal or
equitable principles that might require the construction of this Agreement or
any provision of this Agreement against the party drafting this Agreement will
not apply in any construction or interpretation of this Agreement.
The parties have executed this Agreement as of the day and year first
above written
INSIGHT COMMUNICATIONS COMPANY, L.P.
By: ICC ASSOCIATES, L.P., its general partner
By: INSIGHT COMMUNICATIONS, INC.,
its general partner
By: /s/ Kim D. Kelly
-------------------------------
Name: Kim D. Kelly
Title: EVP/CFO
COXCOM, INC.
By: /s/ John M. Dyer
-----------------------------------
Name: John M. Dyer
Title: Vice President
55
<PAGE>
ASSET PURCHASE AGREEMENT
AS OF AUGUST 12, 1997
BY AND BETWEEN
A-R CABLE SERVICES, INC.
AND
INSIGHT COMMUNICATIONS COMPANY, L.P.
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions ................................................. 1
1.01 Certain Definitions ............................. 1
1.02 Other Definitional Provisions ................... 9
2. Purchase and Sale ........................................... 9
2.01 Transfer of Assets .............................. 9
2.02 Purchase Price .................................. 9
2.03 Estimated Working Capital Statement ............. 9
2.04 Post Closing Adjustment ......................... 10
2.05 Assumptions of Liabilities ...................... 12
2.06 Earnest Money Deposit ........................... 12
2.07 Sales and Transfer Taxes ........................ 12
2.08 Indemnity Escrow ................................ 12
2.09 Allocation of Purchase Price .................... 12
3. Representations and Warranties of Seller .................... 12
3.01 Organization and Authority of Seller ............ 12
3.02 Legal Capacity; Approvals and Consents .......... 13
3.03 Financial Statements ............................ 14
3.04 Changes in Operation ............................ 14
3.05 Tax Returns ..................................... 14
3.06 Acquired Assets ................................. 15
3.07 The CATV Business ............................... 16
3.08 Labor Contracts and Actions ..................... 19
3.09 Employee Benefit Plans .......................... 19
3.10 Contracts ....................................... 20
3.11 Legal and Governmental Proceedings and
Judgments ....................................... 21
3.12 Finders and Brokers ............................. 21
3.13 Equipment ....................................... 21
3.14 Insurance ....................................... 21
3.15 Accounts Receivable ............................. 21
3.16 No Undisclosed Liabilities ...................... 22
3.17 Liabilities to Subscribers ...................... 22
3.18 Overbuilds ...................................... 22
3.19 Characteristics of CATV Business ................ 22
4. Representations and Warranties of Buyer ..................... 22
4.01 Organization and Authority of Buyer ............. 22
4.02 Legal Capacity: Approvals and Consents .......... 23
4.03 Legal and Governmental Proceedings and
Judgments ....................................... 23
4.04 Finders and Brokers ............................. 23
4.05 Buyer Consents .................................. 23
4.06 Acquisition of Rights ........................... 24
i
<PAGE>
5. Covenants Pending Closing ................................... 24
5.01 Business of Seller .............................. 24
5.02 Access to Information ........................... 25
5.03 Applications for Assignment of Contracts or CATV
Instruments ..................................... 26
5.04 Notification of Certain matters ................. 26
5.05 Risk of Loss; Condemnation ...................... 26
5.06 No Solicitation ................................. 27
5.07 Form 394 ........................................ 28
5.08 Title Matters ................................... 28
5.09 Phase I Study ................................... 28
5.10 monthly Financial Statements .................... 29
6. Deliveries at Closing ....................................... 29
6.01 Deliveries by Seller ............................ 29
6.02 Deliveries by Buyer ............................. 30
7. Conditions to the Obligations of Buyer ...................... 30
7.01 Receipt of Consents ............................. 31
7.02 Seller's Authority .............................. 31
7.03 Absence of Proceedings .......................... 31
7.04 Performance by Seller ........................... 31
7.05 Absence of Breach of Warranties and
Representations ................................. 31
7.06 Minimum Amount of Subscribers ................... 31
8. Conditions to the Obligations of Seller ..................... 31
8.01 Receipt of Consents ............................. 31
8.02 Buyer's Authority ............................... 32
8.03 Performance by Buyer ............................ 32
8.04 Absence of Breach of Warranties ............... 32
8.05 Absence of Proceedings .......................... 32
9. Covenants ................................................... 32
9.01 Compliance with Conditions ...................... 32
9.02 Compliance with HSR Act and Rules ............... 32
9.03 Records, Taxes and Related Matters .............. 33
9.04 Non-Assignment .................................. 34
9.05 Retained Franchises ............................. 34
9.06 Covenant Not to Compete ......................... 35
10. Survival of Representations, Warranties,
Covenants and Other Agreements; Indemnification ............. 36
10.01 Survival of Representations, Warranties,
Covenants and other Agreements .................. 36
10.02 Indemnification by Seller ....................... 36
10.03 Indemnification by Buyer ........................ 37
10.04 Third Party Claims .............................. 38
11. Further Assurances .......................................... 38
<PAGE>
12. Closing .................................................... 38
12.01 Closing ........................................ 38
12.02 Termination .................................... 39
12.03 Remedies Upon Default .......................... 40
12.04 Return of Earnest Money Escrow ................. 40
13. Miscellaneous .............................................. 40
13.01 Amendments; Waivers ............................ 40
13.02 Entire Agreement ............................... 41
13.03 Binding Effect; Assignment ..................... 41
13.04 Construction; Counterparts ..................... 41
13.05 Notices ........................................ 41
13.06 Expenses of the Parties ........................ 42
13.07 Non-Recourse ................................... 42
13.08 Third Party Beneficiary ........................ 43
13.09 Governing Law .................................. 43
13.10 Press Releases ................................. 43
13.11 Severability ................................... 43
iii
<PAGE>
EXHIBITS
- --------
EXHIBIT A - System Area
EXHIBIT B - Bill of Sale, General Assignment, and
Instrument of Assumption of Liabilities
EXHIBIT C - [Intentionally Deleted]
EXHIBIT D - Form of Opinion of Seller's Local Counsel
EXHIBIT E - Form of Opinion of Buyer's Counsel
EXHIBIT F - Form of Opinion of Seller's FCC Counsel
SCHEDULES
- ---------
Schedule 1.01(a) - CATV Licenses
Schedule 1.01(b) - Current Assets
Schedule 1.01(c) - Current Liabilities
Schedule 1.01(d) - Excluded Assets
Schedule 1.01(e) - Excluded Liabilities
Schedule 1.01(f) - Permitted Encumbrances
Schedule 2.06 - Earnest Money Escrow Agreement
Schedule 2.08 - Indemnity Escrow Agreement
Schedule 3.02 - Consents and Approvals
Schedule 3.05 - Tax Notices and Assessments
Schedule 3.06(b) - Real Property
Schedule 3.06(d) - Environmental Matters
Schedule 3.07(c) - Material Contracts
Schedule 3.07(d) - Notice of Claims or Purported Defaults
in CATV Instruments
Schedule 3.07(e) - Regulatory
Schedule 3.09 - Employee Benefit Plans
Schedule 3.10 - Contracts and CATV Instruments in Default
Schedule 3.11 - Legal Proceedings
Schedule 3.13 - Equipment
Schedule 3.14 - Insurance and Bonds
Schedule 3.16 - Undisclosed Liabilities
Schedule 3.18 - Overbuilds
Schedule 3.19 - Characteristics
Schedule 4.05 - Buyer Consents
Schedule 9.06 - Covenant Not to Compete Exclusion
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is made and entered
into as of August 12, 1997, by and between A-R Cable Services, Inc. , a
Massachusetts corporation ("Seller") , and Insight Communications Company, L.P.,
a Delaware limited partnership ("Buyer");
R E C I T A L S
Seller owns and operates cable television systems serving the
communities described in Exhibit A (the "CATV Business").
Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, the CATV Business and the assets used or held for the operation thereof
in accordance with the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows, each intending to be
legally bound as and to the extent herein provided.
1. Definitions.
1.01 Certain Definitions. For the purposes of this Agreement, the
following terms shall have the meanings set forth below:
Accounts Receivable: Basic Subscriber accounts receivable and
advertising receivables incurred in the ordinary course of business.
Acquired Assets: All of the properties, assets, privileges, rights,
interests, claims and goodwill, real and personal, tangible and intangible, of
every type and description, including Seller's leasehold interests or rights to
possession, whether owned or leased or otherwise possessed, used or held for use
by Seller in connection with the CATV Business, now in existence or hereafter
acquired by Seller as permitted by this Agreement prior to the Closing,
including, without limitation, the CATV Instruments, the Equipment, the Real
Property, the Contracts, the Inventory and the Intangible Property; provided
that Acquired Assets shall exclude the Excluded Assets and any assets disposed
of prior to the Closing in the usual and ordinary course of business and not in
violation of this Agreement.
Agreement: This Agreement and the Schedules and Exhibits attached
hereto.
Asserted Claim: As defined in Section 10.04.
<PAGE>
Assumed Liabilities: All liabilities, obligations and commitments of
Seller (a) under the CATV Instruments, the CATV Licenses, the Equipment, the
Real Property, the Contracts, the Intangible Property and any other Acquired
Assets attributable to periods on and after the Closing Date, (b) all other
liabilities, obligations and commitments arising out of Buyer's ownership of the
Acquired Assets attributable to periods on and after the Closing Date and (c) to
the extent (and only to the extent) constituting Current Liabilities that are
included in the Final Working Capital Statement.
Balance Sheet: As defined in Section 3.03.
Basic Subscriber: As at any date of determination thereof, the sum of
(a) the total number of households (exclusive of courtesy accounts and "second
outlets", as such term is commonly understood in the cable television industry,
and exclusive of customers billed on a bulk-billing or commercials-account
basis) subscribing on such date to at least the most basic tier of service
offered by the CATV Business and paying the standard monthly service fees and
charges imposed in respect of such service, each of which has paid in full
without discount at least one monthly bill generated in the ordinary course of
business, none of which is pending disconnection for any reason, none of which
is, as of the date of determination, delinquent in payment for services for more
than ninety (90) days (exclusive of account balances of $4.00 or less attributed
to late fees), and none of which has been obtained as a subscriber since the
date of this Agreement by offers made, promotions conducted and discounts given
outside the ordinary course of business; and (b) the total number of Equivalent
Subscribers on such date; provided, there shall be excluded from the definition
of Basic Subscriber any subscriber or Equivalent Subscriber whose account has
been written off for nonpayment since the date of this Agreement.
Benefit Plans: As defined in Section 3.09(a).
Buyer: As defined in the Preamble to this Agreement.
Buyer Indemnified Party: As defined in Section 10.03.
Buyer' s Counsel: Cooperman LeVitt Winikoff Lester & Newman, P.C.
Buyer's Obligation: As defined in Section 2.04(c).
CATV: Cable television.
CATV Business: The CATV business to be transferred to Buyer, presently
owned and operated by Seller, which consists of the transmission, distribution
and local origination of audio and video
2
<PAGE>
signals over the CATV System used by the CATV Business located in the System
Area.
CATV Instruments: All franchises, ordinances or licenses granted to the
Seller by any Governmental Authority; permits for wire crossings over or under
highways, railroads, and other property; construction permits and certificates
of occupancy; business radio, Earth Station and other FCC licenses; pole
attachment and other Contracts with utilities; federal, state, county and
municipal permits, orders, variances, exemptions, approvals, consents, licenses
and other authorizations; retransmission agreements and must carry elections;
and all other approvals, consents and authorizations used or held for use in the
CATV Business.
CATV Licenses: The franchises and licenses issued by any Governmental
Authority and the licenses issued by the FCC used in the CATV Business as
presently conducted by Seller, all of which are listed in Schedule 1.01(a).
CATV System: A complete CATV reception and distribution system
consisting of one or more head-ends, trunk cable, subscriber drops and
associated electronic equipment, which is, or is capable of being, operated as
an independent system without interconnections to other systems.
Closing: A meeting for the purpose of concluding the transactions
contemplated by this Agreement held at the place and on the date fixed in
accordance with Section 12.01.
Closing Consents: As defined in Section 6.01(f).
Closing Date; Date of Closing: The date fixed for the Closing in
accordance with Section 12.01.
Code: The Internal Revenue Code of 1986, as amended.
Communications Act: Communications Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
Consents: Any registration or filing with, consent or approval of,
notice to, or action by (i) any Governmental Authority required to permit the
transfer of the CATV Licenses to Buyer, and (ii) any Person required to permit
the transfer of Contracts and CATV Instruments to Buyer.
Contract: Any contract, mortgage, deed of trust, bond, indenture,
lease, license, note, certificate, option, warrant, right, or other instrument,
document or written agreement relating to the CATV Business to which the Seller
is a party or by which the Seller or the assets of the Seller included within
the CATV Business is bound, excluding any CATV Instrument.
3
<PAGE>
Copyright Act: Title 17 of the United States Code, as amended, and the
rules and regulations promulgated thereunder.
CPA Firm: As defined in Section 2.04(c).
Current Assets: Means ninety-eight and one-half percent (98.5%) of
Basic Subscriber Accounts Receivable and ninety-nine percent (99.0%) of the
other Accounts Receivable components, all deposits with utilities, under leases
or related to guides, billing service, postage, the pro rata portion of any
prepaid real property taxes and sales and use taxes, if any, all prepaid
expenses, including in respect of pole rental or equipment maintenance
agreements that are Assumed Liabilities, and in respect of rent, postage,
promotional expenditures, guides, and security service or two-way radio, each as
determined in accordance with GAAP (unless otherwise specified herein) except
that Excluded Assets shall not be included, and consistent with Schedule 1.01(b)
hereto, which Schedule sets forth the type and amounts of Current Assets as of
March 31, 1997.
Current Liability: Means accounts payable, accrued expenses and other
current liabilities determined in accordance with GAAP, except that the current
portion of any indebtedness for borrowed money and Excluded Liabilities shall
not be included, and consistent with Schedule 1.01(c) hereto, which Schedule
sets forth the type and amounts of Current Liabilities as of March 31, 1997.
DOJ: The United States Department of Justice.
Earnest Money Escrow: As defined in Section 2.06.
Earnest Money Escrow Agent: As defined in Section 2.06.
Earnest Money Escrow Agreement: As defined in Section 2.06.
Earth Station: A satellite earth receiving station consisting of one or
more "dish" antennas, usually operated in conjunction with a building which
houses electronic signal processing and amplification equipment, all of which is
also referred to as a "head end".
Employees: Means all current or former employees of Seller.
Encumbrances: Means any security agreement, financing statement filed
with any Governmental Authority, conditional sale or other title retention
agreement, any lien, mortgage, indenture, pledge, encumbrance, adverse interest,
constructive trust or other trust, attachment or claim of any kind that
otherwise constitutes an interest in or claim against property, whether arising
pursuant to any Law, under any Contract, CATV Instrument or otherwise.
4
<PAGE>
Environmental Law: means any law or regulation governing the protection
of the environment, (including air, water, soil and natural resources) or the
use, storage, handling, release or disposal of any hazardous or toxic substance.
Equipment: All tangible personality; electronic devices; towers; trunk
and distribution cable; decoders and spare decoders for scrambled satellite
signals; amplifiers; power supplies; conduit; vaults and pedestals; grounding
and pole hardware; installed subscriber's devices (including, without
limitation, drop lines, converters, encoders, transformers behind television
sets and fittings); "head-ends" and "Hubs" (origination, transmission and
distribution system) hardware; tools; spare parts; maps and engineering data;
vehicles; supplies, tests and closed circuit devices; furniture and furnishings;
and all other tangible personal property and facilities owned by Seller and used
in the CATV Business.
Equivalent Subscriber: At any date of determination thereof, the number
of Equivalent Subscribers shall be equal to the quotient of (a) the aggregate
billings by the CATV Business for basic and expanded basic service provided by
the CATV Business based on billing reports prepared in the ordinary course of
business, during the last full month ending on or prior to such date, to
residential multiple dwelling units, commercial accounts, other subscribers that
are billed for such service on a bulk basis and single family households which
pay less than the CATV Business' regular monthly rate for basic and expanded
basic service, divided by (b) the CATV Business' regular monthly subscriber
rate for basic and expanded basic service in effect for such month. For purposes
of the foregoing, there shall be excluded (A) all billings from premium
services, installation or other non-recurring charges, converter rental or from
any outlet or connection other than the first or from any pass-through charge
for sales taxes, line-itemized franchise fees, fees charged by the FCC and the
like, and (B) all billings to a commercial or bulk account or discounted family
household (i) which has not paid in full at least one monthly bill generated in
the ordinary course of business, (ii) which is delinquent in payment for
services for more than ninety (90) days (exclusive of account balances of $4.00
or less attributed to late fees) based on billing reports prepared in the
ordinary course of business, (iii) which is pending disconnection for any
reason, or (iv) which has been obtained as a subscriber since the date of this
Agreement by offers made, promotions conducted or discounts given outside the
ordinary course of business.
ERISA: The Employee Retirement Income Security Act of 1974, as the same
has been and may be amended from time to time.
Estimated Working Capital Amount: Means (i) if Current Liabilities
exceed Current Assets as reflected on the Estimated Working Capital Statement,
such excess, expressed as a negative
5
<PAGE>
number, or (ii) if Current Assets exceed Current Liabilities as reflected on the
Estimated Working Capital Statement, such excess, expressed as a positive
number.
Estimated Working Capital Statement: As defined in Section 2.03 hereof.
Excluded Assets: Other than the Acquired Assets, all of the assets and
properties of Seller including, but not limited to, programming agreements
(other than retransmission consent agreements, must carry elections and lease
access agreements applicable to the CATV Business), Benefit Plans,
multiemployer plans, any Contract or other agreement relating to borrowings by
Seller (including the agreement between Seller and GECC listed on Schedule
3.07(c) hereto), and the assets and properties of Seller listed on Schedule
1.01(d).
Excluded Liabilities: All liabilities and obligations of Seller other
than the Assumed Liabilities, including but not limited to, all obligations of
the Seller and the CATV Business arising or relating to periods prior to the
Closing Date, indebtedness for money borrowed and obligations to Seller's
partners, directors and advisors, obligations of Seller for taxes (other than
real estate taxes and sales and use taxes to the extent disclosed on Schedule
1.01(c)), obligations relating to Excluded Assets, and the liabilities,
obligations and commitments of Seller identified on Schedule 1.01(e) under the
"Excluded Assets/Liabilities" column.
FCC: The Federal Communications Commission.
Final Working Capital Amount: Means (i) if Current Liabilities exceed
Current Assets as reflected on the Final Working Capital Statement, such excess,
expressed as a negative number, or (ii) if Current Assets exceed Current
Liabilities as reflected on the Final Working Capital Statement, such excess,
expressed as a positive number.
Final Working Capital Statement: As defined in Section 2.04(c) hereof.
Financial Statements: As defined in Section 3.03.
FTC: The Federal Trade Commission.
GAAP: Means U.S. generally accepted accounting principles.
Governmental Authority: The Federal Government, any state, county,
municipal, local or foreign government and any governmental agency, bureau,
court, tribunal, department, board, commission, authority or body.
6
<PAGE>
Hazardous Substance: means any substance listed, defined, designated or
classified as hazardous, toxic or radioactive under any applicable Environmental
Law, including petroleum and petroleum related products.
HSR Act and Rules: The Hart-Scott-Rodino Antitrust Improvements Act of
1976 and the rules and regulations promulgated thereunder, as from time to time
in effect prior to the Closing.
HSR Report: The Notification and Report Form for certain mergers and
acquisitions mandated by the HSR Act and Rules.
Income Statement: As defined in Section 3.03.
Indemnitee: As defined in Section 10.04.
Indemnitor: As defined in Section 10.04.
Indemnity Escrow Agent: As defined in Section 2.08.
Indemnity Escrow Deposit: As defined in Section 2.08.
Indemnity Escrow Agreement: As defined in Section 2.08.
Intangible Property: The copyrights, patents, trademarks, service marks
and trade names used in the CATV Business excluding the right to use the name
"Cablevision" or "Cablevision Systems" or any derivative thereof or any name
which may include any of such terms, and all applications for, or licenses,
permits or other rights to use any thereof, and the value associated therewith,
which are owned, used or held for use by Seller and used in the CATV Business.
Interim Financial Statements: As defined in Section 3.03.
Inventory: Means all inventory as defined under GAAP, plus, without
limitation, all supplies, all maintenance equipment, all converters, all cables
and all amplifiers owned by Seller on the Closing Date as determined by the
Seller's inventory control system and used in the CATV Business.
Judgment: Any judgment, writ, order, injunction, award or decree of or
by any court, or judge, justice or magistrate, including any bankruptcy court or
judge, and any order of or by any Governmental Authority.
Law: The common law and any statute, ordinance, code or other law,
rule, regulation, order, technical or other standard, requirement or procedure
enacted, adopted, promulgated, applied or followed by any Governmental Authority
or court, including, without limitation, Judgments.
7
<PAGE>
Material Adverse Effect: Means a material adverse effect on the assets,
financial condition or results of operations of the CATV Business taken as a
whole other than any such effect resulting from changes in general economic or
political conditions or legal, governmental, regulatory or competitive factors
affecting CATV systems operators generally.
1996 Financial Statements: As defined in Section 3.03 hereof.
Organizational Documents: As defined in Section 3.02(b).
Outside Date: As defined in Section 12.01.
Permitted Encumbrances: Means those Encumbrances set forth in Schedule
1.01(f) hereto and all other Encumbrances, if any, which do not materially
adversely effect the title to such property, do not materially detract from the
value of the property subject thereto and which do not materially interfere with
the present and continued use of such property in the operation of the CATV
Business.
Person: Any natural person, Governmental Authority, corporation,
general or limited partner, partnership, joint venture, trust, association,
limited liability company, or unincorporated entity of any kind.
Preliminary Working Capital Statement: As defined in Section 2.04(a).
Purchase Price: As defined in Section 2.02.
Real Property: All realty, fixtures, easements, rights-of-way,
leasehold and other interests in real property, buildings and improvements
owned, used or held for use in the CATV Business.
Retained Franchises: As defined in Section 9.05.
Retained Franchise Price: As defined in Section 9.05(a).
Seller: As defined in the Preamble to this Agreement.
Seller Indemnified Party: As defined in Section 10.02.
Seller's Local Counsel: Holleb & Coff.
Seller's 1997 Budget: The 1997 budget for Seller prepared by Seller and
delivered to Buyer prior to the date hereof, and, if the Closing does not
occur until 1998, the 1998 budget for Seller to be prepared by Seller in the
ordinary course of business consistent with past practice, including customary
provision for capital expenditures and to be delivered to Buyer.
8
<PAGE>
Subscriber Adjustment: An amount equal to one Thousand Five Hundred
Sixteen Dollars ($1,516.00) times the difference between Sixty-Four Thousand
(64,000) subscribers and the number of Basic Subscribers of the CATV Business
actually delivered on the Closing Date if less than Sixty-Four Thousand (64,000)
subscribers.
System Area: The geographical area as described in Exhibit A hereto.
1.02 Other Definitional Provisions. Terms defined in the singular shall
have a comparable meaning when used in plural, and vice versa.
2. Purchase and Sale.
2.01 Transfer of Assets. At the Closing, upon the terms and conditions
set forth in this Agreement, Seller shall sell, convey, transfer, assign and
deliver to Buyer, and Buyer shall purchase, accept and receive, all of Seller's
right, title and interest in and to the Acquired Assets, free and clear of all
Encumbrances (other than Permitted Encumbrances and Assumed Liabilities) such
transaction to be effective as of 12:01 A.M. on the Closing Date.
2.02 Purchase Price. In consideration for the transfer of the Acquired
Assets pursuant to Section 2.01, and the other covenants, agreements,
representations and warranties contained herein, Buyer shall at Closing (i) pay
to Seller a total purchase price of Ninety-Seven Million Dollars ($97,000,000)
plus, if a positive number, or minus, if a negative number, the Estimated
Working Capital Amount provided in Section 2.03 (the "Purchase Price") , less
the Subscriber Adjustment, if any, less the Indemnity Escrow Deposit (which
shall be deposited by Buyer with the Indemnity Escrow Agent at closing, by
federal funds wire transfer of immediately available funds to such account at a
United States bank as shall be designated by Seller, less any other adjustments
provided for herein, and (ii) assume and agree to pay, discharge and perform the
Assumed Liabilities as and when due in accordance with the Bill of Sale, General
Assignment, and Instrument of Assumption of Liabilities attached as Exhibit B
hereto.
2.03 Estimated Working Capital Statement. At least ten (10) business
days prior to the Closing Date, Seller shall deliver to Buyer a working capital
statement of Seller as of the Closing Date, which statement shall set forth
Seller's good faith estimate of the Subscriber Adjustment, if any, and the
Current Assets and Current Liabilities of the CATV Business as of the Closing
Date as determined in accordance with GAAP and in a manner consistent with
the preparation of the Financial Statements, except as otherwise required by
this Agreement (the "Estimated Working Capital Statement"). Prior to Closing,
Seller shall provide Buyer or Buyer's representatives with access to all
relevant books and
9
<PAGE>
records as Buyer may reasonably request for purposes of verifying the Estimated
Working Capital Statement.
2.04 Post Closing Adjustment.
(a) Within ninety (90) days after the Closing Date, Seller shall
prepare, or cause to be prepared, and deliver to Buyer a working
capital statement of the CATV Business as of the Closing Date, which
statement shall be prepared in accordance with GAAP and in a manner
consistent with the preparation of the 1996 Financial Statements,
except as otherwise required by this Agreement, and shall set forth
the Current Assets and Current Liabilities of Seller as of the Closing
Date (the "Preliminary Working Capital Statement") . Buyer shall
cooperate in providing to Seller all relevant books, records and
personnel of the CATV Business in order to facilitate the preparation
of the Preliminary Working Capital Statement.
(b) During the succeeding thirty (30) day period, Buyer shall
have the right to examine the Preliminary Working Capital Statement
and all records used to prepare the Preliminary Working Capital
Statement and Seller shall deliver to Buyer at Buyer's cost and
expense such copies of such records as Buyer may reasonably request;
provided, however, if any such request is too burdensome as reasonably
determined by Seller, such copies will not be delivered to Buyer by
Seller and shall instead be made available to Buyer at Seller's place
of business.
(c) In the event Buyer determines that the Preliminary Working
Capital Statement has not been prepared on the basis set forth in
Section 2.04(a) hereof, Buyer shall so inform Seller in writing (the
"Buyer's Objection"), setting forth a reasonably specific description
of the basis of the Buyer's Objection on or before the last day of the
thirty (30) day period referred to in Section 2.04(b) hereof. In the
event of the Buyer's Objection, Buyer and Seller shall attempt to
resolve the differences underlying the Buyer's Objection within twenty
(20) days of Seller's receipt thereof. If Seller and Buyer are unable
to resolve all their differences within such twenty (20) day period,
they shall refer their remaining differences to a nationally
recognized firm of independent public accountants as to which Buyer
and Seller may mutually agree (if the parties are unable for any
reason to mutually select such a firm, Buyer and Seller shall each
select a nationally-recognized firm of independent public accountants
which firms shall then select a final nationally recognized firm of
independent public accountants) (the "CPA Firm"), who shall, acting as
experts and not as arbitrators, determine on the basis of the standard
set forth in Section 2.04(a) hereof and only with respect to the
remaining
10
<PAGE>
differences so submitted, whether and to what extent, if any, the
Preliminary Working Capital Statement requires adjustment. The CPA
Firm will base its determination only on evidence brought to it by the
parties and shall not conduct an audit. The CPA Firm shall deliver its
written determination to Buyer and Seller no later than the twentieth
(20th) business day after the remaining differences underlying the
Buyer's Objection are referred to the CPA Firm. The CPA Firm's
determination shall be conclusive and binding upon the parties. The
fees and disbursements of the CPA Firm shall be allocated between
Buyer and Seller in the same proportion that the aggregate amount of
any disputed items submitted to the CPA Firm that are unsuccessfully
disputed by each (as finally determined by the CPA Firm) bears to the
total amount of any disputed items so submitted. Buyer and Seller
shall readily available to the CPA Firm all relevant books and records
and any work papers relating to Working Capital Statement and all
other items reasonably requested by the CPA Firm. The "Final Working
Capital Statement" shall be (i) the Preliminary Working Capital
Statement in the event that (x) the Buyer's Objection is not delivered
to Seller in the period set forth in Section 2.04(b) hereof, or (y)
Seller and Buyer so agree; or (ii) the Preliminary Working Capital
Statement, as adjusted by either (x) the agreement of Seller and Buyer
or (y) the CPA Firm.
(d) On the fifth (5th) business day following the determination
of the Final Working Capital Statement pursuant to Section 2.04(c),
(i) if both the Estimated and Final Working Capital Amounts are
positive, then (AA) if the Final Working Capital Amount exceeds the
Estimated Working Capital Amount, then Buyer shall pay to Seller an
amount equal to such excess; and (BB) if the Estimated Working Capital
Amount exceeds the Final Working Capital Amount, then Seller shall
pay to Buyer an amount equal to such excess; (ii) if both the
Estimated and Final Working Capital Amounts are negative, then (AA) if
the absolute value of the Final Working Capital Amount exceeds the
absolute value of the Estimated Working Capital Amount, then Seller
shall pay to Buyer an amount equal to such excess; and (BB) if the
absolute value of the Estimated Working Capital Amount exceeds the
absolute value of the Final Working Capital Amount, then Buyer shall
pay to Seller an amount equal to such excess; (iii) if the Estimated
Working Capital Amount is negative and the Final Working Capital
Amount is positive, then Buyer shall pay to Seller an amount equal to
the sum of the absolute values thereof; and (iv) if the Estimated
Working Capital Amount is positive and the Final Working Capital
Amount is negative, then Seller shall pay to Buyer an amount equal to
the sum of the absolute values thereof.
11
<PAGE>
(e) Any amount payable pursuant to Section 2.04 (d) hereof shall
be paid by wire transfer of immediately available funds to a bank
account designated by Buyer or Seller, as the case may be.
2.05 Assumptions of Liabilities. At the Closing Date, Buyer shall
assume the Assumed Liabilities in accordance with the Bill of Sale, General
Assignment, and Instrument of Assumption of Liabilities attached hereto as
Exhibit B.
2.06 Earnest Money Deposit. Concurrently herewith, Buyer has delivered
to or deposited with The Bank of New York as escrow agent ("Earnest Money Escrow
Agent") , either (i) an irrevocable letter of credit in the amount of
$9,700,000, in form and substance acceptable to Seller, or (ii) $9,700,000 by
federal funds wire transfer of immediately available funds, for the Earnest
Money Escrow ("Earnest Money Escrow") to be held pursuant to an escrow agreement
(the "Earnest Money Escrow Agreement") substantially in the form of Schedule
2.06 hereto. Such letter of credit or amount, as applicable, shall be deposited
and held under the Earnest Money Escrow and administered as provided in the
Earnest Money Escrow Agreement. The Earnest Money Escrow shall be distributed as
provided in the Earnest Money Escrow Agreement and Article 12 hereof.
2.07 Sales and Transfer Taxes. Buyer and Seller shall share equally all
sales and use taxes and transfer taxes, if any, arising from the transfer of the
Acquired Assets.
2.08 Indemnity Escrow. At the Closing, Buyer shall deposit out of the
Purchase Price, the sum equal to Five Million Dollars ($5,000,000) ("Indemnity
Escrow Deposit") with The Bank of New York, as escrow agent (the "Indemnity
Escrow Agent"), pursuant to the Indemnity Escrow Agreement in the form annexed
hereto as Schedule 2.08 (the "Indemnity Escrow Agreement"), to secure Buyer's
rights with respect to claims to indemnification under Section 10.2 hereof.
2.09 Allocation of Purchase Price. The parties agree that the Purchase
Price (as adjusted pursuant to Section 2.04) shall be allocated not later than
one hundred twenty (120) days after the Closing as the parties shall agree based
upon the respective fair market value of the Acquired Assets.
3. Representations and Warranties of Seller.
To induce Buyer to enter into this Agreement, Seller represents and
warrants to Buyer as follows:
3.01 Organization and Authority of Seller. Seller is a Massachusetts
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization,
12
<PAGE>
and is duly qualified to do business and is in good standing under the laws of
the State of Illinois. Seller has all requisite power and authority to own,
lease and use the Acquired Assets as they are currently owned, leased or used
and to conduct the CATV Business as it is currently conducted.
3.02 Legal Capacity; Approvals and Consents.
(a) Authority and Binding Effect. Subject to Section 9.02 hereof
and the Consents and approvals set forth on Schedule 3.02, Seller has
all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement and the performance of its obligations
hereunder by Seller have been duly and validly authorized by all
necessary action on the part of Seller. This Agreement has been duly
executed and delivered by Seller and is the valid and binding
obligation of Seller enforceable in accordance with its terms, except
as such enforceability may be affected by the laws of bankruptcy,
insolvency, reorganization and creditors' rights generally and by the
availability of equitable remedies.
(b) No Breach. Subject only to Section 9.02 hereof and obtaining
the Consents and approvals set forth on Schedule 3.02, the execution,
delivery and performance of this Agreement does not, and will not,
contravene the certificate of incorporation or by-laws (the
"Organizational Documents") of the Seller, and does not, and will not:
(i) conflict with or result in a breach or violation by the Seller of,
or (ii) constitute a default (without regard to requirements of
notice, passage of time or election of any Person) by the Seller
under, or (iii) permit or result in the termination, suspension,
modification or impairment of, any CA-TV Instrument, Law, Judgment, or
Contract to which the Seller is a party or by which the Seller, the
CATV Business or any of the Acquired Assets is subject or bound or may
be affected; or (iv) create or impose, or result in the creation or
imposition of, any Encumbrance upon any of the Acquired Assets, in
each case under clause (i) through (iii) above, which conflict,
breach, violation, default or termination, suspension, modification or
impairment would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect, or materially adversely
affect Seller's ability to perform its obligations hereunder.
(c) Required Consents. Except for the parties listed in Schedule
3.02, there are no parties whose approval or Consent, or with whom the
filing of any certificate, notice, application, report or other
document, is legally or contractually required or otherwise is
necessary in connection with the execution, delivery or performance of
this Agreement by Seller, except where failure to obtain such Consent
or
13
<PAGE>
approval or failure to make such filing would not reasonably be
expected to have a material adverse effect, or materially adversely
affect Seller's ability to perform its obligations hereunder.
3.03 Financial Statements. Seller has delivered to Buyer true and
complete copies of the balance sheet of Seller as at December 31, 1996 (the
"Balance Sheet") and December 31, 1995, and related statements of income of
Seller for the years ending December 31, 1996 (the "Income Statement") and 1995
(collectively, the "Financial Statements") . The Balance Sheet and Income
Statement for the year 1996 (collectively, the "1996 Financial Statements") were
prepared in accordance with GAAP and present fairly in all material respects the
financial position of the Seller as of those dates and the results of its
operations for the periods then ended. Seller has also provided to Buyer a
balance sheet and income statement as of March 31, 1997 (the "Interim Financial
Statements"), which Interim Financial Statements were prepared in accordance
with the practices customarily followed by Seller in preparing its interim
statements and, subject to normal year-end adjustments and the procedures
followed in interim statements, present fairly in all material respects the
financial position and results of operation of Seller as at the date and for the
period indicated and are stated on a basis generally consistent with the
above-described Financial Statements.
3.04 Changes in Duration. Since the date of the Interim Financial
Statements, there has not been any event or circumstance which, individually or
in the aggregate, has had or would have a material adverse effect on the CATV
Business other than those events or circumstances which may affect the cable
television industry generally.
3.05 Tax Returns. Seller has and will have as of the Closing Date duly
filed all material federal, state, local and foreign income, information,
franchise, sales, use, property, excise and payroll and other tax returns or
reports (herein "Tax Returns") required to be filed by Seller on or prior to the
date hereof or to be filed by Seller as of the Closing Date. All taxes, fees and
assessments that are shown on such Tax Returns as due or payable by Seller on or
before the date hereof or the Closing Date, as the case may be, and that might
result in an Encumbrance upon any of the Acquired Assets have been or will be
duly paid. Except as set forth in Schedule 3.05, Seller has received no notice
or assessment to the effect that there is any unpaid tax, interest, penalty or
addition to tax due or claimed to be due from the Seller in respect of such Tax
Returns; Seller has received no notice of the assertion or threatened assertion
of any Encumbrances with respect to any Acquired Assets on account of any unpaid
taxes; and no audits of such Tax Returns by any Governmental Authority are
pending or, so far as Seller knows, threatened.
14
<PAGE>
3.06 Acquired Assets.
(a) Title; Encumbrances. Seller has (i) good and marketable title
to all of the Equipment, the Inventory and Real Property owned in fee,
and (ii) the right and authority (subject to the Consents specified
herein) to transfer to Buyer all of Seller's right, title and interest
in and to the other property or rights included in the Acquired
Assets, in each instance free and clear of any Encumbrances (except
Permitted Encumbrances).
(b) Real Property. Schedule 3.06(b)sets forth a complete and
correct list and general description of all Real Property owned,
leased, occupied or used by Seller in connection with the operation
of the CATV Business as presently conducted. The Real Property
comprises all real property interests necessary to conduct the CATV
Business as currently conducted. Except for routine repairs in the
ordinary course of business considering the nature and age of such
assets, all of the material improvements, leasehold improvements and
the premises of the Real Property are in good condition and repair
(ordinary wear and tear excepted) and suitable for the purposes used.
Each parcel of Real Property (i) has access to and over public
streets, or private streets for which Seller has a valid right of
ingress and egress, (ii) conforms in its current use to all zoning
requirements without reliance on a variance or a classification of the
parcel in question as a nonconforming use, and (iii) conforms in its
use to all material restrictive covenants, if any, or other
Encumbrances affecting all or part of such parcel. Seller has all
material easements, and all leases, fee interests, access agreements,
and other rights required by Law for the use of all Real Property used
in the CATV Business, including all Real Property over, under, or on
which the CATV Business is conducted. There are not pending or, to
Seller's knowledge, threatened, any condemnation actions or special
assessments or any pending proceedings for changes in the zoning with
respect to such Real Property or any part thereof and Seller has not
received any written notice of any public authority or other entity to
take or use any Real Property or any part thereof. Each parcel of Real
Property has access (either direct or by an easement included among
the Acquired Assets) to all utilities necessary for the operation of
the relevant system with respect to such parcel. Seller has complied
with all notices or orders to correct violations of Laws issued by any
Governmental Authority having jurisdiction against or affecting any of
the Real Property. The easements, rights of way and other similar
rights materially necessary for Seller's current use of the Real
Property are valid and in full force and effect and Seller has not
received any notice with respect to termination or breach of any such
right.
15
<PAGE>
(c) Acquired Assets. The Acquired Assets include all material
assets owned, used or held for use by Seller and necessary to conduct
the CATV Business as it is presently being conducted except for
Excluded Assets. Except for Excluded Assets, Seller has no Intangible
Property.
(d) Environmental Matters. Except as disclosed in Schedule
3.06(d): (i) the Acquired Assets and the operation of the CATV
Business materially comply with applicable Environmental Laws; (ii)
Seller has not received any written notice from any Governmental
Authority alleging that, and Seller has no knowledge that, the
Acquired Assets and the operation of the CATV Business are in
violation of any applicable Environmental Law; (iii) the Acquired
Assets and the operation of the CATV Business are not the subject of
any written notice, court order, administrative order or decree
arising under any Environmental Law; (iv) during the period of
Seller's ownership and, to Seller's knowledge, prior to the period of
Seller's ownership, the Acquired Assets have not been used for the
generation, storage, discharge or disposal of any Hazardous Substances
except as permitted by applicable Environmental Laws; (v) Seller has
not installed, and, to Seller's knowledge, there are not located, any
underground storage tanks on any of the Acquired Assets, and, to
Seller's knowledge, no underground storage tanks were installed or
located on any of the Acquired Assets prior to the period of Seller's
ownership; and (vi) to the knowledge of Seller, (x) no Acquired Asset
has been used at any time as a gasoline service station or any other
facility for storing, pumping, dispensing, or producing gasoline or
any other petroleum products or wastes, and (y) no building or other
structure on or included in any of the Acquired Assets contains
asbestos or asbestos-containing material.
3.07 The CATV Business. With respect to the CATV Business, Seller makes
the following warranties and representations:
(a) As of June 30, 1997, the CATV Business included not less than
Sixty-Four Thousand (64,000) Basic Subscribers.
(b) Since the date of the Interim Financial Statements, (i) the
CATV Business has been operated only in the ordinary course; (ii)
there has been no sale, assignment or transfer of any material assets
or properties related to the CATV Business, or any theft, damage,
removal of property, destruction or casualty loss which might be
expected to materially adversely affect the CATV Business or such CATV
System; (iii) other than in the ordinary course of business, there has
been no waiver or release of any material right or claim of Seller
against any third party; and (iv) there has been no agreement by
Seller to take any of the actions
16
<PAGE>
described in the preceding clauses (ii) and (iii), except as
contemplated by this Agreement.
(c) Schedule 3.07(c) contains a complete list of all material
Contracts and material CATV Instruments in effect on the date of this
Agreement. As used in this Section 3.07(c), the term "material
Contracts" means any Contracts requiring in any calendar year
payments exceeding $25,000 in the aggregate and that cannot be
terminated on thirty (30) days' notice without liability.
(d) Seller holds all material Contracts and CATV Instruments
reasonably necessary to enable it to operate the CATV Business as
presently conducted. Seller is in compliance in all material respects
with the terms and conditions of all such material Contracts and CATV
Instruments. Except as disclosed in Schedule 3.07(d), Seller has not
received or given any notice of any claimed or purported default in or
termination of any Contracts or CATV Instruments and there are no
proceedings pending, or, to the knowledge of Seller, threatened, to
cancel, modify or change any such Contracts or CATV Instruments,
except in each case as would not have a material adverse effect.
(e) The CATV Business is conducted by Seller in compliance with
all applicable Laws, including without limitation, the Communications
Act, the Copyright Act, and the rules and regulations of the FCC and
the United States Copyright Office, except to the extent that the
failure to so comply with any of the foregoing could not (either
individually or in the aggregate) reasonably be expected to have a
material adverse effect on the Acquired Assets, the CATV Systems or
the CATV Business. Without limiting the generality of the foregoing,
except to the extent that the failure to comply with any of the
following could not (either individually or in the aggregate)
reasonably be expected to have a material adverse effect on the
Acquired Assets, the CATV Systems or the CATV Business, and except as
set forth in Schedule 3.07(e) hereto:
(i) Each of the communities listed in Schedule 1.01(a) has been
registered with the FCC:
(ii) All of the semi-annual performance tests on the CATV Systems
required under the rules and regulations of the FCC have
been performed and the results of such tests demonstrates
satisfactory compliance with the applicable technical
requirements being tested in all material respects;
17
<PAGE>
(iii) The CATV Systems are being operated in compliance with the
provisions of 47 C.F.R. Sections 76.610 through 76.619
(mid-band and super-band signal carriage), including 47
C.F.R. Section 76.611 (compliance with the cumulative signal
leakage index);
(iv) A valid request for renewal has been duly and timely filed
under Section 626 of the Communications Act with the proper
Governmental Authority with respect to all franchises to
operate the CATV Systems that have expired or will expire
within 36 months after the date of this Agreement;
(v) Seller has all of the CATV Licenses necessary to operate the
CATV Systems as the CATV Business is currently conducted,
all of which licenses are listed in Schedule 1.01(a), and
Seller operates such licensed facilities in conformance with
the terms and conditions of such licenses;
(vi) Seller has made all annual filings required to be made with
the FCC;
(vii) The carriage of all television station signals is in
compliance with the must-carry and retransmission consent
provisions of the Communications Act, as applicable;
(viii) No Governmental Authority has been certified, or applied
to be certified, to regulate the rates charged by the CATV
Systems;
(ix) To Seller's knowledge, the rates presently charged by the
CATV Systems are in compliance with the FCC's rules
governing the rates which cable television systems may
charge, and no complaint is pending at the FCC, nor is there
any proceeding pending before any other Governmental
Authority, with regard to such rates;
(x) All notices, statements of account, supplements and other
documents required under Section 111 of the Copyright Act
and under the rules of the Copyright Office with respect to
the carriage of off-air signals by the CATV Systems have
been duly filed, and the proper amount of copyright fees
have been paid on a timely basis for the six semi-annual
18
<PAGE>
accounting periods of July 1 to December 31, 1994, through
January 1 to June 30, 1997, and the Systems qualify for the
compulsory license under Section 111 of the Copyright Act;
and
(xi) All necessary Federal Aviation Administration ("FAA")
approvals have been obtained with respect to the height and
location of towers used in connection with the operation of
the CATV Business and such towers are being operated in
compliance in all material respects with applicable FCC and
FAA rules.
3.08 Labor Contracts and Actions.
(a) Seller is not a party to any Contract with any labor
organization, nor has the Seller agreed to recognize any union or
other collective bargaining unit, nor has any union or other
collective bargaining unit been certified as representing any of the
employees of the Seller with respect to the operation of the CATV
Business, and
(b) Seller is not experiencing any strikes, work stoppages,
significant grievance proceedings or claims of unfair labor practices
filed with respect to the operation of the CATV Business.
3.09 Employee Benefit Plans.
(a) All "employee benefit plans" within the meaning of Section
3(3) of ERISA covering Employees, other than "multi-employer plans"
within the meaning of Section 3(37) of ERISA, and other benefit plans,
contracts or arrangements covering Employees (collectively, the
"Benefit Plans") are listed on Schedule 3.09. True and complete copies
of all Benefit Plans and all amendments thereto have been provided or
made available to Buyer. Schedule 3.09 also lists all multi-employer
plans covering Employees.
(b) All Benefit Plans, to the extent subject to ERISA, are in
substantial compliance with ERISA. There is no material pending or, to
the knowledge of Seller, threatened litigation relating to the Benefit
Plans. Seller has not engaged in a transaction with respect to any
Benefit Plan that, assuming the taxable period of such transaction
expired as of the date hereof or as of the Closing Date (as the case
may be), could subject Seller to a material tax or penalty imposed by
either Section 4975 of the Code or Section 502(i) of ERISA.
(c) No liability under Subtitle C or D of Title IV or ERISA has
been or is expected to be incurred by Seller with
19
<PAGE>
respect to any ongoing, frozen or terminated "single-employer plan",
within the meaning of Section 4001(a)(15) of ERISA, currently or
formerly maintained by it, or the single-employer plan of any entity
which is considered one employer with Seller under Section 4001 of
ERISA or Section 414 of the Code (an "ERISA Affiliate"). Seller has
not incurred and does not expect to incur any withdrawal liability with
respect to a multiemployer plan under Subtitle E of Title IV of ERISA
and in no event will Buyer have any liability or obligations with
respect thereto. No notice of a "reportable event", within the meaning
of Section 4043 of ERISA for which the 30-day reporting requirement has
not been waived, has been required to be filed for any Benefit Plan
subject to Title IV of ERISA or by any ERISA Affiliate within the
12-month period ending on the date hereof.
(d) Neither any Benefit Plan nor any single-employer plan of an
ERISA Affiliate has an "accumulated" funding deficiency" (whether or
not waived) within the meaning of Section 412 of the Code or Section
302 of ERISA and no ERISA Affiliate has an outstanding funding waiver.
Seller has not provided, nor is it required to provide, security to
any Benefit Plan or to any single-employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the Code.
3.10 Contracts. Except as set forth in Schedule 3.10, there are no
defaults by Seller under the material Contracts or material CATV Instruments
(nor has Seller received written notice of a claim or purported default) and
Seller knows of no default by any other party to a material Contract or material
CATV Instrument. Each material CATV Instrument and material Contract, including
those that are entered into after the date hereof, is (unless it expires by its
terms) in full force and effect (and there are no proceedings pending, or, to
knowledge of Seller, threatened, to cancel, modify or change any such material
Contract or material CATV Instrument), except in each case as would not have a
material adverse effect, binding and enforceable in accordance with its terms,
and is valid under and complies in all material respects with all applicable
Laws. Seller is the authorized legal holder of all material CATV Licenses.
Except for Contracts and CATV Instruments shown as oral contracts and described
in all material respects on Schedule 3.07(c), and except for correct and
complete copies of all Contracts identified on Schedule 3.07(c) (other than any
such Contract relating to any of the Excluded Assets) and extracts of Benefit
Plans identified on Schedule 3.09, each of which have been delivered to Buyer,
correct and complete copies of all other material Contracts and CATV Instruments
have been delivered to Buyer and its representatives, and with respect to those
executed after the date hereof, copies will be made available to Buyer promptly
following such execution and in any event prior to the Closing Date.
20
<PAGE>
3.11 Legal and Governmental Proceedings and Judgements. Except as may
affect the cable television industry generally, or as set forth on Schedule
3.11, there is no legal action, proceeding or investigation, pending or, to the
knowledge of Seller, threatened against the Seller, the CATV Business or the
Acquired Assets, nor is there any Judgment outstanding against the Seller or to
or by which the Seller, any of the Acquired Assets or the CATV Business is
subject or bound, which (i) results or is reasonably likely to result in any
modification, termination, suspension, impairment or reformation of any CATV
Instrument or Contract or any right or privilege thereunder in a manner that
could reasonably be expected to have a material adverse effect or (ii)
materially adversely affects the ability of Seller to consummate any of the
transactions contemplated hereby. Seller is not in default or violation, and no
event or condition exists which, with notice or lapse of time or both, is
reasonably likely to become or result in a default or violation of any Judgment.
Seller is not subject to any arbitrator's award.
3.12 Finders and Brokers. Seller has employed Bear Stearns as its
broker in the sale provided herein and will pay and discharge the claim thereof
for commission or expense reimbursement in connection therewith. Seller has not
entered into any other contract, arrangement or understanding with any Person or
firm, nor is it aware of any claim or basis for any claim based upon any act
or omission of Seller or any of its affiliates, which may result in the
obligation of Buyer to pay any finder's fees, brokerage or agent's commissions
or other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
3.13 Equipment. Schedule 3.13 contains Seller's listing of all material
Equipment, including converters, used or held for use by Seller in the operation
of the CATV Business. Except as set forth on Schedule 3.13, the Equipment and
Inventory is and will be at Closing in materially good operating condition and
repair (reasonable wear and tear excepted).
3.14 Insurance. Seller has in force policies of insurance with respect
to the Acquired Assets and the CATV Business and all bonds required to be
obtained by Seller with respect to the CATV Business, including without
limitation all bonds required by CATV Instruments, which insurance and bonds are
set forth on Schedule 3.14. Schedule 3.14 is complete and correct and the
insurance policies and bonds referred to therein are in full force and effect,
and Seller has received no notice of non-renewal or cancellation of such
insurance policies or bonds.
3.15 Accounts Receivable. The accounts receivable of Seller (to the
extent not heretofore or theretofore collected) arose and will arise from bona
fide transactions in the ordinary course of business.
21
<PAGE>
3.16 No Undisclosed Liabilities. Except as and to the extent set forth
on Schedule 3.16, Seller did not have any liability or obligation (direct or
indirect, absolute, fixed, contingent or otherwise) arising out of the Acquired
Assets or conduct of the CATV Business of the type or nature required by GAAP to
be reflected or reserved therein which were not reflected or reserved on the
Financial Statements or Interim Financial Statements, and Seller has not
incurred any such liability or obligation since the last day of the last Interim
Financial Statements, other than in the ordinary course of business.
3.17 Liabilities to Subscribers. There are no obligations or
liabilities to subscribers of the CATV Systems except with respect to (i)
prepayments or deposits made by such subscribers as set forth in the Financial
Statements or Interim Financial Statements or, since the last day of the Interim
Financial Statements incurred in the ordinary course of business consistent with
past practices and (ii) the obligation to supply services to subscribers in the
ordinary course of business.
3.18 Overbuilds. Except as set forth in Schedule 3.18, no construction
programs have been undertaken, or to Seller's knowledge, are proposed or
threatened to be undertaken, by any municipality or other cable television,
multichannel multipoint distribution systems or multipoint distribution system
provider or operator in any System Area served by the Systems.
3.19 Characteristics of CATV Business. Schedule 3.19 sets forth
accurately and completely the following information as of the date shown
thereon, in all material respects, with respect to the CATV Business:
(a) the approximate length of each of aerial and underground
cable;
(b) a summary description of all current marketing programs and
Seller's past practices with respect to marketing programs for the
past year; and
(c) a summary description of Seller's current disconnect policy.
4. Representations and Warranties of Buyer.
To induce Seller to enter into this Agreement, Buyer represents and
warrants to Seller as follows:
4.01 Organization and Authority of Buyer. Buyer is a Delaware limited
partnership duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization, and at Closing will be in good standing
under the laws of the State of Illinois, with all requisite power and
22
<PAGE>
authority to conduct its business and operations as presently conducted.
4.02 Legal Capacity: Approvals and Consents.
(a) Authority; Binding Effect. Subject to Section 9.02 hereof and
the Consents and approvals set forth on Schedules 3.02 and 4.05, Buyer
has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. Buyer has duly
taken all actions necessary to authorize the execution, delivery and
performance of this Agreement. This Agreement has been duly executed
and delivered by Buyer and is the valid and binding obligation of Buyer
enforceable in accordance with its terms, except as such enforceability
may be affected by laws of bankruptcy, insolvency, reorganization and
creditors rights generally and by the availability of equitable
remedies.
(b) No Breach or Violation. The execution, delivery and
performance of this Agreement does not, and will not, contravene the
certificate of limited partnership or agreement of limited partnership
of Buyer, and does not and will not: (i) conflict with or result in a
breach or violation by Buyer of, or (ii) constitute a default by Buyer
under, any Law, Judgment, contract, arrangement or understanding to
which Buyer is a party or by which Buyer is subject or bound or may be
affected.
4.03 Legal and Governmental Proceedings and Judgments. There is no
legal action, proceeding, or investigation pending or, to the knowledge of
Buyer, threatened against or otherwise involving Buyer, nor is there any
Judgment outstanding against Buyer or to or by which Buyer is subject or bound
which materially adversely affects the ability of Buyer to consummate any of the
transactions contemplated hereby.
4.04 Finders and Brokers. Buyer has employed Waller Capital
Corporation as its broker in the sale provided herein and will pay and discharge
the claim thereof for commission or expense reimbursement in connection
therewith. Buyer has not entered into any other contract, arrangement or
understanding with any Person, and is not aware of any claim or basis for any
claim based upon any act or omission of Buyer or any of its affiliates, which
may result in the obligation of Seller to pay any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby.
4.05 Buyer Consents. Subject to Section 9.02 hereof, except for the
parties listed in Schedule 4.05 and the Consents, there are no parties whose
approval or consent, or with whom the filing of any certificate, notice,
application, report or other document, is
23
<PAGE>
legally or contractually required or otherwise is necessary in connection with
the execution, delivery or performance of this Agreement by Buyer, except where
the failure to obtain such consent or approval would not reasonably be expected
to materially adversely affect Buyer's ability to perform its obligations
hereunder.
4.06 Acquisition of Rights. To Buyer's knowledge, there is no reason
relating to Buyer that any Governmental Authority or other party whose consent
is required or contemplated hereunder, would refuse to consent to the transfer
of CATV Instruments or any rights to Buyer hereunder or would condition granting
of any such consent on the performance by Seller or Buyer of any material
obligation not expressly set forth herein, except for matters which may come
into effect after the date of this Agreement affecting the cable television
industry generally.
5. Covenants Pending Closing.
5.01 Business of Seller. From the date hereof to the Closing Date, and
except as otherwise consented to or approved by Buyer in writing (which consent
shall not be unreasonably withheld), Seller covenants and agrees as follows:
(a) Business in Ordinary Course. Seller shall conduct the CATV
Business in the ordinary course, consistent with past practices and
will not engage in any material transaction, including, without
limitation, entering into or amending in any material respect any
material CATV Instrument or material Contract, or making any material
advance or expenditure, other than in the ordinary course of business
or in conformance with the then applicable budget, nor change in any
material respect its business policies or practices. Seller shall use
its reasonable commercial efforts to preserve the CATV Business
intact, to retain the services of its present employees and agents,
and to preserve its business relationships with, and the goodwill of,
its customers, suppliers and others. Seller shall pay before
delinquent all taxes and other charges upon or against Seller or any
of its properties or income, file when due all tax returns and other
reports required by Governmental Authorities and pay when due all
liabilities except those which it chooses to contest in good faith and
by appropriate proceedings.
(b) Books and Records. Seller shall maintain its books, accounts
and records in the usual, regular and ordinary manner.
(c) Litigation During Interim Period. Seller will advise Buyer in
writing promptly ofthe assertion or commencement of any material
claim, litigation, labor dispute, proceeding or investigation in which
the Seller is a party or
24
<PAGE>
the Acquired Assets or CATV Business may materially be
affected.
(d) Material Contracts. Seller shall deliver to Buyer copies of
all material Contracts and all material CATV Instruments that are
entered into prior to the Closing.
(e) Capital Expenditures. Seller shall maintain the Acquired
Assets, including the plant and Equipment related thereto, in good
operating condition (normal wear and tear excepted), and Seller shall
implement any capital expenditures in accordance with Seller's 1997
Budget.
(f) Asset Sales. Seller shall not sell, transfer or assign any
Acquired Assets other than on an arms-length basis in the ordinary
course of business consistent with past practices.
(g) Salary Increase. Seller shall not increase the compensation
or change any benefits available to employees of Seller who work in
the CATV Business except as required pursuant to existing written
agreements or except in the ordinary course of business consistent
with past practice or in accordance with Seller's 1997 Budget.
(h) Continued Disconnect Policy. Seller shall continue to
implement its disconnect policy in connection with service to Basic
Subscribers.
(i) Inventory Maintenance. Seller shall maintain inventories of
equipment, cable and supplies at normal levels consistent with past
practice or Seller's 1997 Budget.
(j) Marketing Programs. Seller shall not implement any new
marketing program or implement any rate change, retiering or
repackaging unless required by law or consistent with Seller's 1997
Budget.
5.02 Access to Information. Between the date of this Agreement and the
Closing, Buyer shall have reasonable access during normal business hours to all
of the properties, books, reports, records, CATV Instruments and Contracts of
Seller related to the CATV Business, and Seller shall furnish Buyer with all
information it may reasonably request related to the CATV Business. All
information obtained by Buyer pursuant to this Agreement and in connection with
the negotiation hereof shall be used by Buyer solely for purposes related to
this Agreement and the acquisition of the Acquired Assets and, in the case of
non-public information, shall, except as may be required for the performance of
this Agreement or by Law, be kept in strict confidence by Buyer.
25
<PAGE>
5.03 Applications for Assignment of Contracts or CATV Instruments. In
order to secure requisite consents or approvals of the transfer of control to
Buyer of any Contracts or CATV Instruments, Seller shall proceed as promptly as
practicable and in good faith and using reasonable commercial efforts, to
prepare, file and prosecute such application or applications as may be necessary
to obtain each such consent or approval. Buyer and Seller shall use reasonable
efforts to promptly assist each other and shall take such prompt and affirmative
actions as may be reasonably necessary in obtaining such approvals and shall
cooperate with each other in the preparation, filing and prosecution of such
applications as may be reasonably necessary, and agree to furnish all
information required by the approving entity, and to be represented at such
meetings or hearings as may be scheduled to consider such applications. Without
limiting in any respect the foregoing, each party agrees to file mutually
acceptable applications to all appropriate Governmental Authorities for all
consents or approvals required to consummate the transactions hereunder within
forty-five (45) days after the date of this Agreement. In the event that Buyer
amends or modifies any such application for transfer of control of any Contracts
or CATV Instruments and the approval period for such transfer is extended by any
such Governmental Authority or other third party to a date beyond the Outside
Date, then Seller may (if it so elects) extend the Outside Date in Section 12.01
to a date that will give effect to any resulting delay. "Reasonable commercial
efforts" for this purpose shall not require any change in any CATV Instrument or
Contract as a condition to obtaining any Consent, the effect of which is to make
such CATV Instrument or Contract more burdensome, or otherwise to undertake
extraordinary or unreasonable measures to obtain such approvals and consents,
including, without limitation, the initiation or prosecution of legal
proceedings or the payment of fees in excess of normal and usual filing and
processing fees.
5.04 Notification of Certain Matters. Each party will promptly notify
the other of any fact, event, circumstance or action the existence or occurrence
of which would cause any of such party's representations or warranties under
this Agreement not to be true and correct in any material respect.
5.05 Risk of Loss; Condemnation.
(a) In the event of any loss or damage to the Acquired Assets or
the CATV Business resulting from fire, theft or other casualty at all
times prior to the Closing, (i) Seller shall either rebuild or restore
such Acquired Assets or the CATV Business in substantially the
condition immediately preceding such loss or damage, or (ii) at the
Closing, all insurance proceeds paid or payable as a result of the
occurrence of the event causing such loss or damage will be delivered
by Seller to Buyer, or the rights to such proceeds will be assigned by
Seller to Buyer if not yet paid
26
<PAGE>
over to Seller, together with such additional sums, if any, that are
necessary to either rebuild or restore such Acquired Assets or the
CATV Business in substantially the condition immediately preceding
such loss or damage. If Buyer disputes the amount paid or payable in
clause (ii), Buyer's good faith itemized, with reasonable specificity,
written estimate of any deficiency shall be withheld from Buyer's
payment of the Purchase Price and deposited by Buyer in the Indemnity
Escrow until such matter is resolved. Notwithstanding the provisions
set forth above, if, in the event of such loss or damage, Buyer
notifies Seller that Buyer intends to rebuild or upgrade the CATV
System affected by such loss or damage and that, as a result thereof,
Buyer elects not to have Seller either rebuild or restore such
Acquired Assets or CATV Business, then Seller shall deliver to Buyer
at Closing (A) the amounts and/or rights to proceeds referred to in
clause (ii) above or (B) such amount as Seller would have been
required to expend or incur (which amount shall include a reasonable
allocation for in-house labor and similar expenses) to rebuild or
restore pursuant to clause (i) above, if Seller demonstrates, to
Buyer's reasonable satisfaction, that such amounts would have been
less than the amount referred to in clause (A) above.
(b) If, prior to the Closing, any portion of any CATV System is
taken or condemned as a result of the exercise of the power of eminent
domain, or if a Governmental Authority having such power informs
Seller or Buyer that it intends to condemn any portion of any CATV
System (such event being referred to herein, in either case, as a
"Taking"), then Seller shall be relieved of its obligation to convey
to Buyer the Acquired Asset or interests that are the subject of the
Taking, prior to the Closing, Seller shall not settle any claim for
damages without Buyer's consent (which consent shall not unreasonably
be withheld), and at the Closing Seller shall assign to Buyer all of
Seller's rights (including the right to receive payment of damages)
with respect to such Taking and shall pay to Buyer all damages
previously paid to Seller with respect to the Taking.
5.06 No Solicitation. Between the date of this Agreement and the
Closing Date, Seller shall not, and shall cause its officers, directors,
employees, agents and representatives not to, initiate, solicit or encourage,
directly or indirectly, any inquiries or the making of any proposal with respect
to the CATV Business, engage in any negotiations concerning, or provide to any
other Person any information or data relating to the CATV Business, the CATV
Systems, or the Acquired Assets for the purposes of, or have any discussions
with any Person relating to, or otherwise cooperate in any way with or assist
or participate in, facilitate or encourage, any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to, any effort
or attempt by any other Person to seek or effect a sale of all or
27
<PAGE>
substantially all of the Acquired Assets, the CATV Systems or the CATV Business.
5.07 Form 394. Promptly after the date of this Agreement, Seller shall,
at its own expense, prepare and file within 45 days of the date hereof properly
prepared Applications for Franchise Authority Consent to Assignment or Transfer
of Control or Cable Television Franchise FCC 394 ("Form 394") with the local
Government Authorities that have issued franchises to Seller, and shall file all
additional information required by such franchises or applicable local Laws or
that the Governmental Authorities deem necessary or appropriate in connection
with their consideration of the request that such authority approve of the
transfer of the CATV Licenses to Buyer.
5.08 Title Matters. Within twenty (20) days after the execution of this
Agreement, Seller shall, at its expense, commission a qualified title company to
prepare and provide a preliminary title report, and Seller shall promptly
provide a copy of the preliminary title report to Buyer, together with complete
copies of all documents relating to the title exceptions referred to in the
preliminary title report with respect to each parcel of Real Property owned by
Seller. Prior to or at the Closing, Seller shall, at its expense, obtain title
insurance in form reasonably satisfactory to Buyer.
5.09 Phase I Study. Within twenty (20) days after the execution of this
Agreement, Seller shall at its sole expense, commission a qualified engineering
firm to conduct the Phase I Study (the "Study") in accordance with ASTM Standard
1527-94 with respect to all parcels of Real Property except for the CATV
Business' leased administrative offices. Within three (3) business days of
receipt of the completed Study, Seller shall promptly deliver the Study to
Buyer. Buyer shall notify Seller in writing within ten (10) business days of
receiving the Study if Buyer believes the Study discloses an environmental
condition that (i) could reasonably be expected to impair the use or value of
such Real Property for the continued operation of the CATV Business as operated
by Seller on the Closing Date or subject Buyer to any liability for fines,
penalties, or cleanup or response costs if Buyer consummates this Agreement, or
(ii) would cause a reasonable purchaser experienced in environmental matters to
perform further investigation or testing before proceeding with the transfer of
the Real Property. Seller shall promptly commence further investigation and/or
remedial action at its expense to cure the condition prior to the Closing;
provided that Seller shall not be obligated to spend more than One Million
Dollars ($1,000,000) in the aggregate in its attempt to cure all such
conditions. Seller shall notify Buyer within ten (10) business days after its
receipt of such written notice from Buyer if Seller determines that it is or
will be unable to cure such conditions for One Million Dollars ($1,000,000) or
less. If Seller exercises the right not to cure
28
<PAGE>
such conditions because the aggregate cost would exceed One Million Dollars
($1,000,000), Buyer may elect (i) to terminate this Agreement with no cost or
obligation on the part of Seller or Buyer or (ii) to waive such obligations, in
which event Buyer shall receive a credit at the Closing in the amount, if any,
by which One Million Dollars ($1,000,000) exceeds the aggregate amount paid by
Seller to third parties in connection with curing such conditions and assume all
liabilities and obligations in connection with such conditions and hold harmless
and indemnify Seller from same in accordance with this Agreement.
5.10 Monthly Financial Statements. Between the date of execution and
delivery of this Agreement and the Closing Date, Seller shall deliver to Buyer
within thirty (30) days after the end of each calendar month, unaudited
financial reports ("Monthly Financial Statements") in the form customarily
prepared by Seller with respect to the CATV System and the CATV Business and
other reports with respect to the CATV System and the CATV Business (including,
without limitation, reports setting forth the revenue and cash flow of the
System for each month and year-to-date, subscriber information for Basic
Subscribers, disconnect requests, miles of plant, homes passed and such other
information as Buyer may reasonably request, if and to the extent customarily
prepared by Seller, and in the form customarily prepared by Seller, beginning as
soon as practicable after the date of this Agreement). Such Monthly Financial
Statements shall present fairly and accurately the financial condition and
results of operations of Seller and the CATV System for the period then ended
and as of such dates consistently applied through the periods specified subject
to normal year end adjustments. Seller shall additionally provide Buyer with
quarterly capital expenditure reports with respect to the CATV System.
6. Deliveries at Closing.
6.01 Deliveries by Seller. At the Closing, Seller will deliver or cause
to be delivered to Buyer:
(a) Such warranty or trustee's deeds, certificates or title
policies, bills of sale, endorsements, and other good and sufficient
instruments of conveyance, transfer and assignment as are necessary to
vest in Buyer the right, title and interest of Seller in accordance
herewith in and to the Acquired Assets in a form reasonably
satisfactory to Buyer.
(b) A certificate signed by a principal officer of the Seller,
dated as of the Closing, representing and certifying to Buyer as to
the matters set forth in Sections 7.02, 7.03, 7.04 and 7.05.
29
<PAGE>
(c) The Bill of Sale, General Assignment, and Instrument of
Assumption of Liabilities in the form of Exhibit B hereto.
(d) An opinion of Seller's Local Counsel, substantially in the
form of Exhibit D hereto, and an opinion of Seller's FCC Counsel,
substantially in the form of Exhibit F hereto.
(e) Evidence that the waiting period under the HSR Act, if
applicable, has expired.
(f) Evidence in a form and substance reasonably satisfactory to
Buyer of receipt of the consents and approvals listed on Schedule 3.02
and designated by an asterisk as required as conditions to the
transactions contemplated hereunder have been obtained (the "Closing
Consents").
6.02 Deliveries by Buyer. At the Closing, Buyer will deliver or cause
to be delivered to Seller:
(a) The Purchase Price as provided in Section 2.02, less the
Subscriber Adjustment, if any, less the Indemnity Escrow Deposit,
which shall be delivered to the Indemnity Escrow Agent as provided in
Section 2.02, and less any other adjustments provided herein.
(b) The Bill of Sale, General Assignment, and Instrument of
Assumption of Liabilities in the form of Exhibit B hereto.
(c) A certificate signed by a principal officer of Buyer dated as
of the Closing, representing and certifying to Seller as to matters
set forth in Sections 8.02, 8.03 and 8.04.
(d) An opinion of Buyer's Counsel, substantially in the form of
Exhibit E hereto.
(e) Evidence in a form and substance reasonably satisfactory to
Seller that the consents and approvals referred to in Schedule 4.05
have been obtained.
(f) Evidence that the waiting period under the HSR Act, if
applicable, has expired.
7. Conditions to the Obligations of Buyer.
The obligations of Buyer to complete the transactions provided for
herein are subject to the fulfillment, of all of the following conditions any of
which may be waived in writing by Buyer:
30
<PAGE>
7.01 Receipt of Consents. The conditions specified in Section 9.02 have
been satisfied, the approvals and consents of Governmental Authorities have been
obtained for franchises which represent at least ninety percent (90%) of the
Basic Subscribers, and shall be in full force and effect, and all other Closing
Consents have been obtained and shall be in full force and effect; provided,
however, that upon completion of the Closing, the provisions of Section 9.05
hereof with regard to Retained Franchises shall apply.
7.02 Seller's Authority. All actions under the documents governing the
Seller necessary to authorize (i) the execution and delivery of this Agreement
by Seller and the performance by Seller of its obligations under this Agreement
and (ii) the consummation of the transactions contemplated hereby, shall have
been duly and validly taken by Seller and shall be in full force and effect on
the Closing Date.
7.03 Absence of Proceedings. No Judgment shall have been issued
enjoining or preventing the consummation of the transactions contemplated
hereby.
7.04 Performance by Seller. Seller shall have performed its agreements
and covenants hereunder (including, without limitation, its covenants in
Articles 5 and 6) to the extent the failure to so perform would not result in a
Material Adverse Effect.
7.05 Absence of Breach of Warranties and Representations. The
representations and warranties of Seller contained in this Agreement shall be
true and correct on and as of the Closing Date with the same force and effect as
if made on and as of such date, except to the extent that such representations
and warranties describe a condition on a specified time or date or are affected
by the conclusion of the transactions permitted or contemplated hereby or the
conduct of the CATV Business in accordance with Article 5 hereof between the
date hereof and the Closing Date and except where the falsehood or inaccuracy of
any representation or warranty would not have or result in a Material Adverse
Effect.
7.06 Minimum Amount of Subscribers. As of the Closing, the CATV
Business shall include not less than Sixty-One Thousand Five Hundred (61,500)
Basic Subscribers.
8. Conditions to the Obligations of Seller.
The obligations of Seller to complete the transactions provided for
herein are subject to the fulfillment of all of the following conditions, any of
which may be waived in writing by Seller.
8.01 Receipt of Consents. The conditions specified in Section 9.02
shall have been satisfied and the approvals and
31
<PAGE>
consents of Governmental Authorities shall have been obtained for franchises
which represent at least ninety percent (90%) of the Basic Subscribers and shall
be in full force and effect; provided, however, that upon completion of the
Closing, the provisions of Section 9.05 hereof with regard to Retained
Franchises shall apply.
8.02 Buyer's Authority. All actions under the documents governing Buyer
necessary to authorize (i) the execution, delivery and performance by Buyer of
this Agreement, and (ii) the consummation of the transactions contemplated
hereby, shall have been duly and validly taken by Buyer and shall be in full
force and effect on the Closing Date.
8.03 Performance by Buyer. Buyer shall have performed in all material
respects all covenants and agreements to be performed by it hereunder to the
extent such are required to be performed at or prior to the Closing.
8.04 Absence of Breach of Representations and Warranties. All
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same effect as if then made.
8.05 Absence of Proceedings. No Judgment shall have been issued
enjoining or preventing the consummation of the transactions contemplated
hereby.
9. Covenants.
9.01 Compliance with Conditions. Each of the parties hereto covenants
and agrees with the other to exercise reasonable commercial efforts to perform,
comply with and otherwise satisfy each and every one of the conditions to be
satisfied by such party hereunder and each party shall use reasonable commercial
efforts to notify promptly the other if it shall learn that any conditions to
performance of either party will not be fulfilled.
9.02 Compliance with HSR Act and Rules.
(a) The performance of the obligations of all parties under this
Agreement is subject to the condition that, if the HSR Act and Rules
are applicable to the transactions contemplated hereby, the waiting
period specified therein, as the same may be extended, shall have
expired without action taken to prevent the consummation of the
transactions contemplated hereby.
(b) Each of the parties hereto will use its reasonable commercial
efforts to comply promptly with any applicable requirements under the
HSR Act and rules relating to filing and furnishing of information to
the FTC and the Antitrust Division of the DOJ, the parties' actions to
32
<PAGE>
include, without limitation, (i) filing or causing to be filed the HSR
report required to be filed by them, or by any other Person that is
part of the same "person" (as defined in the HSR Act and Rules) or any
of them, and taking all other action required by the HSR Act or Rules;
(ii) coordinating the filing of such HSR Reports (and exchanging drafts
thereof) so as to present both HSR Reports to the FTC and the DOJ at
the time selected by the mutual agreement of Seller and Buyer, and to
avoid substantial errors or inconsistencies between the two in the
description of the transaction; and (iii) using their reasonable
commercial efforts to comply with any additional request for documents
or information made by the FTC or the DOJ or by a court and assisting
the other parties to so comply.
(c) Notwithstanding anything herein to the contrary, in the event
that the consummation of the transactions contemplated hereby is
challenged by the FTC or the DOJ or any agency or instrumentality of
the federal government by an action to stay or enjoin such
consummation, then Buyer and Seller shall cooperate with each other, as
reasonably requested, to contest such action until such time as either
party terminates this Agreement under this Section or Article 12. In
the event that a permanent stay or injunction is granted, then either
Buyer or Seller may terminate this Agreement by prompt written notice
to the other. If any other form of equitable relief affecting any party
is granted to the FTC, the DOJ or other such agency or instrumentality,
then such party may terminate this Agreement by prompt written notice
to the other party. Upon any such termination pursuant to this Section
9.02(c), neither party shall have any further obligation or liability
to the other under this Agreement. To effectuate the intent of the
foregoing provisions of this Section 9.02, the parties agree to
exchange requested or required information in making the filings and in
complying as above provided, and the parties agree to take all
necessary steps to preserve the confidentiality of the information set
forth in any filings including, without limitation, limiting disclosure
of exchanged information to counsel for the nondisclosing party.
9.03 Records, Taxes and Related Matters. Seller and Buyer shall each
make their respective books and records (including work papers in the possession
of their respective accountants) available for inspection by the other party, or
by its duly authorized representatives, for reasonable business purposes at all
reasonable times during normal business hours, for a seven (7) year period after
the Closing Date with respect to all transactions of the CATV Business occurring
prior to or relating to the Closing, and the historical financial condition,
assets, liabilities, results of operation and cash flows of the CATV Business
for any period prior to the Closing. In the case of records owned by Seller,
such
33
<PAGE>
records shall be made available at Seller's executive office, and in the case of
records owned by Buyer, such records shall be made available at the office at
which such records are maintained. As used in this Section 9.04, the right of
inspection includes the right to make copies for reasonable business purposes.
In all cases where Buyer, pursuant to the terms hereof, has assumed Seller's
liability for the payment of taxes (including, without limitation, deposits),
Buyer shall (unless and to the extent otherwise requested by Seller) prepare and
file all returns, reports, information statements, forms or other documents
required to be filed with respect to such taxes, all in a timely and proper
fashion and as may be necessary or appropriate to assure that the Seller shall
be in full and prompt compliance with law, and Buyer shall pay or cause to be
paid all such taxes when due.
9.04 Non-Assignment. Notwithstanding any provision to the contrary
contained herein (but not in limitation of Seller's obligations under Section
5.03 or the conditions set forth in Section 7.01), Seller shall not be
obligated to assign to Buyer any Contract or CATV Instrument which provides that
it may not be assigned without the consent of the other party thereto and for
which such consent is not obtained, but in any such event, Seller shall, to the
extent reasonably necessary, cooperate with Buyer in any commercially reasonable
arrangement designed to provide the benefits thereof to Buyer.
9.05 Retained Franchises. After satisfaction or waiver of the
conditions precedent to Buyer's obligation to close as set forth in Section
7.01, those franchises (and all assets related thereto) with respect to which
consent to transfer has not been obtained by the Closing Date (the "Retained
Franchises") shall be retained by the Seller and subsequently transferred to the
Buyer in accordance with the terms hereof.
(a) The Purchase Price payable at Closing shall be reduced by an
amount for each Retained Franchise determined as follows: the product
of One Thousand Five Hundred Sixteen Dollars ($1,516.00) and the
number of Basic Subscribers in such Retained Franchise at Closing (the
"Retained Franchise Price"). The Retained Franchise Price or, at
Buyer's option, an irrevocable letter of credit in an amount equal to
the Retained Franchise Price, shall be deposited or delivered by Buyer
into an escrow account. Concurrent with the Closing hereunder, the
parties shall adopt a form of escrow agreement with respect to the
Retained Franchises.
(b) Concurrent with the Closing hereunder, the Seller and the
Buyer shall adopt a form of management agreement with respect to each
of the Retained Franchises.
(c) Seller and Buyer shall continue to cooperate in attempting to
secure approval of the transfer of each Retained
34
<PAGE>
Franchise in accordance with the provisions of Section 5.03 hereof and
where a renewal application is pending at Closing, renewals of the
Retained Franchise. When such approval is obtained, there shall be
delivered to Seller from the escrow the Retained Franchise Price and
any income thereon and the Seller shall deliver to the Buyer a bill of
sale for the assets related to such Retained Franchise and such other
transfer documents as the Buyer may reasonably request.
(d) If such approval is not obtained within two (2) years after
Closing, the Buyer and the Seller shall negotiate in good faith so
that each party shall obtain the benefits and burdens contemplated
under this Agreement.
9.06 Covenant Not to Compete. The term "Covenantors" as used in this
Section 9.06 shall be defined to mean each of Seller, its parent, Cablevision
Systems Corporation, and all corporations, firms and entities wholly owned by
any or any combination of them.
(a) Except as set forth on Schedule 9.06,each Covenantor
covenants and agrees for itself only, that for a period of three years
after Closing (or such period as allowed by law if less than three
years), that such Covenantor will not compete with the CATV Business
within the System Areas. Notwithstanding anything contained herein,
the ownership of passive securities of any company which is "publicly
held" and which do not constitute more than five percent (5%) of the
voting rights or equity interest of such entity shall not constitute a
violation of this covenant.
(b) Each Covenantor agrees that in the event that any Covenantor
commits a breach or threatens to commit a breach of any of the
provisions of this Section 9.06, Buyer shall have the right and remedy
to have the provisions of this Section 9.06 specifically enforced by
any court having jurisdiction, it being acknowledged and agreed that
any such breach could cause immediate irreparable injury to Buyer and
that money damages would not provide an adequate remedy at law for any
such breach or threatened breach.
(c) If any of the provisions of or covenants contained in this
Section 9.06 are hereafter construed to be wholly or to any extent
invalid or unenforceable in any jurisdiction, the same shall be deemed
automatically modified to the minimum extent necessary to make such
provision or covenant enforceable, and the same shall not affect the
remainder of the provisions to the extent not invalid or unenforceable
in such jurisdiction or the enforceability thereof without limitation
in any other jurisdiction.
35
<PAGE>
10. Survival of Representations, Warranties, Covenants and Other
Agreements; Indemnification.
10.01 Survival of Representations, Warranties, Covenants and other
Agreements. All representations, warranties, covenants and other agreements made
by either party in this Agreement (other than representations and warranties
relating to (i) environmental matters, which shall survive the Closing for a
period of three years, and (ii) taxes, title, and third party claims for periods
prior to Closing, which shall survive for the applicable statute of limitations
period) shall survive the Closing for a period of one year, and shall thereafter
terminate.
10.02 Indemnification by Seller.
(a) Indemnity. Subject to Section 10.01, Seller agrees to
indemnify, defend and hold harmless Buyer, its affiliates and their
respective shareholders, directors, officers, partners, employees,
agents, successors and assigns (a "Seller Indemnified Party"), from
and against all losses, damages, liabilities, deficiencies or
obligations, including, without limitation, all claims, actions,
suits, proceedings, demands, judgments, assessments, fines, interest,
penalties, costs and expenses (including, without limitation,
settlement costs and reasonable legal fees) (collectively, "Losses")
to which they may become subject as a direct result of (x) the
Excluded Liabilities and (y) any and all misrepresentations or
breaches of a representation herein or warranty or the non-performance
or breach of any covenants or agreements of Seller contained herein;
provided, however, that for purposes of determining whether there
exists or has occurred a misrepresentation or breach of a
representation or warranty contained herein, or the nonperformance or
breach of any covenants or agreements of Seller contained herein, all
representations, warranties, covenants or agreements of Seller
contained in this Agreement shall be read without any reference to the
words or phrases "material," "material adverse affect,"
"materially adversely affect" or similar word or phrase relating to
materiality, as if such representation, warranty, covenant or
agreement were written without any such word or phrase.
(b) Payment. Any obligations of Seller under the provisions of
this Article shall be paid promptly to the Seller Indemnified Party by
Seller and shall represent a retrospective adjustment to Purchase
Price.
(c) Notwithstanding anything contained herein to the contrary,
the indemnification provided in this Section 10.02 shall only apply to
the extent that, and not until, (i) any particular indemnity claim or
series of related indemnity claims equals or exceeds Ten Thousand
Dollars
36
<PAGE>
($10,000) (the "Section 10.02 Claim Threshold"), in which event the
indemnification shall apply to the full amount of the claim without
regard to the Section 10.02 Claim Threshold and (ii) the aggregate of
all amounts subject to indemnification hereunder exceeds the sum of
Five Hundred Thousand Dollars ($500,000) (the "Section 10.02 Basket"),
in which event the indemnification shall apply only to the extent that
the aggregate amount of all claims exceed the Section 10.02 Basket. In
any event, the maximum amount that Seller will be required to pay
under this Section 10.02 in respect of all claims by all parties is
Five Million Dollars ($5,000,000); provided, however, that the Section
10.02 Claim Threshold, the Section 10.02 Basket and the $5,000,000
maximum shall not apply to the failure of Seller to pay the Excluded
Liabilities.
10.03 Indemnification by Buyer.
(a) Indemnity. Subject to Section 10.01, Buyer agrees to
indemnify, defend and hold harmless Seller and its shareholders,
partners, directors, officers, employees, agents, successors and
assigns (a "Buyer Indemnified Party"), from and against all losses,
damages, liabilities, deficiencies or obligations including, without
limitation, all claims, actions, suits, proceedings, demands,
judgments, assessments, fines, interest, penalties, costs and expenses
(including, without limitation, settlement costs and reasonable legal
fees) to which they may become subject as a direct result of: (i) any
and all misrepresentations or breaches of a representation or warranty
or the nonperformance or breach of any covenant or agreement of Buyer
contained herein; (ii) the Assumed Liabilities; or (iii) the ownership
and operation of the Acquired Assets and the CATV Business after the
Closing.
(b) Payment. Any obligations of Buyer under the provisions of
this Article shall be paid promptly to the Buyer Indemnified Party by
Buyer.
(c) Notwithstanding anything contained herein to the contrary,
the indemnification provided in this Section 10.03 shall only apply to
the extent that, and not until, (i) any particular indemnity claim
or series of related indemnity claims equals or exceeds Ten Thousand
Dollars ($10,000) (the "Section 10.03 Claim Threshold"), in which
event the indemnification shall apply to the full amount of the claim
without regard to the Section 10.03 Claim Threshold and (ii) the
aggregate of all amounts subject to indemnification hereunder exceeds
the sum of Five Hundred Thousand Dollars ($500,000) (the "Section
10.03 Basket"), in which event the indemnification shall apply only to
the extent that the aggregate amount of all claims exceed the Section
37
<PAGE>
10.03 Basket. In any event, the maximum amount that Buyer will be
required to pay under this Section 10.03 in respect of all claims by
all parties is Five Million Dollars ($5,000,000); provided, however,
that the Section 10.03 Claim Threshold, the Section 10.03 Basket and
the $5,000,000 maximum shall not apply to the failure of Buyer to pay
all or any portion of the Purchase Price and the failure of Buyer to
pay the Assumed Liabilities.
10.04 Third Party Claims. If any claim ("Asserted Claim") covered by
the foregoing indemnities is asserted against any indemnified party
("Indemnitee"), it shall be a condition to the obligations under this Article
that the Indemnitee shall promptly give the indemnifying party ("Indemnitor")
notice thereof in accordance with Section 13.05. The Indemnitee shall give
Indemnitor an opportunity to control negotiations toward resolution of such
claim without the necessity of litigation, and, if litigation ensues, to defend
the same with counsel reasonably acceptable to Indemnitee, at Indemnitor's
expense, and Indemnitee shall extend reasonable cooperation in connection with
such defense. If the Indemnitor fails to assume control of the negotiations
prior to litigation or to defend such action within a reasonable time,
Indemnitee shall be entitled, but not obligated, to assume control of such
negotiations or defense of such action, and Indemnitor shall be liable to the
Indemnitee for its expenses reasonably incurred in connection therewith which
Indemnitor shall promptly pay. Neither Indemnitor nor Indemnitee shall settle,
compromise, or make any other disposition of any Asserted Claims, which would or
might result in any liability to Indemnitee or Indemnitor, respectively, under
this Article 10 without the written consent of Indemnitee or Indemnitor,
respectively, which shall not be unreasonably withheld, provided, that the
Indemnitor may settle, compromise or make any other disposition of any Asserted
Claims if the same includes a complete discharge of the Indemnitee.
11. Further Assurances.
From time to time after the Closing, each party will execute and
deliver such other instruments of conveyance and transfer, fully cooperate with
the other party and take such other actions as the other party reasonably may
request to effect the purposes and intent of this Agreement; provided, however,
that nothing in this Agreement shall be deemed to require or permit the Seller
or Buyer to take any action that would otherwise require approval of any CATV
Licenses by any Governmental Authority prior to the time such approval is
obtained.
12. Closing.
12.01 Closing. The Closing shall take place at the offices of Buyer's
Counsel at 10:00 A.M., local time, on the fifth (5th) business day after all
conditions to Closing hereunder shall have
38
<PAGE>
been satisfied or waived by the parties hereto (the "Closing Date"); provided,
however, that if the Closing shall not have occurred prior to one year from the
date of this Agreement or as extended pursuant to Section 5.03 (the "Outside
Date"), this Agreement shall terminate unless otherwise provided by the mutual
written agreement of Buyer and Seller; provided, further, without Buyer's
consent, the Closing shall not occur prior to November 30, 1997 (however, if all
of the conditions to the obligations of the Buyer set forth in Article 7 shall
have been waived or materially satisfied prior to November 30, 1997, and Buyer
has not closed as provided hereinabove prior to November 30, 1997, at Closing,
Buyer shall reimburse Seller for all budgeted capital expenditure payments made
by Seller between the date the Closing would have occurred pursuant to the first
clause of this sentence and the Closing). If, as of the Outside Date, the
Closing cannot be effected, all parties hereto shall be released from all
obligations hereunder other than obligations arising from a breach or default
hereunder, and each party hereto will bear expenses as provided in Section 13.06
hereof. At the Closing, the parties hereto shall execute and deliver all
instruments and documents as shall be necessary in the reasonable opinion of
counsel for the respective parties to consummate the transactions contemplated
herein.
12.02 Termination. In addition to the termination provided for in
Section 12.01, this Agreement may be terminated and the transactions
contemplated hereby may be abandoned:
(a) At any time, by the mutual written agreement of Buyer and
Seller;
(b) By Buyer, upon and effective as of the date of written notice
to Seller, if any of the conditions to the obligations of Buyer set
forth in Article 7 shall not have been waived or materially satisfied
at the time of the Closing;
(c) By Seller, upon and effective as of the date of written
notice to Buyer, if any of the conditions to the obligations of
Seller set forth in Article 8 shall not have been waived or materially
satisfied at the time of the Closing;
(d) By Buyer, upon and effective as of the date of written notice
to Seller, pursuant to the termination provisions of Section 5.09; or
(e) By Seller or Buyer, upon and effective as of the date of
written notice to the other, pursuant to the termination provisions of
Section 9.02.
39
<PAGE>
12.03 Remedies Upon Default.
(a) Buyer's Default. Subject to the last sentence of this
Section, if Seller terminates this Agreement pursuant to Section 12.02
(c) hereof, if any of the conditions set forth in Sections 8.02, 8.03
or 8.04 shall not have been waived or materially satisfied at the time
of Closing, then, unless Seller is in material breach hereunder or at
the Closing there is a nonfulfillment of any of the conditions
precedent specified in Article 7 hereof, Seller shall be entitled to
receive the deposit or the proceeds thereof in the Earnest Money
Escrow, plus all interest earned thereon, pursuant to the Earnest
Money Escrow Agreement. The parties agree that such payment to Seller
shall constitute liquidated damages and not a penalty, and Buyer shall
have no further obligation or liability to Seller under this
Agreement.
(b) Seller's Default. If all conditions to the obligations of the
parties set forth in Articles 7 and 8 have been waived or materially
satisfied and Seller refuses to close the transaction contemplated
hereunder, or if by action or inaction, Seller shall not have met or
refuses to meet its obligations hereunder at any time, Buyer shall be
entitled to specific performance if and to the extent available. If
specific performance is not for any reason an available remedy, and if
Buyer terminates this Agreement pursuant to Section 12.02(b) if any
of the conditions set forth in Sections 7.02, 7.04 or 7.05 shall not
have been waived or materially satisfied at the time of Closing or
Seller shall not have met or refuses to meet its obligations
hereunder, then Buyer shall be entitled to its direct out-of-pocket
costs and expenses (including reasonable attorneys' fees) up to a
maximum of Five Hundred Thousand Dollars ($500,000); provided,
however, (i) if Seller sells or agrees to sell the CATV Business to
any other party within two (2) years after the earlier of the date
Buyer terminates this Agreement pursuant to Section 12.02(b) or the
Outside Date or (ii) Seller intentionally breaches this Agreement,
resulting in Seller not selling the CATV Business to Buyer, then, and
only in either of such events, Buyer shall be entitled to Losses,
without regard to a threshold to a maximum of Nine Million Seven
Hundred Dollars ($9,700,000).
12.04 Return of Earnest Money Escrow. Subject to the provisions of
Section 12.03(a), upon termination of this Agreement, the Earnest Money
Escrow, plus all interest earned thereon, shall be paid or delivered to Buyer.
13. Miscellaneous.
13.01 Amendments; Waivers. This Agreement cannot be changed or
terminated orally and no waiver of compliance with any provision
40
<PAGE>
or condition hereof and no consent provided for herein shall be effective unless
evidenced by an instrument in writing duly executed by the party hereto sought
to be charged with such waiver or consent. No waiver of any term or provision
hereof shall be construed as a further or continuing waiver of such term or
provision or any other term or provision. Any condition to the performance of
any party hereto which may legally be waived at or prior to the Closing may be
waived in writing at any time by the party or parties entitled to the benefit
thereof.
13.02 Entire Agreement. This Agreement and all contemporaneously
executed documents, letters and understandings set forth the entire
understanding and agreement of the parties and supersedes any and all prior
agreements, memoranda, arrangements and understandings relating to the subject
matter hereof. No representation, warranty, promise, inducement or statement of
intention has been made by any party which is not contained in this Agreement or
any such contemporaneously executed documents, letters and understandings, and
no party shall be bound by, or be liable for, any alleged representation,
promise, inducement or statement of intention not contained herein or therein.
13.03 Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement may not be assigned by any party without the
prior written consent of the other parties hereto.
13.04 Construction; Counterparts. The Article and Section headings of
this Agreement are for convenience of reference only and do not form a part
hereof and do not in any way modify, interpret or construe the intentions of the
parties. This Agreement may be executed in one or more counterparts, and all
such counterparts shall constitute one and the same instrument.
13.05 Notices. All notices and communications hereunder shall be in
writing and shall be deemed to have been duly given to a party when delivered in
person or by facsimile, or three business days after such notice is enclosed in
a properly sealed envelope, certified or registered, and deposited (postage and
certification or registration prepaid) in a post office or collection facility
regularly maintained by the United States Postal Service, or one business day
after delivery to a nationally recognized overnight courier service, and
addressed as follows:
If to Seller: A-R Cable Services, Inc.
One Media Crossways
Woodbury, New York 11797
Facsimile No.: (516) 396-8768
Telephone: (516) 364-8450
Attention: General Counsel
41
<PAGE>
copies to: Cablevision Systems Corporation
One Media Crossways
Woodbury, New York 11797
Facsimile No.: (516) 396-8768
Telephone: (516) 364-8450
Attention: General Counsel
and
Holleb & Coff
55 E. Monroe Street, Suite 4100
Chicago, IL 60603
Telephone: (312) 807-4600
Facsimile: (312) 807-3900
Attention: Robert E. Kolek, Esq.
If to Buyer: c/o Insight Communications, Inc.
126 E. 56th St.
New York, NY 10022
Telephone: (212) 371-2266
Facsimile: (212) 371-1549
Attention: President
copies to: Cooperman Levitt Winikoff Lester &
Newman, P.C.
800 3rd Avenue
New York, NY 10022
Telephone: (212) 688-7000
Facsimile: (212) 755-2839
Attention: Robert L. Winikoff, Esq.
Any party may change its address for the purpose of notice by giving notice in
accordance with the provisions of this Section 13.05.
13.06 Expenses of the Parties. Except as otherwise provided herein, all
expenses incurred by or on behalf of the parties hereto in connection with the
authorization, preparation and consummation of this Agreement, including,
without limitation, all fees and expenses of agents, representatives, counsel
and accountants employed by the parties hereto in connection with the
authorization, preparation, execution and consummation of this Agreement shall
be borne solely by the party who shall have incurred the same.
13.07 Non-Recourse. No partner, officer, director, shareholder or other
holder of an ownership interest of or in either party to this Agreement shall
have any personal liability in respect of any such party's obligations under
this Agreement by reason of his or its status as such partner, officer,
director, shareholder or other holder.
42
<PAGE>
13.08 Third Party Beneficiary. This Agreement is entered into only for
the benefit of the parties and their respective successors and assigns, and
nothing hereunder shall be deemed to constitute any person a third party
beneficiary to this Agreement.
13.09 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF THE STATE
OF NEW YORK.
13.10 Press Releases. No press release or other public information
relating to the purchase and sale contemplated in this Agreement shall be made
or disclosed by either party hereto without the consent of the other party;
provided however, that either party may disclose such information if reasonably
deemed to be required by law by the legal counsel for such party.
13.11 Severability. If any provision of this Agreement is finally
determined to be illegal, void or unenforceable, such determination shall not,
of itself, nullify this Agreement which shall continue in full force and effect
subject to the conditions and provisions hereof.
[Signature Page Follows]
43
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Asset
Purchase Agreement as of the day and year first above written.
SELLER:
A-R CABLE SERVICES, INC.
By: /s/ William J. Bell
--------------------------------
Name: William J. Bell
Title: Vice Chairman
BUYER:
INSIGHT COMMUNICATIONS COMPANY, L.P.
By: ICC Associates, L.P.,
its general partner
By: Insight Communications, Inc.
its general partner
By: /s/ Michael S. Willner
----------------------------
Name: Michael S. Willner
Title: President
<PAGE>
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., as Sellers,
TCI IP-VI, LLC (For the Limited Purposes Set Forth in
Sections 6.12 and 8.2(g) and (h)),
AND
INSIGHT COMMUNICATIONS COMPANY, L.P.,
as Buyer
<PAGE>
PURCHASE AGREEMENT
DATED AS OF APRIL 18, 1999
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE 1
<S> <C> <C>
CERTAIN DEFINITIONS
1.1 Terms Defined in this Section......................................................................1
1.2 Terms Defined Elsewhere in this Agreement.........................................................12
1.3 Rules of Construction.............................................................................13
ARTICLE 2
SALE AND PURCHASE OF PURCHASED INTERESTS; PURCHASE PRICE
2.1 Sale and Purchase of Purchased Interests..........................................................14
2.2 Purchase Price for Purchased Interests............................................................14
2.3 Adjustments to Purchase Price.....................................................................15
2.4 Payment at Closing................................................................................19
2.5 Post-Closing Purchase Price Adjustments...........................................................19
2.6 Sellers' Representative...........................................................................22
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE GENERAL PARTNER
3.1 Organization and Ownership of InterMedia Companies................................................22
3.2 No Conflict; Required Consents....................................................................23
3.3 InterMedia Assets.................................................................................23
3.4 System Franchises, System Licenses, and System Contracts..........................................24
3.5 Real Property.....................................................................................25
3.6 Environmental.....................................................................................26
3.7 Compliance with Legal Requirements................................................................27
3.8 Patents, Trademarks and Copyrights. ..............................................................29
3.9 Financial Statements; Undisclosed Liabilities; Absence of Certain Changes or
Events............................................................................................29
3.10 Litigation........................................................................................30
3.11 Tax Returns.......................................................................................30
3.12 Employment Matters................................................................................30
</TABLE>
- i -
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.13 InterMedia Systems Information....................................................................31
3.14 Accounts Receivable...............................................................................32
3.15 Bonds; Letters of Credit; Insurance...............................................................32
3.16 Finders and Brokers...............................................................................32
3.17 Transactions with Affiliates......................................................................32
3.18 Competition.......................................................................................32
3.19 Pending Transactions..............................................................................33
3.20 Pending Swap Schedules............................................................................33
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS
4.1 Authority of Sellers; Authorization and Binding Obligation........................................33
4.2 No Conflict; Required Consents....................................................................33
4.3 Title to Purchased Interests......................................................................34
4.4 Litigation........................................................................................34
4.5 Finders and Brokers...............................................................................35
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
5.1 Organization; Authority...........................................................................35
5.2 Authorization and Binding Obligation..............................................................35
5.3 No Conflict; Required Consents....................................................................35
5.4 Finders and Brokers...............................................................................36
5.5 Investment Purpose................................................................................36
5.6 Investment Company................................................................................36
5.7 Litigation........................................................................................36
5.8 Balance Sheet.....................................................................................36
ARTICLE 6
SPECIAL COVENANTS AND AGREEMENTS
6.1 Access to Premises and Records. .................................................................36
6.2 Continuity and Maintenance of Operations; Certain Deliveries and
Notices...........................................................................................37
6.3 Required Consents, Franchise Renewal..............................................................38
6.4 Confidentiality; Press Release....................................................................40
6.5 Cooperation; Commercially Reasonable Efforts......................................................41
</TABLE>
- ii -
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
6.6 HSR Act...........................................................................................41
6.7 Tax Matters.......................................................................................41
6.8 Cooperation on Financing and SEC Matters..........................................................43
6.9 Schedules.........................................................................................44
6.10 Environmental Reports.............................................................................45
6.11 Year 2000 Matters.................................................................................45
6.12 Consent and Agreements of Sellers, TCI and Buyer..................................................46
6.13 WARN Act..........................................................................................47
6.14 Affiliate Transactions............................................................................47
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF BUYER AND SELLERS
7.1 Conditions to Buyer's Obligations.................................................................47
7.2 Conditions to Sellers' Obligations................................................................49
ARTICLE 8
CLOSING AND CLOSING DELIVERIES
8.1 Closing...........................................................................................50
8.2 Deliveries by Sellers.............................................................................51
8.3 Deliveries by Buyer...............................................................................52
ARTICLE 9
TERMINATION
9.1 Termination by Agreement..........................................................................53
9.2 Termination by Sellers............................................................................53
9.3 Termination by Buyer..............................................................................54
9.4 Effect of Termination.............................................................................56
9.5 Attorneys' Fees...................................................................................56
ARTICLE 10
MISCELLANEOUS
10.1 Fees and Expenses. ..............................................................................56
10.2 Notices ..........................................................................................57
10.3 Benefit and Binding Effect. .....................................................................58
10.4 Further Assurances. .............................................................................58
</TABLE>
- iii -
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.5 GOVERNING LAW. ..................................................................................59
10.6 Entire Agreement. ...............................................................................59
10.7 Amendments; Waiver of Compliance. ...............................................................59
10.8 Counterparts......................................................................................59
10.9 Rights Cumulative.................................................................................59
10.10 Survival..........................................................................................59
10.11 Commercially Reasonable Efforts...................................................................61
10.12 Effect of Agreement...............................................................................61
</TABLE>
- iv -
<PAGE>
TABLE OF SCHEDULES
<TABLE>
<CAPTION>
Schedule Description
- -------- -----------
<S> <C>
Schedule 2.3 Purchase Price Calculation
Schedule 3.1 Organization and Ownership of InterMedia Companies
Schedule 3.2 Conflicts; Required Consents
Schedule 3.3 Principal Items of Tangible Personal Property (including all motor
vehicles); Liens
Schedule 3.4 System Franchises, System Licenses and System Contracts
Schedule 3.5 Real Property
Schedule 3.6 Environmental
Schedule 3.7 Compliance with Legal Requirements
Schedule 3.8 Patents, Trademarks and Copyrights
Schedule 3.9 Financial Statements, Undisclosed Liabilities; Absence of Certain
Changes or Events
Schedule 3.10 Litigation
Schedule 3.11 Tax Matters
Schedule 3.12 Employment Matters
Schedule 3.13 InterMedia Systems Information
Schedule 3.15 Bonds; Letters of Credit; Insurance
Schedule 3.17 Transactions with Affiliates
Schedule 3.18 Competition
Schedule 4.2 Sellers Conflicts; Required Consents
Schedule 4.3 Title to Purchased Interests
Schedule 6.2 Post-Signing Operations
</TABLE>
- v -
<PAGE>
TABLE OF EXHIBITS
Exhibit Description
- ------- -----------
Exhibit A Form of Noncompetition Agreement
Exhibit B Form of Seller Release
Exhibit C Form of Post-Closing Escrow Agreement
Exhibit D Form of InterMedia Company Release
- vi -
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") is entered into as of April 18, 1999,
by and among InterMedia Capital Management VI, LLC, a Delaware limited liability
company (the "General Partner"), InterMedia Management, Inc., a California
corporation ("IMI"), Robert J. Lewis, an individual ("Lewis"), TCI ICM VI, Inc.,
a Delaware corporation ("TCI Inc."), InterMedia Capital Management VI, L.P., a
California limited partnership ("ICM-VI"), Blackstone KC Capital Partners L.P.,
a Delaware limited partnership, Blackstone KC Offshore Capital Partners L.P., a
Cayman Islands exempted limited partnership, Blackstone Family Investment
Partnership III L.P., a Delaware limited partnership, Leo J. Hindery, Jr., an
individual ("Hindery"), as Sellers, TCI IP-VI, LLC, a Delaware limited liability
company ("TCI LLC") (for the limited purposes set forth in Sections 6.12 and
8.2(g) and (h)), and Insight Communications Company, L.P., a Delaware limited
partnership ("Buyer").
RECITALS
The General Partner owns all of the general partnership interests in
InterMedia Capital Partners VI, L.P., a Delaware limited partnership (the
"Partnership"). ICM-VI, the Blackstone Partners (as defined below), Hindery and
TCI LLC are each limited partners of the Partnership and own limited partnership
interests in the Partnership. IMI is a limited partner of InterMedia Partners
Group VI, L.P., InterMedia Partners VI, L.P., and InterMedia Partners of
Kentucky, L.P. (the "Subsidiary Partnerships"). Buyer desires to acquire 50% in
the aggregate of the partnership interests in the Partnership and desires to
acquire from IMI all of its partnership interests in the Subsidiary
Partnerships, and the General Partner, ICM VI, IMI, Lewis, TCI Inc., the
Blackstone Partners, Hindery and TCI LLC (referred to collectively as the
"Sellers" and individually as a "Seller") desire to sell to Buyer such
partnership interests in the Partnership and the Subsidiary Partnerships, in
each case for the consideration and on the terms and conditions set forth in
this Agreement.
AGREEMENTS
In consideration of the above recitals and of the mutual agreements and
covenants contained in this Agreement, the parties to this Agreement, intending
to be bound legally, agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
1.1 Terms Defined in this Section. The following terms, as used in this
Agreement, have the meanings set forth in this Section:
"1992 Cable Act" means the Cable Television Consumer Protection and
Competition Act of 1992, as amended, and the FCC rules and regulations
promulgated thereunder, all as in effect from time to time.
<PAGE>
"Accounts Receivable" means all rights of the InterMedia Companies to
payment for goods or services provided prior to the Adjustment Time, including
but not limited to, rights to payment for cable services to customers of the
InterMedia Systems, rights to payment for telecommunications and other services
to customers of InterMedia's Business, the sale of advertising, the leasing of
channels, launch fees, co-op dollars, and other goods and services and rentals.
"Adjustment Time" means (a) with respect to Adjustment Assets and
Adjustment Liabilities and other items that primarily relate to the InterMedia
Companies as a whole, 11:59 p.m., local San Francisco time, on the day
immediately preceding the Closing Date, and (b) with respect to Adjustment
Assets and Adjustment Liabilities and other items that primarily relate to a
particular InterMedia System, 11:59 p.m. local time for that InterMedia System,
on the day immediately preceding the Closing Date.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with the specified Person,
where "control" means the ownership, directly or indirectly, of voting
securities representing the right generally to elect a majority of the directors
(or similar officials) of a Person or the possession, by contract or otherwise,
of the authority to direct the management and policies of a Person.
"Basic Services" means the lowest tier of cable television service
offered to subscribers of an InterMedia System that includes the retransmission
of local broadcast signals as defined by the Cable Act and the 1992 Cable Act.
"Blackstone Partners" means Blackstone KC Capital Partners L.P.,
Blackstone KC Offshore Capital Partners L.P., and Blackstone Family Investment
Partnership III L.P., each of which may be referred to herein individually as a
"Blackstone Partner."
"Business Day" means any day other than a Saturday, Sunday or a day on
which the banking institutions in New York, New York are required or authorized
to be closed.
"Cable Act" means the Cable Communications Policy Act of 1984, as
amended, and the FCC rules and regulations promulgated thereunder, all as in
effect from time to time.
"Capital Stock" means any and all shares, interests, or other
equivalent interests (however designated) in the equity of any Person, including
capital stock, partnership interests, and membership interests, and including
any rights, options or warrants with respect thereto.
"Charter Documents" means the articles or certificate of incorporation,
bylaws, certificate of limited partnership, partnership agreement, certificate
of formation, limited liability company operating agreement, articles of
association, and similar charter documents, as applicable to any Person other
than an individual.
- 2 -
<PAGE>
"Closing" means the consummation of the purchase and sale of the
Purchased Interests pursuant to this Agreement in accordance with the provisions
of Article 8.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations promulgated thereunder, all as in effect from time to time.
"Communications Act" means the Communications Act of 1934, as amended,
and the FCC rules and regulations promulgated thereunder, all as in effect from
time to time.
"Contract" means any contract, mortgage, deed of trust, bond,
indenture, lease, license, note, franchise, certificate, option, warrant, right
or other instrument, document, obligation or agreement, whether written or oral.
"Copyright Act" means the Copyright Act of 1976, as amended and in
effect from time to time.
"Credit Agreement" means the Revolving Credit and Term Loan Agreement
dated April 30, 1998 among InterMedia Partners VI, L.P., as Borrower, Toronto
Dominion (Texas), Inc., as Administrative Agent, and the other Lenders party
thereto, as amended by the First Amendment dated as of March 23, 1999.
"Environmental Law" means any binding applicable Legal Requirement
concerning the protection of the environment and public or employee health (to
the extent relating to the environment), including Legal Requirements relating
to emissions, discharges, releases or threatened releases of Hazardous
Substances into the environment, air (including both ambient and within
buildings and other structures), surface water, ground water or land or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Substances.
"Equivalent Basic Subscribers" (or "EBSs") means, as of the Closing
Date or any other date of determination for each InterMedia System, the sum of:
(A) The total number of private residential customer
accounts reflected on Cabledata Report KK or CSG
Report CPRM006, as applicable, that are billed by
individual unit for at least Basic Service regardless
of whether such accounts are in single-family homes
or in individually billed units in apartment
buildings and other multi-unit buildings; plus
(B) The quotient of:
(1) The total monthly billings for sales of
Basic Service and Expanded Basic Service by
such InterMedia System during the most
recent billing period ended prior to the
Closing Date or any other date of
determination to
- 3 -
<PAGE>
commercial, bulk-billed and other accounts
not billed by individual unit, whether on a
discounted or non-discounted basis ("Bulk
Revenue"), and to private residential
customer accounts that are billed by
individual unit but pay less than the
standard monthly service fees for Basic
Service, but excluding billings in excess of
a single month's charges for any account,
divided by
(2) The predominant monthly combined rate
(without discounts of any kind) charged by
such InterMedia System to individually
billed subscribers for Basic Service and
Expanded Basic Service offered by such
InterMedia System as of the date of this
Agreement.
The monthly billings for sales of Basic Service and Expanded Basic Service to
commercial, bulk-billed and other accounts not billed by individual unit that
are subject to binding agreements prior to the Closing Date but not counted as
Bulk Revenue as of the Closing Date because such accounts were not yet active,
will be included in clause (B)(1) above (subject to the proviso below) for
purposes of the EBS calculation for the Final Closing Statement to the extent
such accounts become active during the period beginning on the Closing Date and
ending on the date the Purchase Price is finally determined in accordance with
Article 3 (the "Final Settlement Period"); provided that the additional EBSs
calculated pursuant to this paragraph will be included only to offset accounts
that were excluded pursuant to paragraphs (2) and (5) below.
For purposes of calculating EBSs, there will be excluded:
(1) For purposes of the calculations in clause (A) above,
accounts that are charged less than the standard monthly service fees then in
effect for such InterMedia System for Basic Service (except with respect to
senior citizen discounts generally offered by the InterMedia Companies within
the InterMedia System to senior citizens).
(2) All accounts billed by individual unit that are more than
60 days past due (or 90 days in the case of Louisville System accounts) in the
payment of any amount in excess of $10.00 at the Closing Date or any other date
of determination. All billings to any commercial, bulk-billed and other accounts
not billed by individual unit that are more than 90 days past due at the Closing
Date or other date of determination. For purposes of this Agreement, payments on
account of monthly billings will be deemed due on the first day of the period
for which the service to which such billings relate is provided.
(3) Any accounts billed by individual unit, and all
commercial, bulk-billed and other accounts not billed by individual unit (other
than those subject to binding agreements as specified in the unnumbered
paragraph above) that, as of the Closing Date or other date of determination,
have not paid in full the charges for at least one full month of subscribed
service.
- 4 -
<PAGE>
(4) That portion of billings included in clause (B) above
representing an installation or other non-recurring charge, a charge for
equipment or a charge for any outlet or connection other than the first outlet
or first connection, a charge for any tiered service other than Expanded Basic
Services (whether or not included within Pay TV), any charge for Pay TV or
pass-through charge for sales taxes, line-itemization, franchise fees, fees
charged by the FCC and the like.
(5) Any individually billed unit and all billings to any
commercial, bulk-billed and other accounts not billed by individual unit (e.g.,
apartment buildings) which is served pursuant to a dwelling unit, access,
right-of-entry or similar written agreement in respect of which the General
Partner or the InterMedia Companies have received oral or written notice prior
to the Closing Date that such agreement will be terminated prior to the end of
the Final Settlement Period; provided, however, that any such account excluded
pursuant to this paragraph (5) as of the Closing Date that is not terminated
during the Final Settlement Period will be included in the EBS calculation for
purposes of the Final Closing Statement.
(6) Any individually billed unit and all billings to any
commercial, bulk-billed or other accounts not billed by individual unit that was
solicited within the 60-day period preceding the Closing Date or other date of
determination to purchase such services by promotions or offers of discounts
other than those ordinarily made by the InterMedia Companies or contemplated by
InterMedia's 1999 Budget.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder and published
interpretations with respect thereto, all as in effect from time to time.
"ERISA Affiliate" means, with respect to any Person, a trade or
business affiliated within the meaning of Sections 414(b), (c) or (m) of the
Code.
"Escrow Agent" means the Person mutually selected by Buyer and the
General Partner pursuant to Section 2.5(a) to serve as the escrow agent under
the Post-Closing Escrow Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder, all as in
effect from time to time.
"Expanded Basic Services" means any CPST tier of any InterMedia System
designated as such in the rate filings of the InterMedia Companies.
"FCC" means the Federal Communications Commission.
"Franchising Authorities" means all Governmental Authorities that have
issued or granted a System Franchise relating to the operation of an InterMedia
System.
- 5 -
<PAGE>
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"General Partnership Interest" means the general partnership interest
in the Partnership held by the General Partner.
"Governmental Authority" means the United States of America, any state,
commonwealth, territory or possession of the United States of America and any
political subdivision or quasi-governmental authority of any of the same,
including any court, tribunal, department, commission, board, bureau, agency,
county, municipality, province, parish or other instrumentality of any of the
foregoing, and including any Franchising Authority.
"Hazardous Substances" means (a) any "hazardous waste" as defined by
the Resource Conservation and Recovery Act of 1976 (RCRA) (42 U.S.C. ss.ss. 6901
et seq.), as amended, and the rules and regulations promulgated thereunder, all
as in effect from time to time; (b) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (15
U.S.C. ss.ss. 9601 et seq.) (CERCLA), as amended, and the rules and regulations
promulgated thereunder, all as in effect from time to time; (c) any substance
regulated by the Toxic Substances Control Act (TSCA) (15 U.S.C. ss.ss.2601 et
seq.), or the Insecticide, Fungicide and Rodenticide Act (IFRA) (7 U.S.C.
ss.ss.136 et seq.), each as amended, and the rules and regulations promulgated
thereunder, all as in effect from time to time; (d) asbestos or
asbestos-containing material of any kind or character; (e) polychlorinated
biphenyls; (f) any substances regulated under the provisions of Subtitle I of
RCRA relating to underground storage tanks; (g) any substance the presence, use,
handling, treatment, storage or disposal of which on real property is prohibited
by any Environmental Law; and (h) any other substance which by any Environmental
Law requires special handling, reporting or notification of any Governmental
Authority in its collection, storage, use, treatment or disposal.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended and the regulations promulgated by the Federal Trade Commission
with respect thereto, all as in effect from time to time.
"InterMedia Assets" means all assets, properties, privileges, rights,
interests and claims, real and personal, tangible and intangible, of every type
and description that are owned, leased, held for use or used in connection with
InterMedia's Business and in which any InterMedia Company has any right, title
or interest or acquires any right, title or interest on or before the Closing,
including Tangible Personal Property, Owned Real Property, Leased Real Property,
Other Real Property Interests, System Franchises, System Licenses, System
Contracts, and Other Intangibles.
"InterMedia Companies" means each of the Partnership and the Subsidiary
Partnerships, each of which may be referred to herein individually as an
"InterMedia Company."
"InterMedia Company Release" means the "Release" substantially in the
form of Exhibit D to be delivered to the Sellers at the Closing by each
InterMedia Company.
- 6 -
<PAGE>
"InterMedia Systems" means the cable television systems owned and
operated by the InterMedia Companies or any combination of any of them, each of
which may be referred to herein individually as an "InterMedia System."
"InterMedia's 1999 Budget" means the budget for InterMedia's Business
for the 1999 calendar year, in the form delivered to Buyer prior to execution of
this Agreement.
"InterMedia's Business" means the cable television business and all
related and ancillary businesses and all other businesses conducted by the
InterMedia Companies, whether conducted through the InterMedia Systems or
otherwise.
"Judgment" means any judgment, writ, order, injunction, award or decree
of any court, judge, justice or magistrate, including any bankruptcy court or
judge or the arbitrator in any binding arbitration, and any order of or by any
Governmental Authority.
"Knowledge" means, with respect to any Person, the actual knowledge of
a particular matter of such Person, or if such Person is an entity, one or more
of the principal corporate personnel of such Person, and, with respect to the
General Partner, includes the actual knowledge of one or more of the general
managers of the InterMedia Systems.
"Leased Real Property" means all leasehold interests in real property
that are held for use or used in connection with InterMedia's Business which any
InterMedia Company has, or acquires prior to Closing, including those described
as Leased Real Property on Schedule 3.5.
"Legal Requirement" means applicable common law and any statute,
ordinance, code or other law, rule, regulation, order, technical or other
written standard, requirement, policy or procedure enacted, adopted,
promulgated, applied or followed by any Governmental Authority, including any
Judgment and all judicial decisions applying common law or interpreting any
other Legal Requirement, in each case, as amended.
"Lien" means any security interest, conditional sale or other title
retention agreement, any lease, consignment or bailment given for purposes of
security, any capitalized lease, mortgage, lien, indenture, pledge, option,
encumbrance, adverse interest, constructive trust or other trust, claim,
attachment, exception to, defect in or other condition affecting title or other
ownership interest (including but not limited to reservations, rights of entry,
possibilities of reverter, encroachments, easements, rights-of-way, restrictive
covenants, leases and licenses) of any kind, which constitutes an interest in or
claim against property, whether arising pursuant to any Legal Requirement,
System License, System Franchise, System Contract or otherwise.
"Limited Partner Seller" means each of ICM-VI, Lewis, TCI Inc., the
Blackstone Partners, Hindery, and IMI.
- 7 -
<PAGE>
"Limited Partnership Interests" means the limited partnership interests
in the Partnership held by each of ICM-VI (prior to the Distribution) or IMI,
Lewis and TCI Inc. (after the Distribution), the Blackstone Partners, and
Hindery, respectively, and the limited partnership interests in the Subsidiary
Partnerships held by IMI.
"Litigation" means any written claim, action, suit, proceeding,
arbitration or hearing that could result in a Judgment.
"Loan Documents" means the Credit Agreement, the Term Loan A Agreement,
the Term Loan B Agreement and the other "Credit Documents" (as that term is
defined in each of the Credit Agreement, the Term Loan A Agreement and the Term
Loan B Agreement).
"Loan Document Liens" means Liens created by the Loan Documents in
favor of the Lenders and described in Schedule 3.3.
"Material Adverse Effect" means a material adverse effect on (a) the
condition (financial or otherwise) or results of operations of InterMedia's
Business, (b) the InterMedia Assets, business, operations, conditions (financial
or otherwise) or units of operations of any single Principal System Group, taken
as a whole, (c) the InterMedia Assets, business, operations, condition
(financial or otherwise) or results of operations of the other InterMedia
Systems (i.e., those which are not within any Principal System Group), taken as
a whole, or (d) the ability of any Seller to perform its obligations under this
Agreement.
"Multichannel Video Programming Distributor" or "MVPD" means a
distributor of cable television services, multichannel multipoint distribution
service, direct broadcast satellite service or television receive-only satellite
programming, who makes available for purchase, by subscribers or customers,
multiple channels of video programming, other than Persons distributing such
services only to multiple dwelling unit or other commercial customers (including
hotels, motels, resorts, hospitals, dormitories, prisons, restaurants, bars and
similar establishments).
"Noncompetition Agreement" means the Noncompetition Agreement between
Buyer and each of the Blackstone Partners, substantially in the form of Exhibit
A, which agreement shall be executed and delivered at the Closing.
"Operating Partnership" means InterMedia Partners of Kentucky, L.P.
"Other Intangibles" means all intangible assets other than System
Franchises, System Licenses and System Contracts, including subscriber lists,
Accounts Receivable, claims, patents, and copyrights that are owned, held for
use or used in connection with InterMedia's Business and in which any InterMedia
Company has, or acquires prior to Closing, any right, title or interest.
"Other Real Property Interests" means all easements and rights of
access (other than those relating to multiple dwelling units) and other
interests in real property that are held for use or used in
- 8 -
<PAGE>
connection with InterMedia's Business and in which any InterMedia Company has,
or acquires prior to Closing, any right, title or interest, including those
interests described as Other Real Property Interests on Schedule 3.5, but not
including Leased Real Property or Owned Real Property.
"Owned Real Property" means all fee interests in real property that are
held for use or used in connection with InterMedia's Business which any
InterMedia Company has, or acquires prior to Closing, including those described
as Owned Real Property on Schedule 3.5 and all improvements thereon.
"Partnership Agreement" means the Agreement of Limited Partnership for
the Partnership dated as of October 30, 1997, as amended by a First Amendment to
Agreement of Limited Partnership dated as of April 30, 1998.
"Pay TV" means a la carte tiers or premium programming services
selected by and sold to subscribers on a per channel or per program basis.
"Permitted Lien" means any (a) Lien securing Taxes, assessments and
governmental charges not yet due and payable, (b) zoning law or ordinance or any
similar Legal Requirement, (c) right reserved to any Governmental Authority to
regulate the affected property, (d) as to Owned Real Property, any Lien not
securing indebtedness or arising out of the obligation to pay money that does
not individually or in the aggregate interfere with the right or ability to own,
use or operate the Owned Real Property as they are being used or operated or
materially diminish the value of such Owned Real Property, (e) in the case of
Owned Real Property and Leased Real Property, any lease or sublease by any
InterMedia Company in favor of a third party that is disclosed in the Schedules
to this Agreement, (f) in the case of Leased Real Property, the rights of any
lessor and any Lien granted by any lessor of Leased Real Property, (g) any
inchoate materialmen's, mechanics', workmen's, repairmen's or other like Liens
arising in the ordinary course of business, (h) the Loan Document Liens, (i)
Liens described on Schedule 3.3 and (j) recorded exceptions included in any
title policy that relates to owned real property that is listed on Schedule 3.5
and was delivered to Buyer prior to execution of this Agreement; provided that
"Permitted Lien" will not include any Lien securing a debt (other than the Loan
Document Liens) or any Lien that could prevent or impair in any way the conduct
of the business of the affected InterMedia System as it is currently being
conducted.
"Person" means any natural person, Governmental Authority, corporation,
general or limited partnership, limited liability company, joint venture, trust,
association or unincorporated entity of any kind.
"Post-Closing Escrow Agreement" means the Escrow Agreement among the
General Partner, Buyer and the Escrow Agent, substantially in the form of
Exhibit C hereto, which agreement shall be executed and delivered at the
Closing.
"Principal System Group" means any of the Lexington, Louisville,
Covington or Bowling Greens InterMedia Systems, as more particularly described
in Schedule 3.13(e).
- 9 -
<PAGE>
"Required Consents" means the consents, permits, approvals and
authorizations of Governmental Authorities and other Persons, and filings,
notices, and applications with Governmental Authorities and other Persons,
necessary to transfer lawfully the Purchased Interests to Buyer or otherwise to
consummate lawfully the transactions contemplated by this Agreement.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder, all as in effect from
time to time.
"Seller Release" means the "Release" substantially in the form of
Exhibit B to be delivered to Buyer at the Closing by each Person designated on
Exhibit B hereto.
"Service Area" means any geographic area in which an InterMedia Company
is authorized to provide cable television service pursuant to a System Franchise
or provides cable television service in which a System Franchise is not required
pursuant to applicable Legal Requirements.
"Subsidiary" means, with respect to any Person, any other Person of
which the outstanding voting Capital Stock sufficient to elect at least a
majority of its board of directors or other governing body (or, if there are no
such voting interests, of which 50% or more of the Capital Stock) is owned
(beneficially or otherwise) directly or indirectly by such first Person or any
Subsidiary thereof.
"System Contracts" means all pole line agreements, underground conduit
agreements, crossing agreements, multiple dwelling, bulk billing or commercial
service agreements, leased channel access agreements and other Contracts (other
than System Franchises and System Licenses) held for use or used in connection
with InterMedia's Business and to which any InterMedia Company is, or becomes
prior to Closing, a party or bound, including those described on Schedule 3.4.
"System Franchises" means all franchise agreements, operating permits
or similar governing agreements, instruments, resolutions, statutes, ordinances,
approvals, authorizations and permits obtained from any Franchising Authority in
connection with InterMedia's Business, including those listed on Schedule 3.4,
including all amendments and modifications thereto and all renewals thereof.
"System Licenses" means the intangible cable television channel
distribution rights, cable television relay service (CARS), business radio and
other licenses, copyright notices and other licenses, authorizations, consents
or permits issued by the FCC or any other Governmental Authority in connection
with InterMedia's Business (other than System Franchises, System Contracts and
Other Real Property Interests), including those described on Schedule 3.4.
"Tangible Personal Property" means all tangible personal property that
is owned, leased, held for use or used in connection with InterMedia's Business
and in which any InterMedia Company has, or acquires prior to Closing, any
right, title or interest, including towers, tower equipment, aboveground and
underground cable, distribution systems, headend amplifiers, line amplifiers,
microwave equipment,
- 10 -
<PAGE>
converters, testing equipment, motor vehicles, office equipment, computers and
billing equipment, furniture, fixtures, supplies, inventory and other physical
assets, the principal items of which, including all motor vehicles, are
described on Schedule 3.3.
"Taxes" means all levies and assessments of any kind or nature imposed
by any Governmental Authority, including all income, sales, use, ad valorem,
value added, franchise, severance, net or gross proceeds, withholding, payroll,
employment, excise or property taxes and levies, together with any interest
thereon and any penalties, additions to tax or additional amounts applicable
thereto.
"Tax Returns" means any tax return, declaration of estimated tax, tax
report or other tax statement, or any other similar filing required to be
submitted to any Governmental Authority with respect to any Tax.
"Term Loan A Agreement" means the Term Loan A Agreement dated April 30,
1998 among InterMedia Partners Group VI, L.P., Toronto Dominion (Texas), Inc.,
as Administrative Agent, NationsBank of Texas, N.A., as Documentation Agent, and
the other Lenders party thereto, as amended by the First Amendment dated as of
March 23, 1999 that has been delivered to Buyer.
"Term Loan B Agreement" means the Term Loan B Agreement dated April 30,
1998 among InterMedia Partners Group VI, L.P., Toronto Dominion (Texas), Inc.,
as Administrative Agent, The Bank of New York Company, Inc., as Documentation
Agent, and the other Lenders party thereto, as amended by the First Amendment
dated as of March 23, 1999, and as to be further amended by an amendment
substantially in the form of the draft Second Amendment dated April 12, 1999
that has been delivered to Buyer prior to execution of this Agreement.
"Transferable Service Area" means a Service Area with respect to which:
(a) no franchise or similar authorization is required for the provision of cable
television service in such Service Area, (b) no Required Consent is necessary
for the transfer of control of any System Franchise for such Service Area in
connection with the consummation of the transactions contemplated by this
Agreement, or (c) if a Required Consent is necessary for the transfer of control
of any System Franchise for such Service Area in connection with the
consummation of the transactions contemplated by this Agreement, an effective
consent or approval has been obtained without the imposition of any condition or
any modification that in either case makes, or is reasonably likely to make, the
underlying System Franchise materially more onerous in any respect or materially
reduces in any respect, or is reasonably likely to materially reduce in any
respect, the benefits available under the System Franchise in respect of which
the Required Consent relates.
"Transaction Documents" means this Agreement, the Post-Closing Escrow
Agreement, the Noncompetition Agreement, the Seller Releases, and the other
documents, agreements, certificates and other instruments to be executed,
delivered and performed by the parties in connection with the transactions
contemplated by this Agreement.
- 11 -
<PAGE>
"Upset Date" means February 1, 2000, as such date may be extended
pursuant to the provisions of this Agreement, including Sections 9.2 and 9.3.
1.2 Terms Defined Elsewhere in this Agreement. For purposes of this
Agreement, the following terms have the meanings set forth in the sections
indicated:
Term Section
---- -------
Adjustment Assets Section 2.3(b)(1)
Adjustment Liabilities Section 2.3(b)(2)
Amended and Restated Partnership Section 6.12(c)
Agreement
Buyer First Paragraph
Confidential Information Section 6.4(a)
Conversion Section 8.2(c)
Cost of Service Election Section 3.7(d)
Designated Closing Date Section 8.1(a)
Distribution Section 2.1(b)
Final Closing Statement Section 2.5(b)(1)
First Swap Section 2.3(c)(1)
First Swap Adjustment Section 2.3(c)(1)
First Swap Agreement Section 2.3(b)(2)(VI)
FrontierVision Section 2.3(b)(2)(VI)
General Partner First Paragraph
Hindery First Paragraph
IMI First Paragraph
InterMedia Balance Sheet Section 3.9
InterMedia Plans Section 3.12
InterMedia's Financial Statements Section 3.9
Lewis First Paragraph
Material Environmental Liability Section 3.6
Net Closing Payment Section 8.3(a)
- 12 -
<PAGE>
Partnership First Paragraph
Pending Swap Adjustment Section 2.3(d)
Pending Swaps Section 2.3(c)(2)
Post-Closing Adjustments Escrow Section 2.5(a)
Post-Closing Adjustment Funds Section 2.5(a)
Preliminary Closing Statement Section 2.4
Purchase Price Section 2.2
Purchased Interests Section 2.1(a)
Reimbursable Capital Expenditures Section 2.3(a)
Rollover/Refinancing Section 6.8(d)
Second Swap Section 2.3(c)(2)
Second Swap Adjustment Section 2.3(c)(2)
Second Swap Agreement Section 2.3(b)(2)(VI)
Seller Recitals
Subscriber Adjustment Section 2.3(d)
Subscriber Shortfall Section 2.3(d)
Subscriber Target Section 2.3(d)
Subsidiary Partnerships Recitals
TCI Inc. First Paragraph
TCI LLC First Paragraph
WARN Act Section 6.14
1.3 Rules of Construction. Words used in this Agreement, regardless of
the gender and number specifically used, shall be deemed and construed to
include any other gender and any other number as the context requires. As used
in this Agreement, the word "including" is not limiting, and the word "or" is
not exclusive. Except as specifically otherwise provided in this Agreement in a
particular instance, a reference to a Section is a reference to a Section of
this Agreement, a reference to an Exhibit is a reference to an Exhibit to this
Agreement, a reference to a Schedule is a reference to a Schedule to this
Agreement, and the terms "hereof," "herein," and other like terms refer to this
Agreement as a whole, including the Schedules and the Exhibits to this
Agreement, and not solely to any particular part of this Agreement. The
descriptive headings in this Agreement are inserted for
- 13 -
<PAGE>
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
ARTICLE 2
SALE AND PURCHASE OF PURCHASED INTERESTS;
PURCHASE PRICE
2.1 Sale and Purchase of Purchased Interests.
(a) Agreement to Sell and Buy. Subject to the terms and
conditions set forth in this Agreement, each Seller hereby agrees to sell,
transfer, and deliver to Buyer at the Closing, and Buyer hereby agrees to
purchase at the Closing, the partnership interests specified below (the
"Purchased Interests"), free and clear of all Liens (other than the Loan
Document Liens and transfer restrictions created by the Partnership Agreement in
favor of the other partners thereunder):
(1) from the General Partner, the General Partnership
Interest;
(2) from each of IMI, Lewis, the Blackstone Partners,
and Hindery, the entire Limited Partnership Interest in the Partnership held by
each such Seller after giving effect to the Distribution;
(3) from TCI Inc., a portion of the Limited
Partnership Interest in the Partnership held by such Seller after giving effect
to the Distribution and to the purchases described in Sections 2.1(a)(1) and
(2), such that Buyer will own and hold 50% of the aggregate partnership
interests in the Partnership immediately after the Closing and that TCI Inc. and
TCI LLC together will own and hold 50% of the aggregate partnership interests in
the Partnership immediately after the Closing; and
(4) from IMI, the entire Limited Partnership Interest
in each of the Subsidiary Partnerships held by IMI.
(b) Distribution. Immediately prior to the Closing, ICM-VI
shall distribute to IMI, Lewis and TCI Inc. all of ICM-VI's partnership
interests in the Partnership, including all of ICM-VI's rights under the
Partnership Agreement (the "Distribution").
2.2 Purchase Price for Purchased Interests. Buyer shall pay and deliver
to the General Partner for the benefit of the Sellers as consideration for the
sale of the Purchased Interests an amount in cash equal to $327,185,000, subject
to adjustment as provided in Section 2.3 and determined in accordance with this
Article 2, and subject to further adjustment as provided in Section 8.1(a)(4)
(the "Purchase Price").
- 14 -
<PAGE>
2.3 Adjustments to Purchase Price.
(a) Capital Expenditures Adjustment. The Purchase Price shall
be increased by 50% of the aggregate amount of Reimbursable Capital
Expenditures. For purposes of this Agreement, "Reimbursable Capital
Expenditures" means the sum of all capital expenditures actually made by the
InterMedia Companies during the period beginning April 13, 1999 and ending at
the Adjustment Time with respect to any of the InterMedia Systems relating to
(1) upgrades and rebuilds of InterMedia System plant capacity and (2) the
purchase of digital converters, plus (without duplication) the cost of inventory
purchased on or after April 13, 1999 that relates specifically to such upgrades
and rebuilds and converters but which costs have not yet been accounted for as a
capital expenditure.
(b) Debt and Working Capital Adjustment. The Purchase Price
shall be decreased by 50% of the amount, if any, by which the amount of
Adjustment Liabilities as of the Adjustment Time exceeds the amount of
Adjustment Liabilities shown on Schedule 2.3 and shall be increased by 50% of
the amount, if any, by which the amount of Adjustment Liabilities as of the
Adjustment Time is less than the amount of Adjustment Liabilities shown on
Schedule 2.3. The Purchase Price shall be decreased by 50% of the amount, if
any, by which the amount of Adjustment Assets as of the Adjustment Time is less
than the amount of Adjustment Assets shown on Schedule 2.3 and shall be
increased by 50% of the amount, if any, by which the amount of Adjustment Assets
as of the Adjustment Time exceeds the amount of Adjustment Assets shown on
Schedule 2.3.
(1) Subject to the other provisions of this Section
2.3(c), "Adjustment Assets" means the sum of: (A) cash and cash equivalents (but
only to the extent such cash is held by the InterMedia Companies at the
Closing), (B) Eligible Accounts Receivable net of any credit balances owed to
cable television subscribers of the InterMedia Systems, (C) Prepaid Expenses,
(D) Deposits, (E) Programming/Launch Receivables, and (F) Other Current Assets,
in each case of clauses (A) through (F) computed for the InterMedia Companies as
of the Adjustment Time on a consolidated basis and without duplication in
accordance with GAAP applied on a basis consistent with the preparation of the
InterMedia Balance Sheet and Schedule 2.3.
(I) "Eligible Accounts Receivable" means 99%
of the face amount of all Subscriber Accounts Receivable that are 60 or fewer
days past due as of the Adjustment Time and 100% of the face amount of all
Advertising Accounts Receivable that are 120 days or fewer past due as of the
Adjustment Time. No Subscriber Accounts Receivable that are more than 60 days
past due and no Advertising Accounts Receivable that are more than 120 days past
due will be included in Eligible Accounts Receivable.
(II) "Subscriber Accounts Receivable" means
accounts receivable of the InterMedia Companies (excluding Advertising Accounts
Receivable) resulting from the provision of cable television service by the
InterMedia Systems to active subscribers as of the Adjustment Time and that
relate to periods prior to the Adjustment Time. For purposes of making "past
due" calculations to determine whether Subscriber Accounts Receivable are
Eligible Accounts Receivable, the subscriber
- 15 -
<PAGE>
billing statements will be deemed to be due and payable on the first day of the
period during which the service to which such billing statements relate is
provided.
(III) "Advertising Accounts Receivable"
means accounts receivable of the InterMedia Companies resulting from advertising
on an InterMedia System or another cable television system sold either directly
by the InterMedia Companies or by an ad sales representative or an advertising
agency of the InterMedia Companies or through an advertising interconnect
partnership or otherwise. For purposes of making "past due" calculations to
determine whether Advertising Accounts Receivable are Eligible Accounts
Receivable, invoices will be deemed to be due and payable upon date of invoice.
(IV) "Prepaid Expenses" means the book value
of prepaid expenses of the InterMedia Companies (but only to the extent
constituting a current asset and only to the extent that such prepaid expenses
will accrue to the benefit of the InterMedia Companies upon and after the
Adjustment Time).
(V) "Deposits" means all monies which are on
deposit with third parties as of the Adjustment Time for the account of the
InterMedia Companies or as security for the InterMedia Companies' performance of
their obligations, including deposits on real property leases and deposits for
utilities that will accrue to the benefit of the InterMedia Companies upon and
after the Adjustment Time.
(VI) "Programming/Launch Receivables" means
the current and long- term portion of balances due to the InterMedia Companies
from programmers whose networks are carried by the InterMedia Systems.
(VII) "Other Current Assets" means all other
current assets of the InterMedia Companies; provided, however, notwithstanding
any provision of this Agreement to the contrary, Adjustment Assets shall not
include inventory, accounts receivable that are not Eligible Accounts
Receivable, intercompany and affiliated-party receivables, insurance or
condemnation proceeds, sale proceeds received in connection with a disposition
of cable television system assets (other than in connection with the Pending
Swaps), or deferred tax assets.
(2) Subject to the other provisions of this Section
2.3(c), "Adjustment Liabilities" means the sum of: (A) Debt, (B) Accounts
Payable, (C) Subscriber Prepayments and Deposits, (D) Unearned
Programming/Launch Fees, (E) Deferred Revenue, and (F) Other Current
Liabilities, in each case of clauses (A) through (F) computed for the InterMedia
Companies as of the Adjustment Time on a consolidated basis and without
duplication in accordance with GAAP applied on a basis consistent with the
preparation of the InterMedia Balance Sheet and Schedule 2.3.
(I) "Debt" means the sum of (1) all
obligations of the InterMedia Companies for borrowed money (including all
accrued and unpaid interest) under the Loan Documents and any bonds, debentures,
notes, indentures, mortgages, or similar instruments to which any of the
- 16 -
<PAGE>
InterMedia Companies are a party or by which any of them are bound, and (2) all
capital lease obligations of the InterMedia Companies.
(II) "Accounts Payable" means the book value
of all accounts payable of the InterMedia Companies.
(III) "Subscriber Prepayments and Deposits"
means the sum of (1) all outstanding deposits of subscribers of the InterMedia
Systems for converters, decoders and similar items (and, if required to be paid
to such subscribers, accrued interest thereon), and (2) all payments received by
the InterMedia Companies prior to the Adjustment Time for services to be
rendered to subscribers of the InterMedia Systems after the Adjustment Time.
(IV) "Unearned Programming/Launch Fees"
means the current and long-term portion of programming and launch support funds
received or to be received by the InterMedia Companies from programmers for
which the InterMedia Companies will be obligated to continue the programming
after the Closing, to the extent such funds have not been recognized into income
prior to the Closing Date.
(V) "Deferred Revenue" means liabilities to
subscribers representing advance billings for services to be performed by the
InterMedia Companies after the Adjustment Time.
(VI) "Other Current Liabilities" means all
other current liabilities of the InterMedia Companies, including accrued
vacation pay of employees of the relevant InterMedia Company (to the extent
permitted to be carried over by the InterMedia Companies policies), provided,
however, notwithstanding any provision of this Agreement to the contrary,
Adjustment Liabilities shall not include (1) Accounts Payable, (2) Subscriber
Prepayments and Deposits, (3) current and deferred income taxes, (4) current
maturities of Debt, (5) deferred tax liabilities, (6) any payables to any of the
InterMedia Companies, (7) any liabilities covered by identifiable insurance
proceeds net of applicable deductibles, (8) liabilities for which the InterMedia
Companies are entitled to indemnification under the following provisions, net of
any applicable deductible, basket, cap or similar limitation: (A) section 10.1
of the Contribution Agreement dated as of October 30, 1997, as amended by the
First Amendment to Contribution Agreement dated as of April 30, 1998, between
InterMedia Capital Management VI, L.P., and TCI TKR of Southern Kentucky, Inc.,
TCI TKR of Northern Kentucky, Inc., TCI TKR of Jefferson County, Inc., TCI
Cablevision of Kentucky, Inc., TCI Cablevision of North Central Kentucky, Inc.,
TCI of North Central Kentucky, Inc., TCI of Lexington, Inc., and TCI of
Radcliff, Inc., (B) section 10.1 of the Asset Exchange Agreement dated as of
October 31, 1998 between the Operating Partnership and Insight Communications of
Indiana, LLC, and (C) section 10 of the Asset Exchange Agreement dated as of
February 17, 1999, as amended by amendments dated March 1, 1999 and March 11,
1999 (the "First Swap Agreement"), and of the Asset Exchange Agreement dated as
of March 11, 1999 (the "Second Swap Agreement"; together with the First Swap
Agreement, the "Swap Agreements"), each between the Operating Partnership and
FrontierVision Operating Partners, L.P. ("FrontierVision"), and (9) any expenses
that the Sellers are obligated to pay as set forth in Section 10.1.
- 17 -
<PAGE>
(3) For purposes of making the adjustments pursuant
to this Section 2.3(b), revenues and expenses shall be treated as prepaid or
accrued so as to reflect the principle that revenues and expenses will be
prorated so that revenues and expenses attributable to the period prior to the
Adjustment Time shall be for the account of Sellers and revenues and expenses
attributable to the period after the Adjustment Time shall be for the account of
Buyer.
(c) Pending Swap Adjustment.
(1) If the transaction contemplated by the First Swap
Agreement (the "First Swap") is consummated prior to the Closing hereunder, then
the Purchase Price shall be decreased by the sum of $265,000 and one-half of the
amount, if any, by which the cash payment to be made by FrontierVision pursuant
to Section 2.1(a)(ii) of the First Swap Agreement is increased by a subscriber
adjustment pursuant to Section 2.1(a)(v) of the First Swap Agreement (such
decrease, the "First Swap Adjustment").
(2) If the transaction contemplated by the Second
Swap Agreement (the "Second Swap"; together with the First Swap, the "Pending
Swaps") is consummated prior to the Closing hereunder, then the Purchase Price
shall be decreased by the sum of $903,850 and one-half of the amount, if any, by
which the cash payment to be made by FrontierVision pursuant to Section
2.1(a)(ii) of the Second Swap Agreement is increased by a subscriber adjustment
pursuant to Section 2.1(a)(v) of the Second Swap Agreement (such decrease, the
"Second Swap Adjustment").
(3) If either Pending Swap is consummated after the
Closing hereunder but prior to the date that is six months after the Closing
Date hereunder, the Buyer will remit to the General Partner, for the account of
the Sellers, within three Business Days of the receipt of such proceeds and
account information from the General Partner, 40% of $2,650,076 (as such System
Difference Amount (as such term is used in the First Swap Agreement) may be
amended other than pursuant to the adjustments contemplated by the First Swap
Agreement), in the case of the First Swap, and 40% of $9,038,500 (as such System
Difference Amount (as such term is used in the Second Swap Agreement) may be
amended other than pursuant to the adjustments contemplated by the Second Swap
Agreement), in the case of the Second Swap (in each case less 50% of any out of
pocket costs incurred or paid by the InterMedia Companies after the Closing
hereunder in connection with consummating such Pending Swap). Buyer will cause
the InterMedia Companies to use reasonable commercial efforts to complete the
Pending Swaps within six months after the Closing Date to the extent not
completed prior to the Closing hereunder. Buyer shall not permit the terms of
either Pending Swap to be amended or otherwise modified in any respect (whether
by amendment or modification of the applicable Swap Agreement, termination of
the applicable Swap Agreement and execution of another agreement providing for
such Pending Swap, or otherwise) that would result in (1) a reduction in the
System Difference Amount under the First Swap Agreement, other than pursuant to
the adjustments contemplated by the First Swap Agreement as in effect as of the
Closing hereunder, in excess of $680,170, or a reduction in the System
Difference Amount under the Second Swap Agreement, other than pursuant to the
adjustments contemplated by the Second Swap Agreement as in effect as of the
Closing hereunder, in excess of $2,319,830, or (2) a reduction in the System
Difference Amounts, other
- 18 -
<PAGE>
than pursuant to the adjustments contemplated by the Swap Agreements as in
effect as of the Closing hereunder, in connection with any increase in the
assets or other consideration to be received or in the liabilities to be
transferred, or any decrease in the assets or other consideration to be conveyed
or in the liabilities to be assumed, by the InterMedia Companies in the Pending
Swaps, in either case of (1) or (2) without the consent of the General Partner
unless the Buyer reimburses the General Partner for the account of the Sellers
the amount by which the Sellers' portion of such payment would be reduced by
such reduction or other modification.
(d) Subscriber Adjustment. The Purchase Price shall be
decreased by 50% of the dollar amount equal to the product of (1) the Subscriber
Shortfall multiplied by (2) $3,295.00 (such decrease, the "Subscriber
Adjustment"). For purposes of this Agreement, the "Subscriber Shortfall" equals
the number, if any, by which the total number of Equivalent Basic Subscribers
for all of the InterMedia Systems as of the Adjustment Time is less than 424,930
(the "Subscriber Target"); provided that if either Pending Swap has been
consummated prior to the Closing hereunder, the Subscriber Target shall be
decreased by the excess of the number of Equivalent Billing Units of the
InterMedia Systems disposed of by the InterMedia Companies in such Pending Swap
over the number of Equivalent Billing Units of the InterMedia Systems acquired
by the InterMedia Companies in such Pending Swap, in each case as "Equivalent
Billing Unit" is defined in and determined as of the closing date of such
Pending Swap pursuant to the applicable Pending Swap Agreement.
2.4 Payment at Closing. No later than ten Business Days prior to the
date scheduled for the Closing, the General Partner shall prepare and deliver to
Buyer a written report in reasonable detail (the "Preliminary Closing
Statement") setting forth the General Partner's estimate of the Purchase Price,
including its estimates of Reimbursable Capital Expenditures, Adjustment Assets,
Adjustment Liabilities, the Subscriber Adjustment, and the First Swap Adjustment
and Second Swap Adjustment if applicable, all as determined in accordance with
this Article 2. The Preliminary Closing Statement shall be prepared by the
General Partner in good faith and shall be certified by the General Partner to
be its good faith estimate of the Purchase Price and the other amounts set forth
therein as of the date thereof. The Preliminary Closing Statement will be
accompanied by appropriate documentation supporting the amounts set forth
therein and such additional information as the Buyer shall reasonably request
relating to the matters set forth in the Preliminary Closing Statement. The
General Partner shall provide to Buyer reasonable access, upon reasonable
notice, to all records in its possession for purposes of verification of the
Preliminary Closing Statement. At the Closing the Purchase Price shall be
determined on the basis of the Preliminary Closing Statement, with any changes
thereto mutually agreed to by the General Partner and Buyer (the "Estimated
Purchase Price").
2.5 Post-Closing Purchase Price Adjustments.
(a) Post-Closing Adjustments Escrow. Buyer and the Sellers
have agreed on a form of Post-Closing Escrow Agreement in the form of Exhibit C
hereto. Following execution of this Agreement, Buyer and the General Partner
will select a mutually satisfactory bank or other Person to serve as the escrow
agent thereunder and will cooperate in good faith with the Escrow Agent to agree
on the final form of Post-Closing Escrow Agreement, including such changes to
the form attached as
- 19 -
<PAGE>
Exhibit C as are requested or recommended by the Escrow Agent and are mutually
acceptable to Buyer and the General Partner (such acceptance not to be
unreasonably withheld by Buyer or the General Partner). Subject to the
foregoing, at the Closing, the General Partner, Buyer and the Escrow Agent shall
execute the Post-Closing Escrow Agreement, in accordance with which, on the
Closing Date, Buyer will deposit $15,000,000 of the Estimated Purchase Price
with the Escrow Agent to hold in escrow on behalf of the Sellers and Buyer to
provide a fund for any payment to which they may be entitled in accordance with
this Section 2.5 (such escrow, the "Post-Closing Adjustments Escrow," and such
$15,000,000, together with any earnings thereon, the "Post-Closing Adjustment
Funds"). The Post-Closing Adjustments Escrow will be administered, and the
Post-Closing Adjustment Funds will be held and disbursed, in accordance with the
provisions of this Section 2.5 and the Post-Closing Escrow Agreement.
(b) Final Closing Statement.
(1) Within 90 days after the Closing Date, the
General Partner shall prepare and deliver to Buyer a written report (the "Final
Closing Statement") setting forth the General Partner's final estimate of the
Purchase Price, including its estimates of Reimbursable Capital Expenditures,
Adjustment Assets, Adjustment Liabilities, the Subscriber Adjustment, and the
First Swap Adjustment and Second Swap Adjustment if applicable, all as
determined in accordance with this Article 2. The Final Closing Statement shall
be prepared by the General Partner in good faith and shall be certified by the
General Partner to be its good faith estimate of the Purchase Price and the
other amounts set forth therein as of the date thereof. The Final Closing
Statement will be accompanied by appropriate documentation supporting the
amounts set forth therein, including an accounts receivable detail with relevant
aging information as of the Adjustment Time, and such additional information as
the Buyer shall reasonably request relating to the matters set forth in the
Final Closing Statement. The General Partner and the Buyer will each provide to
the other reasonable access, upon reasonable notice, to all records in its
possession for purposes of the preparation and verification of the Final Closing
Statement.
(2) Within 30 days after the date that the Final
Closing Statement is delivered by the General Partner to Buyer, Buyer shall
complete its examination thereof and may deliver to the General Partner a
written report setting forth any proposed adjustments to any amounts set forth
in the Final Closing Statement. If Buyer notifies the General Partner of Buyer's
acceptance of the amounts set forth in the Final Closing Statement, the amounts
set forth in the Final Closing Statement shall be conclusive, final, and binding
on the parties as of the date of such notification. If Buyer fails to deliver
its report of any proposed adjustments within the 30-day period specified in the
preceding sentence, the amounts set forth in the Final Closing Statement shall
be conclusive, final, and binding on the parties as of the last day of such
30-day period. Buyer and the General Partner shall use good faith efforts to
resolve any dispute involving the amounts set forth in the Final Closing
Statement. If the General Partner and Buyer fail to agree on any amount set
forth in the Final Closing Statement within 10 days after the General Partner
receives Buyer's report pursuant to this Section 2.5(b), the disputed amounts
will be determined within the following 30-day period by an independent auditor
of any of the "Big Five" accounting firms so long as such firm does not then
serve as the independent auditor of any of
- 20 -
<PAGE>
the InterMedia Companies, the Sellers or Buyer. The selected auditor shall
endeavor to resolve the dispute as promptly as practicable and such auditor's
resolution of the dispute shall be final and binding on the parties, and a
judgment may be entered thereon in any court of competent jurisdiction. All of
the costs and expenses of the selected auditor and its services rendered
pursuant to this Section 2.5 shall be borne by Buyer, on the one hand, and
Sellers, on the other hand, as nearly as possible in the proportion to the
amount by which the determination of all matters related to such costs and
expenses varies from the positions of Buyer and the General Partner,
respectively, on all such matters.
(c) Payment of Purchase Price Adjustments.
(1) Within three Business Days after the Buyer
delivers to the General Partner the report setting forth its proposed
adjustments to the Final Closing Statement, the amounts not in dispute shall be
determined and the Escrow Agent shall release and pay over to Buyer and/or the
General Partner for the benefit of Sellers, as the case may be, the appropriate
amount of the Post-Closing Adjustment Funds not in dispute, plus investment
earnings attributable to such amount. The balance in the Post-Closing
Adjustments Escrow shall be held by the Escrow Agent until the amount of the
Purchase Price is finally determined pursuant to this Section 2.5 (whether by
agreement of the General Partner and Buyer, by the Buyer's failure to deliver
its report of proposed adjustments within the allotted period, or by the
determination of an independent auditor). Upon and within three Business Days
after such final determination, the Escrow Agent shall release and pay over to
Buyer and/or the General Partner for the benefit of Sellers, as the case may be,
the appropriate amount of the Post-Closing Adjustment Funds based upon such
final determination, plus investment earnings attributable to such amount. If
the Purchase Price as finally determined pursuant to this Section 2.5 exceeds
the Estimated Purchase Price, Buyer will pay to the General Partner for the
benefit of Sellers in cash the amount of such excess within three Business Days
of the date of such determination, plus interest through the date of such
payment to the General Partner at a rate per annum equal to the effective
annualized return on the investment of the Post-Closing Adjustment Funds while
such funds were held in escrow. If the Net Closing Payment exceeds the Purchase
Price as finally determined pursuant to this Section 2.5, the General Partner
will immediately demand that each Seller remit to the General Partner for the
account of Buyer its proportionate share (based on the percentage interest in
the Partnership that such Seller transferred to Buyer pursuant to Section
2.1(a)) of such excess, plus interest through the date of payment to Buyer at a
rate per annum equal to the effective annualized return on the investment of the
Post-Closing Adjustment Funds while such funds were held in escrow, and each
Seller agrees to pay such amount to the General Partner within three Business
Days of the General Partner's demand, and the General Partner will pay to Buyer
in cash the amount received from each Seller within one Business Day after the
receipt of each such payment from the Sellers; provided that if Buyer has not
received the full amount payable for its account from any Seller pursuant to
this sentence within four Business Days after the date the Purchase Price is
finally determined, Buyer may proceed directly against such Seller for such
amount.
(2) All payments to be made to the General Partner
pursuant to this Section 2.5(c) shall be paid by wire or accounts transfer of
immediately available funds (or by cashier's check at the Escrow Agent's or
Buyer's option if the amount payable is $100,000 or less) to an account
- 21 -
<PAGE>
designated by the General Partner by written notice to the Escrow Agent or
Buyer, as appropriate. All payments to be made to Buyer pursuant to this Section
2.5(c) shall be paid by wire or accounts transfer of immediately available funds
(or by cashier's check at the Escrow Agent's or the General Partner's option if
the amount payable is $100,000 or less) to one or more accounts designated by
Buyer by written notice to the Escrow Agent or the General Partner, as
appropriate. The amount of any fees payable by the Sellers to an independent
auditor in connection with a final determination of the Purchase Price or the
Escrow Agent shall be paid out of any Post-Closing Adjustment Funds otherwise
due to the Sellers.
2.6 Sellers' Representative. Each Seller hereby appoints the General
Partner as the true and lawful attorney-in-fact and agent of such Seller, to act
for such Seller in such Seller's name, place and stead with respect to the
matters and transactions contemplated by this Agreement, including preparing the
Preliminary Closing Statement and the Final Closing Statement, and each Seller
hereby agrees that all actions taken and determinations made by the General
Partner pursuant to this Agreement shall be final and binding on all of the
Sellers. The General Partner agrees that it will remit all monies received by
the General Partner pursuant to this Agreement that are payable to another
Seller to such Seller within three Business Days of receiving account
information for such Seller and that it shall hold such monies in trust for the
benefit of such Seller pending such disbursement, and each Seller agrees that
Buyer's and the Escrow Agent's respective obligations to remit any payments due
to any Seller under this Agreement shall be fully performed upon delivering such
payment to the General Partner.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE
GENERAL PARTNER
The General Partner represents and warrants to Buyer as follows:
3.1 Organization and Ownership of InterMedia Companies.
(a) Each InterMedia Company is a limited partnership duly
formed, validly existing, and in good standing under the laws of the
jurisdiction of its formation and has the requisite partnership power and
authority to own, lease, and operate its properties and assets and to carry on
its business in the places where such properties and assets are now owned,
leased, or operated. The Operating Partnership is duly qualified and in good
standing as a foreign limited partnership in the Commonwealth of Kentucky, and
each InterMedia Company is duly qualified and in good standing in all other
jurisdictions in which the ownership or leasing of the InterMedia Assets owned
or leased by it or the nature of its activities in connection with InterMedia's
Business makes such qualification necessary and in which failure to so qualify
would, individually or in the aggregate, have a Material Adverse Effect. No
InterMedia Company, directly or indirectly, owns, of record or beneficially, any
Capital Stock or other securities or other interest in any Person or has the
right or obligation to acquire, any Capital Stock or other securities or other
interest in any Person.
- 22 -
<PAGE>
(b) Schedule 3.1 sets forth the authorized, issued and
outstanding Capital Stock of each Subsidiary Partnership, and each record owner
and beneficial owner of the issued and outstanding Capital Stock of each of the
Subsidiary Partnerships. All of such issued and outstanding Capital Stock of the
InterMedia Companies has been duly authorized, validly issued, and has not been
issued in violation of any federal or state securities laws. Except as set forth
in Schedule 3.1, the record owner of the Capital Stock of each Subsidiary
Partnership owns such Capital Stock free and clear of all Liens (other than the
Loan Document Liens and transfer restrictions created by the Partnership
Agreement in favor of the other partners thereunder). Except as disclosed in
Schedule 3.1, there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind to
which any InterMedia Company is a party or by which any of them is bound
obligating such InterMedia Company to issue, deliver or sell, or cause to be
issued, delivered or sold, any additional Capital Stock of such InterMedia
Company or obligating such InterMedia Company to issue, grant, extend or enter
into any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. The General Partner has delivered to Buyer complete
and correct copies of the Charter Documents of each InterMedia Company as in
effect on the date hereof.
3.2 No Conflict; Required Consents. Except as described on Schedule
3.2, the execution and delivery by each Seller, the performance by each Seller
under, and the consummation of the transactions contemplated by, this Agreement
and the Transaction Documents do not and will not: (a) conflict with or violate
any provision of the Charter Documents of any InterMedia Company; (b) violate
any provision of any material Legal Requirement applicable to the InterMedia
Companies; (c) require any material consent, approval or authorization of, or
filing of any material certificate, notice, application, report or other
document with, any Governmental Authority or other Person; or (d) (i) materially
conflict with, violate, result in a material breach of or constitute a material
default under (without regard to requirements of notice, lapse of time or
elections of other Persons or any combination thereof), (ii) permit or result in
the termination, suspension or material modification of, (iii) result in the
material acceleration of (or give any Person the right to materially accelerate)
the performance of any InterMedia Company under, or (iv) result in the creation
or imposition of any material Lien upon any of the InterMedia Assets under, any
System Franchise, material System License or any material System Contract or
other material instrument evidencing any of the InterMedia Assets or by which
any InterMedia Company or any of its assets is bound or affected.
3.3 InterMedia Assets.
(a) The Operating Partnership has good and valid title to (or,
in the case of the InterMedia Assets that are leased, valid leasehold interests
in) the InterMedia Assets (other than Owned Real Property, Leased Real Property
and Other Real Property Interests, as to which representations and warranties in
Section 3.5 apply). The InterMedia Assets are free and clear of all Liens,
except Permitted Liens.
(b) The InterMedia Assets include all of the assets (including
all of the dwelling-unit easements, rights of entry and similar agreements and
authorizations, and all of the real estate easements, rights of way and similar
authorizations) necessary to permit the InterMedia Companies to
- 23 -
<PAGE>
conduct InterMedia's Business lawfully and to operate the InterMedia Systems
lawfully and substantially as they are being conducted and operated on the date
of this Agreement and in compliance in all material respects with all applicable
material Legal Requirements, System Contracts, System Licenses and System
Franchises. Schedule 3.3 lists the principal items of Tangible Personal
Property. Except as described on Schedule 3.3, the Tangible Personal Property is
in good operating condition and repair (ordinary wear and tear excepted). The
InterMedia Assets include inventory at not less than normal historical levels
consistent with past practice (as adjusted for historical rebuild activities)
and sufficient to operate the InterMedia Systems in the ordinary course of
business.
3.4 System Franchises, System Licenses, and System Contracts.
(a) Except for the System Franchises, System Licenses and
System Contracts listed on Schedule 3.4 and the Leased Real Property and Other
Real Property Interests listed on Schedule 3.5, to the General Partner's
Knowledge, the InterMedia Companies are not bound or affected by any of the
following that relate to InterMedia's Business: (i) leases of real property;
(ii) leases of personal property for more than one year or requiring payments
exceeding $25,000 in the aggregate; (iii) franchises for the construction or
operation of cable television systems or material Contracts of substantially
equivalent effect; (iv) licenses, authorizations, consents or permits of the
FCC; (v) other material licenses, authorizations, consents or permits of any
other Governmental Authority; (vi) material easements, rights of access,
underground conduit agreements, crossing agreements or other interests in real
property; (vii) material pole line or attachment agreements; (viii) multiple
dwelling unit agreements, including bulk agreements, and commercial service
agreements; (ix) material agreements pursuant to which the InterMedia Systems
receive or provide advertising sales representation services; (x) material
agreements pursuant to which an InterMedia System has constructed or agreed to
construct for third parties an institutional network or otherwise provides to
third parties telecommunications services other than one-way video; (xi)
material construction and development agreements (other than installation
agreements where services are provided in the ordinary course of business on an
as-needed basis); (xii) agreements pursuant to which any of the InterMedia
Companies have incurred or are liable for any Debt or (xiii) Contracts relating
to the operation of InterMedia's Business other than those described in any
other clause of this Section 3.4(a) which contemplate payments by or to one of
the InterMedia Companies in any 12-month period exceeding $25,000 individually
or $150,000 in the aggregate.
(b) Complete and correct copies of the System Franchises and
System Licenses have been delivered by the General Partner to Buyer. Except as
set forth on Schedule 3.4, the System Franchises contain all of the commitments
and obligations of the InterMedia Companies to the applicable Franchising
Authority granting such System Franchises with respect to the construction,
ownership and operation of the InterMedia Systems, except for any commitments or
obligations that will be fulfilled or satisfied prior to the Closing. To the
General Partner's Knowledge, the System Franchises and System Licenses are
currently in full force and effect and are valid and enforceable under all
applicable Legal Requirements according to their terms. Except as disclosed in
Schedule 3.4 or such rights that will have been waived prior to the Closing,
none of the System Franchises grants to any Franchising Authority or any other
Person any right of first refusal or right to purchase the assets
- 24 -
<PAGE>
of any InterMedia System that would be triggered by Buyer's offer to acquire the
Purchased Interests, the execution of this Agreement, or the consummation of the
purchase and sale of the Purchased Interests. There is no legal action,
governmental proceeding or investigation pending, or to the General Partner's
Knowledge threatened, to terminate, suspend or materially modify any System
Franchise or any System License and the InterMedia Companies are in material
compliance with the material terms and conditions of all System Franchises and
System Licenses and with other applicable material requirements of all
Governmental Authorities (including the FCC and the Register of Copyrights)
relating to the System Franchises and System Licenses, including all material
requirements for notification, filing, reporting, posting and maintenance of
logs and records. All Service Areas are served pursuant to one of the System
Franchises except as set forth on Schedule 3.4.
(c) Complete and correct copies of all System Contracts
required to be listed on the Sellers' Schedules (including all Contracts
relating to Leased Real Property and Other Real Property Interests described on
Schedule 3.5) have been provided to or made available to Buyer or will be
provided to Buyer within five Business Days following execution of this
Agreement (other than System Contracts designated as "Missing" on Schedule 3.4
or 3.5). To the General Partner's Knowledge, such documents constitute the
entire agreement with the other party. Each such System Contract is in full
force and effect and constitutes the valid, legal, binding and enforceable
obligation of the Operating Partnership, and the Operating Partnership is not,
and to the General Partner's Knowledge, each other party thereto is not, in
breach or in default of any material terms or conditions thereunder.
3.5 Real Property. All InterMedia Assets consisting of Owned Real
Property, Leased Real Property and material Other Real Property Interests are
described on Schedule 3.5, including address and use for each such real property
interest. Except as otherwise disclosed on Schedule 3.5, the Operating
Partnership holds title to the Owned Real Property free and clear of all Liens
(except Permitted Liens) and has the valid and enforceable right to use and
possess such Owned Real Property, subject only to the above-referenced Liens. To
the General Partner's Knowledge, except as otherwise disclosed on Schedules 3.5,
the Operating Partnership has valid and enforceable leasehold interests in all
Leased Real Property and, with respect to Other Real Property Interests, has
valid and enforceable rights to use such Other Real Property Interests, in each
case subject only to the above-referenced Liens. To the General Partner's
Knowledge, except for ordinary wear and tear and routine repairs, all of the
material improvements, leasehold improvements and the premises of the Owned Real
Property and the premises demised under the leases and other documents
evidencing the Leased Real Property are in good condition and repair and are
suitable for the purposes used. To the General Partner's Knowledge, each parcel
of Owned Real Property and each parcel of Leased Real Property and any
improvements thereon and their current use (a) has access to and over public
streets or private streets for which the Operating Partnership has a valid right
of ingress and egress, (b) conforms in its current use and occupancy to all
material zoning requirements without reliance upon a variance issued by a
Governmental Authority or a classification of the parcel in question as a
nonconforming use and (c) conforms in all material respects in its current use
to all restrictive covenants, if any, or other Liens affecting all or part of
such parcel. To the General Partner's Knowledge, all buildings, towers, guy
wires and anchors, headend equipment, earth-receiving dishes and related
facilities used in the operations of the InterMedia Systems and included in the
InterMedia Assets are located entirely on
- 25 -
<PAGE>
Owned Real Property or Leased Real Property or other real property in which the
Operating Partnership has an Other Real Property Interest and are maintained,
placed and located materially in accordance with the provisions of all
applicable material Legal Requirements, deeds, leases, licenses, permits or
other legally enforceable arrangements.
3.6 Environmental. Except as would not reasonably be expected to
result, individually or in the aggregate, in fines or penalties under
Environmental Laws or environmental remediation costs required to be incurred
under Environmental Laws in excess of $5 million ("Material Environmental
Liability"):
(a) Except as disclosed on Schedule 3.6, the Owned Real
Property and Leased Real Property comply in all material respects with and, to
the General Partner's Knowledge, have previously been operated in compliance in
all material respects with all Environmental Laws. Except as disclosed on
Schedule 3.6, none of the InterMedia Companies has (i) generated, stored, used,
treated, handled, discharged, released or disposed of any Hazardous Substances
at, on, under, in or about, to or from or in any other manner affecting, any
Owned Real Property or Leased Real Property, (ii) transported any Hazardous
Substances to or from any Owned Real Property or Leased Real Property or (iii)
undertaken or caused to be undertaken any other activities relating to the Owned
Real Property or Leased Real Property, which could reasonably be expected to
give rise to liability under any Environmental Law and, to the General Partner's
Knowledge, no other present or previous owner, tenant, occupant or user of any
Owned Real Property or Leased Real Property or any other Person has committed or
suffered any of the foregoing. Except as disclosed on Schedule 3.6, to the
General Partner's Knowledge, no release of Hazardous Substances outside the
Owned Real Property or Leased Real Property has entered or threatens to enter
any Owned Real Property or Leased Real Property, nor is there any pending or
threatened Litigation based on Environmental Laws which arises from any
condition of the land adjacent to or immediately surrounding any Owned Real
Property or Leased Real Property. Except as disclosed on Schedule 3.6, no
Litigation based on Environmental Laws which relates to any Owned Real Property
or Leased Real Property or any operations or conditions on it (i) has been
asserted or conducted in the past or is currently pending against or with
respect to any of the InterMedia Companies or, to the General Partner's
Knowledge, any other Person or (ii) to the General Partner's Knowledge, is
threatened or contemplated.
(b) Except as disclosed on Schedule 3.6, (i) to the General
Partner's Knowledge, no aboveground or underground storage tanks regulated under
the Environmental Laws are currently or have been located on any Owned Real
Property or Leased Real Property, (ii) to the General Partner's Knowledge, no
Owned Real Property or Leased Real Property has been used at any time as a
gasoline service station or any other facility for storing, pumping, dispensing
or producing gasoline or any other petroleum products or wastes and (iii) to the
General Partner's Knowledge, no building or other structure on any Owned Real
Property or Leased Real Property contains friable asbestos, or
asbestos-containing material.
(c) The General Partner has provided Buyer with complete and
correct copies of (i) all material studies, reports, surveys or other written
materials, which to the General Partner's
- 26 -
<PAGE>
Knowledge, are in the possession of the General Partner or the InterMedia
Companies relating to the presence or alleged presence of Hazardous Substances
at, on, under or affecting the Owned Real Property or Leased Real Property, (ii)
all material written notices (other than general notices made by general
publication) or other material written materials in the possession of the
General Partner or the InterMedia Companies that were received from any
Governmental Authority having the power to administer or enforce any
Environmental Laws relating to potential liability under Environmental Laws
arising out of the current or past ownership, use or operation of the Owned Real
Property or Leased Real Property or activities at the Owned Real Property or
Leased Real Property and (iii) all materials in the possession of the General
Partner or the InterMedia Companies relating to any material Litigation or
material allegation by any private third party concerning any Environmental Law
and relating to InterMedia's Business, excepting, in the case of clauses (i),
(ii) and (iii), any such materials that were prepared by legal counsel to the
InterMedia Companies and constitute privileged attorney work product or
communications.
3.7 Compliance with Legal Requirements.
(a) The use of the InterMedia Assets as they are currently
used and the conduct of InterMedia's Business and the operation of the
InterMedia Systems as they are currently conducted and operated do not, to the
General Partner's Knowledge, except as described on Schedule 3.7, violate or
infringe in any material respect any material Legal Requirements currently in
effect (other than Legal Requirements described in Sections 3.6, 3.7(d) and
3.12, as to which the representations and warranties set forth in those
subsections shall apply), including (i) the Communications Act, (ii) Section 111
of the Copyright Act and (iii) all other applicable material Legal Requirements
relating to the construction, maintenance, ownership and operation of the
InterMedia Assets, the InterMedia Systems and InterMedia's Business. Neither the
General Partner nor any of the InterMedia Companies has received any written
notice of any material violation by the InterMedia Companies or InterMedia's
Business of any material Legal Requirement applicable to the operation of
InterMedia's Business as currently conducted, or the InterMedia Systems as
currently operated, and there is no existing fact, circumstance or condition
that could reasonably form the basis for a finding by any Governmental Authority
of any such material violation.
(b) Except as disclosed on Schedule 3.7, a valid request for
renewal has been duly and timely filed under Section 626 of the Cable Act with
the proper Franchising Authority with respect to all System Franchises that have
expired prior to or will expire within 36 months after the date of this
Agreement.
(c) Except as set forth in Schedule 3.7, (i) neither the
General Partner nor any of the InterMedia Companies has received any written
notice or demand from the FCC, from any television station, or from any other
Person or Governmental Authority (A) challenging the right of the InterMedia
Systems to carry any television broadcast station or deliver the same or (B)
claiming that any InterMedia System has failed to carry a television broadcast
station required to be carried pursuant to the Communications Act or has failed
to carry a television broadcast station on a channel designated by such station
consistent with the requirements of the Communications Act; (ii) to the General
- 27 -
<PAGE>
Partner's Knowledge, all material FAA approvals to the extent necessary have
been obtained with respect to the height and location of towers used in
connection with the operation of the InterMedia Systems and are listed in
Schedule 3.7, and such towers are being operated in compliance in all material
respects with applicable FCC and FAA rules; and (iii) neither the General
Partner nor, to the General Partner's Knowledge, any of the InterMedia Companies
has received any written notice from any Governmental Authority with respect to
or has knowledge of an intention to enforce customer service standards pursuant
to the 1992 Cable Act and, except as set forth in the System Franchises, to the
General Partner's Knowledge, the InterMedia Companies have not agreed with any
Governmental Authority to establish customer service standards that exceed the
FCC standards promulgated pursuant to the 1992 Cable Act.
(d) To the General Partner's Knowledge, each InterMedia System
is in compliance in all material respects with the provisions of the 1992 Cable
Act as such Legal Requirements relate to the rates and other fees charged to
subscribers of InterMedia's Business. The InterMedia Companies have used
commercially reasonable efforts to establish rates charged to subscribers,
effective since September 1, 1993, that are or were allowable under the 1992
Cable Act and any authoritative interpretation thereof now or then in effect, to
the extent such rates are or were subject to regulation at such time by any
Governmental Authority, including any Franchising Authority and/or the FCC.
Notwithstanding the foregoing, none of the Sellers makes any representations or
warranties that the rates charged to subscribers of the InterMedia Systems would
be allowable by any rules and regulations of any Governmental Authority that are
promulgated after the Closing Date. The General Partner has delivered to Buyer
complete and correct copies of all material FCC Forms and other information
reasonably requested by Buyer relating to rate regulation generally or specific
rates charged to subscribers with respect to the InterMedia Systems. Except as
set forth on Schedule 3.7, the InterMedia Companies have not made any election
with respect to any cost of service proceeding conducted in accordance with Part
76.922 of Title 47 of the Code of Federal Regulations or any similar proceeding
with respect to any of the InterMedia Systems (a "Cost of Service Election").
Except as set forth in Schedule 3.7, the InterMedia Companies have not entered
into and are not subject to any so-called social contract or proposed resolution
with the FCC or any Franchising Authority with respect to rates charged for
cable television services in the InterMedia Systems and are not currently
negotiating or anticipating entering into or being subject to the same. Except
as otherwise described on Schedule 3.7, to the General Partner's Knowledge, (i)
there are no outstanding or unresolved proceedings or investigations (other than
those affecting the cable industry generally) dealing with or otherwise
affecting the rates that any InterMedia System can charge (whether for
programming, equipment, installation, service or otherwise) including appeals,
(ii) no InterMedia System is subject to any currently effective order issued by
a Governmental Authority that reduced the rates that it may charge (whether for
programming, equipment, installation, service, or otherwise), (iii) no
Franchising Authority has been certified by the FCC as a rate regulating
authority with respect to any of the InterMedia Systems, and (iv) there is no
unresolved material complaint pending with respect to the CPST tier of any
InterMedia System and no rate order with respect to the InterMedia Systems that
is being appealed.
- 28 -
<PAGE>
3.8 Patents, Trademarks and Copyrights. Except as set forth on Schedule
3.8, the InterMedia Companies have deposited with the U.S. Copyright Office all
statements of account and other documents and instruments, and have paid all
royalties, supplemental royalties, fees and other sums to the U.S. Copyright
Office under the Copyright Act with respect to the business and operations of
the InterMedia Systems as are required to obtain, hold and maintain the
compulsory license for cable television systems provided by Section 111 of the
Copyright Act. Neither the General Partner nor any of the InterMedia Companies
has received any notice of any material inquiry, claim, action or demand pending
before the U.S. Copyright Office or from any other Person which questions the
copyright filings or payments made by the InterMedia Companies with respect to
the InterMedia Systems. The General Partner has delivered to Buyer complete and
correct copies of all current reports and filings for the past three years, made
or filed with the U.S. Copyright Office pursuant to copyright rules and
regulations with respect to InterMedia's Business. Except as set forth on
Schedule 3.8, the InterMedia Companies do not own or use any patent, patent
right, trademark or copyright related to and material to the operation of the
InterMedia Systems and are not a party to any license or royalty agreement with
respect to any such patent, patent right, trademark or copyright, except for
licenses respecting program material and obligations under the Copyright Act
applicable to cable television systems generally. To the General Partner's
Knowledge, except as described on Schedule 3.8, the InterMedia Systems and
InterMedia's Business have been operated in such a manner so as not to
materially violate or infringe upon the rights, or give rise to any rightful
material claim of any Person for copyright, trademark, service mark or, patent
infringement.
3.9 Financial Statements; Undisclosed Liabilities; Absence of Certain
Changes or Events. The General Partner has delivered to Buyer complete and
correct copies of (a) audited consolidated balance sheets of the Partnership and
its consolidated Subsidiaries and related statements of income, stockholders'
equity and cash flows for the eight months ended December 31, 1998, including
all notes and schedules thereto (all of such financial statements and notes
being hereinafter referred to as "InterMedia's Financial Statements").
InterMedia's Financial Statements are in accordance with the books and records
of the InterMedia Companies, were prepared in accordance with GAAP and present
fairly the financial condition and operating results of the InterMedia Companies
as of and for the period indicated. The unaudited consolidated Balance Sheet as
of February 28, 1999 of the Partnership and its consolidated Subsidiaries is
herein called the "InterMedia Balance Sheet." At the date of the InterMedia
Balance Sheet, the InterMedia Companies had no material liabilities with respect
to the InterMedia Systems or InterMedia's Business required by GAAP to be
reflected or reserved against therein that were not fully reflected or reserved
against on the InterMedia Balance Sheet, other than liabilities as set forth on
Schedule 3.9. Except as set forth on Schedule 3.9 or as otherwise disclosed in
this Agreement or any other Schedule attached to this Agreement, since the date
of the InterMedia Balance Sheet: (i) the InterMedia Companies have not incurred
any obligation or liability (contingent or otherwise) with respect to the
InterMedia Systems or InterMedia's Business that would require accrual or
disclosure in accordance with GAAP, except obligations incurred in the ordinary
course of business; (ii) there has been no material adverse change in, nor to
the General Partner's Knowledge, has any event or events (other than any events
affecting the cable television industry in general) occurred that, individually
or in the aggregate, are reasonably likely to result in a material adverse
change in (A) the condition (financial or otherwise) or results of operations of
InterMedia's Business, (B) the
- 29 -
<PAGE>
InterMedia Assets, business, operations, condition (financial or otherwise) or
results of operations of any single Principal System Group, taken as a whole, or
(C) the InterMedia Assets, business operations, condition (financial or
otherwise) or results of operations of the other Systems (i.e., those which are
not within any Principal System Group), taken as a whole; and (iii) InterMedia's
Business has been conducted only in the ordinary course of business consistent
with past practice, except as provided in InterMedia's 1999 Budget.
3.10 Litigation. Except as set forth in Schedule 3.10: (a) there is no
Litigation pending or, to the General Partner's Knowledge, threatened, and to
the General Partner's Knowledge, there is no investigation pending or
threatened, by or before any Governmental Authority or private arbitration
tribunal against any of the InterMedia Companies which, if adversely determined,
would, individually or in the aggregate, have a Material Adverse Effect, or
would result in the material modification, revocation, termination, suspension
or other limitation of any of the System Franchises, System Licenses, System
Contracts or leases or other documents evidencing the Leased Real Property or
the Other Real Property Interests; and (b) there is not in existence any
Judgment (other than Judgments affecting the cable television industry in
general) requiring any of the InterMedia Companies to take any action of any
kind with respect to the InterMedia Assets or the operation of the InterMedia
Systems, or to which any of the InterMedia Companies, the InterMedia Systems or
the InterMedia Assets are subject or by which they are bound or affected.
3.11 Tax Returns. Except as described on Schedule 3.11, the InterMedia
Companies have duly and timely filed in correct form all federal Tax Returns and
all other material Tax Returns required to be filed by them, and have timely
paid all Taxes which have become due and payable, whether or not so shown on any
such Tax Return, except such amounts as are being contested diligently and in
good faith and are not in the aggregate material. Neither the General Partner
nor any of the InterMedia Companies has received any notice of, nor does the
General Partner have any Knowledge of, any deficiency, assessment or audit, or
proposed deficiency, assessment or audit from any taxing Governmental Authority.
3.12 Employment Matters.
(a) Schedule 3.12 contains a complete and correct list of the
names and positions of all employees engaged principally in InterMedia's
Business as of the date set forth on Schedule 3.12. To the General Partner's
Knowledge, the InterMedia Companies have complied in all material respects with
all applicable Legal Requirements relating to the employment of labor, including
the Worker Adjustment and Retraining Notification Act, as amended (the "WARN
Act"), ERISA, continuation coverage requirements with respect to group health
plans and those relating to wages, hours, collective bargaining, unemployment
insurance, worker's compensation, equal employment opportunity, age and
disability discrimination, immigration control and the payment and withholding
of Taxes.
(b) Each employee benefit plan (as defined in Section 3(3) of
ERISA) or any multi-employer plan (as defined in Section 3(37) of ERISA) with
respect to which any of the InterMedia Companies or any of their ERISA
Affiliates has any liability or in which any employees or agents, or
- 30 -
<PAGE>
any former employees or agents, of any of the InterMedia Companies or any of
their ERISA Affiliates participate is set forth in Schedule 3.12 (the
"InterMedia Plans"). Except as disclosed on Schedule 3.12, none of the
InterMedia Companies, none of their ERISA Affiliates and no InterMedia Plan is
in material violation of any provision of the Code or ERISA. No "reportable
event" (as defined in Section 4043 of ERISA) has occurred and is continuing with
respect to any InterMedia Plan and no "prohibited transaction" (as defined in
Section 406 of ERISA) has occurred with respect to any InterMedia Plan. No
material "accumulated funding deficiency" or "withdrawal liability" (as defined
in Section 302 of ERISA) exists with respect to any of the InterMedia Plans.
After the Closing, none of the InterMedia Companies will be required, under
ERISA, the Code or any collective bargaining agreement, to establish, maintain
or continue any InterMedia Plan currently maintained by them or any of their
ERISA Affiliates.
(c) Except as set forth on Schedule 3.12, there are no union
or collective bargaining agreements applicable to any Person employed by any of
the InterMedia Companies that renders services in connection with the InterMedia
Systems and none of the InterMedia Companies has any duty to bargain with any
labor organization with respect to any such Person. Except as set forth on
Schedule 3.12, there are not pending any unfair labor practice charges against
any of the InterMedia Companies, any demand for recognition or any other effort
of or request or demand from, a labor organization for representative status
with respect to any Person employed by any of the InterMedia Companies that
renders services in connection with the InterMedia Systems or InterMedia's
Business. Except as described on Schedule 3.12, none of the InterMedia Companies
has any written employment Contracts, either written or oral, with any employee
of the InterMedia Systems.
3.13 InterMedia Systems Information. Schedule 3.13 sets forth a true
and accurate list of the following information relating to InterMedia's Business
as of the most recent monthly report generated by the InterMedia Companies in
the ordinary course of business containing the information required to prepare
Schedule 3.13 (which date is specified in Schedule 3.13):
(a) the approximate number of miles (both underground and
aerial) of plant included in the InterMedia Assets;
(b) the approximate number of Equivalent Basic Subscribers
(including the number that are individually billed and the number that are
bulk-billed) served by the InterMedia Systems for each Principal System Group
and for all other InterMedia Systems in the aggregate.
(c) the approximate number of single family homes, residential
dwelling units (including apartment, condominium and cooperative building
units), and commercial establishments (including hotels and motels) passed by
the InterMedia Systems;
(d) a description of all Basic Services, Expanded Basic
Services, Pay TV, digital and other optional or tier services available from the
InterMedia Systems, the rates charged by the InterMedia Companies for each and
the number of customers receiving each such service;
- 31 -
<PAGE>
(e) a list of each InterMedia System, with the stations and
signals carried by each InterMedia System and the channel position of each such
signal and station, and the respective bandwidth capacity and channel capacity
for each InterMedia System.
(f) a list of each Service Area served by each InterMedia
System.
3.14 Accounts Receivable. The Accounts Receivable for InterMedia's
Business are actual and bona fide receivables representing obligations for the
total dollar amount of such receivables, as shown on the books of the InterMedia
Companies, that resulted from the regular course of InterMedia's Business. Such
receivables are subject to no material offset or reduction of any nature, except
for a reserve for uncollectible amounts consistent with the reserve established
by the InterMedia Companies in InterMedia's Financial Statements and those
credits or reductions to such accounts made in the ordinary course of business.
3.15 Bonds; Letters of Credit; Insurance. Except as set forth on
Schedule 3.15, there are no franchise, construction, fidelity, performance, or
other bonds, guaranties in lieu of bonds or letters of credit posted by the
InterMedia Companies in connection with its operation or ownership of any of the
InterMedia Systems or InterMedia Assets. Schedule 3.15 is a true and complete
list of all of the material certificates of insurance with respect to any of the
InterMedia Systems or InterMedia Assets or InterMedia's Business.
3.16 Finders and Brokers. None of the InterMedia Companies nor any
Person acting on behalf of the InterMedia Companies has employed any financial
advisors, broker or finder or incurred any liability for any financial advisory,
brokerage, finder's or similar fee or commission in connection with the
transactions contemplated by this Agreement, except any of the foregoing that
will be paid in full by the Sellers.
3.17 Transactions with Affiliates. Except as disclosed in Schedule
3.17, none of the InterMedia Companies has been involved in any business
arrangement or business relationship with any Affiliate of any of the InterMedia
Companies (other than another InterMedia Company), and no Affiliate of any of
the InterMedia Companies (other than another InterMedia Company) owns any
property or right, tangible or intangible, that is used in InterMedia's Business
or the operation of the InterMedia Systems.
3.18 Competition. Except as set forth in Schedule 3.18, to the General
Partner's Knowledge, as of the date of this Agreement, (a) no cable television
system or other non-satellite MVPD other than an InterMedia System is operating
in any of the Service Areas; (b) no Franchising Authority for a Service Area has
awarded a franchise or similar authorization to any cable operator other than
the InterMedia Companies; and (c) no MVPD has applied for a franchise or similar
authorization to serve any such Service Area.
- 32 -
<PAGE>
3.19 Pending Transactions. Other than the Pending Swaps, the InterMedia
Companies have not entered into any agreement or letter of intent or other
commitment to acquire or dispose of any cable television system that has not
been consummated prior to the execution of this Agreement.
3.20 Pending Swap Schedules. Any information set forth in or disclosed
in the schedules to the Swap Agreements as in effect on the date of this
Agreement shall be deemed by this reference to be included in the Schedules to
this Agreement to the extent such information and disclosures would reasonably
be deemed relevant to the corresponding or analogous representations and
warranties made by the General Partner in this Article 3.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller severally represents and warrants to Buyer as follows:
4.1 Authority of Sellers; Authorization and Binding Obligation. Such
Seller has the requisite legal capacity or requisite partnership or limited
liability company power and authority, as appropriate, to execute, deliver and
perform this Agreement and the other Transaction Documents to which such Seller
is a party according to their respective terms. The execution, delivery, and
performance by such Seller of this Agreement and the other Transaction Documents
to which such Seller is a party have been duly authorized by all necessary
action on the part of such Seller. This Agreement and the other Transaction
Documents to which such Seller is a party have been duly executed and delivered
by such Seller (or, in the case of Transaction Documents to be executed and
delivered at Closing, when executed and delivered will be duly executed and
delivered) and constitute (or, in the case of Transaction Documents to be
executed and delivered at Closing, when executed and delivered will constitute)
the legal, valid, and binding obligation of such Seller, enforceable against
such Seller in accordance with their terms, except as the enforceability of this
Agreement and such other Transaction Documents may be limited by bankruptcy,
insolvency, or similar laws affecting creditors' rights generally or by judicial
discretion in the enforcement of equitable remedies, and as rights to
indemnification may be limited by federal or state securities laws or the public
policies embodied therein.
4.2 No Conflict; Required Consents. Except as described on Schedule
4.2, the execution and delivery by such Seller, the performance by such Seller
under, and the consummation of the transactions contemplated by, this Agreement
and the Transaction Documents to which such Seller is a party do not and will
not: (a) conflict with or violate any provision of the Charter Documents of such
Seller; (b) violate any provision of any Legal Requirement applicable to such
Seller; (c) require any consent, approval or authorization of, or filing of any
certificate, notice, application, report or other document with, any
Governmental Authority or other Person; or (d) (i) conflict with, violate,
result in a breach of or constitute a default under (without regard to
requirements of notice, lapse of time or elections of other Persons or any
combination thereof), (ii) permit or result in the termination, suspension or
modification of, (iii) result in the acceleration of (or give any Person the
right to
- 33 -
<PAGE>
accelerate) the performance of such Seller under, or (iv) result in the creation
or imposition of any Lien upon the Purchased Interest held by such Seller under,
any Contract or other instrument by which such Seller or any of its assets is
bound or affected, except for any of the foregoing that would not materially
adversely affect such Seller's ability to perform its obligations under this
Agreement.
4.3 Title to Purchased Interests.
(a) The General Partner holds of record and owns beneficially,
and as of the Closing will hold of record and own beneficially, the General
Partnership Interest set forth by its name in Schedule 4.3, free and clear of
all Liens (other than the Loan Document Liens and transfer restrictions created
by the Partnership Agreement in favor of the other partners thereunder).
(b) As of the date hereof, each Limited Partner Seller holds
of record and owns beneficially the Limited Partnership Interest set forth by
its name in Schedule 4.3, free and clear of all Liens (other than the Loan
Document Liens and transfer restrictions created by the Partnership Agreement in
favor of the other partners thereunder). At the Closing, each Limited Partner
Seller will hold of record and own beneficially the Limited Partnership Interest
required to be sold by it to Buyer at the Closing, free and clear of all Liens
(other than the Loan Document Liens and transfer restrictions created by the
Partnership Agreement in favor of the other partners thereunder), which
partnership interest will have been adjusted to represent a pro rata percentage
interest in all distributions and allocations to be made by the Partnership
without any carried interests or similar preferential rights to distributions or
allocations.
(c) Except as disclosed in Schedule 4.3 and except for this
Agreement and the Partnership Agreement, such Seller (1) is not party to, and
has not granted to any other Person, any options, warrants, subscription rights,
rights of first refusal or any other rights providing for the acquisition or
disposition of partnership interests or other equity interests in the
Partnership, and (2) is not a party to any voting agreement, voting trust, proxy
or other agreement or understanding with respect to the voting of any of the
Purchased Interests or the Capital Stock of any of the InterMedia Companies.
(d) Schedule 4.3 sets forth the correct address of such
Seller's principal place of business, or if such Seller has no principal place
of business, such Seller's residence, and lists any other jurisdiction in which
such Seller reasonably expects that a Person would file evidence of a lien
against or security interest in the assets of such Seller.
4.4 Litigation. There is no Litigation pending or, to such Seller's
Knowledge, threatened, and to such Seller's Knowledge, there is no investigation
pending or threatened, by or before any Governmental Authority or private
arbitration tribunal against such Seller which, if adversely determined, would
materially adversely affect the ability of such Seller to perform its
obligations under this Agreement.
- 34 -
<PAGE>
4.5 Finders and Brokers. Neither such Seller nor any Person acting on
behalf of such Seller has employed any financial advisors, broker or finder or
incurred any liability for any financial advisory, brokerage, finder's or
similar fee or commission in connection with the transactions contemplated by
this Agreement, except any of the foregoing that will be paid in full by such
Seller.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to each Seller as follows:
5.1 Organization; Authority. Buyer is a limited partnership duly
organized, validly existing, and in good standing under the laws of the State of
Delaware. Buyer has the requisite partnership power and authority to conduct its
activities as such activities are currently conducted and to execute, deliver
and perform this Agreement and the other Transaction Documents to which Buyer is
a party according to their respective terms. The Buyer is duly qualified to do
business as a foreign limited partnership and is in good standing in all
jurisdictions in which such qualification is necessary, except where such
failure to be so qualified would not, individually or in the aggregate, have a
material adverse effect on the ability of Buyer to perform its obligations under
this Agreement.
5.2 Authorization and Binding Obligation. The execution, delivery, and
performance by Buyer of this Agreement and the other Transaction Documents to
which Buyer is a party have been duly authorized by all necessary action on the
part of Buyer. This Agreement and the other Transaction Documents to which Buyer
is a party have been duly executed and delivered by Buyer (or, in the case of
Transaction Documents to be executed and delivered at Closing, when executed and
delivered will be duly executed and delivered) and constitute (or, in the case
of Transaction Documents to be executed and delivered at Closing, when executed
and delivered will constitute) the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with their terms, except as the
enforceability of this Agreement and such other Transaction Documents may be
limited by bankruptcy, insolvency, or similar laws affecting creditors' rights
generally or by judicial discretion in the enforcement of equitable remedies,
and as rights to indemnification may be limited by federal or state securities
laws or the public policies embodied therein.
5.3 No Conflict; Required Consents. The execution and delivery by
Buyer, the performance by Buyer under, and the consummation of the transactions
contemplated by, this Agreement and the Transaction Documents to which Buyer is
a party do not and will not: (a) conflict with or violate any provision of the
Charter Documents of Buyer; (b) violate any provision of any Legal Requirement;
(c) require any consent, approval or authorization of, or filing of any
certificate, notice, application, report or other document with, any
Governmental Authority or other Person; or (d) (i) conflict with, violate,
result in a breach of or constitute a default under (without regard to
requirements of notice, lapse of time or elections of other Persons or any
combination thereof), (ii) permit or result in the termination, suspension or
modification of, or (iii) result in the acceleration of (or give any Person the
right to accelerate) the performance of Buyer under, any Contract or other
instrument by which Buyer or any
- 35 -
<PAGE>
of its assets is bound or affected, except for any of the foregoing that would
not materially adversely affect Buyer's ability to perform its obligations under
this Agreement.
5.4 Finders and Brokers. Neither Buyer nor any Person acting on behalf
of Buyer has employed any financial advisors broker or finder or incurred any
liability for any financial advisory, brokerage, finder's or similar fee or
commission in connection with the transactions contemplated by this Agreement,
except any of the foregoing that will be paid in full by Buyer.
5.5 Investment Purpose. Buyer is acquiring the Purchased Interests for
investment for its own account and not with a view to the sale or distribution
of any part thereof within the meaning of the Securities Act other than pursuant
to an effective registration statement.
5.6 Investment Company. Buyer is not, and upon consummation of the
transactions contemplated by this Agreement will not be, an "Investment Company"
required to register as such under the Investment Company Act of 1940, as
amended.
5.7 Litigation. There is no Litigation pending or, to Buyer's
Knowledge, threatened, and to Buyer's Knowledge, there is no investigation
pending or threatened, by or before any Governmental Authority or private
arbitration tribunal against Buyer which, if adversely determined, would
materially adversely affect the ability of Buyer to perform its obligations
under this Agreement.
5.8 Balance Sheet. Buyer has delivered to the General Partner a true
and complete copy of an audited consolidated balance sheet of Buyer and its
consolidated Subsidiaries as of December 31, 1998. As of the date of this
Agreement, all operations of Buyer and its Affiliates are conducted through
Buyer or one or more of its Subsidiaries or joint ventures or other Persons in
which Buyer holds Capital Stock.
ARTICLE 6
SPECIAL COVENANTS AND AGREEMENTS
The parties covenant and agree as follows:
6.1 Access to Premises and Records. Between the execution of this
Agreement and the Closing, upon reasonable notice the General Partner will cause
the InterMedia Companies to give to Buyer and its representatives full access
during normal business hours to all the premises and books and records of
InterMedia's Business and to all of the InterMedia Assets and InterMedia
Systems' personnel and will furnish to Buyer and its representatives all such
documents, financial information and other information regarding InterMedia's
Business, the InterMedia Systems and the InterMedia Assets as Buyer from time to
time reasonably may request; provided that no investigation by Buyer will affect
or limit the scope of any of the representations or warranties of the Sellers in
this Agreement or in any Transaction Document or limit the Sellers' liability
for breach of any of the foregoing.
- 36 -
<PAGE>
6.2 Continuity and Maintenance of Operations; Certain Deliveries and
Notices. Except as described on Schedule 6.2 or as Buyer may otherwise consent
in writing, between the date of this Agreement and the Closing, the General
Partner will cause each of the InterMedia Companies to:
(a) conduct InterMedia's Business and operate the InterMedia
Systems only in the usual, regular and ordinary course and consistent with past
practices, except as provided in InterMedia's 1999 Budget (subject to, and
except as modified by, compliance with the following negative and affirmative
covenants), including continuing to make ordinary marketing, advertising and
promotional expenditures, except as provided in InterMedia's 1999 Budget, and,
to the extent consistent with such conduct and operation, use its commercially
reasonable efforts to (i) preserve its current business intact in all material
respects, including preserving existing relationships with Franchising
Authorities, suppliers, customers and others having business dealings with the
InterMedia Companies, and (ii) keep available the services of its employees and
agents providing services in connection with InterMedia's Business;
(b) maintain the InterMedia Assets in good operating
condition; maintain inventory for the InterMedia Systems at not less than normal
historical levels consistent with past practices (as adjusted for historical
rebuild activities) and sufficient to operate the InterMedia Systems in the
ordinary course of business; maintain in full force and effect policies of
insurance with respect to InterMedia's Business consistent with past practices
(including maintaining the policies of insurance listed on Schedule 3.15 at
their current levels of coverage); promptly notify Buyer of any event that
results in any material loss or damage to the InterMedia Assets or InterMedia
Systems (whether resulting from fire, theft, or any other casualty); maintain
its books, records and accounts with respect to the InterMedia Assets and the
operation of the InterMedia Systems in the usual, regular and ordinary manner on
a basis consistent with past practices; comply in all material respects with all
material Legal Requirements applicable to the InterMedia Companies and the
operation of InterMedia's Business; and continue to make capital expenditures,
including rebuild expenditures, materially consistent with InterMedia's 1999
Budget.
(c) except as described on Schedule 6.2, not (i) modify,
terminate, renew, suspend, abrogate or enter into any System Contract or other
instrument that would be included in the InterMedia Assets, other than in the
ordinary course of business; provided that Buyer's consent, not to be
unreasonably withheld or delayed, will be required to modify, terminate, renew,
suspend, abrogate or enter into any System Franchise (except as required or
expressly permitted by another provision of this Agreement) or any other
agreement that contemplates payments to or by the InterMedia Companies in any
12-month period exceeding $100,000 individually; and provided further that
Buyer's consent, which Buyer may withhold in its sole discretion, will be
required to modify any of the Loan Documents to the extent such modifications
taken as a whole would be materially adverse to the InterMedia Companies or to
the extent any such modifications could reasonably be expected to adversely
affect Buyer's ability to obtain the Rollover/Refinancing; (ii) take any action
that would result in the condition set forth in Section 7.1(a) not being
satisfied at any time prior to the Closing, except as required by applicable
Legal Requirements; (iii) engage in any marketing, subscriber installation,
disconnection or collection practices other than in the ordinary course of
business consistent with past practices, except as otherwise
- 37 -
<PAGE>
budgeted in InterMedia's 1999 Budget; (iv) make any Cost of Service Election;
(v) enter into any agreement with or commitment to any competitive access
providers with respect to any InterMedia System; (vi) sell, transfer or assign
any portion of the InterMedia Assets other than sales in the ordinary course of
business to non-Affiliates and assets sold or disposed of and replaced by other
assets of comparable utility and value or permit the creation of a Lien, other
than a Permitted Lien, on any InterMedia Asset; (vii) engage in any hiring or
employee compensation practices that are inconsistent with past practices except
for changes in such practices implemented by the InterMedia Companies and their
Affiliates on a company-wide basis, except as otherwise budgeted in InterMedia's
1999 Budget; or (viii) decrease or increase the rate charged for any level of
Basic Services, Expanded Basic Services or Pay TV or add, delete, retier or
repackage any programming services, except as specifically described in
InterMedia's 1999 Budget or as required by applicable Legal Requirements;
(d) promptly deliver to Buyer true and complete copies of all
quarterly financial statements and all monthly and quarterly financial and
operating reports with respect to the operation of InterMedia's Business
prepared in the ordinary course of business by or for any of the InterMedia
Companies at any time from the date of this Agreement until the Closing;
(e) give or cause to be given to Buyer and its counsel,
accountants and other representatives, as soon as reasonably possible but in any
event prior to the date of submission to the appropriate Governmental Authority,
copies of all FCC Forms 1200, 1205, 1210, 1215, 1220, 1225, 1235 and 1240 or any
other FCC forms required to be filed with any Governmental Authority under the
1992 Cable Act with respect to rates and prepared with respect to any of the
InterMedia Systems;
(f) duly and timely file a valid notice of renewal under
Section 626 of the Cable Act with the appropriate Franchising Authority with
respect to any System Franchise (other than those disclosed in Schedule 3.7)
that will expire within 36 months after any date between the date of this
Agreement and the Closing Date;
(g) promptly notify Buyer of any fact, circumstance, event or
action by it or otherwise (i) which if known at the date of this Agreement would
have been required to be disclosed by it in or pursuant to this Agreement or
(ii) the existence, occurrence or taking of which would result in the condition
set forth in Section 7.1(a) not being satisfied at any time prior to the
Closing, and, with respect to clause (ii), will use its commercially reasonable
efforts to remedy the same.
6.3 Required Consents, Franchise Renewal.
(a) The General Partner will cause the InterMedia Companies to
use commercially reasonable efforts to obtain in writing as promptly as possible
all of the Required Consents in form and substance reasonably satisfactory to
Buyer, and will deliver to Buyer copies of such Required Consents promptly after
they are obtained; provided, however, that the General Partner will afford Buyer
the opportunity to review, approve and revise the form of Required Consent prior
to delivery to the party whose consent is sought. Buyer will cooperate with the
General Partner and the InterMedia Companies in their efforts to obtain the
Required Consents; provided that Buyer will not be required to accept or
- 38 -
<PAGE>
agree or accede to any modifications or amendments to, or the imposition of any
condition to the transfer of control of, any of the System Franchises, System
Licenses, System Contracts, or leases or documents evidencing Leased Real
Property or Other Real Property Interests, that in either case, would make, or
are reasonably likely to make, the underlying instrument materially more onerous
in any respect or that would materially reduce in any respect, or are reasonably
likely to materially reduce in any respect, the benefits available under the
instrument in respect of which the consent relates. Within 30 days after the
date of this Agreement, the General Partner and Buyer will cooperate with each
other to complete, execute and deliver, or cause to be completed, executed and
delivered to the appropriate Governmental Authority or other Person, an
application on FCC Form 394 (or other appropriate form) and appropriate letters
of transmittal requesting such Governmental Authority's or other Person's
consent to transfer of control of each System Franchise, System License, System
Contract, or lease or document evidencing Leased Real Property or Other Real
Property Interest as to which such consent is required. The parties agree that
without the General Partner's and the Buyer's prior consent, no notice or
application or similar document filed with a Governmental Authority or other
Person for the purpose of requesting a Required Consent (including any FCC Form
394 filed hereunder with respect to a System Franchise) or notifying such party
of the transactions contemplated by this Agreement will state that the purchase
and sale of the Purchased Interests and the Closing hereunder are conditioned on
or will necessarily result in consummation of any transaction other than the
transactions contemplated by this Agreement or will request that any such
Required Consent be conditioned on consummation of any transaction other than
the occurrence of the Closing hereunder, and Sellers and Buyer will not be
required to accept a Required Consent that is so conditioned without the General
Partner's or Buyer's consent, respectively.
(b) The General Partner will cause the InterMedia Companies to
use commercially reasonable efforts to obtain, and Buyer will cooperate with the
InterMedia Companies to obtain, renewals or extensions of any System Franchise
that will expire within 30 months after any date between the date of this
Agreement and the Closing Date for which a valid notice of renewal pursuant to
the formal renewal procedures established by Section 626 of the Cable Act has
not been timely delivered to the appropriate Franchising Authority without the
imposition of any conditions or other modifications that would make, or are
reasonably likely to make, the underlying System Franchise materially more
onerous in any respect or that would materially reduce in any respect, or are
reasonably likely to materially reduce in any respect, the benefits available
under the System Franchise in respect of which the renewal or extension relates.
(c) Each Seller will use commercially reasonable efforts to
obtain in writing as promptly as possible all of the Required Consents required
to be obtained by such Seller, in form and substance reasonably satisfactory to
Buyer, and will deliver to Buyer copies of such Required Consents promptly after
they are obtained. Each Seller will promptly notify Buyer of any fact,
circumstance, event or action by it or otherwise (i) which if known at the date
of this Agreement would have been required to be disclosed by it in or pursuant
to this Agreement or (ii) the existence, occurrence or taking of which would
result in the condition set forth in Section 7.1(a) not being satisfied with
respect to such Seller at any time prior to the Closing, and, with respect to
clause (ii), will use its commercially reasonable efforts to remedy the same. No
Seller will take any action that would result in the condition
- 39 -
<PAGE>
set forth in Section 7.1(a) not being satisfied with respect to such Seller at
any time prior to the Closing. No Seller will sell, assign, transfer or
otherwise dispose of all or any portion of the Purchased Interest held or
represented to be held by it on the date of this Agreement, except by ICM-VI in
connection with the Distribution and the adjustments referred to in the second
sentence of Section 4.3(b).
(d) Prior to the Closing, at the request of Buyer, the General
Partner and IMI shall use all commercially reasonable efforts to cause any
programming contracts held in the name of IMI or InterMedia Partners, L.P. or
any other InterMedia entity to be assigned to the Operating Partnership to the
extent that programming has been provided to the InterMedia Systems thereunder
(the "InterMedia Programming Contracts"). To the extent that any such InterMedia
Programming Contracts have not been assigned to the Operating Partnership, and
the Operating Partnership has not secured substantially equivalent replacement
programming on substantially similar terms, by the Closing, then following the
Closing, at the request of Buyer, IMI and the Operating Partnership shall
continue to use commercially reasonably efforts to effect such assignments and
shall, to the extent feasible, enter into such arrangements as result in the
Operating Partnership obtaining the benefits of, and performing the obligations
under, such InterMedia Programming Contracts.
6.4 Confidentiality; Press Release.
(a) Sellers may from time to time in the course of this
transaction disclose to Buyer information and material concerning the Sellers
and the InterMedia Companies, the InterMedia Assets and the InterMedia Systems,
including proprietary information, contracts, marketing information, technical
information, product or service concepts, subscriber information, rates,
financial information, ideas, concepts and research and development (any of the
foregoing and any analysis, compilations, studies or other documents prepared by
or on behalf of Buyer in respect thereof are hereafter collectively referred to
as "Confidential Information"). The term "Confidential Information" does not
include any item of information that (1) is publicly known at the time of its
disclosure, (2) is lawfully received from a third party not bound to keep such
information confidential, (3) is published or otherwise made known to the public
by any source other than a party bound by the provisions hereof, (4) was
generated by Buyer independently, or (5) is made publicly known pursuant to
disclosures required by applicable Legal Requirements (including any legal
obligations imposed on Buyer in connection with any public financing proposed to
be obtained by Buyer or any Affiliate of Buyer). Buyer agrees that Confidential
Information received from the Sellers or from the InterMedia Companies shall be
used solely in connection with the transaction contemplated by this Agreement.
Buyer agrees that it shall treat confidentially and not directly or indirectly,
divulge, reveal, report, publish, transfer or disclose, for any purpose
whatsoever (other than to its investors, financing sources and agents for the
purpose of consummating the transactions contemplated by this Agreement, each of
whom shall maintain the confidentiality of such Confidential Information), all
or any portion of the Confidential Information disclosed to it by the Sellers or
by the InterMedia Companies. In the event of a breach of the covenants contained
in this Section 6.4(a), the Sellers shall be entitled to seek injunctive relief
as well as any and all other remedies at law or equity. If the Closing does not
occur, the Confidential Information, except for that portion which consists of
analysis, compilations, studies or other documents prepared by or on behalf of
Buyer, will be returned to the Sellers immediately upon the Sellers' request
- 40 -
<PAGE>
therefor; and that portion of the Confidential Information which consists of
analysis, compilations, studies or other documents prepared by or on behalf of
Buyer will be held by Buyer and kept confidential and subject to the terms of
this Section 6.4(a), or will be destroyed.
(b) No party will, and the General Partner will not permit any
InterMedia Company to, issue any press release or make any other public
announcements concerning this Agreement or the transactions contemplated by this
Agreement without the prior written consent and approval of the Buyer (in the
case of the Sellers or the InterMedia Companies) or the General Partner (in the
case of Buyer) except for disclosures required by applicable Legal Requirements
(including any legal obligations imposed on Buyer in connection with any public
financing proposed to be obtained by Buyer or any Affiliate of Buyer). With
respect to press releases or any other public announcement required by
applicable Legal Requirements, the party intending to make such release or
disclosure shall provide the other parties with an advance copy and a reasonable
opportunity to review.
6.5 Cooperation; Commercially Reasonable Efforts. The parties shall
cooperate, and the General Partner shall cause the InterMedia Companies to
cooperate, with each other and their respective counsel and accountants in all
commercially reasonable respects in connection with any actions required to be
taken as part of their respective obligations under this Agreement, and
otherwise use their commercially reasonable efforts, and the parties shall also,
and the General Partner shall cause the InterMedia Companies to, use their
commercially reasonable efforts to consummate the transactions contemplated
hereby and to fulfill their obligations hereunder as expeditiously as
practicable. For a period of six months after the Closing, upon the Buyer's
reasonable request and at Buyer's expense, the General Partner shall cooperate
with Buyer and the InterMedia Companies in connection with any material
transition matters and disputes as described below. Subject to the terms of this
Agreement, such cooperation shall include providing Buyer with a copy of records
and information possessed by the General Partner and reasonably requested by
Buyer relating to any such matter and reasonably assisting Buyer with any
material matter or dispute that may arise after the Closing but only as it
relates to periods prior to the Closing with any party with which the InterMedia
Companies do business (including programmers).
6.6 HSR Act. The parties acknowledge that, as of the date of this
Agreement, the transactions contemplated by this Agreement are not subject to
notification under the HSR Act. In order to facilitate a prompt closing of the
transactions contemplated by this Agreement, the parties agree that to the
extent any subsequent potential transaction (other than the Pending Swaps)
contemplated by any party which arises out of or relates to the Partnership or
the transactions contemplated hereby is subject to the HSR Act, such subsequent
transaction will neither be notified under the HSR Act nor consummated until
after the Closing.
6.7 Tax Matters.
The following provisions shall govern the allocation of responsibility
between Buyer and Sellers for certain tax matters following the Closing Date:
- 41 -
<PAGE>
(a) Tax Returns to be Filed After the Closing Date. The
General Partner shall prepare or cause to be prepared and file or cause to be
filed any Tax Returns of the InterMedia Companies which are required to be filed
after the Closing Date and relate solely to periods prior to the Closing Date.
Such Tax Returns shall be prepared in accordance with (1) each InterMedia
Company's past custom and practice (subject to applicable Legal Requirements and
determined on the basis of the appropriate permanent records of such InterMedia
Company) and (2) if the Partnership's taxable year does not close as to all of
its partners on the Closing Date, the interim closing of the books method as
provided in section 1.706-1(c)(2) of the Income Tax Regulations notwithstanding
section 3.1(f) of the Partnership Agreement to the contrary. The General Partner
shall use reasonable commercial efforts to prepare such Tax Returns in a manner
that is consistent with past practice. The General Partner shall provide Buyer
with drafts of such Tax Returns (together with the relevant back-up
information), and Buyer may submit comments which it deems necessary to the
General Partner in connection with the preparation of such Tax Returns. The
General Partner shall in good faith consider the inclusion of such comments;
provided, however, that the General Partner has the final discretion in
determining the final form of such Tax Returns and may file such Tax Returns
with the proper Governmental Authority without Buyer's consent.
(b) Cooperation on Tax Matters.
(1) Buyer and the General Partner shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this Section 6.7 and any
audit, litigation, or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
Litigation, or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. Buyer and the General Partner agree to give the
other party reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if the other party so requests, Buyer
or the General Partner, as the case may be, shall allow the other party to take
possession of such books and records to the extent they would otherwise be
destroyed or discarded. After the Closing the General Partner and the Buyer
shall promptly notify the other of any audit or other Tax matter relating to any
periods prior to the Closing Date which is brought to its attention by notice
from the Internal Revenue Service and forward to the other copies of any
notices, correspondence, reports or other instruments, communications or
documents received in connection therewith. Neither Buyer nor the General
Partner will settle or compromise any such audit or Tax matter without the
consent of the other, which consent shall not be unreasonably withheld.
(2) Buyer and the General Partner further agree, upon
request, to use commercially reasonable efforts to obtain any certificate or
other document from any Governmental Authority or any other Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including Taxes with respect to the transactions contemplated hereby).
- 42 -
<PAGE>
(c) Tax Sharing Agreements. All tax sharing agreements or
similar agreements with respect to or involving the InterMedia Companies shall
be terminated as of the Closing Date and, after the Closing Date, the InterMedia
Companies shall not be bound thereby or have any liability thereunder.
(d) Certain Taxes. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be borne by Sellers.
Buyer and the General Partner will cooperate in all reasonable respects to
prepare and file all necessary Tax Returns and other documentation with respect
to all such transfer, documentary, sales, use, stamp, registration and other
Taxes and fees.
6.8 Cooperation on Financing and SEC Matters.
(a) The General Partner shall cause the InterMedia Companies
to cooperate in all commercially reasonable respects with Buyer in connection
with any financing proposed to be obtained by Buyer following execution of this
Agreement. Without limiting the generality of the foregoing, the General Partner
shall cause the InterMedia Companies to cooperate in all commercially reasonable
respects with Buyer and its counsel and accountants in connection with any
filing required to be made by Buyer with the SEC (including any filing required
in connection with any public financing proposed to be obtained by Buyer). The
General Partner shall provide to Buyer such information relating to the
InterMedia Companies and InterMedia's Business as Buyer may reasonably request.
All costs, expenses and fees incurred in connection with the preparation and
inclusion by Buyer of such information in any such filing shall be borne by
Buyer.
(b) The Sellers hereby consent, and the General Partner will
cause the InterMedia Companies to consent, to the inclusion by Buyer of
financial statements of the InterMedia Companies, if requested to be so included
by Buyer, in any report required to be filed by Buyer with the SEC or pursuant
to applicable Legal Requirements, including the Securities Act and the Exchange
Act. All costs, expenses and fees incurred in connection with the preparation
and inclusion by Buyer of financial statements of the InterMedia Companies in
any such report shall be borne by Buyer. The General Partner agrees to use, and
will cause the InterMedia Companies to use, commercially reasonable efforts to
obtain the consent of the independent public accountants of the InterMedia
Companies to the inclusion of such financial statements in any report so
required to be filed by Buyer.
(c) Buyer hereby agrees to, and following the Closing to cause
each of the InterMedia Companies to, release the Sellers and their Affiliates
and their respective officers, directors, managers, employees, stockholders,
partners, representatives and other agents (each an "indemnitee") from, and
indemnify and hold harmless all such indemnitees against, any losses, claims,
damages or liabilities, joint or several, to which any of them may become
subject under the Securities Act, the Exchange Act or otherwise, which arise out
of or in any way relate to the filings, financings, reports or other actions
contemplated by Section 6.8(a) or (b), including the furnishing of any financial
statements of and other information relating to the InterMedia Companies or the
Sellers for inclusion in any document in connection therewith, and to reimburse
such indemnitees for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
- 43 -
<PAGE>
damage, liability or action as such expenses are incurred, provided, however,
that Buyer's indemnification obligation shall not apply to the extent any such
losses, claims, damages or liabilities arise out of the gross negligence or
willful misconduct of any such indemnitees.
(d) Prior to the Closing (or the date on which the Closing
would occur but for a breach of this Section 6.8(d)), the Buyer will either (1)
procure from the lenders under the Loan Documents a written waiver, in form and
substance reasonably satisfactory to the General Partner, that (A) will permit
the transactions contemplated by this Agreement to be consummated without an
event of default thereunder being caused thereby, (B) that will permit the
payment by the InterMedia Companies on the Closing Date of the monitoring fees
accrued or prorated to such date to TCI LLC and the Blackstone Partners, and (C)
that will permit the sale and transfer of the Purchased Interests to Buyer as
contemplated by this Agreement and the receipt by the Sellers of the Purchase
Price therefor free and clear of the Loan Document Liens; or (2) obtain
refinancing of all of the InterMedia Companies' existing indebtedness for
borrowed money under the Loan Documents to the extent such indebtedness would
otherwise be subject to acceleration upon consummation of the Closing absent the
consent and waiver described in clause (1) (such consent and waiver or
refinancing being referred to as the "Rollover/Refinancing"). In addition, prior
to the Closing (or the date on which the Closing would occur but for a breach of
this Section 6.8(d)) the Buyer will obtain an unconditional written release, in
form and substance reasonably satisfactory to the Blackstone Partners, of the
Blackstone Partners and their Affiliates, effective as of the Closing, from
their guaranty obligations under the Loan Documents (such release being referred
to as the "Blackstone Release") without any payment being required by the
Blackstone Partners or any other Seller in connection therewith without their
consent.
(e) Buyer will bear, and will indemnify the Sellers and the
InterMedia Companies for and against, all costs, charges and expenses associated
with obtaining and consummating the Rollover/Refinancing and the Blackstone
Release.
6.9 Schedules. Not less than five Business Days prior to Closing, the
General Partner will deliver to Buyer revised copies of Schedule 3.4 to reflect
any Contracts entered into after the date of this Agreement which contemplate
payments by or to one of the InterMedia Companies exceeding $25,000 and any
other Schedule included in this Agreement and relating to Article 3 to the
extent necessary to make the representations and warranties of the General
Partner, if specifically qualified by materiality, true and correct in all
respects, and if not so qualified, true and correct in all material respects, in
each case at and as of the Closing with the same effect as if made at and as of
the Closing, except in the case of any representation or warranty which is made
as of a specified date, in which case so true and correct at and as of such
specified date, and in each case marked to show any such changes thereto;
provided, however, that for purposes of the General Partner's representations
and warranties and covenants in this Agreement, all references to the Schedules
will mean the version of the Schedules attached to this Agreement on the date of
signing unless otherwise expressly agreed by Buyer.
- 44 -
<PAGE>
6.10 Environmental Reports.
(a) Between the date of this Agreement and May 31, 1999, Buyer
may obtain at its expense such environmental assessments and reports with
respect to the real property included in the InterMedia Assets as it may
determine and, to the extent within the authority of the General Partner and the
InterMedia Companies, upon reasonable prior notice, the General Partner shall
cause the InterMedia Companies to afford to Buyer, and all environmental
engineers and consultants acting on Buyer's behalf such access during normal
business hours to the sites and facilities relating to the InterMedia Systems as
is reasonably required and does not unreasonably disrupt normal business
operations to permit such engineers and consultants to conduct the physical
on-site inspections and prepare the environmental surveys and assessments with
respect to such sites and facilities as Buyer shall reasonably request. Buyer
will indemnify the Sellers and the InterMedia Companies for any damages to such
sites and facilities that is caused as a result of such surveys and assessments.
Notwithstanding any of the foregoing, no environmental assessment shall include
invasive or destructive sampling or testing at any of such sites or facilities
without the prior approval of the General Partner. The General Partner shall not
unreasonably withhold such approval if the environmental engineers or
consultants acting on Buyer's behalf (1) reasonably conclude, based on specific
information, that conditions are reasonably likely to exist at any of such sites
or facilities that would reasonably be expected to result in Material
Environmental Liability, and (2) with reasonable specificity and particularity
identify to the General Partner the basis for reasonably concluding that such
conditions exist.
(b) In order for the Buyer to assert that the closing
condition in Section 7.1(a) has not been satisfied by reason of any
misrepresentation in Section 3.6 resulting in a Material Environmental
Liability, Buyer shall be required to make such assertion by June 15, 1999 or
otherwise be deemed to have waived its right to so assert. If Buyer makes such
assertion and the General Partner disagrees with such assertion, Buyer and the
General Partner shall promptly jointly retain Environ Corporation to serve as an
independent environmental consultant (the "Independent Consultant"). The
Independent Consultant shall be required to promptly, and in no event later than
30 days following the retention of the Independent Consultant, offer its opinion
as to whether the matters alleged by Buyer to constitute a breach of the
representations contained in Section 3.6 would reasonably be expected to result
in a Material Environmental Liability. In reaching its opinion, the Independent
Consultant shall be required to (1) assume that all reasonable and legally
permissible actions will be taken to avoid, minimize or defer liabilities under
Environmental Laws, and (2) only consider liabilities likely to be incurred
within five years of the date of this Agreement. Buyer and each Seller agrees
that the opinion of the Independent Consultant in this regard shall be final and
binding on the parties. The costs and expenses of the Independent Consultant and
its services rendered pursuant to this Section 6.10 shall be borne by the party
with whom the Independent Consultant disagrees.
6.11 Year 2000 Matters.
(a) Certain Defined Terms. For purposes of this Section 6.11,
the following terms shall have the following meanings:
- 45 -
<PAGE>
(1) "Computer and Other Systems" means hardware and
software, equipment and cable plant, and building and other facilities used in
connection with InterMedia's Business which are date dependent or which process
date data, including any firmware, application programs, user interfaces, files
and databases, and which might be adversely affected by the advent or changeover
to the Year 2000.
(2) "Year 2000 Ready" or "Year 2000 Readiness" means
that the referenced component, system, software, equipment or other item is
designed or has been modified to be used prior to, during and after the calendar
year 2000 A.D., and that such item will operate at all levels, including
microcode, firmware, application programs, user interfaces, files and databases,
during each such time period without material error or interruption relating to,
or the product of, date data which represents or references different centuries
or more than one century.
(3) "Year 2000 Remediation Program" means a
reasonable program that is designed to make Year 2000 Ready all material
components, systems, software, equipment, facilities and other items used in
InterMedia's Business. Such Year 2000 Remediation Program must be conducted by
persons with experience in issues related to Year 2000 Readiness and such
persons must have organized an enterprise-wide program management office which
reports to executive level management and the board of directors or other
governing body of such entity.
(b) Year 2000 Readiness Efforts. The General Partner has
delivered to Buyer a summary in reasonable detail of the InterMedia Companies'
Year 2000 Remediation Program. Prior to the Closing Date, the General Partner
shall cause the InterMedia Companies to maintain their Year 2000 Remediation
Program. Pursuant to such Year 2000 Remediation Program, all material Computer
and Other Systems included in the InterMedia Assets will be evaluated,
remediated and tested on the same general basis, and on the same general work
plan and timetable, as other material computer systems, facilities and equipment
owned and operated by the InterMedia Companies' Affiliates. After the Closing
Date through March 31, 2000, the General Partner will use commercially
reasonable efforts to cooperate with Buyer regarding the InterMedia Companies'
Year 2000 Remediation Program. Such cooperation shall consist of providing Buyer
with any non-confidential information possessed by it and reasonably requested
by Buyer regarding the Year 2000 Readiness of any material component of the
Computer and Other Systems owned by the InterMedia Companies. The parties
acknowledge that nothing contained in this Section 6.11 shall constitute any
representation, guarantee, covenant or warranty that the Computer and Other
Systems included in the InterMedia Assets will be Year 2000 Ready at the Closing
Date or thereafter.
6.12 Consent and Agreements of Sellers, TCI and Buyer.
(a) Each Seller and TCI LLC consents to the execution,
delivery, and performance of this Agreement by each Seller and to the taking by
each Seller and each InterMedia Company of all actions contemplated by this
Agreement to be taken by such Person, including the sale of the Purchased
Interests by each Seller to Buyer.
- 46 -
<PAGE>
(b) At the Closing, each of the Sellers, TCI LLC and Buyer
will enter into an Amended and Restated Agreement of Limited Partnership for the
Partnership that will become effective concurrently with the Closing and after
consummation of the Distribution and the Conversion and that will evidence the
admission of Buyer as the general partner of the Partnership holding a 50% pro
rata percentage interest, that will evidence TCI Inc. and TCI LLC as limited
partners of the Partnership holding in the aggregate a 50% pro rata percentage
interest, and that will evidence the withdrawal of the General Partner, IMI,
Lewis, the Blackstone Partners and Hindery as partners in the Partnership (the
"Amended and Restated Partnership Agreement").
6.13 WARN Act. Buyer will not, on or within 90 days after the Closing
Date, permit the InterMedia Companies to effectuate a "plant closing" or "mass
layoff" resulting in "employment loss" at any of the employment sites of the
InterMedia Companies (as those terms are defined in the WARN Act).
6.14 Affiliate Transactions. All agreements and arrangements between
and among any of the InterMedia Companies, on the one hand, and any of the
Sellers (other than TCI Inc.) or such Sellers' Affiliates or TCI Inc. or TCI
LLC, on the other hand, shall be terminated concurrently with the Closing
without any further action by the parties, and all amounts payable thereunder by
the InterMedia Companies shall be paid by the InterMedia Companies at the
Closing out of pre-closing cash (or such amounts shall be included as Other
Current Liabilities in the computation of Adjustment Liabilities), including but
not limited to the following agreements: (a) Services Agreement dated October
30, 1997 between the Operating Partnership and IMI; (b) Administration Fee
Agreement dated April 30, 1998 between Operating Partnership and ICM-VI; (c)
Monitoring Fee Agreement dated April 30, 1998 between the Operating Partnership
and Blackstone Management Partners III, L.L.C.; and (d) Monitoring Fee Agreement
dated April 30, 1998 between the Operating Partnership and TCI LLC.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF BUYER AND SELLERS
7.1 Conditions to Buyer's Obligations. The obligations of Buyer to
consummate the transactions contemplated by this Agreement are subject to the
satisfaction at or before the Closing of the following conditions, any of which
may be waived by Buyer.
(a) Accuracy of Representations and Warranties. The
representations and warranties of each Seller in this Agreement and in any
Transaction Document, if specifically qualified by materiality, shall be true
and correct in all respects and, if not so qualified, shall be true and correct
in all material respects, in each case at and as of the Closing with the same
effect as if made at and as of the Closing, except for any representation or
warranty which is made as of a specified date, which representation or warranty
shall be so true and correct as of such specified date.
(b) Performance of Agreements. Each Seller shall have
performed in all material respects all obligations and agreements and complied
in all material respects with all covenants in this
- 47 -
<PAGE>
Agreement and in any Transaction Document to be performed and complied with by
it at or before the Closing.
(c) Deliveries. Each Seller shall have delivered the items and
documents required to be delivered by it pursuant to this Agreement, including
those required under Section 8.2.
(d) Legal Proceedings. No action, suit or proceeding shall be
pending by or before any Governmental Authority or arbitration tribunal and no
Legal Requirement shall have been enacted, promulgated or issued or become or
deemed applicable to any of the transactions contemplated by this Agreement by
any Governmental Authority or arbitration tribunal, which would prevent or make
illegal the consummation of any transactions contemplated by this Agreement.
(e) Franchise Required Consents. The aggregate number of
Equivalent Basic Subscribers in the Service Areas of all of the InterMedia
Companies as of the Adjustment Time that are Transferable Service Areas shall be
at least 97% of the aggregate number of Equivalent Basic Subscribers in all
Service Areas of all of the InterMedia Companies as of the Adjustment Time.
(f) Other Required Consents. Buyer shall have received
evidence, in form and substance reasonably satisfactory to it, that the Required
Consents marked with an asterisk on Schedule 3.2 and any material Required
Consents that are not disclosed on Schedule 3.2 that are substantially of the
same significance as the Required Consents marked with an asterisk on Schedule
3.2 have been obtained without the imposition of any condition or any
modification that in either case makes, or is reasonably likely to make, the
underlying instrument materially more onerous in any respect or materially
reduces in any respect, or is reasonably likely to materially reduce in any
respect, the benefits available under the instrument in respect of which the
consent relates.
(g) No Material Adverse Change. Since February 28, 1999, there
has not been any material adverse change (other than events affecting the cable
television industry generally) in (1) the condition (financial or otherwise) or
results of operations of InterMedia's Business, (2) the InterMedia Assets,
business, operations, condition (financial or otherwise) or results of
operations of any single Principle System Group, taken as a whole, or (3) the
InterMedia Assets, business, operations, condition (financial or otherwise) or
results of operations of the other Systems (i.e., those which are not within any
Principal System Group), taken as a whole.
(h) Subscriber Adjustment. The Subscriber Adjustment (as
reasonably estimated by the General Partner in the Preliminary Closing
Statement) shall not be greater than $15,000,000.
(i) Franchise Renewals. Any System Franchise that will expire
within 30 months after the Closing Date for which a valid notice of renewal
pursuant to the formal renewal procedures established by Section 626 of the
Cable Act has not been timely delivered to the appropriate Governmental
Authority (other than as set forth on Schedule 3.7) shall have been renewed or
extended for a period expiring no earlier than three years after the Closing
Date, such renewal or extension being on terms that would not make, or are not
reasonably likely to make, the System Franchise that is being
- 48 -
<PAGE>
renewed or extended materially more onerous in any respect and that would not
materially reduce, or are not reasonably likely to materially reduce, the
benefits available under the System Franchise that is being renewed or extended.
7.2 Conditions to Sellers' Obligations. The obligations of the Sellers
to consummate the transactions contemplated by this Agreement are subject to the
satisfaction at or before the Closing of the following conditions, any of which
may be waived by the Sellers.
(a) Accuracy of Representations and Warranties. The
representations and warranties of Buyer in this Agreement and in any Transaction
Document, if specifically qualified by materiality, shall be true and correct in
all respects and, if not so qualified, shall be true and correct in all material
respects, in each case at and as of the Closing with the same effect as if made
at and as of the Closing, except for any representation or warranty which is
made as of a specified date, which representation or warranty shall be so true
and correct as of such specified date.
(b) Performance of Agreements. Buyer shall have performed in
all material respects all obligations and agreements and complied in all
material respects with all covenants in this Agreement and in any Transaction
Document to be performed and complied with by it at or before the Closing.
(c) Deliveries. Buyer shall have delivered the items and
documents required to be delivered by it pursuant to this Agreement, including
those required under Section 8.3.
(d) Legal Proceedings. No action, suit or proceeding shall be
pending by or before any Governmental Authority or arbitration tribunal and no
Legal Requirement shall have been enacted, promulgated or issued or become or
deemed applicable to any of the transactions contemplated by this Agreement by
any Governmental Authority or arbitration tribunal, which would prevent or make
illegal the consummation of any transactions contemplated by this Agreement.
(e) Release. The Blackstone Partners shall have received the
Blackstone Release.
(f) Subscriber Adjustment. Either (1) the Subscriber
Adjustment (as reasonably estimated by the General Partner in the Preliminary
Closing Statement) shall not be greater than $15,000,000, or (2) Buyer shall
have waived its right to the Subscriber Adjustment in excess of $15,000,000.
- 49 -
<PAGE>
ARTICLE 8
CLOSING AND CLOSING DELIVERIES
8.1 Closing.
(a) Closing Date.
(1) Subject to satisfaction or, to the extent
permitted by law, waiver, of the closing conditions described in Article 7, and
subject to Sections 8.1(a)(2), 8.1(a)(3) and 8.1(a)(4), the Closing shall take
place on the first Designated Closing Date to occur at least seven days
following satisfaction or waiver of all of the conditions set forth in Sections
7.1(e) and 7.1(f), or on such other date as shall be mutually agreed by Buyer
and the General Partner. For purposes of this Agreement, "Designated Closing
Date" means any of September 1, 1999; October 1, 1999; November 1, 1999;
December 1, 1999; December 23, 1999; February 1, 2000; March 1, 2000; April 3,
2000; May 1, 2000 and the first Business Day of each calendar month thereafter.
(2) If on any date on which the Closing would
otherwise be required to take place pursuant to this Section 8.1(a), (A) there
shall be in effect any Judgment that would prevent or make unlawful the Closing,
or (B) any other circumstance beyond the reasonable control of Sellers or Buyer
shall exist that would prevent the satisfaction of any of the conditions
precedent to any party set forth in Article 7 and the satisfaction of any of
such conditions precedent is not waived by the party entitled to the benefit of
such condition, then either the General Partner or Buyer may, at its option,
postpone the date on which the Closing is required to take place until the next
Designated Closing Date and on each successive Designated Closing Date may
postpone the date for the Closing until the next Designated Closing Date until
such Judgment ceases to be in effect, or such other circumstance ceases to
exist; provided, however, that a party's postponement of the date on which the
Closing is required to take place shall not restrict the exercise by the Sellers
or Buyer of its rights under Section 9.2 or 9.3, as applicable, subject to
extension of the Upset Date as provided therein.
(3) If on the date on which the Closing would
otherwise be required to take place pursuant to this Section 8.1(a), the
combined audited financial statements of the InterMedia Companies for the
periods comprising the three years ended December 31, 1998 have not been
available to Buyer for at least 80 days, Buyer may, at its option, postpone the
date on which the Closing is required to take place until a Designated Closing
Date designated by Buyer that is not later than 110 days after the delivery of
such financial statements.
(4) If on the date on which the Closing would
otherwise be required to take place pursuant to this Section 8.1(a), Buyer has
been unable to obtain any debt financing necessary to fund the Purchase Price as
a result of the written notice by a financing source of its right to refuse to
provide such financing under the terms of any definitive financing agreement or
commitment letter due to a material adverse change in financial, banking or
capital market conditions which materially impairs such financing source's
ability to syndicate such financing, Buyer may, at its option, extend the date
on
- 50 -
<PAGE>
which the Closing is required to take place until a Designated Closing Date
designated by Buyer that is not later than the third Designated Closing Date
occurring after the date on which the Closing would otherwise be required to
take place pursuant to this Section 8.1(a); provided, however, that as a
condition to electing such extension, (A) the Purchase Price shall be increased
by $20,000,000, and the Buyer shall immediately pay to the General Partner for
the benefit of the Sellers a nonrefundable deposit of $20,000,000 to be applied
towards the Purchase Price for all of the Purchased Interests other than the
partnership interests in the Subsidiary Partnerships held by IMI (provided that
such deposit shall be forfeited if the Closing shall not occur for any reason
other than Sellers failure to make the deliveries specified in Section 8.2); (B)
all of the closing conditions contained in Section 7.1 (other than the condition
contained in Section 7.1(c) and subject to the following clause (C)) shall be
required to and deemed to have been satisfied as of the date on which the
Closing would otherwise be required to take place pursuant to this Section
8.1(a) (the "Original Designated Closing Date"); and (C) within five Business
Days of receipt of notification from the Buyer of such extension, the General
Partner shall elect whether to have the Subscriber Adjustment measured and
applied as of the Original Designated Closing Date or as of the actual Closing
Date (and if the General Partner elects the Original Designated Closing Date,
the reference in Section 2.3(d) to the "Adjustment Time" shall be deemed a
reference to the Adjustment Time assuming the Closing had occurred on the
Original Designated Closing Date).
(b) Closing Place. The Closing shall be held at the offices of
Cooperman, Levitt, Winikoff & Newman, 800 Third Avenue, New York, New York
10022, or any other place or time as the Sellers and Buyer shall mutually agree.
8.2 Deliveries by Sellers. Prior to or at the Closing, Sellers shall
deliver or cause to be delivered to Buyer the following:
(a) Purchased Interests. Assignment agreements providing for
the assignment of the Purchased Interests to Buyer, in a form reasonably
satisfactory to Buyer, together with any certificates representing the Purchased
Interests, duly endorsed for transfer.
(b) Officer's Certificate. A certificate executed by an
executive officer of each Seller, dated as of the Closing Date (or the Original
Closing Date, in the case of a postponement of the Closing by the Buyer pursuant
to Section 8.1(a)(4)), certifying that the closing conditions specified in
Sections 7.1(a) and (b) have been satisfied.
(c) Secretary's Certificate. A certificate executed by the
corporate secretary of each Seller, dated as of the Closing Date, (1) certifying
that the resolutions, as attached to said certificate, were duly adopted by the
Board of Directors (or corresponding governing body) authorizing and approving
the execution by such Seller of this Agreement and the other Transaction
Documents to which such Seller is a party and the consummation of the
transactions contemplated hereby and thereby and that such resolutions remain in
full force and effect; (2) providing, as attachments thereto, Certificates of
Good Standing for each Seller and, in the case of the certificate of the General
Partner, each of the InterMedia Companies certified by an appropriate state
official of the State of their organization, all certified by such state
officials as of a date not more than 15 days before the Closing
- 51 -
<PAGE>
Date; and (3) in the case of the certificate of the General Partner, certifying
as attachments thereto true and correct copies of the documentation (or
applicable provisions thereof) pursuant to which the Distribution was
effectuated and the documentation (or applicable provisions thereof) pursuant to
which the partnership interests in the Partnership were converted and adjusted
to pro rata interests conforming to the representation and warranty in the
second sentence of Section 4.3(b) (the "Conversion").
(d) Consents. Copies of all Required Consents which have been
obtained by the Sellers prior to the Closing.
(e) Corporate, Financial, and Tax Records. All corporate
records (including minute books and stock books and registers) and financial and
tax records (except financial and tax records will be delivered within 120 days
after the Closing with Buyer having reasonable access to such records prior to
the date of delivery) of each of the InterMedia Companies that are not located
at one of the offices or sites included in the Owned Real Property or Leased
Real Property.
(f) Noncompetition Agreement. The Noncompetition Agreement,
duly executed by each Blackstone Partner.
(g) Seller Releases. A Seller Release, duly executed by each
Person designated on Exhibit B.
(h) Amended and Restated Partnership Agreement. The Amended
and Restated Partnership Agreement, in form and substance consistent with
Section 6.12(b) and reasonably satisfactory to the Sellers and TCI LLC, duly
executed by each Seller and TCI LLC.
(i) Post-Closing Escrow Agreement. The Post-Closing Escrow
Agreement, duly executed by the General Partner and the Escrow Agent.
(j) Lien Releases. The Sellers shall have delivered to Buyer
at or prior to the Closing evidence reasonably satisfactory to Buyer that all
Liens, if any (other than the Loan Document Liens if the Loan Documents are to
remain outstanding after the Closing) affecting or encumbering the Purchased
Interests, and that all Liens (other than Permitted Liens) affecting or
encumbering the InterMedia Assets, have been terminated, released or waived, as
appropriate, or original executed instruments in form reasonably satisfactory to
Buyer effecting such terminations, releases or waivers.
8.3 Deliveries by Buyer. Prior to or at the Closing, Buyer shall
deliver to Sellers the following:
(a) Estimated Purchase Price. The Estimated Purchase Price for
the Purchased Interests shall be delivered as follows: (1) $15,000,000 will be
paid to the Escrow Agent for deposit in the Post-Closing Adjustments Escrow
pursuant to Section 2.5(a); and (2) the balance (the "Net Closing Payment") will
be paid to the General Partner by wire or accounts transfer of immediately
available
- 52 -
<PAGE>
funds to an account designated by the General Partner by written notice to Buyer
not less than two Business Days prior to the Closing.
(b) Officer's Certificate. A certificate executed by an
executive officer of Buyer, dated as of the Closing Date, certifying that the
closing conditions specified in Sections 7.2(a) and (b) have been satisfied.
(c) Secretary's Certificate. A certificate executed by the
corporate secretary of the corporate general partner of the general partner of
Buyer, dated as of the Closing Date, (1) certifying that the resolutions, as
attached to said certificate, were duly adopted by the Board of Directors of the
corporate general partner of the general partner of Buyer, authorizing and
approving the execution by Buyer of this Agreement and the other Transaction
Documents to which Buyer is a party and the consummation of the transactions
contemplated hereby and thereby and that such resolutions remain in full force
and effect; and (2) providing, as attachments thereto, a Certificate of Good
Standing for Buyer certified by an appropriate state official of the State of
Delaware, certified by such state official as of a date not more than 15 days
before the Closing Date.
(d) Post-Closing Escrow Agreement. The Post-Closing Escrow
Agreement, duly executed by Buyer and the Escrow Agent.
(e) Amended and Restated Partnership Agreement. The Amended
and Restated Partnership Agreement, in form and substance consistent with
Section 6.12(b) and reasonably satisfactory to Buyer, duly executed by Buyer.
(f) InterMedia Company Releases. An InterMedia Company
Release, duly executed by each InterMedia Company.
ARTICLE 9
TERMINATION
9.1 Termination by Agreement. This Agreement may be terminated at any
time prior to the Closing by mutual agreement between the General Partner and
Buyer.
9.2 Termination by Sellers. This Agreement may be terminated at any
time prior to the Closing by the Sellers and the purchase and sale of the
Purchased Interests abandoned, upon written notice by the General Partner to
Buyer, upon the occurrence of any of the following:
(a) Uncured Breach. Prior to the Closing (if none of the
Sellers are then in material breach of any of its covenants, agreements or other
obligations contained in this Agreement), if Buyer is in material breach or
default of any of its covenants, agreements or other obligations in this
Agreement, or if any of its representations in this Agreement, if specifically
qualified by materiality, is not true and correct in all respects or, if
qualified by materiality, is not true and correct in all material
- 53 -
<PAGE>
respects when made or when otherwise required by this Agreement to be true and
correct, if Sellers provide Buyer with prompt written notice that provides a
reasonably detailed explanation of the facts and circumstances surrounding such
breach or default; provided that Sellers shall have no right to terminate if (i)
Buyer cures such breach or default within 30 days after its receipt of such
written notice, unless such breach or default cannot be cured within such 30-day
period; or (ii) the breach or default is capable of being cured prior to the
Closing Date and Buyer commences to cure such breach or default within such
30-day period and diligently continues to take all action reasonably necessary
to cure such breach or default prior to the Closing Date and such breach or
default is cured prior to the Closing Date.
(b) Conditions.
(1) If the Closing shall not have occurred on any
date designated therefor pursuant to Section 8.1 (without giving effect to any
postponement of the Closing on such date) solely because of the failure of the
conditions set forth in Section 7.2(f) or 7.1(h) to be satisfied or waived on
such date, provided, however that the Sellers must elect to terminate pursuant
to this Section 9.2(b)(1) within 15 days after any such designated date.
Notwithstanding the foregoing, the Sellers may not rely on the failure of the
condition set forth in Section 7.2(f) to be satisfied if such failure was
principally caused by any Seller's failure to act in good faith or a breach of
or failure to perform any of its representations, warranties, covenants or other
obligations in accordance with the terms of this Agreement.
(2) If the Closing shall not have occurred on any
date designated therefor pursuant to Section 8.1 solely because Buyer has
refused to consummate the Closing and all of the conditions set forth in Section
7.1 had been satisfied as of such date (or would have been satisfied by actions
to be taken at the Closing) and Buyer did not have the right to postpone the
Closing pursuant to Section 8.1.
(c) Upset Date. If the Closing shall not have occurred on or
prior to the Upset Date, unless the failure of the Closing to occur was
principally caused by any Seller's failure to act in good faith or a breach of
or failure to perform any of its representations, warranties, covenants or other
obligations in accordance with the terms of this Agreement; provided that if
Buyer has postponed the date required for the Closing pursuant to Sections
8.1(a)(3) or 8.1(a)(4), the Upset Date shall be extended to the date to which
the Closing was postponed.
9.3 Termination by Buyer. This Agreement may be terminated at any time
prior to the Closing by Buyer and the purchase and sale of the Purchased
Interests abandoned, upon written notice to the Sellers, upon the occurrence of
any of the following:
(a) Uncured Breach. Prior to the Closing (if Buyer itself is
not then in material breach of any of its covenants, agreements or other
obligations contained in this Agreement), if any Seller is in material breach or
default of any of its covenants, agreements or other obligations in this
Agreement, or if any of its representations in this Agreement, if specifically
qualified by materiality, is not true and correct in all respects or, if
qualified by materiality, is not true and correct in all material
- 54 -
<PAGE>
respects when made or when otherwise required by this Agreement to be true and
correct, if Buyer provides the breaching Seller with prompt written notice that
provides a reasonably detailed explanation of the facts and circumstances
surrounding such breach or default; provided that Buyer shall have no right to
terminate if (i) the breaching Seller cures such breach or default within 30
days after its receipt of such written notice, unless such breach or default
cannot be cured within such 30-day period; or (ii) the breach or default is
capable of being cured prior to the Closing Date and the breaching Seller
commences to cure such breach or default within such 30-day period and
diligently continues to take all action reasonably necessary to cure such breach
or default prior to the Closing Date and such breach or default is cured prior
to the Closing Date.
(b) Conditions.
(1) If the Closing shall not have occurred on any
date designated therefor pursuant to Section 8.1 (without giving effect to any
postponement of the Closing on such date) solely because of the failure of the
conditions set forth in Section 7.1(h) or 7.2(f) to be satisfied or waived on
such date, provided, however that Buyer must elect to terminate pursuant to this
Section 9.3(b)(1) within 15 days after any such designated date.
(2) If the Closing shall not have occurred on any
date designated therefor pursuant to Section 8.1 solely because any Seller has
refused to consummate the Closing and all of the conditions set forth in Section
7.2 had been satisfied as of such date (or would have been satisfied by actions
to be taken at the Closing) and the Sellers did not have the right to postpone
the Closing pursuant to Section 8.1.
(c) Upset Date. If the Closing shall not have occurred on or
prior to the Upset Date, unless the failure of the Closing to occur was
principally caused by Buyer's failure to act in good faith or a breach of or
failure to perform any of its representations, warranties, covenants or other
obligations in accordance with the terms of this Agreement; provided that if
Buyer has postponed the date required for the Closing pursuant to Sections
8.1(a)(3) or 8.1(a)(4), the Upset Date shall be extended to the date to which
the Closing was postponed.
(d) Contract Review. If (1) the System Contracts delivered to
Buyer on or after April 17, 1999 pursuant to Section 3.4(c) are not reasonably
satisfactory to Buyer or (2) the General Partner fails (A) to deliver any
Systems Contract pursuant to Section 3.4(c) and (B) to provide Buyer with
reasonable assurances that it can obtain written evidence or a replacement of
such undelivered Systems Contract on terms reasonably satisfactory to Buyer
within thirty days, Buyer may terminate this Agreement within five Business Days
of the receipt thereof or such failure, provided that if the General Partner
provides such reasonable assurances, such undertaking by the General Partner to
obtain such written evidence or replacement shall be a covenant of the General
Partner hereunder.
- 55 -
<PAGE>
9.4 Effect of Termination. If this Agreement is terminated as provided
in this Article 9, then this Agreement will forthwith become null and void and
there will be no liability on the part of any party hereto to any other party
hereto or any other Person in respect thereof, provided that:
(a) Surviving Obligations. The obligations of the parties
described in Sections 6.4, 9.4 and 10.1 (and all other provisions of this
Agreement relating to expenses) will survive any such termination.
(b) Withdrawal of Applications. All filings, applications and
other submissions relating to the transfer of the Purchased Interests shall, to
the extent practicable, be withdrawn from the Governmental Authority or other
Person to whom made.
(c) Breach by Buyer. No such termination will relieve Buyer
from liability for its breach of this Agreement, and in such event the Sellers
shall have all rights and remedies available at law or equity, including the
right of specific performance against Buyer.
(d) Breach by the Sellers. No such termination will relieve
any Seller from liability for its breach of this Agreement, and in such event
Buyer shall have all rights and remedies available at law or equity, including
the remedy of specific performance against such breaching Seller. Each Seller
acknowledges that the unique nature of the Purchased Interests and InterMedia's
Business renders money damages an inadequate remedy for the breach by it of its
obligations under this Agreement, and it agrees that in the event of such
breach, Buyer will upon proper action instituted by it, be entitled to a decree
of specific performance of this Agreement.
9.5 Attorneys' Fees. Notwithstanding any provision in this Agreement
that may limit or qualify a party's remedies, in the event of a default by any
party that results in a lawsuit or other proceeding for any remedy available
under this Agreement, the prevailing party shall be entitled to reimbursement
from the defaulting party of its reasonable legal fees and expenses (whether
incurred in arbitration, at trial, or on appeal).
ARTICLE 10
MISCELLANEOUS
10.1 Fees and Expenses. Except as otherwise provided in this Agreement,
each party shall pay its own expenses incurred in connection with the
authorization, preparation, execution, and performance of this Agreement,
including all fees and expenses of counsel, accountants, agents, and
representatives. Following the Closing the Sellers will be responsible for
paying all expenses of the InterMedia Companies relating to the consummation of
the transactions contemplated by this Agreement, including fees and expenses of
attorneys, accountants, financial advisors and broker fees, and Sellers will
reimburse the InterMedia Companies for any such expenses paid by the InterMedia
Companies after the Adjustment Time. Buyer shall be entitled to rely on and
enforce this Section 10.1 on behalf of the InterMedia Companies after the
Closing.
- 56 -
<PAGE>
10.2 Notices. All notices, demands, and requests required or permitted
to be given under the provisions of this Agreement shall be in writing, may be
sent by telecopy (with automatic machine confirmation), delivered by personal
delivery, or sent by commercial delivery service or certified mail, return
receipt requested, shall be deemed to have been given on the date of actual
receipt, which may be conclusively evidenced by the date set forth in the
records of any commercial delivery service or on the return receipt, and shall
be addressed to the recipient at the address specified below, or with respect to
any party, to any other address that such party may from time to time designate
in a writing delivered in accordance with this Section 10.2:
If to Buyer: Insight Communications Company, L.P.
126 East 56th Street
New York, New York 10022
Attention: Michael S. Willner, President
Telecopier: (212) 371-1549
with a copy (which shall not Dow, Lohnes & Albertson, PLLC
constitute notice) to: 1200 New Hampshire Avenue, N.W.
Suite 800
Washington, D.C. 20036
Attention: Leonard J. Baxt, Esq.
Telecopier: (202) 776-2222
If to the Sellers: InterMedia Capital Management VI, LLC
235 Montgomery Street
Suite 420
San Francisco, California 94104
Attention: Robert J. Lewis and
Rodney Royse
Telecopier: (415) 397-3406
With a copy (which shall not Pillsbury, Madison & Sutro LLP
constitute notice) to: 235 Montgomery Street
San Francisco, CA 94104
Attention: Robert J. Spjut, Esq.
Telecopier: (415) 983-1200
with a copy (which shall not Blackstone Management Partners III, L.L.C.
constitute notice) to: 345 Park Avenue
New York, New York 10022
Attention: Bret Pearlman
Telecopy: (212) 583-5712
- 57 -
<PAGE>
with a copy (which shall not Simpson Thacher & Bartlett
constitute notice) to: 425 Lexington Avenue
New York, New York 10017-3954
Attention: Wilson Neely, Esq.
Telecopier: (212) 455-2500
with a copy (which shall not Tele-Communications, Inc.
constitute notice) to: 9197 South Peoria Street
Englewood, Colorado 80112
Attention: Derek Chang
Telecopier: (720) 875-5855
with a copy (which shall not Sherman & Howard, L.L.C.
constitute notice) to: 633 Seventeenth Street
Suite 3000
Denver, Colorado 80202
Attention: Peggy B. Knight, Esq.
Telecopier: (303) 299-8140
10.3 Benefit and Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns; provided that (a) except in connection with the
Distribution as provided in Section 2.1(b) and the adjustments referred to in
the second sentence of Section 4.3(b), neither this Agreement nor any of the
rights, interests or obligations hereunder may be assigned by any Seller without
the prior written consent of Buyer, and (b) neither this Agreement nor any of
the rights, interests or obligations hereunder may be assigned by Buyer without
the prior written consent of Sellers. Notwithstanding the provisions of the
immediately preceding sentence, Buyer may assign all or any portion of its
rights and obligations under this Agreement to one or more Subsidiaries or
Affiliates of Buyer, without the prior written consent of the Sellers, and Buyer
may assign its rights and obligations under this Agreement with respect to the
purchase of the partnership interests in the Subsidiary Partnerships held by IMI
to any Person without the prior consent of the Sellers; and Buyer shall cause
any entity to which any material portion of the assets of Buyer or its
Subsidiaries are transferred or assigned (other than unaffiliated Persons to
which assets are transferred or assigned in an arms-length transaction) to
become obligated to perform the obligations to be performed by Buyer under this
Agreement to the same extent as Buyer; provided that in each case Insight
Communications Company, L.P. or its successors or assigns, as applicable,
remains liable to perform the obligations in full to be performed by Buyer
hereunder. This Agreement is not intended to confer upon any Person other than
the parties hereto any rights or remedies hereunder.
10.4 Further Assurances. After the Closing the parties shall take any
actions and execute any other documents that may be necessary or desirable to
the implementation and consummation of this Agreement upon the reasonable
request of the other party, at the expense of the requesting party.
- 58 -
<PAGE>
10.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED, AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO
THE CHOICE OF LAW PROVISIONS THEREOF).
10.6 Entire Agreement. This Agreement, the Schedules and the Exhibits
hereto, and the other Transaction Documents to be delivered by the parties
pursuant to this Agreement, collectively represent the entire understanding and
agreement between Buyer and Sellers with respect to the subject matter of this
Agreement and supersedes all prior agreements, understandings and negotiations
between the parties.
10.7 Amendments; Waiver of Compliance. This Agreement may be amended
and any provision of this Agreement may be waived; provided that any such
amendment or waiver (a) will be binding upon a Seller only if such amendment or
waiver is set forth in a writing executed by such Seller, and (b) will be
binding upon Buyer only if such amendment or waiver is set forth in a writing
executed by Buyer. No waiver shall operate as a waiver of, or estoppel with
respect to, any subsequent or other matter not expressly waived.
10.8 Counterparts. This Agreement may be signed in counterparts with
the same effect as if the signature on each counterpart were upon the same
instrument.
10.9 Rights Cumulative. All rights and remedies of each of the parties
under this Agreement will be cumulative, and the exercise of one or more rights
or remedies will not preclude the exercise of any other right or remedy
available under this Agreement or applicable law.
10.10 Survival.
(a) Covenants and Agreements. All covenants and agreements
contained in this Agreement which by their terms are to be performed after the
Closing shall survive the Closing and shall survive until performed in full,
including all such covenants and agreements contained in Article 2 and Section
10.1.
(b) Representations and Warranties of the General Partner. The
representations and warranties of the General Partner contained in Article 3 of
this Agreement shall expire as of the Closing Date and shall not survive the
Closing.
(c) Representations and Warranties of the Sellers. The
representations and warranties of the Sellers contained in Article 4 of this
Agreement (other than the representations and warranties contained in Section
4.3, which shall survive the Closing until the expiration of the applicable
statute of limitations) shall expire as of the Closing Date and shall not
survive the Closing.
(d) Representations and Warranties of the Buyer. The
representations and warranties of the Buyer contained in Article 5 of this
Agreement (other than the representations and warranties
- 59 -
<PAGE>
contained in Sections 5.5 and 5.6, which shall survive the Closing until the
expiration of the applicable statute of limitations) shall expire as of the
Closing Date and shall not survive the Closing.
(e) Limitation of Recourse against Sellers. Following the
Closing, in the absence of actual fraud, neither the General Partner nor any
other Seller shall have any liability or obligation to indemnify or otherwise
hold harmless the Buyer or the InterMedia Companies (or any of their successors
or permitted assigns) for any claim or any loss or liability arising from or in
any way relating to this Agreement or any of the transactions contemplated
hereby (including any misrepresentation or inaccuracy in, or breach of, any
representations or warranties (other than the representations or warranties
contained in Section 4.3) or any breach or failure in performance prior to the
Closing of any covenants or agreements made by the General Partner or the
Sellers in this Agreement or in any exhibit or the Schedules hereto or any
certificate or instrument delivered hereunder), and neither the Buyer nor the
InterMedia Companies (or any of their successors or permitted assigns) shall be
entitled to bring any claim based on, relating to or arising out of any of the
foregoing against the General Partner or any other Seller (or any of the General
Partner's or any other Seller's employees, directors, agents or
representatives). Without limiting the generality of the foregoing, in the
absence of actual fraud, neither the Buyer nor its respective successors or
permitted assigns shall be entitled to seek any rescission of the transactions
consummated under this Agreement or other remedy at law or in equity. This
Section 10.10 shall not preclude Buyer from making any claim in respect of a
breach of any representation, warranty, covenant or agreement which survives the
Closing or any claim under the Post-Closing Escrow Agreement, the Noncompetition
Agreements, the Seller Releases, or assignments delivered at the Closing, which
shall each be governed by its respective terms. Buyer agrees that,
notwithstanding any other provision of this Agreement or any Transaction
Document, and any rule of law or equity to the contrary, the Sellers'
obligations and liabilities under this Agreement and the other Transaction
Documents shall be nonrecourse to all direct and indirect stockholders, general
and limited partners and members of the Sellers and to their successors and
assigns and to all of their respective officers, directors, shareholders,
employees, and agents, and none of the foregoing (except to the extent it is a
Seller) shall have any obligation or liability to Buyer arising out of or in
connection with the transactions contemplated by this Agreement and the other
Transaction Documents.
(f) Acknowledgment by the Buyer. The Buyer understands that
the representations and warranties of the General Partner and the other Sellers
contained in this Agreement will not survive the Closing (except as expressly
set forth in Section 10.10) and constitute the sole and exclusive
representations and warranties of the General Partner and the other Sellers to
the Buyer in connection with the transactions contemplated hereby, and the Buyer
understands, acknowledges and agrees that all other representations and
warranties of any kind or nature expressed or implied (including any relating to
the future or historical financial condition, results of operations, assets or
liabilities of the InterMedia Companies) are specifically disclaimed by the
General Partner and the other Sellers.
(g) Limitation of Recourse against Buyer. Following the
Closing, in the absence of actual fraud, the Buyer shall not have any liability
or obligation to indemnify or otherwise hold harmless the Sellers or the
InterMedia Companies (or any of their successors or permitted assigns) for any
claim or any loss or liability arising from or in any way relating to this
Agreement or any of the
- 60 -
<PAGE>
transactions contemplated hereby (including any misrepresentation or inaccuracy
in, or breach of, any representations or warranties (other than the
representations or warranties contained in Section 5.5 and 5.6) or any breach or
failure in performance prior to the Closing of any covenants or agreements made
by Buyer in this Agreement or in any exhibit or the Schedules hereto or any
certificate or instrument delivered hereunder), and neither the Sellers nor any
of their successors or permitted assigns shall be entitled to bring any claim
based on, relating to or arising out of any of the foregoing against Buyer or
the InterMedia Companies (or any of Buyer's or the InterMedia Companies'
employees, directors, agents or representatives). Without limiting the
generality of the foregoing, in the absence of actual fraud, neither the Sellers
nor their respective successors or permitted assigns shall be entitled to seek
any rescission of the transactions consummated under this Agreement or other
remedy at law or in equity. This Section 10.10 shall not preclude the Sellers
from making any claim in respect of a breach of any representation, warranty,
covenant or agreement which survives the Closing or any claim under the
Post-Closing Escrow Agreement, which shall be governed by its respective terms.
Each Seller agrees that, notwithstanding any other provision of this Agreement
or any Transaction Document, and any rule of law or equity to the contrary,
Buyer's obligations and liabilities under this Agreement and the other
Transaction Documents shall be nonrecourse to all direct and indirect general
and limited partners of Buyer and to their successors and assigns and to all of
their respective officers, directors, shareholders, employees, and agents, and
none of the foregoing shall have any obligation or liability to any Seller
arising out of or in connection with the transactions contemplated by this
Agreement and the other Transaction Documents.
(h) Acknowledgment by the Sellers. Each Seller understands
that the representations and warranties of Buyer contained in this Agreement
will not survive the Closing (except as expressly set forth in this Section
10.10) and constitute the sole and exclusive representations and warranties of
Buyer to the Sellers in connection with the transactions contemplated hereby,
and each Seller understands, acknowledges and agrees that all other
representations and warranties of any kind or nature expressed or implied are
specifically disclaimed by Buyer.
10.11 Commercially Reasonable Efforts. For purposes of this Agreement,
"commercially reasonable efforts" or "reasonable commercial efforts" will not be
deemed to require a party to undertake extraordinary measures, including the
initiation or prosecution of legal proceedings or the payment of amounts in
excess of normal and usual filing fees and processing fees, if any, or other
payments with respect to any contract that are significant in the context of
such contract (or are significant on an aggregate basis as to all contracts).
10.12 Effect of Agreement. Notwithstanding anything to the contrary in
this Agreement, none of the execution and delivery of this Agreement, the
consummation of the transactions contemplated by this Agreement, the public or
other announcement or notification of any thereof, or any event or circumstance
arising directly and solely from any of the foregoing shall be deemed to result
in a Material Adverse Effect or otherwise in a breach of or inability to make
any representation or warranty contained in Sections 3.3 through 3.19 (excluding
the representation and warranty in Section 3.4(b) regarding rights of first
refusal) or a failure of a condition precedent contained in Section 7.1(a)
(solely to the extent relating to such representations and warranties), 7.1(b)
or 7.1(g).
- 61 -
<PAGE>
[REMAINDER OF PAGE INTENTIONALLY BLANK;
SIGNATURES ON FOLLOWING PAGES]
- 62 -
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by Buyer, the
General Partner and the other Sellers as of the date first written above.
BUYER:
INSIGHT COMMUNICATIONS COMPANY, L.P.
By: ICC Associates, L.P., its General Partner
By: Insight Communications, Inc., its General
Partner
By: ______________________________________________
Name:
Title:
GENERAL PARTNER:
INTERMEDIA CAPITAL MANAGEMENT VI, LLC,
by InterMedia Management, Inc., its Member
By: ______________________________________________
Robert J. Lewis, President and Chief Executive
Officer
LIMITED PARTNER SELLERS:
INTERMEDIA MANAGEMENT INC.
By: ______________________________________________
Robert J. Lewis, President and Chief Executive
Officer
_______________________________________________________
ROBERT J. LEWIS
[THIS IS A SIGNATURE PAGE
TO THE PURCHASE AGREEMENT]
S-1
<PAGE>
TCI ICM VI, INC.
By: ______________________________________________
Name:
Title:
INTERMEDIA CAPITAL MANAGEMENT VI, L.P.,
by InterMedia Management, Inc., its general partner
By: ______________________________________________
Robert J. Lewis, President and Chief Executive
Officer
BLACKSTONE KC CAPITAL PARTNERS L.P.
By: Blackstone Management Associates III L.L.C.,
its General Partner
By: _____________________________________________
Name:
Title:
BLACKSTONE FAMILY INVESTMENT
PARTNERSHIP III L.P.
By: Blackstone Management Associates III L.L.C.,
its General Partner
By: _____________________________________________
Name:
Title
[THIS IS A SIGNATURE PAGE
TO THE PURCHASE AGREEMENT]
S-2
<PAGE>
BLACKSTONE KC OFFSHORE CAPITAL
PARTNERS L.P.
By: Blackstone Management Associates III L.L.C.,
its General Partner
By: _____________________________________________
Name:
Title
By: Blackstone Services (Cayman) III, LDC, its
General Partner
By: _____________________________________________
Name:
Title
______________________________________________________
LEO J. HINDERY, JR.
TCI IP-VI, LLC (For the limited purposes set forth in
Sections 6.12 and 8.2(g) and (h))
By: _____________________________________________
Name:
Title:
[THIS IS A SIGNATURE PAGE
TO THE PURCHASE AGREEMENT]
S-3
<PAGE>
CONTRIBUTION AND FORMATION AGREEMENT
dated April 18, 1999
between
TCI OF INDIANA HOLDINGS, LLC
and
INSIGHT COMMUNICATIONS COMPANY, L.P.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. DEFINITIONS...........................................................................................1
1.1 Affiliate.....................................................................................1
1.2 Business Day..................................................................................2
1.3 Governmental Authority........................................................................2
1.4 Insight Required Consents.....................................................................2
1.5 InterMedia Companies..........................................................................2
1.6 IP-Kentucky...................................................................................2
1.7 IP-VI.........................................................................................2
1.8 IPG-VI........................................................................................2
1.9 Judgment......................................................................................2
1.10 Legal Requirement.............................................................................2
1.11 Lien..........................................................................................2
1.12 Permitted Liens...............................................................................3
1.13 Person........................................................................................3
1.14 Purchase Agreement Closing....................................................................3
1.15 Subsidiary Partnerships.......................................................................3
1.16 TCI Required Consents.........................................................................3
1.17 Other Definitions.............................................................................3
SECTION 2. FORMATION OF NEW LP; CONTRIBUTIONS....................................................................4
2.1 Formation of New LP...........................................................................4
2.2 Agreement to Contribute to New LP.............................................................4
2.3 Issuance of Partnership Interests.............................................................4
SECTION 3. FORMATION OF NEW LLC; CONTRIBUTIONS...................................................................4
3.1 Formation of New LLC..........................................................................4
3.2 Agreement to Contribute to New LLC............................................................4
3.3 Issuance of Membership Interests..............................................................4
3.4 Assignment to New LLC.........................................................................4
SECTION 4. ADDITIONAL PARTNERSHIP MATTERS........................................................................5
4.1 Amendments to Operating and Partnership Agreements............................................5
SECTION 5. INSIGHT'S REPRESENTATIONS AND WARRANTIES..............................................................6
5.1 Organization and Qualification of Insight.....................................................6
5.2 Authority and Validity........................................................................6
5.3 No Conflict; Required Consents................................................................6
</TABLE>
- i -
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 6. TCI'S REPRESENTATIONS AND WARRANTIES..................................................................7
6.1 Organization and Qualification of TCI.........................................................7
6.2 Authority and Validity........................................................................7
6.3 No Conflict; Required Consents................................................................7
SECTION 7. ADDITIONAL COVENANTS..................................................................................8
7.1 Required Consents.............................................................................8
7.2 Purchase Agreement Amendment and Conditions...................................................8
7.3 Noncompetition Agreement......................................................................8
7.4 Confidentiality and Publicity.................................................................8
7.5 Satisfaction of Conditions....................................................................9
7.6 Schedules 5.3 and 6.3.........................................................................9
SECTION 8. CONDITIONS PRECEDENT.................................................................................10
8.1 Conditions to Insight's Obligations..........................................................10
8.2 Conditions to TCI's Obligations..............................................................10
SECTION 9. THE CLOSING..........................................................................................11
9.1 The Closing; Time and Place..................................................................11
9.2 TCI's Delivery Obligations...................................................................11
9.3 Insight's Delivery Obligations...............................................................12
SECTION 10. TERMINATION AND DEFAULT.............................................................................13
10.1 Termination Events...........................................................................13
10.2 Effect of Termination........................................................................13
SECTION 11. MISCELLANEOUS PROVISIONS.............................................................................14
11.1 Parties Obligated and Benefited..............................................................14
11.2 Notices......................................................................................14
11.3 Right to Specific Performance................................................................15
11.4 Waiver.......................................................................................15
11.5 Captions.....................................................................................15
11.6 Choice of Law................................................................................15
11.7 Terms........................................................................................15
11.8 Rights Cumulative............................................................................16
11.9 Time.........................................................................................16
11.10 Late Payments................................................................................16
11.11 Counterparts.................................................................................16
11.12 Entire Agreement.............................................................................16
11.13 Severability.................................................................................16
11.14 Construction.................................................................................16
11.15 Expenses.....................................................................................16
11.16 Tax Consequences.............................................................................16
</TABLE>
- ii -
<PAGE>
<TABLE>
<S> <C> <C>
11.17 Commercially Reasonable Efforts..............................................................17
11.18 Further Assurances...........................................................................17
11.19 Third Party Beneficiary......................................................................17
</TABLE>
- iii -
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
Schedules
- ---------
Schedule 5.3 Insight Required Consents
- ------------
Schedule 6.3 TCI Required Consents
- ------------
Exhibits
- --------
Exhibit A Form Agreement
- ---------
- iv -
<PAGE>
CONTRIBUTION AND FORMATION AGREEMENT
THIS CONTRIBUTION AND FORMATION AGREEMENT (this "Agreement") is made
and entered into as of the 18th day of April, 1999, between TCI of Indiana
Holdings, LLC, a Colorado limited liability company ("TCI"), and Insight
Communications Company, L.P., a Delaware limited liability company ("Insight").
RECITALS
A. TCI and Insight are members of Insight Communications of Indiana,
LLC, a Delaware limited liability company ("TCI/Insight LLC").
B. Insight and certain affiliates of TCI have also entered into
(together with the other parties named therein) a Purchase Agreement dated as of
April 18, 1999 (the "Purchase Agreement") with respect to the purchase by
Insight of 50% of the partnership interests in InterMedia Capital Partners VI,
L.P., a Delaware limited partnership ("ICP-VI").
C. All partnership interests in ICP-VI held by affiliates of TCI
immediately following the Purchase Agreement Closing will be transferred to TCI
immediately following the Purchase Agreement Closing.
D. Each of TCI and Insight desires to contribute its partnership
interests in ICP-VI and its membership interests in TCI/Insight LLC to a newly
formed limited partnership.
E. TCI and Insight desire to enter into this Agreement to effect the
foregoing transactions and the other transactions described herein.
AGREEMENTS
In consideration of the mutual covenants and promises set forth herein,
the parties agree as follows:
SECTION 1. DEFINITIONS
In addition to terms defined elsewhere in this Agreement, the following
capitalized terms or terms otherwise defined in this Section 1 shall have the
meanings set forth below:
1.1 Affiliate. With respect to any Person, any Person controlling,
controlled by or under common control with such Person; "control" means
the ownership, directly or indirectly, of voting securities representing
the right generally to elect a majority of the directors (or similar officials)
of a Person or the possession, by contract or otherwise, of the authority to
direct the management and policies of a Person.
<PAGE>
1.2 Business Day. Any day other than a Saturday, Sunday or a
day on which the banking institutions in Denver, Colorado or New York, New York
are required or authorized to be closed.
1.3 Governmental Authority. The United States of America, any
state, commonwealth, territory or possession of the United States of America and
any political subdivision or quasi-governmental authority of any of the same,
including any court, tribunal, department, commission, board, bureau, agency,
county, municipality, province, parish or other instrumentality of any of the
foregoing.
1.4 Insight Required Consents. Any and all consents,
authorizations and approvals (other than the TCI Required Consents) that are
required for (i) Insight and/or TCI to transfer their partnership interests in
ICP-VI to New LP, (ii) Insight and/or TCI to transfer their membership interests
in TCI/Insight LLC to New LP or (iii) the consummation of the other transactions
contemplated by this Agreement.
1.5 InterMedia Companies. ICP-VI and the Subsidiary
Partnerships.
1.6 IP-Kentucky. InterMedia Partners of Kentucky, L.P., a
Delaware limited partnership.
1.7 IP-VI. InterMedia Partners VI, L.P., a Delaware limited
partnership.
1.8 IPG-VI. InterMedia Partners Group VI, L.P., a Delaware
limited partnership.
1.9 Judgment. Any judgment, writ, order, injunction, award or
decree of any court, judge, justice or magistrate, including any bankruptcy
court or judge or the arbitrator in any binding arbitration, and any order of or
by any Governmental Authority.
1.10 Legal Requirement. Applicable common law and any
statute, ordinance, code or other law, rule, regulation, order, technical or
other written standard, requirement, policy or procedure enacted, adopted,
promulgated, applied or followed by any Governmental Authority, including any
Judgment and all judicial decisions applying common law or interpreting any
other Legal Requirement, in each case, as amended.
1.11 Lien. Any security interest, security agreement,
financing statement filed with any Governmental Authority, conditional sale or
other title retention agreement, any lease, consignment or bailment given for
purposes of security, any mortgage, lien, indenture, pledge, option,
encumbrance, adverse interest, constructive trust or other trust, claim,
attachment, exception to, defect in or other condition affecting title or other
ownership interest (including but not limited to reservations, rights of entry,
possibilities of reverter, encroachments, protrusions, easements,
rights-of-way, rights of first refusal, restrictive covenants, leases and
licenses) of any kind, which constitutes an interest in or claim against
property.
-2-
<PAGE>
1.12 Permitted Liens. Liens required to be granted by TCI and
Insight to lenders to TCI/Insight LLC, ICP-VI, the Subsidiary Partnerships or
New LP.
1.13 Person. Any natural person, Governmental Authority,
corporation, general or limited partnership, limited liability company, joint
venture, trust, association or unincorporated entity of any kind.
1.14 Purchase Agreement Closing. The date of closing under
the Purchase Agreement.
1.15 Subsidiary Partnerships. The following partnerships:
IPG-VI, IP-VI and IP-Kentucky.
1.16 TCI Required Consents. Any and all consents,
authorizations and approvals required under any agreement to which TCI is
individually a party (other than agreements related to its
status as a partner in ICP-VI or as a member in TCI/Insight LLC) for TCI to
transfer its partnership interests in ICP-VI and its membership interests in
TCI/Insight LLC to New LP.
1.17 Other Definitions. The following terms are defined in
the Sections or Recitals indicated:
Term Section or Recital
---- ------------------
Agreement Preamble
Amended and Restated Subsidiary Partnership Agreements 4.1(b)
Amended and Restated TCI/Insight LLC Operating Agreement 4.1(a)
Closing 9.1
Closing Date 9.1
"commercially reasonable efforts" 11.17
Insight Preamble
ICP-VI Recital B
New LLC 3.1
New LLC Operating Agreement 3.3
New LP 2.1
New LP Partnership Agreement 2.1
Outside Closing Date 10.1(b)
Prime Rate 11.10
Purchase Agreement Recital B
TCI Preamble
TCI/Insight LLC Recital A
TCI/Insight LLC Operating Agreement 4.1(a)
-3-
<PAGE>
SECTION 2. FORMATION OF NEW LP; CONTRIBUTIONS
2.1 Formation of New LP. Prior to Closing, TCI and Insight
will form a new Delaware limited partnership ("New LP"). TCI and Insight will
use their best efforts to agree on the limited partnership agreement for New LP
(the "New LP Partnership Agreement") within ten Business Days following the
date of this Agreement, the substantive terms of such limited partnership
agreement to be the same as the substantive terms of the draft limited
liability company operating agreement that is attached hereto as Exhibit A (the
"Form Agreement"), with such modifications thereto as may be necessary to
reflect the different structures of the entities and to complete missing
information. The New LP Partnership Agreement will be executed and delivered by
each of TCI and Insight at Closing.
2.2 Agreement to Contribute to New LP. Subject to the terms
and conditions set forth in this Agreement, at Closing, each of TCI and Insight
will contribute to New LP a 50% partnership interest in ICP-VI, and a 50%
membership interest in TCI/Insight LLC, in each case free and clear of all
Liens other than Permitted Liens.
2.3 Issuance of Partnership Interests. In consideration for
the contributions to New LP described in Section 2.2, each of TCI and Insight
will receive at the time of contribution, a 50% partnership interest in New LP,
the nature of such partnership interests (i.e., general or limited) to be as
set forth in, and in accordance with the terms of, the New LP Partnership
Agreement.
SECTION 3. FORMATION OF NEW LLC; CONTRIBUTIONS
3.1 Formation of New LLC. Prior to the Purchase Agreement
Closing, TCI and Insight will form a new Delaware limited liability company
("New LLC").
3.2 Agreement to Contribute to New LLC. Subject to the terms
and conditions set forth in this Agreement, at the Purchase Agreement Closing,
each of TCI and Insight will contribute $15,000 by wire transfer of immediately
available funds to New LLC.
3.3 Issuance of Membership Interests. In consideration for
the contributions to New LLC described in Section 3.2, each of TCI and Insight
will receive at the time of contribution, a 50% membership interest in New LLC,
as set forth in, and in accordance with the terms of, the operating agreement
of New LLC that will be entered into by TCI and Insight prior to Closing (the
"New LLC Operating Agreement").
3.4 Assignment to New LLC. Insight hereby assigns to New LLC
effective as of the date of its formation, Insight's right under the Purchase
Agreement to purchase from InterMedia Management Inc. its .001% limited
partnership interest in each of the Subsidiary Partnerships.
-4-
<PAGE>
SECTION 4. ADDITIONAL PARTNERSHIP MATTERS
4.1 Amendments to Operating and Partnership Agreements.
(a) Following Closing, New LP will be the sole member of
TCI/Insight LLC. Effective as of the Closing, the operating agreement of
TCI/Insight LLC (the "TCI/Insight LLC Operating Agreement") will be amended and
restated in its entirety (the "Amended and Restated TCI Insight LLC Operating
Agreement") in a manner consistent with its status as a wholly-owned subsidiary
of New LP and otherwise satisfactory to TCI and Insight.
(b) Effective as of the Closing, the limited partnership
agreements of the Subsidiary Partnerships will be amended and restated in their
entirety (the "Amended and Restated Subsidiary Partnership Agreements") in a
manner consistent with their status as subsidiaries of New LP, to eliminate any
inconsistencies with the terms of the New LP Agreement, to reflect the revised
ownership structure of their parent and otherwise satisfactory to TCI and
Insight. If for any reason Closing does not occur on the same day as the
Purchase Agreement Closing, the limited partnership agreements of the
Subsidiary Partnership will terminate immediately following the Purchase
Agreement Closing without further action by TCI or Insight and will be deemed
to be have been amended and restated consistent with the preceding sentence; it
being agreed that TCI and Insight will promptly document such amended and
restated agreements.
(c) If for any reason Closing does not occur on the same day
as the Purchase Agreement Closing, then: (i) the ICP-VI limited partnership
agreement as in effect at the Purchase Agreement Closing will terminate
immediately following the Purchase Agreement Closing without further action by
TCI or Insight; and (ii) TCI and Insight will amend and restate the ICP-VI
limited partnership agreement to reflect the terms of the New LP Partnership
Agreement (or, if the New LP Partnership Agreement has not then been agreed
upon, the terms of the Form Agreement), it being agreed that even if such
amendment is not executed the ICP-VI limited partnership agreement will be
deemed to have been amended from and after the Purchase Agreement Closing to
reflect the terms of the New LP Partnership Agreement (or, if the New LP
Partnership Agreement has not then been agreed upon, the terms of the Form
Agreement).
4.2 Financing Issues. Insight will obtain TCI's written
consent to the terms of any amendment to, or refinancing of, any existing
indebtedness (including related agreements) of the InterMedia Companies that is
entered into in connection with the consummation of the transactions
contemplated by the Purchase Agreement or this Agreement. TCI may not withhold
its consent to any amendment to the extent such amendment is necessary for
Insight to obtain the waivers described in Section 6.8(d)(1) of the Purchase
Agreement or to obtain the Blackstone Release (as defined in the Purchase
Agreement); provided that any amendment necessary for such waivers or
Blackstone Release may not adversely affect TCI's keepwell or guarantee or the
tax treatment thereof.
-5-
<PAGE>
SECTION 5. INSIGHT'S REPRESENTATIONS AND WARRANTIES
Insight represents and warrants to TCI as set forth below.
5.1 Organization and Qualification of Insight. Insight is a limited
partnership duly organized, validly existing and in good standing under the
laws of the State of Delaware and is duly qualified to do business and is in
good standing under the laws of each jurisdiction in which the nature of its
activities makes such qualification necessary. Insight's U.S. taxpayer
identification number is 133290944.
5.2 Authority and Validity. Insight has all requisite partnership
power and authority to execute and deliver, to perform its obligations under,
and to consummate the transactions contemplated by, this Agreement. The
execution and delivery by Insight, the performance by Insight under, and the
consummation by Insight of the transactions contemplated by, this Agreement
have been duly and validly authorized by all required partnership action by or
on behalf of Insight. This Agreement has been, and when executed and delivered
by Insight the documents to be delivered by Insight in connection herewith will
be, duly and validly executed and delivered by Insight and the valid and
binding obligations of Insight, enforceable against Insight in accordance with
their terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to the enforcement of creditors' rights generally or by
principles governing the availability of equitable remedies.
5.3 No Conflict; Required Consents. Except for, and subject to receipt
of, the Insight Required Consents, all of which will be listed on Schedule 5.3
when delivered pursuant to Section 7.6, and the TCI Required Consents, the
execution and delivery by Insight, the performance of Insight under (and for
purposes of clauses (c) and (d), the performance of TCI under), and the
consummation by Insight (and for purposes of clauses (c) and (d), the
consummation by TCI) of the transactions contemplated by, this Agreement do not
and will not: (a) conflict with or violate any provision of Insight's agreement
of limited partnership; (b) violate any provision of any Legal Requirement; (c)
require any consent, approval or authorization of, or filing of any
certificate, notice, application, report or other document with, any
Governmental Authority or other Person; or (d) (i) conflict with, violate,
result in a breach of or constitute a default under (without regard to
requirements of notice, lapse of time or elections of other Persons or any
combination thereof), (ii) permit or result in the termination, suspension or
modification of, (iii) result in the acceleration of (or give any Person the
right to accelerate) the performance of Insight under, (iv) result in the
creation or imposition of any Lien under any agreement to which Insight, the
InterMedia Companies or TCI/Insight LLC is bound or by which it is affected,
except for purposes of clauses (c) and (d) such consents, approvals,
authorizations and filings that, if not obtained or made, would not, and such
violations, conflicts, breaches, defaults, terminations, suspensions,
modifications and accelerations as would not, individually or in the aggregate,
have a material adverse effect on TCI, any of the InterMedia Companies or
TCI/Insight LLC or on the ability of Insight or TCI to perform its obligations
under this Agreement.
-6-
<PAGE>
SECTION 6. TCI'S REPRESENTATIONS AND WARRANTIES
TCI represents and warrants to Insight as set forth below.
6.1 Organization and Qualification of TCI. TCI is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Colorado and is duly qualified to do business and is in good
standing under the laws of each jurisdiction in which the nature of its
activities makes such qualification necessary. TCI's U.S. taxpayer
identification number is 841458995.
6.2 Authority and Validity. TCI has all requisite limited liability
company power and authority to execute and deliver, to perform its obligations
under, and to consummate the transactions contemplated by, this Agreement. The
execution and delivery by TCI, the performance by TCI under, and the
consummation by TCI of the transactions contemplated by, this Agreement have
been duly and validly authorized by all required limited liability company
action by or on behalf of TCI. This Agreement has been, and when executed and
delivered by TCI the documents to be delivered by TCI in connection herewith
will be, duly and validly executed and delivered by TCI and the valid and
binding obligations of TCI, enforceable against TCI in accordance with their
terms, except as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to the enforcement of creditors' rights generally or by principles governing
the availability of equitable remedies.
6.3 No Conflict; Required Consents. Except for, and subject to receipt
of, the TCI Required Consents, all of which will be listed on Schedule 6.3 when
delivered pursuant to Section 7.6, and the Insight Required Consents, the
execution and delivery by TCI, the performance of TCI under, and the
consummation of the transactions contemplated by, this Agreement and the
Transaction Documents to which TCI is a party do not and will not: (a) conflict
with or violate any provision of TCI's limited liability company agreement; (b)
violate any provision of any Legal Requirement; (c) require any consent,
approval or authorization of, or filing of any certificate, notice,
application, report or other document with, any Governmental Authority or other
Person; or (d) (i) conflict with, violate, result in a breach of or constitute
a default under (without regard to requirements of notice, lapse of time or
elections of other Persons or any combination thereof), (ii) permit or result
in the termination, suspension or modification of, (iii) result in the
acceleration of (or give any Person the right to accelerate) the performance of
TCI under, (iv) result in the creation or imposition of any Lien under any
agreement to which TCI is individually a party (other than agreements related
to its status as a partner in ICP-VI or as a member in TCI/Insight LLC) bound,
except for purposes of clauses (c) and (d) such consents, approvals,
authorizations and filings, that, if not obtained or made, would not, and such
violations, conflicts, breaches, defaults, terminations, suspensions,
modifications and accelerations as would not, individually or in the aggregate,
have a material adverse effect on Insight, any of the InterMedia
Companies or TCI/Insight LLC or on the ability of TCI to perform its
obligations under this Agreement.
-7-
<PAGE>
SECTION 7. ADDITIONAL COVENANTS
7.1 Required Consents.
(a) Each of TCI and Insight will use its
commercially reasonable efforts to obtain in writing as promptly as possible
and at its expense, all of its Required Consents, in form and substance
reasonably satisfactory to the other, and will deliver to the other copies of
such Required Consents promptly after they are obtained by such party; provided
however that each of TCI and Insight will afford the other the opportunity to
review, approve and revise the form of Required Consent prior to delivery to
the party whose consent is sought. Each of TCI and Insight will cooperate with
the other in its efforts to obtain its Required Consents. As soon as
practicable after the date of this Agreement, but in any event no later than 45
days after the date of this Agreement, Insight will complete, execute and
deliver, or cause to be completed, executed and delivered to the appropriate
Governmental Authority, a request for such Governmental Authority's consent to
the transactions contemplated by this Agreement if such consent is required.
(b) If and to the extent Insight or TCI shall have
waived the receipt of any Required Consent as a condition to Closing, TCI with
respect to the TCI Required Consents and Insight with respect to the Insight
Required Consents will continue to use commercially reasonable efforts to
obtain in writing as promptly as possible any Required Consent which was not
obtained on or before the Closing and will deliver copies of the same,
reasonably satisfactory in form and substance, to the other. The obligations
set forth in this Section will survive the Closing and will not be merged in
the consummation of the transactions contemplated hereby.
7.2 Purchase Agreement Amendment and Conditions. Without the
prior written consent of TCI, Insight will not agree to any amendment to the
Purchase Agreement or waive any term of, or condition to the obligations of
Insight under, the Purchase Agreement, if such amendment or waiver has or could
reasonably be expected to have an adverse effect on TCI, New LP, the InterMedia
Companies, or TCI/Insight LLC.
7.3 Noncompetition Agreement. Effective as of the Purchase
Agreement Closing, the Noncompetition Agreement dated as of April 30, 1998
between TCI Communications, Inc. and ICP-VI will terminate without further
action and will be of no further force or effect.
7.4 Confidentiality and Publicity.
(a) Each of Insight and TCI will use commercially
reasonable efforts to assure that any non-public information that such party may
obtain from the other in connection with this Agreement will be kept
confidential and, such party will not disclose, and will cause its employees,
consultants, advisors and agents not to disclose, any such information to any
other Person (other than its directors, officers and employees and
representatives of its advisers and lenders whose knowledge thereof is necessary
in order to facilitate the consummation of the transactions contemplated hereby)
or use, and will cause its employees, consultants, advisors and agents not to
use, such information
-8-
<PAGE>
to the detriment of the other; provided that (i) such party may use and
disclose any such information once it has been publicly disclosed (other than
by such party in breach of its obligations under this Section) or which
rightfully has come into the possession of such party (other than from the
other party) and (ii) to the extent that such party may, in the reasonable
opinion of its counsel, be compelled by Legal Requirements to disclose any of
such information, such party may disclose such information if it will have used
all reasonable efforts, and will have afforded the other the opportunity, to
obtain an appropriate protective order or other satisfactory assurance of
confidential treatment, for the information compelled to be disclosed. The
obligation of Insight and TCI to hold information in confidence pursuant to
this Section will be satisfied if such party exercises the same care with
respect to such information as it would exercise to preserve the
confidentiality of its own similar information. In the event of termination of
this Agreement, each of Insight and TCI will use all reasonable efforts to
cause to be delivered to the other, and retain no copies of, any documents,
work papers and other materials obtained by such party or on its behalf from
the other, whether so obtained before or after the execution hereof.
(b) Neither party will issue any press release or
make any other public announcement or any oral or written statement to its or
the other party's employees concerning this Agreement and the transactions
contemplated hereby, except as required by applicable Legal Requirements,
without the prior written consent and approval of the other, which consent and
approval may not be unreasonably withheld.
7.5 Satisfaction of Conditions. Each of Insight and TCI will
use its commercially reasonable efforts to satisfy, or to cause to be
satisfied, the conditions to the obligations of the other party to consummate
the transactions contemplated by this Agreement, as set forth in Section 8,
with "commercially reasonable efforts" being determined with respect to any
particular matter as set forth elsewhere in this Agreement.
7.6 Schedules 5.3 and 6.3. Insight will deliver Schedule 5.3
to TCI and TCI will deliver Schedule 6.3 to Insight within fifteen Business Days
following the date of this Agreement. Insight will not be liable to TCI for any
failure to list an Insight Required Consent or failure to obtain an unlisted
Insight Required Consent (other than an Insight Required Consent that relates to
any agreement to which Insight is individually a party) unless such failure
constitutes gross negligence, willful misconduct or willful breach by Insight.
Upon such delivery, such Schedules will be deemed to have been part of this
Agreement from the date hereof. Within 15 Business Days following the date of
this Agreement TCI will deliver to Insight a list of any Insight Required
Consents with respect to any agreement to which TCI is individually a party that
relates to its status as a partner in ICP-VI (such as the TCI keepwell and
guarantee), it being agreed by TCI that Insight will have no liability for
failing to obtain an Insight Required Consent with respect to any agreement to
which TCI is individually a party that relates to its status as a partner in
ICP-VI (such as the TCI keepwell and guarantee) if TCI does not notify Insight
of the existence of such agreement.
-9-
<PAGE>
SECTION 8. CONDITIONS PRECEDENT
8.1 Conditions to Insight's Obligations. The obligations of
Insight to consummate the transactions contemplated by this Agreement are
subject to the satisfaction at or before the Closing of the following
conditions, any of which may be waived by Insight.
(a) Accuracy of Representations and Warranties. The
representations and warranties of TCI in this Agreement, if specifically
qualified by materiality, are true in all respects and, if not so qualified, are
true in all material respects, in each case at and as of the Closing with the
same effect as if made at and as of the Closing.
(b) Performance of Agreements. TCI has performed in
all material respects all obligations and agreements and complied in all
material respects with all covenants in this Agreement to be performed and
complied with by it at or before the Closing.
(c) Deliveries. TCI has delivered the items and
documents required to be delivered by it pursuant to this Agreement, including
those required under Section 9.2.
(d) Legal Proceedings. No action, suit or proceeding
is pending or threatened by or before any Governmental Authority and no Legal
Requirement has been enacted, promulgated or issued or become or deemed
applicable to any of the transactions contemplated by this Agreement by any
Governmental Authority, which would prevent or make illegal the consummation of
any transactions contemplated by this Agreement.
(e) Consents. Insight has received evidence, in form
and substance reasonably satisfactory to it, that the TCI Required Consents and
the Insight Required Consents have been obtained.
(f) Purchase Agreement. The Purchase Agreement
Closing shall have occurred.
8.2 Conditions to TCI's Obligations. The obligations of TCI
to consummate the transactions contemplated by this Agreement are subject to
the satisfaction at or before the Closing of the following conditions, any of
which may be waived by TCI.
(a) Accuracy of Representations and Warranties. The
representations and warranties of Insight in this Agreement, if specifically
qualified by materiality, are true in all respects and, if not so qualified,
are true in all material respects, in each case at and as of the Closing with
the same effect as if made at and as of the Closing.
(b) Performance of Agreements. Insight has performed
in all material respects all obligations and agreements and complied in all
material respects with all covenants in this Agreement to be performed and
complied with by it at or before the Closing.
-10-
<PAGE>
(c) Deliveries. Insight has delivered the items and
documents required to be delivered by it pursuant to this Agreement, including
those required under Section 9.3.
(d) Legal Proceedings. No action, suit or proceeding
is pending or threatened by or before any Governmental Authority and no Legal
Requirement has been enacted, promulgated or issued or become or deemed
applicable to any of the transactions contemplated by this Agreement by any
Governmental Authority, which would prevent or make illegal the consummation of
any transactions contemplated by this Agreement.
(e) Consents. TCI has received evidence, in form and
substance reasonably satisfactory to it, that the Insight Required Consents and
the TCI Required Consents have been obtained.
(f) Purchase Agreement. The Purchase Agreement
Closing shall have occurred.
SECTION 9. THE CLOSING
9.1 The Closing; Time and Place. The closing of the
transactions contemplated by this Agreement (the "Closing") will take place on
the date of the Purchase Agreement Closing (the date on which Closing occurs
being referred to herein as the "Closing Date") provided that all conditions
set forth in Sections 8.1 and 8.2 (other than those based on acts to be
performed at the Closing) have either been satisfied or waived in writing by
the party entitled to the benefit of such condition on such date. If the
Closing Date does not occur on the date of the Purchase Agreement Closing, the
Closing Date shall be on a date mutually determined by TCI and Insight that is
within ten days after the date on which all conditions set forth in Sections
8.1 and 8.2 (other than those based on acts to be performed at the Closing)
have either been satisfied or waived in writing by the party entitled to the
benefit of such condition.
9.2 TCI's Delivery Obligations. At the Closing, TCI will
deliver or cause to be delivered to Insight the following.
(a) Bill of Sale and Assignment. An executed Bill of
Sale and Assignment and such other instruments of transfer or assignment, in
form and substance mutually satisfactory the parties, as Insight may reasonably
require to document the transfer and assignment of TCI's interests in ICP-VI
and TCI/Insight LLC to New LP free and clear of all Liens other than Permitted
Liens.
(b) Evidence of Authorization Actions. Evidence
reasonably satisfactory to Insight that TCI has taken all limited liability
company action necessary to authorize the execution of this Agreement and the
consummation of the transactions contemplated hereby.
(c) Officer's Certificate. A certificate executed by
an executive officer of the managing member of TCI LLC dated the Closing Date,
reasonably satisfactory in form and
-11-
<PAGE>
substance to Insight certifying that the conditions specified in Sections
8.1(a) and 8.1(b) have been satisfied.
(d) Signature Pages. An original executed signature
page of TCI to the following agreements, to the extent not previously
delivered:
(1) The New LP Partnership Agreement;
(2) The New LLC Operating Agreement.
(e) Other. Such other documents and instruments as
may be reasonably necessary to effect the intent of this Agreement and
consummate the transactions contemplated hereby.
9.3 Insight's Delivery Obligations. At the Closing, except
as otherwise provided below, Insight will deliver or cause to be delivered to
TCI the following.
(a) Bill of Sale and Assignment. An executed Bill of
Sale and Assignment and such other instruments of transfer or assignment, in
form and substance mutually satisfactory to the parties, as TCI may reasonably
require to document the transfer and assignment of Insight's interests in
ICP-VI and TCI/Insight LLC to New LP free and clear of all Liens other than
Permitted Liens.
(b) Evidence of Authorization Actions. Evidence
reasonably satisfactory to TCI that Insight has taken all action necessary to
authorize the execution of this Agreement and the consummation of the
transactions contemplated hereby.
(c) Officer's Certificates. A certificate executed
by an executive officer of the ultimate corporate general partner of Insight
dated the Closing Date, reasonably satisfactory in form and substance to TCI
certifying that the conditions specified in Sections 8.2(a) and 8.2(b) have
been satisfied.
(d) Signature Pages. An original executed signature
page of Insight and the other parties (other than TCI) to the following
agreements to the extent not previously delivered:
(1) The New LP Partnership Agreement;
(2) The New LLC Operating Agreement;
(3) The Amended and Restated TCI/Insight LLC
Operating Agreement;
(4) The Amended and Restated Subsidiary
Partnership Agreements.
(e) Other. Such other documents and instruments as
may be reasonably necessary to effect the intent of this Agreement and
consummate the transactions contemplated hereby.
-12-
<PAGE>
SECTION 10. TERMINATION AND DEFAULT
10.1 Termination Events. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned:
(a) at any time by the mutual agreement of Insight
and TCI;
(b) by either Insight or TCI at any time (if such
party itself is not then in material breach of any of its covenants, agreements
or other obligations contained in this Agreement), if the other is in material
breach or default of any of its covenants, agreements or other obligations
herein, or if any of its representations herein if specifically qualified by
materiality, is not true in all respects or, if qualified by materiality, is
not true in all material respects when made or when otherwise required by this
Agreement to be true, if the non-breaching party provides the breaching party
with prompt written notice that provides a reasonably detailed explanation of
the facts and circumstances surrounding such breach or default; provided that
such party shall have no right to terminate if (i) the breaching Party cures
such breach or default within 30 days after its receipt of such written notice,
unless such breach or default cannot be cured within such 30-day period; or
(ii) the breach or default is capable of being cured prior to the one year
anniversary of the date of this Agreement (the "Outside Closing Date") and the
breaching party commences to cure such breach or default within such 30-day
period and diligently continues to take all action reasonably necessary to cure
such breach or default prior to the Outside Closing Date and such breach or
default is cured prior to the Outside Closing Date; or
(c) by either Insight or TCI upon written notice to
the other given not earlier than the Outside Closing Date, if any of the
conditions to its obligations set forth in Sections 8.1 and 8.2, respectively,
are not satisfied on or before the Outside Closing Date for any reason other
than a material breach or default by the terminating party of its respective
covenants, agreements or other obligations under this Agreement, or if any of
its representations herein, if specifically qualified by materiality, is not
true in all respects or, if qualified by materiality, is not true in all
material respects when made or when otherwise required by this Agreement to be
true; or
(d) automatically if the Purchase Agreement has been
terminated prior to closing thereunder; or
(e) as otherwise provided in this Agreement.
10.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 10.1, all obligations of the parties under this Agreement
will terminate, except for the obligations set forth in Sections 3, 4.1(b),
4.1(c), 4.2, 7.3, 7.4 and 11.1, 11.15; provided, that if this Agreement is
terminated pursuant to Section 10.1(d), the obligations set forth in Sections 3,
4.1(b), 4.1(c) and 4.2 will also terminate. Notwithstanding the preceding
sentence, termination of this Agreement will not limit or impair any remedies
that either of TCI or Insight may have with respect to a breach or
-13-
<PAGE>
default by the other of its covenants, agreements or obligations under this
Agreement prior to termination.
SECTION 11. MISCELLANEOUS PROVISIONS
11.1 Parties Obligated and Benefited. Subject to the
limitations set forth below, this Agreement will be binding upon the parties
and their respective assigns and successors in interest and will inure solely
to the benefit of the parties and their respective assigns and successors in
interest, and no other Person will be entitled to any of the benefits conferred
by this Agreement. Without the prior written consent of the other parties, no
party will assign any of its rights under this Agreement or delegate any of its
duties under this Agreement, provided that Insight or TCI may, without the
consent of any other party, prior to Closing assign all of such party rights
and obligations under this Agreement to any Affiliate of such party provided
such assignee can make all of the representations and warranties applicable to
the assigning party hereunder (other than those relating to jurisdiction of
incorporation), the assigning party can provide reasonable assurances that such
assignee can otherwise perform the covenants, agreements and obligations
applicable to the assigning party hereunder and such assignment would not
materially delay or hinder the consummation of the transactions contemplated by
this Agreement. No assignment by either party of its rights hereunder shall
release such party from its obligations hereunder. If Insight elects to have an
Affiliate of Insight be the partner in New LP or, if Closing does not occur,
the partner in ICP-VI, or be the member in New LLC, Insight agrees that it will
be liable to TCI to perform the obligations to be performed by such Affiliate
as a partner in, or manager of, New LP or ICP-VI or as a member in New LLC to
extent such obligations are not performed by such Affiliate.
11.2 Notices. Any notice, request, demand, waiver or other
communication required or permitted to be given under this Agreement will be in
writing and will be deemed to have been duly given only if delivered in person
or by first class, prepaid, registered or certified mail, or sent by courier or,
if receipt is confirmed, by telecopier:
To TCI at:
c/o Tele-Communications, Inc.
9197 South Peoria Street
Englewood, Colorado 80112
Attention: Derek Chang
Telecopy: (720) 875-5396
With a copy similarly addressed to the attention of
Legal Department
-14-
<PAGE>
To Insight at:
Insight Communications Company, L.P.
126 East 56th Street
New York, New York
Attention: Michael S. Willner
Telecopy: (212) 371-1549
With a copy to:
Dow, Lohnes & Albertson PLLC
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: Leonard J. Baxt, Esq.
Telecopy: (202) 776-2222
Any party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section. All notices
will be deemed to have been received on the date of delivery, which in the case
of deliveries by telecopier will be the date of the sender's confirmation.
11.3 Right to Specific Performance. Insight and TCI
acknowledge that the unique nature of the interests to be contributed by them
pursuant to this Agreement renders money damages an inadequate remedy for the
breach by them of their obligations under this Agreement, and they agree that
in the event of such breach, they will upon proper action instituted by either
of them, be entitled to a decree of specific performance of this Agreement.
11.4 Waiver. This Agreement or any of its provisions may not
be waived except in writing. The failure of any party to enforce any right
arising under this Agreement on one or more occasions will not operate as a
waiver of that or any other right on that or any other occasion.
11.5 Captions. The section and other captions of this
Agreement are for convenience only and do not constitute a part of
this Agreement.
11.6 Choice of Law. THIS AGREEMENT AND THE RIGHTS OF THE
PARTIES UNDER IT WILL BE GOVERNED BY AND CONSTRUED IN ALL RESPECTS IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE
CONFLICTS OF LAWS RULES OF DELAWARE.
11.7 Terms. Terms used with initial capital letters or
otherwise defined in this Agreement will have the meanings specified,
applicable to both singular and plural forms, for all purposes of
-15-
<PAGE>
this Agreement. The word "include" and derivatives of that word are used in
this Agreement in an illustrative sense rather than limiting sense.
11.8 Rights Cumulative. All rights and remedies of each of
the parties under this Agreement will be cumulative, and the exercise of one or
more rights or remedies will not preclude the exercise of any other right or
remedy available under this Agreement or applicable law.
11.9 Time. Time is of the essence under this Agreement. If
the last day permitted for the giving of any notice or the performance of any
act required or permitted under this Agreement falls on a day which is not a
Business Day, the time for the giving of such notice or the performance of such
act will be extended to the next succeeding Business Day.
11.10 Late Payments. If any party fails to pay the other any
amounts when due under this Agreement, the amounts due will bear interest from
the due date to the date of payment at the annual rate publicly announced from
time to time by The Bank of New York as its prime rate (the "Prime Rate") plus
2%, adjusted as and when changes in the Prime Rate are made.
11.11 Counterparts. This Agreement may be executed in
counterparts, each of which will be deemed an original.
11.12 Entire Agreement. This Agreement contains the entire
agreement of the parties with respect to the matters contemplated hereby and
supersedes all prior oral or written agreements and understandings with respect
to the subject matter. This Agreement may not be amended or modified except by
a writing signed by the parties.
11.13 Severability. Any term or provision of this Agreement
which is invalid or unenforceable will be ineffective to the extent of such
invalidity or unenforceability without rendering invalid or unenforceable the
remaining rights of the Person intended to be benefitted by such provision or
any other provisions of this Agreement.
11.14 Construction. This Agreement has been negotiated by the
parties and their respective legal counsel, and legal or equitable principles
that might require the construction of this Agreement or any provision of this
Agreement against the party drafting this Agreement will not apply in any
construction or interpretation of this Agreement.
11.15 Expenses. Except as otherwise expressly provided in
this Agreement (which expenses the parties shall pay as so provided), each
party will pay all of its expenses, including attorneys' and accountants' fees,
in connection with the negotiation of this Agreement, the performance of its
obligations and the consummation of the transactions contemplated by this
Agreement.
11.16 Tax Consequences. No party to this Agreement makes any
representation or warranty, express or implied, with respect to the tax
implications of any aspect of this Agreement
-16-
<PAGE>
on any other party to this Agreement, and all parties expressly disclaim any
such representation or warranty with respect to any tax consequences arising
under this Agreement. Each party has relied solely on its own tax advisors with
respect to the tax implications of this Agreement.
11.17 Commercially Reasonable Efforts. For purposes of this
Agreement, unless a different standard is expressly provided with respect to
any particular matter, "commercially reasonable efforts" will not be deemed to
require a party to undertake extraordinary measures, including the initiation
or prosecution of legal proceedings or the payment of amounts in excess of
normal and usual filing fees and processing fees, if any.
11.18 Further Assurances. At and after the Closing, each of
the parties will promptly execute and deliver, or cause to be executed and
delivered, to the other parties all such documents and instruments, in addition
to those otherwise required by this Agreement, in form and substance reasonably
satisfactory to the other parties as they may reasonably request in order to
carry out or evidence the terms of this Agreement.
11.19 Third Party Beneficiary. No Person that is not a party
to this Agreement shall be a third party beneficiary of any provision of this
Agreement.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
TCI OF INDIANA HOLDINGS, LLC
By: TCI of Indiana, Inc., its managing member
By:
---------------------------------------------
Name: Derek Chang
Title: Vice President
INSIGHT COMMUNICATIONS COMPANY, L.P.
By: ICC Associates, L.P., its general partner
By: Insight Communications, Inc., its
general partner
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
-18-
<PAGE>
OPERATING AGREEMENT OF
INSIGHT COMMUNICATIONS OF INDIANA, LLC,
DATED AS OF
MAY 14, 1998
<PAGE>
OPERATING AGREEMENT OF
INSIGHT COMMUNICATIONS OF INDIANA, LLC,
DATED AS OF
MAY 14, 1998
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS
1.1 Terms Defined in this Section................................... 1
1.2 Terms Defined Elsewhere in this Agreement.......................12
1.3 Terms Generally.................................................13
ARTICLE 2
FORMATION AND PURPOSE
2.1 Formation.......................................................13
2.2 Name............................................................13
2.3 Principal and Registered Office.................................14
2.4 Term............................................................14
2.5 Purposes of Company.............................................14
2.6 Actions of Company Prior to Closing.............................16
2.7 Certificate of Formation........................................16
2.8 Addresses of the Members........................................16
2.9 Foreign Qualification...........................................17
2.10 Tax Classification.............................................17
ARTICLE 3
COMPANY CAPITAL
3.1 Contributions...................................................17
3.2 Additional Capital Contributions................................18
3.3 Assumption of Liabilities.......................................18
3.4 Return of Contributions.........................................18
- i -
<PAGE>
ARTICLE 4
DISTRIBUTIONS; ALLOCATIONS OF PROFIT AND LOSS
4.1 Distributions of Cash...........................................19
4.2 Allocations of Net Profit and Net Loss..........................20
4.3 Special Provisions Regarding Allocations of Profit and Loss.....21
4.4 Tax Allocations: Code Section 704(c)............................23
4.5 Allocation in Event of Transfer.................................23
4.6 Alternative Allocations.........................................24
ARTICLE 5
AUTHORITY OF THE MANAGING MEMBER; OTHER MATTERS AFFECTING
MANAGING MEMBER
5.1 Authority of Managing Member....................................24
5.2 No Personal Liability...........................................24
5.3 Management Agreement............................................25
5.4 Resignation as Managing Member..................................25
5.5 Tax Matters Member..............................................26
ARTICLE 6
STATUS OF MEMBERS
6.1 No Management and Control.......................................28
6.2 Limited Liability...............................................28
6.3 Return of Distributions of Capital..............................28
6.4 Specific Limitations............................................29
ARTICLE 7
MANAGEMENT OF THE COMPANY
7.1 Management Committee Powers.....................................29
7.2 Appointment and Removal of Representatives......................29
7.3 Meetings of the Management Committee............................30
7.4 Procedural Matters..............................................30
7.5 Matters Requiring TCI Approval..................................31
7.6 Matters Requiring Insight and TCI Approval......................32
7.7 Member Consent Defined..........................................34
ARTICLE 8
TRANSFER OF MEMBERSHIP INTERESTS
- ii -
<PAGE>
8.1 Limitations on Transfers........................................35
8.2 Transferees and Successors......................................36
8.3 Transfers of Interests in Members...............................36
8.4 Other Consents and Requirements.................................37
8.5 Assignment Not In Compliance....................................37
8.6 Division of Membership Interests................................38
8.7 Pledge of Membership Interests..................................38
8.8 Code Section 708(b)(1)(B).......................................38
ARTICLE 9
BUY/SELL RIGHTS
9.1 Commencement of Buy/Sell Process................................39
9.2 Non-Initiating Member's Option to Postpone the Buy/Sell Process.40
9.3 TCI's Options as Non-Initiating Member..........................40
9.4 Insight's Options as Non-Initiating Member......................41
9.5 TCI's Option to Negotiate Alternative Structure.................42
9.6 Insight's Option to Require TCI to Purchase Insight's
Membership Interest.............................................43
9.7 Default by Member...............................................43
9.8 Removal of Insight as Member....................................44
9.9 General Terms Applicable to Purchase and Sale of
Membership Interests............................................46
ARTICLE 10
OTHER BUSINESSES AND INVESTMENT OPPORTUNITIES
10.1 [Intentionally Deleted]........................................48
10.2 Limitations on Activities of the Company.......................48
10.3 Prohibited Cross-Interests.....................................49
10.4 Limitations on Other Activities of the Members.................51
10.5 No Other Restrictions..........................................52
ARTICLE 11
DISSOLUTION AND LIQUIDATION OF COMPANY
11.1 Events of Dissolution..........................................52
11.2 Liquidation....................................................53
11.3 Distribution in Kind...........................................54
11.4 No Action for Dissolution......................................55
11.5 No Further Claim...............................................55
ARTICLE 12
INDEMNIFICATION
- iii -
<PAGE>
12.1 General........................................................55
12.2 Exculpation....................................................56
12.3 Persons Entitled to Indemnity..................................56
12.4 Procedure Agreements...........................................56
ARTICLE 13
BOOKS, RECORDS, ACCOUNTING, AND REPORTS
13.1 Books and Records..............................................56
13.2 Delivery to Member and Inspection..............................57
13.3 Annual Statements..............................................57
13.4 Quarterly Financial Statements.................................58
13.5 Monthly Statements.............................................59
13.6 Operating and Capital Expenditure Budgets......................59
13.7 Other Information..............................................59
13.8 Tax Matters....................................................59
13.9 Other Filings..................................................59
13.10 Non-Disclosure................................................60
ARTICLE 14
REPRESENTATIONS BY THE MEMBERS
14.1 Investment Intent..............................................61
14.2 Securities Regulation..........................................61
14.3 Knowledge and Experience.......................................61
14.4 Economic Risk..................................................62
14.5 Binding Agreement..............................................62
14.6 Tax Position...................................................62
14.7 Information....................................................62
ARTICLE 15
AMENDMENTS AND WAIVERS
15.1 Amendments to Operating Agreement..............................62
15.2 Waivers........................................................62
ARTICLE 16
MISCELLANEOUS
16.1 Programming and Discounts......................................63
16.2 Cost Sharing; Reimbursement....................................66
16.3 Additional Documents...........................................66
16.4 Inspection.....................................................66
- iv -
<PAGE>
16.5 General........................................................66
16.6 Notices, Etc...................................................67
16.7 Execution of Papers............................................67
16.8 Attorneys' Fees................................................68
16.9 No Third-Party Beneficiaries...................................68
16.10 Headings......................................................68
16.11 Board Approval................................................68
EXHIBITS AND SCHEDULES
Exhibit A Management Agreement
Schedule I Addresses of the Members
Schedule II Capital Contributions; Capital Accounts; Percentage Interest
Schedule III Initial Members of the Management Committee
Schedule IV Map of the State of Indiana
- v -
<PAGE>
OPERATING AGREEMENT
OF
INSIGHT COMMUNICATIONS OF INDIANA, LLC
THIS OPERATING AGREEMENT is made and entered into as of May 14, 1998,
by and between INSIGHT COMMUNICATIONS COMPANY, L.P., a Delaware limited
partnership, and TCI OF INDIANA HOLDINGS, LLC, a Colorado limited liability
company.
PRELIMINARY STATEMENT
TCI, together with certain of its Affiliates, owns and operates certain
cable television systems located in central Indiana.
Insight owns and operates certain cable television systems located in
Indiana and Kentucky.
Concurrently with the execution and delivery of this Agreement, the
Members are entering into the Contribution Agreement, pursuant to which TCI and
certain of its Affiliates have agreed to contribute or cause to be contributed
to the Company substantially all the assets of certain cable television systems,
subject to certain liabilities being assumed by the Company, and Insight has
agreed to contribute or cause to be contributed to the Company substantially all
the assets of certain cable television systems, subject to certain liabilities
being assumed by the Company.
The parties to this Agreement desire to enter into this Agreement to
provide for the formation of the Company, the allocation of profits and losses,
cash flow, and other proceeds of the Company between the Members, the respective
rights, obligations, and interests of the Members to each other and to the
Company, and certain other matters.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Terms Defined in this Section.
For purposes of this Agreement, the following terms shall have the
following meanings (all terms used in this Agreement that are not defined in
this Section 1.1 shall have the meanings set forth elsewhere in this Agreement
as indicated in Section 1.2, except as otherwise provided in this Agreement):
"@Home" means At Home Corporation, a Delaware corporation.
"@Home Distribution Agreement" means collectively, the Master
Distribution Agreement
- 1 -
<PAGE>
Term Sheet and the Term Sheet for Form of LCO Agreement, each of which are
exhibits to the letter agreement, dated as of May 15, 1997, among @Home and
Tele-Communications, Inc., Comcast Corporation, Cox Enterprises, Inc., Kleiner,
Perkins, Caufield & Byers and certain of their respective Affiliates, as each
such term sheet has been amended by the letter agreement, dated as of October 2,
1997, as amended as of October 10, 1997, among the parties to the May 15, 1997
letter agreement and Cablevision Systems Corporation and certain of its
Affiliates; provided, that such term shall include any definitive agreements
entered into by such parties in respect of the distribution of the @Home Service
as contemplated by the May 15, 1997 letter agreement.
"@Home Service" has the meaning specified in the @Home Distribution
Agreement.
"Act" means the Delaware Limited Liability Company Act.
"Adjusted Capital Account Deficit" means with respect to either Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant Fiscal Year, after:
(i) crediting to such Capital Account any amounts that such
Member is obligated to restore to the Company pursuant to Treasury Regulations
Section 1.704-1(b)(2)(ii)(c) or is deemed to be obligated to restore pursuant to
the penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(ii) debiting from such Capital Account the items described in
Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5),
and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Treasury Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by, or under common control with such Person. For
purposes of this definition and the definition of "Controlled Affiliate," the
term "control" means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of Voting Stock or other equity interests, by contract, or
otherwise, and the terms "controlled by" and "under common control with" have
meanings corresponding to the meaning of "control."
"Agreement" means this Agreement, as it may be amended from time to
time.
"Asset Acquisition" shall mean (i) an investment by the Company or any
of its Subsidiaries in any other Person, pursuant to which such Person becomes a
Subsidiary of the Company or another Subsidiary of the Company or is merged,
consolidated, amalgamated with or into, or is liquidated into, the Company or
any of its Subsidiaries, or (ii) the acquisition by the Company or any of its
Subsidiaries of the assets of any Person (other than the Company or any of its
Subsidiaries) that
- 2 -
<PAGE>
constitute a division or line of business or operating business (even if not a
separate division or line of business) of such Person, including, without
limitation, the acquisition by the Company or any of its Subsidiaries of any
cable television system or other business.
"Asset Disposition" shall mean the sale, exchange or other disposition
by the Company or any of its Subsidiaries (other than to the Company or another
Subsidiary of the Company) (i) of all or substantially all of the capital stock
of any Subsidiary of the Company, or (ii) of the assets that constitute a
division or line of business or operating business (even if not a separate
division or line of business) of the Company or of any of its Subsidiaries,
including, without limitation, the sale, exchange or disposition by the Company
or any of its Subsidiaries of any cable television system or other business.
"Business Day" means any day (other than a day that is a Saturday or
Sunday) on which banks are permitted to be open for business in the State of New
York.
"Capital Account" means a separate account to be maintained for each
Member in accordance with the Code, which, subject to any contrary requirements
of the Code, shall equal such Member's initial Capital Account balance as of
immediately after the Closing as provided in Section 3.1(c), increased by: (i)
the amount of money contributed by such Member to the Company, if any (not
including payments for Closing Adjustments made by such Member pursuant to
Section 3 of the Contribution Agreement); (ii) the fair market value without
regard to Code Section 7701(g) of property, if any, contributed by such Member
to the Company (net of liabilities that are secured by such contributed property
or that the Company or any other Member is considered to assume or take subject
to under Code Section 752), but excluding contributions of property pursuant to
the Contribution Agreement; (iii) allocations to the Member of Net Profit and
items of income and gain pursuant to Article 4; and (iv) other additions made in
accordance with the Code; and decreased by (i) the amount of cash distributed to
such Member by the Company (not including payments for Closing Adjustments made
to such Member pursuant to Section 3 of the Contribution Agreement); (ii)
allocations to the Member of Net Loss and items of loss and deduction pursuant
to Article 4; (iii) the fair market value without regard to Code Section 7701(g)
of property distributed to such Member by the Company (net of liabilities that
are secured by such distributed property or that such Member is considered to
assume or take subject to under Code Section 752); and (iv) other deductions
made in accordance with the Code. Notwithstanding the foregoing, for purposes of
determining Capital Accounts, all of the adjustments, contributions or
distributions required pursuant to the Contribution Agreement to be made
subsequent to the Closing, including, without limitation, contributions of cash
or property pursuant to Section 7.24 of the Contribution Agreement, shall be
treated as if they had been made at the Closing, and such adjustments,
contributions and distributions shall not give rise to any adjustments to
Capital Account balances or redetermination of amounts contributed by or
distributed to any Member. The foregoing provisions and the other provisions of
this Agreement relating to the maintenance of Capital Accounts are intended to
comply with Treasury Regulations under Code Section 704(b) and, to the extent
not inconsistent with the provisions of this Agreement, shall be interpreted and
applied in a manner consistent with such Treasury Regulations.
- 3 -
<PAGE>
"Capital Contributions" means, with respect to either Member, the
amount of money and the net fair market value of property contributed by such
Member to the Company pursuant to this Agreement.
"Certificate of Formation" means the certificate of formation to be
filed with respect to the Company pursuant to the Act.
"Closing" means the Closing under the Contribution Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any subsequent federal law of similar import, and, to the extent
applicable, the Treasury Regulations.
"Company" means the limited liability company created by this
Agreement.
"Company Minimum Gain" means the excess of the Company Nonrecourse
Liabilities over the adjusted tax basis of property securing such Company
Nonrecourse Liabilities. The amount of Company Minimum Gain shall be determined
in accordance with Treasury Regulations Section 1.704-2(d), which provides
generally that the amount of Company Minimum Gain shall be determined by first
computing for each Nonrecourse Liability any gain the Company would realize if
it disposed of the property subject to that Nonrecourse Liability for no
consideration other than full satisfaction of such Nonrecourse Liability, and
then aggregating the separately computed gains.
"Contribution Agreement" means the Asset Contribution Agreement, dated
as of May 4, 1998, among the Company, the Members and the other parties named
therein, as it may be amended from time to time in accordance with its terms.
"Controlled Affiliate" means (i) with respect to TCI, any Person that,
at such time, is controlled directly or indirectly by TCI or TCI Communications,
Inc., a Delaware corporation, but not including InterMedia Capital Partners VI,
L.P. or its Subsidiaries, (ii) with respect to Insight, any Person (other than
the Company or any Subsidiary) that, at such time, is controlled directly or
indirectly by Insight, and (iii) with respect to any other specified Person, any
Person that, at such time, is controlled directly or indirectly by such
specified Person.
"Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such Fiscal Year, Depreciation shall be determined in the
manner described in Treasury Regulations Section 1.704-1(b)(2)(iv)(g)(3) or
Treasury Regulations Section 1.704-3(d)(2), as applicable.
"Equity Value" means, with respect to any Membership Interest for
purposes of any provision of this Agreement that refers to the Equity Value of
such Membership Interest, the amount
- 4 -
<PAGE>
that would be distributed to the holder of such Membership Interest if the
Company's assets were sold on the date of closing the purchase and sale of such
Member's Membership Interest or the date of closing an Alternative Structure, as
applicable, pursuant to Article 9 for the Stated Value of the Company (except,
in the event of the purchase of Insight's Membership Interest by TCI pursuant to
Section 9.8, for the Fair Market Value of the Company) and the Company were then
liquidated in accordance with Article 11 of this Agreement on the date of said
closing, subject to the following sentences. In applying the provisions of
Section 11.2 to such hypothetical liquidation of the Company, (i) all current
assets and all liabilities of the Company, defined and determined in accordance
with generally accepted accounting principles, shall be calculated as of the
date of said closing, (ii) all costs that would customarily be incurred in
connection with such a purchase and sale (including attorneys' fees and broker
fees, but excluding taxes measured on the amount of income, gain or proceeds
realized by the selling Member or any governmental charges imposed in lieu of
such taxes) shall be treated as an expense of liquidation under Section
11.2(d)(1), and (iii) appropriate reserves shall be set up pursuant to Section
11.2(d)(2) for any contingent or unforeseen liabilities or obligations of the
Company that relate to the period prior to the date of such closing pursuant to
Article 9 or any obligation or liability that relates to the period prior to the
date of such closing pursuant to Article 9 not then due and payable (subject to
the last sentence of Section 9.9(f)). The current assets and liabilities
referred to in clause (i), the costs referred to in clause (ii), and the
reserves referred to in clause (iii) shall all be determined in accordance with
the procedures set forth in Section 9.9(d).
"Exclusive Internet Services" means Internet Services which would
constitute a Restricted Business (as defined in the @Home Distribution
Agreement) to the extent engaged in or distributed by TCI Cable Parent or their
Controlled Affiliates.
"FCC" means the Federal Communications Commission.
"Fiscal Year" means the fiscal year of the Company, which shall be the
calendar year.
"Gross Asset Value" means with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by
a Member to the Company shall be the gross fair market value of such asset, as
determined in accordance with Section 3.1(d);
(ii) The Gross Asset Values of all assets of the Company shall
be adjusted to equal their respective gross fair market values, as determined by
the Management Committee by unanimous vote, as of the following times: (A) the
acquisition of an additional interest in the Company by any new or existing
Member in exchange for more than a de minimis Capital Contribution; (B) the
distribution by the Company to a Member of more than a de minimis amount of
property of the Company as consideration for an interest in the Company; and (C)
the liquidation of the Company within the meaning of Treasury Regulations
Section 1.704- 1(b)(2)(ii)(g); provided,
- 5 -
<PAGE>
however, that the adjustments pursuant to clauses (A) and (B) above shall be
made only if the Management Committee determines by unanimous vote that such
adjustments are necessary or appropriate to reflect the relative economic
interests of the Members in the Company;
(iii) The Gross Asset Value of any asset of the Company
distributed to either Member shall be the gross fair market value of such asset
on the date of distribution; and
(iv) The Gross Asset Value of the assets of the Company shall
be increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Treasury Regulations Section 1.704- 1(b)(2)(iv)(m) and
Section 4.3(g); provided, however, that Gross Asset Value shall not be adjusted
pursuant to this paragraph (iv) to the extent that the Management Committee
determines by unanimous vote that an adjustment pursuant to paragraph (ii) of
this definition is necessary or appropriate in connection with a transaction
that would otherwise result in an adjustment pursuant to this paragraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to paragraph (i), (ii), or (iv) of this definition, the Gross Asset
Value of such asset shall thereafter be adjusted by the Depreciation taken into
account with respect to such asset for purposes of computing Net Profit and Net
Loss.
"Indebtedness" means, as to any Person, (without duplication) (i) all
indebtedness of such Person for borrowed money; (ii) obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii)
obligations of such Person to pay the deferred purchase price of property or
services (other than trade payables incurred in the ordinary course of
business); (iv) all capitalized lease obligations of such Person; (v)
obligations of such Person in respect of letters of credit or other similar
forms of surety obligations to the extent treated as debt for purposes of
calculating applicable financial leverage covenants under the Insight Credit
Agreement, as in effect at the time of determination (but excluding any such
obligations under any cable television franchise, pole attachment agreement,
lease, or other similar agreement or license entered into in connection with the
day-to-day operations of a cable television system); and (vi) obligations of
such Person under guarantees in respect of, and obligations of such Person to
purchase or otherwise acquire, or otherwise to assure a creditor against loss in
respect of, indebtedness or obligations of other Persons (excluding any
obligations of any Subsidiary of the Company) of the kind referred to in clauses
(i) through (v) above; provided that the term guarantee shall not include
endorsements for collection or deposit in the ordinary course of business or
obligations under or related to cable television franchises, pole attachment
agreements, leases, or other similar agreements or licenses entered into in
connection with the day-to-day operations of a cable television system. The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations or liabilities as
described in the foregoing sentence and shall be the amount that would appear as
a liability on the balance sheet of such Person prepared in accordance with
generally accepted accounting principles.
- 6 -
<PAGE>
"Initiating Member" means the Member that elects pursuant to Section
9.1(a) to commence the process described in Article 9.
"Insight" means Insight Communications Company, L.P., a Delaware
limited partnership, or any other Person that succeeds to its Membership
Interest and is admitted as a Member in accordance with the provisions of this
Agreement, provided that to the extent Insight transfers less than all of its
Membership Interest to any other Person(s) and such Person(s) is/are admitted as
a Member in accordance with the provisions of this Agreement, "Insight" shall
refer to Insight and such other Person(s) collectively.
"Insight Credit Agreement" means the Third Amended and Restated Credit
Agreement by and among Insight, the lenders party thereto, CIBC Inc., and Fleet
Bank, N.A., as Co-Agents, and The Bank of New York, as Issuing Bank and as
Agent, dated as of January 22, 1998, as such agreement may be amended from time
to time in accordance with its terms.
"Internet Backbone" means a network which: (i) can or does (A) assign
IP addresses or manage IP address assignments for machines or networks to which
it is connected, (B) accept or deliver IP datagrams from machines or networks to
which it is connected, or (C) maintain IP packet traffic to other machines or
networks; and (ii) provides IP connectivity on a regional, national or
international basis; provided, however, that such a network which provides
connectivity solely within a single metropolitan area shall not be deemed an
Internet Backbone.
"Internet Backbone Service" means a communications service provided
over an Internet Backbone.
"Internet Service" means a communications service provided over a
network which can or does (i) assign IP addresses or manage IP address
assignments for machines or networks to which it is connected, (ii) accept or
deliver IP datagrams from machines or networks to which it is connected, or
(iii) maintain IP package traffic to other machines or networks.
"IP" means the Internet Protocols as defined by the document titled
RFC-791, by John Pastell of the University of Southern California, dated 1981,
or subsequent revisions thereof.
"Lien" has the meaning specified in the Contribution Agreement.
"Management Agreement" means the Management Agreement attached as
Exhibit A to this Agreement, to be dated the date of the Closing, between the
Company and Insight (or its designated Affiliate), as it may be amended from
time to time in accordance with its terms.
"Management Committee" means the Management Committee established by
Article 7.
- 7 -
<PAGE>
"Management Incentive Plan" means the Management Incentive Plan to be
effective as of the date of Closing, as it may be amended from time to time in
accordance with its terms and the provisions of this Agreement.
"Managing Member" means Insight, and any new Managing Member appointed
as successor to Insight in accordance with the provisions of this Agreement.
"Member" means each of the signatories hereto in their respective
capacities as members of the Company, and any additional Person that is admitted
as a Member in accordance with the provisions of this Agreement.
"Member Nonrecourse Debt" has the meaning set forth in Treasury
Regulations Section 1.704-2(b)(4), which generally defines "Member Nonrecourse
Debt" as any Company liability to the extent such liability is nonrecourse and a
Member (or related Person) bears the economic risk of loss pursuant to Treasury
Regulations Section 1.752-2.
"Member Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulations Section 1.704-2(i)(2), which generally defines "Member
Nonrecourse Debt Minimum Gain" as the Company Minimum Gain attributable to
Member Nonrecourse Debt. The amount of Member Nonrecourse Debt Minimum Gain
shall be determined in accordance with Treasury Regulations Section
1.704-2(i)(3).
"Member Nonrecourse Deductions" means losses, deductions, or Code
Section 705(a)(2)(B) expenditures attributable to Member Nonrecourse Debt. The
amount of Member Nonrecourse Deductions shall be determined pursuant to Treasury
Regulations Section 1.704- 2(i)(2), which provides generally that the amount of
Member Nonrecourse Deductions for a Fiscal Year shall equal the net increase, if
any, in Member Nonrecourse Debt Minimum Gain during that Fiscal Year, reduced
(but not below zero) by the proceeds of Member Nonrecourse Debt distributed
during the Fiscal Year to the Member bearing the economic risk of loss for such
Member Nonrecourse Debt that are both attributable to such Member Nonrecourse
Debt and allocable to an increase in Member Nonrecourse Debt Minimum Gain.
"Membership Interest" means the entire ownership interest of a Member
in the Company at any particular time, including all of its rights and
obligations hereunder and under the Act.
"Net Profit and Net Loss" means for each Fiscal Year or other period,
an amount equal to the Company's taxable income or loss for such Fiscal Year or
other period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss, or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
- 8 -
<PAGE>
(i) Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Net Profit or Net
Loss shall be added to such taxable income or loss;
(ii) Code Section 705(a)(2)(B) expenditures of the Company
that are not otherwise taken into account in computing Net Profit or Net Loss
shall be subtracted from such taxable income or loss;
(iii) If the Gross Asset Value of any asset of the Company is
adjusted pursuant to paragraph (ii) or (iii) of the definition of Gross Asset
Value, the amount of such adjustment shall be taken into account as gain or loss
from the disposition of such asset for purposes of computing Net Profit or Net
Loss;
(iv) Gain or loss resulting from any disposition of property
of the Company with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset Value of
the property disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year or other
period;
(vi) Notwithstanding anything to the contrary in the
definition of the terms "Net Profit" and "Net Loss," any items that are
specially allocated pursuant to Section 4.3 of this Agreement shall not be taken
into account in computing Net Profit or Net Loss; and
(vii) For purposes of this Agreement, any deduction for a loss
on a sale or exchange of property of the Company that is disallowed to the
Company under Code Section 267(a)(1) or Code Section 707(b) shall be treated as
a Code Section 705(a)(2)(B) expenditure.
"Non-Initiating Member" means TCI, if Insight is the Initiating Member,
and Insight, if TCI is the Initiating Member.
"Nonrecourse Deductions" means losses, deductions, or Code Section
705(a)(2)(B) expenditures attributable to Company Nonrecourse Liabilities. The
amount of Nonrecourse Deductions shall be determined pursuant to Treasury
Regulations Section 1.704-2(c), which provides generally that the amount of
Nonrecourse Deductions for a Fiscal Year shall equal the net increase, if any,
in Company Minimum Gain during that Fiscal Year, reduced (but not below zero) by
the aggregate distributions made during that Fiscal Year of proceeds of a
Nonrecourse Liability that are allocable to an increase in Company Minimum Gain.
"Nonrecourse Liability" has the meaning set forth in Treasury
Regulations Section 1.752- 1(a)(2).
- 9 -
<PAGE>
"Operating Cash Flow" means, for any Person, for any period, an amount
equal to (i) the net income (or loss) of such Person (exclusive of any
non-recurring items and any extraordinary gain or loss and of any gain or loss
realized in such period upon an Asset Disposition), plus (ii) the sum of
depreciation, amortization, income tax expense (other than income tax expense
(either positive or negative) attributable to extraordinary or nonrecurring
gains or losses or sales of assets), interest expense, management fees paid or
payable under the Management Agreement or otherwise, the fees paid or payable to
SSI under the Programming Supply Agreement and other non-cash charges, in each
case to the extent deducted in determining such net income, all as determined on
a consolidated basis in accordance with generally accepted accounting principles
consistently applied.
"Operating Cash Flow Ratio" means, for the Company, on any applicable
date, the ratio of (i) the aggregate amount of Indebtedness of the Company and
its Subsidiaries on a consolidated basis on such date to (ii) four times the
Operating Cash Flow of the Company and its Subsidiaries on a consolidated basis
for the most recent fiscal quarter for which financial information in respect
thereof is available immediately prior to such date. In making the foregoing
calculation, (1) pro forma effect shall be given to any Asset Acquisition or
Asset Disposition to the extent that either the outstanding Indebtedness
incurred in connection therewith or income or loss generated therefrom were not
included for the whole period in computing the Operating Cash Flow Ratio and (2)
Operating Cash Flow shall be adjusted to give effect to any pro forma cost
reductions arising out of any such Asset Acquisition or Asset Disposition, in
such amount as Insight shall reasonably and in good faith determine.
"Ownership Restriction" means any provision of the Communications Act
of 1934, as amended, or any other law subsequently enacted, or any rule,
regulation, or policy of the FCC promulgated thereunder restricting the
ownership and control of communications properties (including cable television
systems, television broadcast stations, radio broadcast stations, telephone
companies, and newspapers), including those relating to multiple ownership,
cross-ownership and cross-interest, as those terms are commonly understood in
the communications industry.
"Percentage Interest" means initially, with respect to each Member, the
respective percentage specified on Schedule II hereto, subject to any
adjustments made in accordance with the provisions of this Agreement.
"Permitted Lien" has the meaning specified in the Contribution
Agreement.
"Person" means an individual, partnership, joint venture, association,
corporation, trust, estate, limited liability company, limited liability
partnership, or any other legal entity.
"Programming Agreement" means the Programming Supply Agreement
contemplated to be entered into on or before the Closing by the Company and SSI,
as it may be amended from time to time in accordance with its terms.
- 10 -
<PAGE>
"Representative" means each of the individuals appointed by the Members
pursuant to Article 7 to serve as a representative of the appointing Member on
the Management Committee.
"Securities Act" means the Securities Act of 1933, as amended.
"Sprint PCS Partnership Agreement" means the Amended and Restated
Agreement of Limited Partnership of Sprint Spectrum Holding Company L.P.
(formerly known as MajorCo., L.P.), dated January 31, 1996, among Sprint
Enterprises, L.P. (formerly known as Sprint Spectrum, L.P.), TCI Network
Services, Comcast Telephony Services and Cox Telephony Partnership, as such
agreement is in effect on the date hereof.
"SSI" means Satellite Services, Inc., a Delaware corporation and an
indirect wholly-owned subsidiary of Tele-Communications, Inc.
"Subsidiary" means, at any time, any Person that is controlled by the
Company at such time.
"Tax Amount" means, subject to the last sentence of this definition,
the sum of Insight's tax liabilities for the current Fiscal Year and all
previous Fiscal Years. For this purpose, Insight's tax liability for any Fiscal
Year shall be the greater of Insight's "Regular Tax Liability" or its "AMT
Liability" for such Fiscal Year. "Regular Tax Liability" for a Fiscal Year shall
be determined separately for ordinary income and each character of capital gain
income to which separate federal income tax rates may apply, and for each such
type of income shall be computed as the product of (i) the excess of (A) the
aggregate amount of taxable income (if any) allocated to Insight with respect to
the Company in such Fiscal Year over (B) the aggregate amount of taxable losses
(if any) allocated to Insight with respect to the Company for all prior Fiscal
Years since the beginning of the Company and not previously taken into account
for purposes of computing Insight's Tax Amount, and (ii) the highest marginal
combined federal, state and local tax rate (taking into account the provisions
of Section 68 of the Tax Code) imposed on an individual resident in New York
City for income of such type. Insight's "AMT Liability" for a Fiscal Year shall
be computed as the product of (x) the aggregate amount of alternative minimum
taxable income (if any) allocated to Insight with respect to the Company in such
Fiscal Year (less any alternative minimum tax losses allocated to Insight with
respect to the Company for all prior Fiscal Years since the beginning of the
Company and not previously taken into account for purposes of computing
Insight's Tax Amount) and (y) the highest marginal combined federal, state and
local tax rate imposed on the alternative minimum taxable income of an
individual resident in New York City (taking into account the lack of
deductibility for state and local taxes under the federal alternative minimum
tax).
"TCI" means TCI of Indiana Holdings, LLC, a Colorado limited liability
company, or any other Person that succeeds to its Membership Interest and is
admitted as a Member in accordance with the provisions of this Agreement,
provided that to the extent TCI transfers less than all of its Membership
Interest to any other Person(s) and such Person(s) is/are admitted as a Member
in accordance with the provisions of this Agreement, "TCI" shall refer to TCI
and such other Person(s) collectively.
- 11 -
<PAGE>
"TCI Cable Parent" means TCI Internet Services, Inc., TCI NET, Inc.,
TCI Communications, Inc. and TCI Cable Investments, Inc., individually and
collectively as the context requires.
"TCI Systems" means (i) the cable television systems contributed to the
Company by TCI and (ii) any cable television system acquired by the Company upon
the disposition of a TCI System or an exchange of a TCI System (including an
acquisition by the Company using the proceeds of any disposition of a TCI
System).
"Transferee" means any Person (other than a Successor) that acquires a
Membership Interest from a Member in accordance with the provisions of this
Agreement.
"Treasury Regulations" means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"Voting Stock" means ownership interests in a Person of any class or
kind ordinarily giving the holder the power to vote for the election of
directors, managers, or other members of the governing body of such Person or
(as may be the case with general partnership interests in a partnership) giving
the holder the power to exercise rights typically exercised by directors of a
corporation.
1.2 Terms Defined Elsewhere in this Agreement.
For purposes of this Agreement, the following terms have the meanings
set forth in the sections indicated:
Term Section
- ---- -------
Alternative Structure Section 9.3
Competitive Activities Section 10.2(a)
Exit Notice Section 9.1(a)
Fair Market Value of the Company Section 9.8(b)
Formal Determination Section 10.3(b)
Indemnified Persons Section 12.1
Initial Election Notice Section 9.3
Liquidator Section 11.2(b)
Parents' Agreement Section 10.2(b)
Regulatory Allocations Section 4.3(i)
Secretary Section 5.5(b)
- 12 -
<PAGE>
Term Section
- ---- -------
Stated Value of the Company Section 9.1(a)
Successor Section 8.1(b)(2)
Transfer Section 8.1(a)
Withholding Advance Section 4.1(c)(2)
1.3 Terms Generally.
The definitions in Section 1.1 and elsewhere in this Agreement shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context requires, any pronoun includes the corresponding masculine,
feminine, and neuter forms. The words "include," "includes," and "including" are
not limiting. Any reference in this Agreement to a "day" or number of "days"
(without the explicit qualification of "Business") shall be interpreted as a
reference to a calendar day or number of calendar days. If any action or notice
is to be taken or given on or by a particular calendar day, and such calendar
day is not a Business Day, then such action or notice shall be deferred until,
or may be taken or given on, the next Business Day.
ARTICLE 2
FORMATION AND PURPOSE
2.1 Formation.
The Members hereby form the Company as a limited liability company
pursuant to the Act. The rights and liabilities of the Members shall be
determined pursuant to the Act and this Agreement. To the extent that the rights
or obligations of either Member are different by reason of any provision of this
Agreement than they would be in the absence of such provision, this Agreement
shall, to the extent permitted by the Act, control.
2.2 Name.
(a) The name of the Company is Insight Communications of
Indiana, LLC. Except as provided in Section 2.2(b), the business of the Company
may be conducted under that name or, upon compliance with applicable laws, any
other name that the Management Committee deems appropriate or advisable. The
Company shall file any assumed name certificates and similar filings, and any
amendments thereto, that the Management Committee considers appropriate or
advisable. Such names and any trade or service names, marks, emblems or logos
used by the Company shall be exclusive property of the Company and no Person
shall have any right to use, and each Member agrees not to use, any of said
names, marks, emblems or logos other than on behalf of the Company (other than
any of the foregoing that incorporates the name "Insight" or any variant
- 13 -
<PAGE>
thereof, which shall remain the exclusive property of Insight and may be used by
Insight without limitation).
(b) The Company shall not conduct business under the name
"TeleCommunications, Inc.," "TCI," or any variation thereof without the approval
of TCI, except that any asset contributed to the Company by TCI may continue to
bear any name borne by such asset at the time of its contribution to the Company
for a period of 120 days after its contribution. The parties agree that
"Communications" is not a variation of "Tele-Communications, Inc." for purposes
of this Section 2.2(b).
2.3 Principal and Registered Office.
The office required to be maintained by the Company in the State of
Delaware pursuant to Section 18-104 of the Act shall initially be located at
1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The resident
agent of the Company pursuant to Section 18-104 of the Act shall initially be
The Corporation Trust Company. The Company may, upon compliance with the
applicable provisions of the Act, change its principal office or resident agent
from time to time in the discretion of the Management Committee. The principal
office of the Company shall be located at 126 E. 56th Street, New York, New York
10022, or at such other place as the Management Committee shall from time to
time designate by written notice to the Members. The Company may conduct
business at such additional places as the Management Committee shall deem
advisable.
2.4 Term.
The term of the Company shall commence on the date of the filing of the
Certificate of Formation with the Secretary of State of Delaware, and shall
continue until the date that is twelve years from the date of the Closing,
unless sooner terminated as provided in this Agreement.
2.5 Purposes of Company.
Subject to Sections 2.6, 10.1, 10.2, 10.4 and 16.1, the purposes of the
Company are:
(a) to engage in the business, directly or indirectly through
interests in one or more Subsidiaries, of acquiring, developing, owning,
operating, managing, and selling the cable television systems in the State of
Indiana and in the Commonwealth of Kentucky and other assets to be contributed
to the Company by the Members pursuant to the Contribution Agreement;
(b) to acquire, develop, own, operate, manage, and sell
additional cable television systems in the State of Indiana and the Commonwealth
of Kentucky and such other States as the Managing Member may determine (subject
to the provisions of Section 7.6(m));
(c) to acquire, develop, own, operate, manage, and sell, or
invest in, businesses related to and ancillary to the ownership and operation of
the cable television systems referred to
- 14 -
<PAGE>
above (including, but not limited to, high speed data service, Internet access,
telephony services and other telephony-related investments or businesses, and
video wireless services and wireless communications services and other
wireless-related investments or businesses but not including multipoint
distribution systems ("MDS"), multichannel multipoint distribution systems
("MMDS"), direct-to-home satellite systems ("DTH") or Internet Backbone
Services), it being agreed that the use of IP technology to provide telephone,
fax, video, video conferencing, telecommuting, virtual private networks,
security and energy management services to subscribers of the Company's cable
television systems does not constitute engaging in an Internet Backbone Service
and, subject to Section 16.1(b), is within the purposes of the Company;
(d) to conduct other businesses as determined by mutual
agreement of the Members;
(e) in connection with the businesses described in Section
2.5(a)-(d), to possess, transfer, mortgage, pledge, or otherwise deal in, and to
exercise all rights, powers, privileges, and other incidents of ownership or
possession with respect to securities or other assets held or owned by the
Company, and to hold securities or assets in the name of a nominee or nominees;
(f) in connection with the businesses described in Section
2.5(a)-(d), to borrow or raise money, and from time to time to issue, accept,
endorse, and execute promissory notes, loan agreements, options, stock purchase
agreements, contracts, documents, checks, drafts, bills of exchange, warrants,
bonds, debentures, and other negotiable or non-negotiable instruments and
evidences of indebtedness, and to secure the payment of any thereof and of the
interest thereon by mortgage upon or pledge, conveyance, or assignment in trust
of, the whole or any part of the property of the Company whether at the time
owned or thereafter acquired and to guarantee the obligations of others and to
sell, pledge, or otherwise dispose of such bonds or other obligations of the
Company for its purposes;
(g) in connection with the businesses described in Section
2.5(a)-(d), to guarantee the obligations of others in connection with the
purchase or acquisition by the Company of securities or assets;
(h) to maintain an office or offices in such place or places
as the Management Committee shall determine and in connection therewith to rent
or acquire office space, engage personnel, and do such other acts and things as
may be necessary or advisable in connection with the maintenance of such office,
and on behalf of and in the name of the Company to pay and incur reasonable
expenses and obligations for legal, accounting, investment advisory,
consultative and custodial services, and other reasonable expenses including
taxes, travel, insurance, rent, supplies, interest, salaries and wages of
employees, and all other reasonable costs and expenses incident to the operation
of the Company;
- 15 -
<PAGE>
(i) to form and own one or more corporations, trusts,
partnerships or other entities (but no entity so formed or owned, while it is a
Subsidiary, may do what the Company is prohibited by this Agreement from doing);
and
(j) to own, lease, or otherwise acquire any and all assets and
services related to the foregoing purposes and to engage in such other
activities related either directly or indirectly to the foregoing purposes as
may be necessary, advisable, or appropriate, in the opinion of the Management
Committee, for the promotion or conduct of the business of the Company.
2.6 Actions of Company Prior to Closing.
Notwithstanding any other provisions hereof, until the Closing, the
sole activities of the Company shall be efforts to obtain the consents and
approvals required under the Contribution Agreement and to otherwise take
actions in accordance with the terms of the Contribution Agreement to consummate
the transactions contemplated thereby. Until the Closing shall occur, there
shall be no Management Committee and all actions undertaken by or on behalf of
the Company must be executed by authorized signatories of the Managing Member
and TCI; provided that actions to be taken by the Company prior to Closing will
be taken in accordance with the terms of the Contribution Agreement and the
Managing Member and TCI shall take such actions and execute such documents as
reasonably necessary to carry out such terms.
2.7 Certificate of Formation.
The Managing Member shall cause the Certificate of Formation to be
filed with the Secretary of State of Delaware and shall cause the Certificate of
Formation to be filed or recorded in any other public office where filing or
recording is required or is deemed by the Management Committee to be advisable.
2.8 Addresses of the Members.
The respective addresses of the Members are set forth on Schedule I.
2.9 Foreign Qualification.
The Managing Member shall take all necessary actions to cause the
Company to be authorized to conduct business legally in all appropriate
jurisdictions, including registration or qualification of the Company as a
foreign limited liability company in those jurisdictions that provide for
registration or qualification and the filing of a certificate of limited
liability company in the appropriate public offices of those jurisdictions that
do not provide for registration or qualification.
- 16 -
<PAGE>
2.10 Tax Classification.
Notwithstanding any other provision of this Agreement, no Member or
employee of the Company may take any action (including the filing of a U.S.
Treasury Form 8832 Entity Classification Election) that would cause the Company
to be characterized as an entity other than a partnership for federal income tax
purposes without the affirmative unanimous consent of the Members. A
determination of whether any action will have the effect described in the
preceding sentence will be based upon a declaratory judgement or similar relief
obtained from a court of competent jurisdiction, a favorable ruling from the
Internal Revenue Service, or the receipt of an opinion of counsel reasonably
satisfactory to the Members.
ARTICLE 3
COMPANY CAPITAL
3.1 Contributions.
(a) Contributions at Formation. Simultaneously with the
execution of this Agreement, the Members shall each contribute to the Company
the capital contributions specified in Schedule II hereto.
(b) Contributions at Closing. At the Closing, and pursuant to
the terms of the Contribution Agreement:
(1) TCI will contribute or cause to be
contributed to the Company, free and clear of all Liens (other than Permitted
Liens), the assets specified in Section 2.1 of the Contribution Agreement; and
(2) Insight will contribute or cause to be
contributed to the Company, free and clear of all Liens (other than Permitted
Liens), the assets specified in Section 2.1 of the Contribution Agreement.
(c) Fair Market Value of Contributions; Capital Account
Balances, Applicable Percentages. Schedule II sets forth (1) the aggregate gross
fair market value of all assets as a group to be contributed to the Company by
Insight and TCI, respectively, pursuant to Section 3.1(b); (2) the Capital
Accounts of each Member immediately after the Closing; and (3) the Percentage
Interest of each Member immediately after the Closing.
(d) Determining Fair Market Value of Contributed Assets.
Except as otherwise agreed to between the Members, the fair market value of any
asset contributed by a Member to the Company shall be determined for purposes of
this Agreement as follows:
- 17 -
<PAGE>
(1) For purposes of this Agreement, other than
under Article 9 and other than with respect to the assets contributed by the
Members pursuant to Sections 3.1(a) and (b), which shall have the value
specified in this Agreement, the fair market value of an asset shall be that
value agreed to by the Management Committee by unanimous vote within ten days
after any party having an interest in the determination of such value requests
such determination.
(2) In the event the Management Committee is
unable to agree on a value during such ten-day period, fair market value shall
be determined within 20 days thereafter by an investment banker mutually
selected within five days of the end of such ten-day period by the parties in
interest and such determination shall be conclusive and binding on all such
parties. Each such party shall pay its pro rata portion of the expenses of the
investment banker. If the investment banker is only able to provide a range in
which fair market value would exist, fair market value shall be the average
value of the highest and lowest values of such range.
3.2 Additional Capital Contributions.
There shall be no further assessments for additional Capital
Contributions by the Members to the Company, provided that this section shall
not in any way limit either Member's obligations pursuant to the Contribution
Agreement to make any payment to the Company required thereunder.
3.3 Assumption of Liabilities.
In accordance with the terms and conditions of the Contribution
Agreement, the Company will, at the Closing, assume and undertake to pay,
discharge, and perform those obligations and liabilities of TCI, Insight, and
their respective Affiliates that are specified in Section 4.1 of the
Contribution Agreement.
3.4 Return of Contributions.
Neither Member shall have the right to demand a return of all or any
part of its Capital Contribution during the term of the Company, and any return
of the Capital Contribution of either Member shall be made solely from the
assets of the Company and only in accordance with the terms of this Agreement.
No interest shall be paid to either Member with respect to its Capital
Contribution to the Company.
ARTICLE 4
DISTRIBUTIONS; ALLOCATIONS OF PROFIT AND LOSS
4.1 Distributions of Cash.
(a) Amount and Timing of Distributions.
- 18 -
<PAGE>
(1) The Company shall, with respect to each
Fiscal Year (other than the fiscal quarter in which the Company is liquidated),
distribute to Insight, (i) at least 10 days prior to each quarterly due date for
individual estimated tax payments for the Fiscal Year, an amount equal to the
estimated Tax Amount for Insight for such quarter, computed on an annualized
basis and prorated for the cumulative number of months in the Fiscal Year that
have passed as of the end of the quarter for which such estimated Tax Amount is
being computed; and (ii) not later than 90 days after the end of such Fiscal
Year an aggregate amount equal to the Tax Amount for Insight for such Fiscal
Year (to the extent not previously distributed to Insight pursuant to the
preceding clause (i) with respect to such Fiscal Year). For purposes of making
the computation in Section 4.1(a)(1)(i) for the first, second, and third
quarters of each Fiscal Year, such computation shall be based upon the Company's
estimated taxable income for the first three, five and eight months of the
Fiscal Year, respectively. The Company shall make a pro rata distribution to TCI
in proportion to the Members' relative Percentage Interests in respect of each
distribution to Insight pursuant to the preceding sentence.
(2) No cash of the Company not required to be
distributed pursuant to Section 4.1(a)(1) or Section 11.2(d)(3) shall be
distributed except as the Members may approve pursuant to Section 7.6(p).
(b) Allocation of Distributions. All distributions of cash
pursuant to Section 4.1(a), Section 11.2(d)(3) or otherwise approved by the
Members shall be made to the Members in proportion to their Percentage
Interests.
(c) Tax Withholding.
(1) The Company shall seek to qualify for and
obtain exemptions from any provision of the Code or any provision of state,
local, or foreign tax law that would otherwise require the Company to withhold
amounts from payments or distributions to the Members. If the Company does not
obtain any such exemption, the Company is authorized to withhold from any
payment or distribution to either Member any amounts that are required to be
withheld pursuant to the Code or any provision of any state, local, or foreign
tax law that is binding on the Company.
(2) Any amount withheld with respect to any
payment or distribution to either Member shall be credited against the amount of
the payment or distribution to which the Member would otherwise be entitled. If
the Code or any provision of any state, local, or foreign tax law that is
binding on the Company requires that the Company remit to any taxing authority
any withholding tax with respect to, or for the account of, either Member in its
capacity as a Member, the Company shall, to the extent that Company funds are
available therefor, remit the full required amount of such withholding tax to
the taxing authority and shall notify such Member in writing of its obligation
to pay to the Company such withholding tax to the extent it exceeds the amount
of any payment or distribution to which such Member would otherwise then be
entitled. Each Member shall pay to the Company, within five Business Days after
its receipt of written notice from the Company that withholding is required with
respect to such Member, any amounts required to be
- 19 -
<PAGE>
remitted by the Company to any taxing authority with respect to such Member that
are in excess of the amount of any payment or distribution to which such Member
would otherwise be entitled. If the Company is required to remit any withholding
tax with respect to, or for the account of, either Member prior to the Company's
receipt of any payment required to be made by such Member pursuant to the
preceding sentence, the amount of the payment required to be made by such Member
shall be treated as a loan (the "Withholding Advance") from the Company to the
Member, which shall accrue interest from the date the Company is required to
remit such withholding tax until paid by such Member or credited against
payments or distributions to which such Member would otherwise be entitled as
provided in Section 4.1(c)(3) at a rate of fifteen percent per year, compounded
semi-annually.
(3) Any Withholding Advance made to a Member and
any interest accrued thereon shall be credited against, and shall be offset by,
the amount of any later payment or distribution to which the Member would
otherwise be entitled (without duplication of the credit provided in the first
sentence of Section 4.1(c)(2)), with any credit for accrued and unpaid interest
as of the date such payment or distribution would otherwise have been made being
applied before any credit for the amount of the Withholding Advance. Any
Withholding Advance made to a Member and any interest accrued thereon, to the
extent it has not previously been paid by the Member in cash or fully credited
against payments or distributions to which the Member would otherwise be
entitled, shall be paid by the Member to the Company upon the earliest of (A)
the dissolution of the Company, (B) the date on which the Member ceases to be a
Member of the Company, or (C) demand for payment by the Company.
(4) All amounts that are credited against
payments or distributions to which a Member would otherwise be entitled pursuant
to this Section 4.1(c) shall be treated as amounts distributed to such Member
pursuant to Section 4.1(a) for all purposes of this Agreement.
4.2 Allocations of Net Profit and Net Loss.
(a) Allocations of Net Profit and Net Loss. Except as provided
in Section 4.2(b), Net Profit and Net Loss for each Fiscal Year (or portion
thereof) shall be allocated between the Members in proportion to their
Percentage Interests.
(b) Allocations of Net Profit and Net Loss Following
Dissolution. Notwithstanding Section 4.2(a), following the dissolution of the
Company pursuant to Section 11.1, beginning in the Fiscal Year in which such
dissolution occurs or beginning in any Fiscal Year prior to the Fiscal Year in
which such dissolution occurs if the Company's Federal income tax return for
such prior Fiscal Year has not yet been required to be filed (not including
extensions), items of income and gain, loss, and deduction shall be allocated
between the Members so as to cause the credit balances in the Members' Capital
Accounts to be in proportion to their Percentage Interests.
- 20 -
<PAGE>
4.3 Special Provisions Regarding Allocations of Profit and Loss.
(a) Minimum Gain Chargeback. Notwithstanding any other
provision of this Article 4, if there is a net decrease in Company Minimum Gain
for any Fiscal Year, each Member shall be specially allocated items of Company
income and gain for such Fiscal Year (and if necessary for succeeding Fiscal
Years) in an amount equal to such Member's share of the net decrease in Company
Minimum Gain, determined in accordance with Treasury Regulations Section
1.704-2(g); provided, however, that this Section 4.3(a) shall not apply to the
extent the circumstances described in Treasury Regulations Sections
1.704-2(f)(2), 1.704-2(f)(3), 1.704- 2(f)(4), or 1.704-2(f)(5) exist.
Allocations made pursuant to the preceding sentence shall be made in proportion
to the respective amounts required to be allocated to each Member pursuant
thereto. The items of Company income and gain to be allocated pursuant to this
Section 4.3(a) shall be determined in accordance with Treasury Regulations
Section 1.704-2(f)(6). This Section 4.3(a) is intended to comply with the
minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(f)
and shall be interpreted consistently therewith.
(b) Member Minimum Gain Chargeback. Notwithstanding any other
provision of this Article 4 except Section 4.3(a), if during any Fiscal Year
there is a net decrease in Member Nonrecourse Debt Minimum Gain, each Member
with a share of that Member Nonrecourse Debt Minimum Gain (determined in
accordance with Treasury Regulations Section 1.704-2(i)(5)) as of the beginning
of such Fiscal Year must be allocated items of Company income and gain for the
Fiscal Year (and, if necessary, for succeeding Fiscal Years) equal to that
Member's share of the net decrease in the Member Nonrecourse Debt Minimum Gain
(determined in accordance with Treasury Regulations Section 1.704-2(i)(4));
provided, however, that this Section 4.3(b) shall not apply to the extent the
circumstances described in the third and fifth sentences of Treasury Regulations
Section 1.704-2(i)(4) exist. Allocations pursuant to the preceding sentence
shall be made in proportion to the respective amounts required to be allocated
to each Member pursuant thereto. The items of Company income and gain to be
allocated pursuant to this Section 4.3(b) shall be determined in accordance with
Treasury Regulations Section 1.704-2(i)(4). This Section 4.3(b) is intended to
comply with the minimum gain chargeback requirement in Treasury Regulations
Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
(c) Qualified Income Offset. If a Member unexpectedly receives
any adjustments, allocations, or distributions described in Treasury Regulations
Sections 1.704- 1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be specially
allocated to such Member in an amount and manner sufficient to eliminate, to the
extent required by the Treasury Regulations, the Adjusted Capital Account
Deficit of such Member as quickly as possible; provided, however, that an
allocation pursuant to this Section 4.3(c) shall be made if and only to the
extent that such Member would have an Adjusted Capital Account Deficit after all
other allocations provided for in this Article 4 have been tentatively made as
if this Section 4.3(c) were not in this Agreement. Allocations made pursuant to
the preceding sentence shall be made in proportion to the respective amounts
required to be allocated to each Member pursuant thereto.
- 21 -
<PAGE>
(d) Gross Income Allocation. If a Member has a deficit Capital
Account at the end of any Fiscal Year that is in excess of the sum of (1) the
amount such Member is obligated to restore to the Company pursuant to Treasury
Regulations Section 1.704-1(b)(2)(ii)(c), (2) the amount such Member is deemed
to be obligated to restore pursuant to the penultimate sentence of Treasury
Regulations Section 1.704-2(g)(1), and (3) the amount such Member is deemed to
be obligated to restore pursuant to the penultimate sentence of Treasury
Regulations Section 1.704-2(i)(5), such Member shall be specially allocated
items of Company income and gain in the amount of such excess as quickly as
possible; provided, however, that an allocation pursuant to this Section 4.3(d)
shall be made if and only to the extent that such Member would have a deficit
Capital Account in excess of such sum after all other allocations provided for
in this Article 4 have been tentatively made as if Section 4.3(c) and this
Section 4.3(d) were not in this Agreement. Allocations made pursuant to the
preceding sentence shall be made in proportion to the respective amounts
required to be allocated to each Member pursuant thereto.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any
Fiscal Year or other period shall be specially allocated between the Members in
proportion to their Percentage Interests.
(f) Member Nonrecourse Deductions. Any Member Nonrecourse
Deductions for any Fiscal Year or other period shall be specially allocated to
the Member that bears the economic risk of loss with respect to the Member
Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in
accordance with Treasury Regulations Section 1.704- 2(i).
(g) Section 754 Adjustment. To the extent any adjustment to
the adjusted tax basis of any asset of the Company pursuant to Code Section
734(b) or Code Section 743(b) is required, pursuant to Treasury Regulations
Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment shall be treated as an item of gain (if
the adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such gain or loss shall be specially allocated to the
Members in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such section of the Treasury
Regulations.
(h) Excess Nonrecourse Liabilities. For purposes of
determining a Member's proportionate share of the "excess nonrecourse
liabilities" of the Company within the meaning of Treasury Regulations Section
1.752-3(a)(3), each Member's interest in Company profits shall be deemed to be
equal to such Member's Percentage Interest.
(i) Curative Allocations. The allocations set forth in this
Article 4 (other than Section 4.3(g), Section 4.3(h), and this Section 4.3(i))
(the "Regulatory Allocations") are intended to comply with certain requirements
of the Treasury Regulations. The Members intend that, to the extent possible,
all Regulatory Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of Company income, gain,
loss, or deduction pursuant to
- 22 -
<PAGE>
this Section 4.3(i). Therefore, notwithstanding any other provision of this
Article 4 (other than the Regulatory Allocations), offsetting special
allocations of Company income, gain, loss, or deduction shall be made so that,
after such offsetting allocations are made, each Member's Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Member would have had if the Regulatory Allocations were not part of this
Agreement and all Company items were allocated pursuant to Section 4.2. In
making such offsetting special allocations, future Regulatory Allocations under
Section 4.3(a) and Section 4.3(b) that, although not yet made, are likely to
offset Regulatory Allocations made under Section 4.3(e) and Section 4.3(f),
shall be taken into account.
4.4 Tax Allocations: Code Section 704(c).
(a) In accordance with Code Section 704(c) and the Treasury
Regulations thereunder, income, gain, loss, and deduction with respect to any
property contributed to the capital of the Company shall, solely for tax
purposes, be allocated between the Members so as to take account of any
variation between the adjusted basis of such property to the Company for federal
income tax purposes and its initial Gross Asset Value using the traditional
allocation method described in Treasury Regulations Section 1.704-3(b).
(b) If the Gross Asset Value of any asset of the Company is
adjusted pursuant to paragraph (ii) of the definition of Gross Asset Value,
subsequent allocations of income, gain, loss, and deduction with respect to such
asset shall take account of any variation between the adjusted basis of such
asset for federal income tax purposes and its Gross Asset Value in the same
manner as under Code Section 704(c) and the Treasury Regulations thereunder.
(c) Allocations pursuant to this Section 4.4 are solely for
purposes of federal, state, and local taxes and shall not affect, or in any way
be taken into account in computing, either Member's Capital Account or share of
Net Profit, Net Loss, other items, or distributions pursuant to any provision of
this Agreement.
4.5 Allocation in Event of Transfer.
If an interest in the Company is transferred in accordance with Article
8 or 9 of this Agreement, the Net Profit and Net Loss of the Company and each
item thereof, and all other items attributable to the transferred interest for
such Fiscal Year, shall be divided and allocated between the transferor and the
transferee pursuant to the interim closing of the Company books method set forth
in Treasury Regulation Section 1.706-1(c)(2)(ii) unless the parties otherwise
agree. This Section shall apply for purposes of computing a Member's Capital
Account and for federal income tax purposes.
4.6 Alternative Allocations.
The Management Committee is authorized and directed to allocate items
of income, gain, loss, or deduction arising in any Fiscal Year differently from
the manner that is otherwise provided
- 23 -
<PAGE>
for in this Agreement if, and to the extent that, the Management Committee
believes that the allocation of items of income, gain, loss, or deduction in the
manner otherwise provided for in this Agreement would cause the credit balances
in the Members' Capital Accounts not to be in proportion to their Percentage
Interests immediately prior to any distributions pursuant to Section 11.2(d)(3)
if the Company were dissolved and terminated on the last day of such Fiscal
Year. Any allocation that is made pursuant to this Section 4.6 shall be deemed
to be a complete substitute for any allocation that is otherwise provided for in
this Agreement and no amendment to this Agreement shall be required.
ARTICLE 5
AUTHORITY OF THE MANAGING MEMBER; OTHER
MATTERS AFFECTING MANAGING MEMBER
5.1 Authority of Managing Member.
The Managing Member agrees that, except for the designation and removal
of Representatives by the Managing Member pursuant to Section 7.2 hereof, or as
otherwise expressly provided herein (including as provided in Section 2.6) or in
the Management Agreement, the Managing Member acting alone shall not give any
consent on any matter or take any other action as the Managing Member,
including, without limitation, acting on behalf of or binding the Company with
respect to any matter in respect of which approval by the Management Committee
or the Members is required by the provisions of this Agreement or the Act,
unless such consent, matter or other action shall first have been adopted or
approved by the Management Committee or the Members, as the case may be, in
accordance with the provisions of this Agreement or the Act as applicable.
5.2 No Personal Liability.
The Managing Member shall not have any personal liability for the
repayment of the Capital Contributions of any other Member; provided that the
Managing Member shall promptly return to the Company or to the Member or Members
entitled thereto any distributions received by the Managing Member in excess of
those to which the Managing Member is entitled under this Agreement.
5.3 Management Agreement.
The Company and Insight (or its designated Affiliate) shall enter into
the Management Agreement effective as of the Closing. Insight shall be entitled
to the payments and reimbursements set forth therein.
- 24 -
<PAGE>
5.4 Resignation as Managing Member.
(a) Insight may not resign as the Managing Member without the
consent of TCI (subject to the rights of transfer set forth elsewhere in this
Agreement and it being understood that no transfer permitted by the terms of
this Agreement shall be deemed to be a resignation for any purpose), other than
upon the dissolution and winding up of the Company in accordance with the
provisions of Article 11. If TCI consents to such resignation, the Company shall
dissolve in accordance with the provisions of Article 11 unless, within ninety
days after the resignation of Insight as the Managing Member:
(1) TCI and Insight elect to continue the
business of the Company and TCI elects, effective as of the date of the
resignation of Insight as the Managing Member, to become the new Managing
Member; or
(2) TCI and Insight elect to continue the
business of the Company, TCI elects not to become the new Managing Member, and
TCI and Insight agree to the appointment, effective as of the date of the
resignation of Insight as the Managing Member, of one or more new Managing
Members.
For purposes of this Agreement, the term "resignation" does
not include the happening of any event described in Section 18-304(a) or (b) of
the Act, and no Member shall cease to be a Member solely upon the happening of
such event(s); provided, that upon the happening of any such event that results
in the appointment of a trustee, receiver or liquidator of the Member or of all
or substantially all of such Member's properties and the loss by the Member of
its management authority with respect to all or substantially all of its
properties, then (x) all Representatives of the affected Member shall be deemed
to have resigned from the Management Committee and such Member shall have no
further right to designate any Representatives; and (y) no consent of such
Member or its Representatives required under any provision of this Agreement
shall any longer be required and the other Member shall be entitled to grant all
such consents and take all actions relating to the Company and its business.
(b) If the Company is continued pursuant to Section 5.4(a)
following the resignation of Insight as the Managing Member, Insight shall
continue to be a Member of the Company, but not a Managing Member, and TCI shall
have the right to appoint three Representatives to the Management Committee and
Insight shall have the right to appoint two Representatives to the Management
Committee, provided that any such change in the identity of the Managing Member
and the composition of the Management Committee shall be subject to and
conditioned upon receipt of all necessary governmental approvals and other
material third party consents. The resignation of Insight as the Managing Member
shall not alter the allocations and distributions to be made to the Members
pursuant to this Agreement.
(c) Without limiting any other rights or remedies that the
Company or TCI may have at law or in equity, upon any resignation by Insight as
the Managing Member in violation of
- 25 -
<PAGE>
this Agreement (it being understood and agreed that no transfer permitted by the
terms of this Agreement shall be deemed to be a resignation for any purpose),
then, notwithstanding any other provision of this Agreement to the contrary (1)
all representatives of the Managing Member shall be deemed to have resigned from
the Management Committee and the Managing Member shall have no further right to
designate any representatives; and (2) no consent of the Managing Member or its
representatives required under any provision of this Agreement shall any longer
be required and TCI shall be entitled to grant all such consents and take all
actions relating to the Company and its business.
5.5 Tax Matters Member.
(a) The Managing Member is hereby designated as the Tax
Matters Member of the Company, as provided in Treasury Regulations pursuant to
Code Section 6231 and analogous provisions of state law. Each Member, by the
execution of this Agreement, consents to such designation of the Tax Matters
Member and agrees to execute, certify, acknowledge, deliver, swear to, file, and
record at the appropriate public offices such documents as may be necessary or
appropriate to evidence such consent.
(b) To the extent and in the manner provided by applicable law
and Treasury Regulations, the Tax Matters Member shall furnish the name,
address, profits interest, and taxpayer identification number of each Member and
any Transferee to the Secretary of the Treasury or his delegate (the
"Secretary").
(c) The Tax Matters Member shall notify each Member of any
audit that is brought to the attention of the Tax Matters Member by notice from
the Internal Revenue Service, and shall forward to each Member copies of any
written notices, correspondence, reports, or other documents received by the Tax
Matters Member in connection with such audit within ten Business Days following
its notification by the Internal Revenue Service or its receipt, as the case may
be. The Tax Matters Member shall provide TCI with reasonable advance notice of
administrative proceedings with the Internal Revenue Service, including any
closing conference with the examiner and any appeals conference.
(d) The Tax Matters Member shall give the Members written
notice of its intent to initiate judicial review, file a request for
administrative adjustment on behalf of the Company, extend the period of
limitations for making assessments of any tax against a Member with respect to
any Company item, or enter into any agreement with the Internal Revenue Service
that would result in the settlement of any alleged tax deficiency or other tax
matter, or to any adjustment of taxable income or loss or any item included
therein, affecting the Company or any Member. The Tax Matters Member shall not
take any such action if TCI elects within thirty days after its receipt of the
Tax Matters Member's notice to require that the Tax Matters Member refrain from
taking such action.
- 26 -
<PAGE>
(e) Subject to the foregoing provisions of this Section 5.5,
the Tax Matters Member is hereby authorized, but not required:
(1) to enter into any settlement with the
Internal Revenue Service or the Secretary with respect to any tax audit or
judicial review, in which agreement the Tax Matters Member may expressly state
that such agreement shall bind the other Members, except that such settlement
agreement shall not bind either Member that (within the time prescribed pursuant
to the Code and Treasury Regulations thereunder) files a statement with the
Secretary providing that the Tax Matters Member shall not have the authority to
enter into a settlement agreement on the behalf of such Member;
(2) if a notice of a final administrative
adjustment at the Company level of any item required to be taken into account by
a Member for tax purposes (a "final adjustment") is mailed to the Tax Matters
Member, to seek judicial review of such final adjustment, including the filing
of a petition for readjustment with the Tax Court, the District Court of the
United States for the district in which the Company's principal place of
business is located, or elsewhere as allowed by law, or the United States Claims
Court;
(3) to intervene in any action brought by any
other Member for judicial review of a final adjustment;
(4) to file a request for an administrative
adjustment with the Secretary at any time and, if any part of such request is
not allowed by the Secretary, to file a petition for judicial review with
respect to such request;
(5) to enter into an agreement with the Internal
Revenue Service to extend the period for assessing any tax that is attributable
to any item required to be taken into account by a Member for tax purposes, or
an item affected by such item; and
(6) to take any other action on behalf of the
Members (with respect to the Company) or the Company in connection with any
administrative or judicial tax proceeding to the extent permitted by applicable
law or Treasury Regulations.
(f) The Company shall indemnify and reimburse the Tax Matters
Member for all expenses (including legal and accounting fees) incurred pursuant
to this Section 5.5 in connection with any administrative or judicial proceeding
with respect to the tax liability of the Members. The payment of all such
reasonable expenses shall be made before any distributions are made to the
Members. The taking of any action and the incurring of any expense by the Tax
Matters Member in connection with any such proceeding, except to the extent
provided herein or required by law, is a matter in the sole discretion of the
Tax Matters Member and the provisions on limitations of liability of the
Managing Member and indemnification set forth in Article 12 shall be fully
applicable to Insight in its capacity as the Tax Matters Member.
- 27 -
<PAGE>
(g) Any Member that receives a notice of an administrative
proceeding under Code Section 6233 relating to the Company shall promptly notify
the Tax Matters Member of the treatment of any Company item on such Member's
federal income tax return that is or may be inconsistent with the treatment of
that item on the Company's return.
(h) Either Member that enters into a settlement agreement with
the Secretary with respect to any Company item shall notify the Tax Matters
Member of such agreement and its terms within thirty days after its date, and
the Tax Matters Member shall notify the other Members of the settlement
agreement within thirty days of such notification.
ARTICLE 6
STATUS OF MEMBERS
6.1 No Management and Control.
Except as expressly provided in this Agreement, no Member (other than
the Managing Member) shall take part in or interfere in any manner with the
control, conduct, or operation of the Company or have any right or authority to
act for or bind the Company or to vote on matters relating to the Company.
6.2 Limited Liability.
No Member shall be bound by or personally liable for the expenses,
liabilities, or obligations of the Company. In no event shall any Member be
required to make up a deficiency in its Capital Account upon the dissolution and
termination of the Company.
6.3 Return of Distributions of Capital.
A Member may, under certain circumstances, be required by law to return
to the Company, for the benefit of the Company's creditors, amounts previously
distributed. No Member shall be obligated by this Agreement to pay those
distributions to or for the account of the Company or any creditor of the
Company. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, a Member must return or pay
over any part of those distributions, the obligation shall be that of such
Member alone and not of any other Member. Any payment returned to the Company by
a Member or made directly by a Member to a creditor of the Company shall be
deemed a Capital Contribution by such Member.
6.4 Specific Limitations.
No Member shall have the right or power to: (a) (i) resign as a Member
(subject to the rights of transfer set forth elsewhere in this Agreement and
subject to Section 5.4(a) with respect to the Managing Member) or (ii) reduce
its Capital Contribution except as a result of the dissolution of the
- 28 -
<PAGE>
Company or as otherwise provided by law, (b) bring an action for partition
against the Company or any assets of the Company, (c) cause the termination and
dissolution of the Company, except as set forth in this Agreement, or (d) demand
or receive property other than cash in return for its Capital Contribution.
Except as otherwise set forth in this Agreement or in any agreement permitted to
be entered into under this Agreement with respect to the purchase, redemption,
retirement, or other acquisition of Membership Interests, no Member shall have
priority over any other Member either as to the return of its Capital
Contribution or as to Net Profit, Net Loss, or distributions. Other than upon
the termination and dissolution of the Company as provided by this Agreement,
there has been no time agreed upon when the Capital Contribution of any Member
will be returned.
ARTICLE 7
MANAGEMENT OF THE COMPANY
7.1 Management Committee Powers.
(a) Except as otherwise expressly provided for herein
(including as provided in Section 2.6 and Section 5.1) or in the Management
Agreement, the business of the Company shall be managed by the Management
Committee pursuant to the provisions of this Agreement. The Management Committee
shall have exclusive authority and full discretion with respect to the
management of the business of the Company, subject to the provisions of the
Management Agreement; provided, however, any power of the Management Committee
may also be exercised by the unanimous action of the Members.
(b) All decisions of the Management Committee shall be by
resolution duly adopted in accordance with the provisions of this Agreement. The
Management Committee may delegate such general or specific authority to the
Managing Member and the officers of the Company as it from time to time
considers desirable, and the Managing Member and the officers of the Company may
exercise the authority granted to them, subject to any restraints or limitations
imposed by the Management Committee and the provisions of Sections 7.5 and 7.6
and any other express provisions of this Agreement. The authority granted to the
Managing Member pursuant to the Management Agreement shall be deemed a
delegation of authority by the Management Committee pursuant to this Section.
7.2 Appointment and Removal of Representatives.
(a) The Management Committee shall consist of five
Representatives, three Representatives to be appointed by Insight and two
Representatives to be appointed by TCI. The initial Representatives are
specified in Schedule III. The Chairman and Secretary of the Management
Committee shall be chosen by the Management Committee.
- 29 -
<PAGE>
(b) Each Member shall use its good faith efforts to designate
its Representatives as promptly as is reasonably practicable so that the
Committee shall at all times contain the number of Representatives provided for
in Section 7.2(a).
(c) Either Member may at any time, by written notice to the
other Member, remove its Representatives, with or without cause, and substitute
Representatives to serve in their stead. No Representative shall be removed from
office, with or without cause, without the consent of the Member that designated
him.
(d) If any Representative is unwilling or unable to serve as
such or is removed from office by the Member that designated him, before the
transaction of any other business by the Management Committee, such Member shall
designate a successor to such Representative.
(e) The written notice of the Member appointing a
Representative shall in each case set forth such Representative's business
address and business telephone number.
(f) Each Member shall promptly give written notice to the
other Member of any change in the business address or business telephone number
of any of its Representatives.
(g) No compensation of, or expenses incurred by, the
Representatives incident to their duties and responsibilities as such under this
Agreement shall be paid by, or charged to, the Company.
7.3 Meetings of the Management Committee.
The Management Committee shall hold one regular meeting each quarter at
such time and place as shall be determined by the Management Committee. Special
meetings of the Management Committee may be called at any time by any
Representative upon not less than three Business Days' prior notice. Except as
otherwise determined by the Management Committee, all special and regular
meetings of the Management Committee shall be held at the principal office of
the Company.
7.4 Procedural Matters.
(a) Each Representative shall have one vote in all matters
presented to the Management Committee for decision or approval. At all meetings
of the Management Committee, except as otherwise expressly provided for in this
Agreement, the affirmative vote of a majority of the Representatives, present at
such meeting in person or by proxy, shall be required for all actions and
decisions of the Management Committee. If a majority of the Representatives are
not present in person or represented by proxy at any meeting, the
Representatives present may adjourn the meeting from time to time, without
notice other than an announcement at the meeting, until a majority of the
Representatives shall be present or represented.
- 30 -
<PAGE>
(b) Unless waived in writing by all of the Representatives
(before or after a meeting) at least three Business Days' prior notice of any
meeting shall be given to each Representative. Such notice shall state the
purpose for which such meeting has been called.
(c) Each Representative entitled to vote at a meeting of the
Management Committee or to express consent to any action in writing without a
meeting or to express consent to any action pursuant to any other provision of
this Agreement may authorize another Representative or Person to act for him by
proxy. To be effective such proxy shall be presented at the meeting at which
such proxy is to be used or shall be presented with the writing pursuant to
which any action is taken or consent is given pursuant to such proxy, but no
proxy shall be valid after a period of three years from its date, unless the
proxy provides for a longer period.
(d) Any action required or permitted to be taken by the
Management Committee may be taken without a meeting if the number of
Representatives required hereunder to consent to such action, consent in writing
to such action. Such consent shall have the same effect as a vote of the
Management Committee. Prompt notice of any written action taken without the
consent of all Representatives shall be given to all non-consenting
Representatives following the taking of such action. Members of the Management
Committee shall have the right to participate in a meeting of the Management
Committee by means of a conference telephone or similar communications equipment
by means of which all Representatives participating in the meeting can hear each
other and be heard, and such participation shall constitute presence in person
at the meeting.
(e) The Management Committee shall cause to be kept a book of
minutes of all of its meetings in which there shall be recorded the time and
place of each such meeting, whether regular or special, and if special, by whom
called, the notice thereof given, the names of those present, and the
proceedings thereof.
7.5 Matters Requiring TCI Approval.
Notwithstanding any provision in this Agreement to the contrary, and in
addition to any other consent or approval that may be required by the express
terms of this Agreement, without the consent of TCI, which may be withheld by
TCI in its sole discretion, the Company shall not take, and the Management
Committee shall have no authority to cause the Company to, or cause or permit
any Subsidiary to, consummate an Asset Disposition if such Asset Disposition
would result in the allocation of income or gain to TCI pursuant to Section 4.4
and Code Section 704(c), except upon the liquidation and dissolution of the
Company in accordance with Articles 9 and 11; provided, however, that the
limitations of this paragraph shall not apply to any pledging of assets by any
Person to secure any Indebtedness of such Person permitted by this Agreement or
to any disposition of assets upon the exercise of any rights granted by such a
pledge.
- 31 -
<PAGE>
7.6 Matters Requiring Insight and TCI Approval.
Notwithstanding any provision in this Agreement to the contrary, and in
addition to any other consent or approval that may be required by the express
terms of this Agreement, the Company shall not take, and the Management
Committee shall have no authority to cause the Company to take, or cause or
permit any Subsidiary to take, any of the following actions without the consent
of Insight and TCI:
(a) incur any Indebtedness, or consummate any Asset
Acquisition, such that immediately after the incurrence of such Indebtedness or
consummation of such Asset Acquisition, the Company's Operating Cash Flow Ratio
would exceed 7.0 to 1; or
(b) consummate one or more Asset Dispositions, in any
consecutive twelve month period, having an aggregate value in excess of
$25,000,000, except upon the liquidation and dissolution of the Company in
accordance with Articles 9 and 11; provided, however, that the limitations of
this paragraph shall not apply to any pledging of assets by any Person to secure
any Indebtedness of such Person permitted by this Agreement, or to any
disposition of assets upon the exercise of any rights granted by such a pledge;
or
(c) merge with or consolidate into any Person or become a
party to any recapitalization or other form of reorganization, or cause or
permit any Subsidiary to merge with or consolidate into any Person or become a
party to any recapitalization or other form of reorganization (except that, with
approval of the Management Committee and without the separate consent of each of
Insight and TCI, (1) a Subsidiary may merge with another Subsidiary or with the
Company and the Company may merge with a Subsidiary; and (2) a Subsidiary may
merge with a Person other than a Subsidiary as a means of effecting any
acquisition or disposition of assets that is otherwise permitted by this
Agreement); or
(d) enter into any transaction with either Member or any
Affiliate of either Member unless the transaction is in the ordinary course of
the Company's business, is on terms that are no less favorable to the Company
than could have been obtained in a comparable arm's- length transaction with a
Person that is not a Member or an Affiliate of either Member, and contemplates
payments to or by the Company in any twelve month period not in excess of
$500,000, individually or in the aggregate (provided that (1) the Management
Agreement in the form attached hereto is hereby approved, and (2) transactions
described in the Contribution Agreement or in this Agreement, including without
limitation the transactions contemplated by Section 16.1(b) hereof, under the
circumstances specified therein or herein, and in accordance with the terms
provided therein or herein, are hereby approved), or enter into any transaction
with either Member or any Affiliate of either Member pursuant to which such
Member or any Affiliate of such Member would be authorized or permitted to use
the Company's cable television system distribution facilities in connection with
such Member engaging in any business (other than through the Company) that is
ancillary to the ownership or operation of cable television systems, including,
without limitation, those businesses described in Section 2.5(c); or
- 32 -
<PAGE>
(e) elect to continue the business of the Company beyond
its initial 12 year term; or
(f) select a new Managing Member of the Company pursuant
to Section 5.4(b)(2); or
(g) liquidate or dissolve except in accordance with
Articles 9 and 11; or
(h) issue any Membership Interest or other equity interest in
the Company, or any option, warrant or other debt or equity interest convertible
into or evidencing the right to acquire (whether for not for additional
consideration) any Membership Interest or other equity interest in the Company,
except pursuant to the Management Incentive Plan; or
(i) admit any additional Members to the Company except in
accordance with Article 8; or
(j) convert the Company to corporate form or to any other
form or change the partnership tax classification of the Company; or
(k) commence any bankruptcy or insolvency proceeding,
acquiesce in the appointment of a receiver, trustee, custodian or liquidator or
admit to the material allegations of a petition filed against the Company in any
bankruptcy proceeding; or
(l) commence, institute, settle or release any claim or
lawsuit (or series of related claims and/or lawsuits) on behalf of the Company,
or the confession of a judgment against the Company or either Member in
connection with its relationship with the Company, for any amount in excess of
$3,000,000 or involving the potential granting of equitable relief that, if
granted, would have a material adverse effect on the business of the Company
(except that (1) the Management Committee may, without the separate consent of
each of Insight and TCI, cause the Company to take action pursuant to Section
7.19 of the Contribution Agreement subject to the terms and conditions thereof,
and (2) notwithstanding any other provision in this Agreement to the contrary,
TCI may, without the separate consent of Insight or Insight's Representatives,
cause the Company to make a good faith claim against Insight pursuant to the
indemnification provisions of the Contribution Agreement or against Insight
pursuant to the Management Agreement, and Insight may, without the separate
consent of TCI or TCI's Representatives, cause the Company to make a good faith
claim against TCI pursuant to the indemnification provisions of the Contribution
Agreement); or
(m) (1) engage in any line of business not described in
Section 2.5 or (2) acquire, operate or manage cable television systems or
otherwise conduct business (A) in any State other than the State of Indiana;
provided that the Company's operation in those portions of the Commonwealth of
Kentucky that are served (at the time of formation of the Company or thereafter)
by the cable television systems initially contributed to the Company by the
Members pursuant to Section 3.1(b)
- 33 -
<PAGE>
shall not require any additional approval of the Members, or (B) in the
geographic portion of the State of Indiana that is located above the bold line
drawn on the map of the State of Indiana attached hereto as Schedule IV unless
in either case any such systems or businesses that relate to any other State or
to such geographic portion of the State of Indiana that is located above the
bold line drawn on such map were acquired in a transaction or series of
transactions in which any such systems or businesses did not constitute more
than twenty percent of the total assets (as determined by cash flow, the number
of subscribers or such other reasonable method, as determined by the Managing
Member in its reasonable discretion) acquired in such transaction or series of
transactions;
(n) make a call for additional Capital Contributions (other
than the Capital Contributions to be made pursuant to Sections 3.1(a) and (b));
or
(o) purchase, redeem, retire, or otherwise acquire any
Membership Interests or other equity interest in the Company, except for the
purchase, redemption, retirement, or other acquisition of any equity interest
where the terms of such interest, as approved in accordance with this Section
7.6, permit or require such purchase, redemption, retirement, or other
acquisition; or
(p) make any distribution to the Members other than
distributions permitted pursuant to Section 4.1(a)(1) or required by Section
11.2(d)(3);
(q) amend the Management Incentive Plan; or
(r) enter into, conduct, engage in or participate in the
business of providing or engaging in any Internet Backbone Service, or obtain or
acquire any record or beneficial equity interest in any Person which conducts,
engages in or participates in any Internet Backbone Service, it being agreed
that the use of IP technology to provide telephone, fax, video, video
conferencing, telecommuting, virtual private networks, security and energy
management services to subscribers of the Company's cable television systems
does not constitute such conducting, engaging in, or participating in an
Internet Backbone Service and does not, subject to Section 16.1(b), require the
consent or approval of the Members pursuant to this Section 7.6(r).
7.7 Member Consent Defined.
For purposes of this Agreement, including Sections 7.5 and 7.6, Insight
or TCI, as the case may be, shall be deemed to have approved any action or
proposed action by or on behalf of the Managing Member, the Company, or any
Subsidiary if: (A) Insight or TCI, as the case may be, has affirmatively
approved the taking of such action in writing or (B) all of the acting
Representatives appointed by Insight or TCI, as the case may be, have
affirmatively approved the taking of such action in person or in writing.
Insight and TCI may approve any such action or proposed action by either method
described in clauses (A) and (B).
- 34 -
<PAGE>
ARTICLE 8
TRANSFER OF MEMBERSHIP INTERESTS
8.1 Limitations on Transfers.
(a) Except as provided in Section 8.1(b) and 8.1(c), neither
Member may sell, assign, transfer or otherwise dispose of, or pledge,
hypothecate or otherwise encumber (any or all of the foregoing, a "Transfer")
all or any part of its Membership Interest, the profits, losses and
distributions therefrom, or any part thereof (whether voluntarily, involuntarily
or by operation of law) unless approved by the other Member, which consent shall
not be unreasonably withheld or delayed. Notwithstanding the approval of the
non-transferring Member to any Transfer by a Member, the rights of any
Transferee shall be subject at all times to the limitations set forth in Section
8.2.
(b) The restrictions of Section 8.1(a) shall not apply and no
consent of the other Member shall be required for:
(1) a Transfer pursuant to Article 9; or
(2) a Transfer to an Affiliate of such Member
(a "Successor") so long as (A) such Transfer would not hinder or impair
consummation of any of the transactions contemplated by Article 9; (B) such
Successor, prior to such sale or transfer, becomes a party to this Agreement and
agrees to be bound by the terms and conditions hereof; and (C) in the case of a
Transfer by TCI, TCI Communications, Inc. holds and maintains, directly or
indirectly, an economic ownership in such Affiliate equal to at least 50.1% of
the economic interest in such Affiliate following such Transfer and has and
maintains, directly or indirectly, voting control of such Affiliate following
such Transfer; or
(3) a Transfer pursuant to Section 8.7.
(c) If Insight desires to effect a Transfer that is not
permitted by the terms of this Section 8.1 except with the approval of TCI, and
if TCI grants such approval upon Insight's request, TCI shall have the right,
effective upon the Transfer by Insight, to become the Managing Member and to
appoint three Representatives to the Management Committee, and the transferee of
Insight shall have the right to appoint two Representatives to the Management
Committee, provided that any such change in the identity of the Managing Member
and the composition of the Management Committee shall be subject to and
conditioned upon receipt of all necessary governmental approvals and other
material third party consents. TCI shall exercise such right, if at all, by
giving written notice to Insight at the same time TCI grants its approval to the
Transfer by Insight. If TCI exercises such right, the transferee of Insight,
upon becoming a Member, shall not be a Managing Member, and the allocations and
distributions to be made to the Members pursuant to this Agreement shall not be
altered.
- 35 -
<PAGE>
(d) Notwithstanding anything in this Agreement to the
contrary, without the consent of the other Member, neither Member shall effect,
or agree to effect, any Transfer that will adversely affect or change, or is
reasonably likely to adversely affect or change, the partnership tax
classification of the Company.
8.2 Transferees and Successors.
(a) Notwithstanding any provision to the contrary contained
herein, no Membership Interest may be transferred unless the Transferee or
Successor becomes a party to this Agreement, assumes all of the obligations
hereunder of its transferor and agrees to be bound by the terms and conditions
hereof in the same manner as the transferor. Upon becoming a party to this
Agreement in compliance with the terms hereof, except as otherwise provided
herein, any Transferee or Successor shall be substituted fully for, and shall
enjoy the same rights and be subject to the same obligations as, its predecessor
as a Member and/or a Managing Member hereunder as the case may be.
(b) If there is a permitted Transfer of a Membership Interest
under this Agreement:
(1) A Transferee's or Successor's Percentage
Interest shall equal the Percentage Interest transferred to it by the
transferring Member;
(2) A Transferee's or Successor's Capital
Account shall initially be equal to the Capital Account balance transferred to
it by the transferring Member;
(3) If requested to do so by any transferring
Member or by the Transferee or Successor by notice given to the Members, the
Company shall make an election under Section 754 of the Code (and a
corresponding election under applicable state and local law). Upon the request
of either Member, the Company shall also make a timely election under Section
754 of the Code upon a distribution of property or money to a Member.
8.3 Transfers of Interests in Members.
(a) Except as provided in Section 8.3(b), TCI Communications,
Inc. agrees that it will not Transfer (whether voluntarily, involuntarily or by
operation of law) all or any part of its direct or indirect ownership interests
in TCI, without the consent of Insight.
(b) The restriction of Section 8.3(a) shall not apply and no
consent of Insight shall be required for a Transfer directly or indirectly by
TCI Communications, Inc. to an Affiliate of TCI Communications, Inc. so long as
(1) such Transfer would not hinder or impair consummation of any of the
transactions contemplated by Article 9; (2) such transferee, prior to such sale
or transfer, becomes a party to this Agreement and agrees to be bound by the
terms and conditions hereof; and
- 36 -
<PAGE>
(3) TCI Communications, Inc. holds and maintains, directly or indirectly, an
economic ownership in such Affiliate equal to at least 50.1% of the economic
interest in such Affiliate following such Transfer and has and maintains,
directly or indirectly, voting control of such Affiliate following such
Transfer.
(c) It is understood and agreed that nothing in this Section
8.3 shall be deemed to require any consent of Insight to any proposed or actual
transfer of control (however such transfer is effected, by sale of stock or
assets, merger or consolidation or otherwise) of TeleCommunications, Inc. or TCI
Communications, Inc. or to any proposed or actual distribution to the
stockholders of Tele-Communications, Inc. of direct or indirect equity interests
in TeleCommunications, Inc.
(d) It is understood and agreed that nothing in this Agreement
shall be deemed to require any consent of TCI to any proposed or actual transfer
of control (however such transfer is effected, by sale of stock or assets,
merger or consolidation or otherwise) of Insight, provided, however, in the
event of such a transfer of control, TCI shall have the right, effective upon
such transfer, to become the Managing Member and to appoint three
Representatives to the Management Committee, and Insight shall have the right to
appoint two Representatives to the Management Committee, provided that any such
change in the identity of the Managing Member and the composition of the
Management Committee shall be subject to and conditioned upon receipt of all
necessary governmental approvals and other material third party consents. TCI
shall exercise such right, if at all, by giving written notice to Insight within
ten Business Days of TCI's receipt of notice that such a transfer of control is
contemplated. If TCI exercises such right, Insight, effective upon such transfer
of control, shall no longer be a Managing Member, and the allocations and
distributions to be made to the Members pursuant to this Agreement shall not be
altered.
(e) By executing this Agreement, TCI Communications, Inc.
represents and warrants to Insight and the Company that as of the date of this
Agreement it owns, directly or indirectly, all of the outstanding equity
interests in TCI.
8.4 Other Consents and Requirements.
Any Transfer must be in compliance with all requirements imposed by any
state securities administrator having jurisdiction over the Transfer and the
United States Securities and Exchange Commission and must not cause the Company
or any Subsidiary to be in violation of any Ownership Restriction.
8.5 Assignment Not In Compliance.
Any Transfer in contravention of any of the provisions of this Article
8 (whether voluntarily, involuntarily or by operation of law) shall be void and
of no effect, and shall neither bind nor be recognized by the Company.
- 37 -
<PAGE>
8.6 Division of Membership Interests.
The several rights and obligations inherent in the Capital Account and
Percentage Interest attributable to a Member's Membership Interest are
indivisible except in equal proportions, such that the assignment of a specified
percentage of a Member's Membership Interest may only represent an equal
percentage of the total Capital Account and Percentage Interest that were
attributable to such Member's Membership Interest prior to the assignment.
8.7 Pledge of Membership Interests.
At the request of the Management Committee, each Member agrees to
pledge its Membership Interest to secure any Indebtedness of the Company that is
permitted under this Agreement, on terms determined by the Management Committee,
so long as all Members are required to pledge their Membership Interests and the
terms of the pledge do not impose any personal liability on any Member. In
negotiating the terms of any such pledge, the Management Committee will require
that the secured party agree to enforce its rights against the Membership
Interests of the Members proportionately (based on the Percentage Interest of
each Member). If the secured party under any such pledge enforces its rights
against the Membership Interests of the Members other than proportionately, the
Members will afford each other such rights of contribution and indemnity as are
necessary to cause all liabilities, losses, and damages suffered by the Members
as a result of the exercise by the secured party of its rights under such pledge
to be borne by the Members proportionately.
8.8 Code Section 708(b)(1)(B).
(a) If a Transfer by a Member of all or any portion of its
Membership Interest (other than a Transfer pursuant to Article 9) results in a
termination of the Company pursuant to Section 708(b)(1)(B) of the Code, the
transferring Member will indemnify the other Member for any additional income
tax paid by such other Member as a result of such termination (including income
tax attributable to Code Section 704(c) allocations), whether required to be
paid in or for the taxable year in which such termination occurs or in or for
any subsequent taxable year, as offset by any income tax savings to be realized
by the other Member as a result of such termination (including income tax
savings attributable to Code Section 704(c) allocations), whether realized in or
for the taxable year in which such termination occurs or in or for any
subsequent taxable year.
(b) If a Member desires to assign all or part of its
Membership Interest in a transaction that, if consummated at one time, would
result in the termination of the Company within the meaning of Code Section
708(b)(1)(B), such Member may elect (1) to assign immediately as much of its
Membership Interest as may then be assigned without resulting in the termination
of the Company within the meaning of Code Section 708(b)(1)(B) and (2) to assign
the remaining portion of its Membership Interest that it desires to assign as
soon thereafter as such subsequent assignment would not result in the
termination of the Company within the meaning of Code Section 708(b)(1)(B). If a
Member notifies the other Member that it has elected to assign all or part of
its
- 38 -
<PAGE>
Membership Interest in accordance with this Section 8.8(b) specifying in its
notice the portion of its Membership Interest to be assigned immediately in
accordance with clause (1) of the preceding sentence and the portion of its
Membership Interest to be assigned subsequently in accordance with clause (2) of
the preceding sentence (the assignment of such portion, the "Deferred
Assignment"), then, if the other Member assigns all or any part of its
Membership Interest prior to the Deferred Assignment by the notifying Member and
the Deferred Assignment therefore results in the termination of the Company
within the meaning of Code Section 708(b)(1)(B), the other Member and not the
notifying Member shall be treated as the Member causing such termination for
purposes of Section 8.8(a).
ARTICLE 9
BUY/SELL RIGHTS
9.1 Commencement of Buy/Sell Process.
(a) At any time after the fifth anniversary of the Closing
(subject to Section 9.1(b)), either TCI or Insight may elect to commence the
process described in this Article 9 by giving written notice (the "Exit Notice")
of its election to commence the process described in this Article 9 to the
Non-Initiating Member. The Exit Notice shall also specify the Initiating
Member's determination of the fair market value of all of the assets of the
Company as of the date the Initiating Member delivers the Exit Notice (it being
understood and agreed that to the extent the Company has any Subsidiaries, in
making the determination of the value of the Company, the Subsidiaries shall be
taken into account) (such determination, the "Stated Value of the Company").
(b) A Member may not elect to commence the process
described in this Article 9:
(1) at any time within twelve months of
delivering a prior Exit Notice to the Non-Initiating Member pursuant to Section
9.1(a); or
(2) at any time within six months of the
effectiveness of a valid notice of postponement delivered by either Member
pursuant to Section 9.2; or
(3) at any time following the delivery of an
Exit Notice by the other Member pursuant to Section 9.1(a) and prior to such
time, if any, that (A) the Initiating Member and the Non-Initiating Member agree
to abandon the purchase and sale of Membership Interests commenced by such Exit
Notice pursuant to a subsequent election pursuant to Section 9.1(c), or (B) TCI
elects to terminate (or is deemed to have elected to terminate) the purchase and
sale of Membership Interests commenced by such Exit Notice pursuant to a
subsequent election pursuant to Section 9.3(c)(2) or Section 9.5(b), or (C) the
non-defaulting Member elects to terminate the purchase and sale of Membership
Interests commenced by such Exit Notice pursuant to a subsequent election
pursuant to Section 9.7(a)(3).
- 39 -
<PAGE>
(c) The purchase and sale of Membership Interests pursuant to
this Article 9 may be abandoned at any time following the delivery of an Exit
Notice pursuant to Section 9.1(a) and prior to the closing thereof by agreement
between the Initiating Member and the Non- Initiating Member.
9.2 Non-Initiating Member's Option to Postpone the Buy/Sell Process.
Upon receipt of a valid Exit Notice from the Initiating Member pursuant
to Section 9.1, the Non-Initiating Member may elect, by giving written notice to
the Initiating Member within five Business Days of the Non-Initiating Member's
receipt of such Exit Notice, to postpone for a period of six months the first
date on which either Member may commence the process described in this Article 9
by delivering an Exit Notice, provided that each Member may exercise this option
to postpone only once during the term of the Company. If the Non-Initiating
Member fails to give a timely written notice of its election to postpone
pursuant to the preceding sentence (or if the Non-Initiating Member has already
exercised its one election to postpone), the Non- Initiating Member shall be
deemed not to have made such an election to postpone. A timely and valid
election to postpone by the Non-Initiating Member shall become effective
immediately upon its delivery to the Initiating Member, at which time the
Initiating Member's Exit Notice shall automatically be rescinded and be of no
further force and effect and neither Member shall have any further obligations
in respect of such Exit Notice and such Exit Notice shall not count against the
Initiating Member for purposes of Section 9.1(b)(1).
9.3 TCI's Options as Non-Initiating Member.
If TCI receives an Exit Notice from Insight pursuant to Section 9.1 and
does not make (or is deemed not to have made) an election to postpone pursuant
to Section 9.2, TCI shall elect, by giving written notice (an "Initial Election
Notice") of its election to Insight within ninety days after its receipt of the
Exit Notice, either to (1) purchase Insight's Membership Interest, or (2) sell
its Membership Interest to Insight or to otherwise effect an exit from the
Company pursuant to an Alternative Structure. If TCI makes an election pursuant
to clause (2) of the preceding sentence, TCI's Initial Election Notice shall
also specify whether TCI desires to enter into negotiations with Insight to
restructure the sale of TCI's Membership Interest or its exit from the Company
in a manner that results in tax-deferred or tax-advantaged treatment to TCI (for
example, by the purchase by the Company of assets to distribute to TCI in
redemption of TCI's Membership Interest or the distribution by the Company of
certain of its then existing assets in redemption of TCI's Membership Interest)
(an "Alternative Structure").
(a) Election to Purchase. Upon the timely delivery by TCI of
an Initial Election Notice pursuant to this Section 9.3 specifying its election
to purchase Insight's Membership Interest, Insight shall be obligated to sell
and TCI shall be obligated to purchase, in accordance with this Article 9, all
of Insight's Membership Interest for a cash price equal to the Equity Value of
such Membership Interest. At TCI's option, TCI may designate a financially,
legally and technically
- 40 -
<PAGE>
qualified third party to purchase Insight's Membership Interest, provided that
TCI shall not be relieved of its obligation under this Section 9.3(a) in the
event such third party does not perform.
(b) Election to Sell Without Election to Negotiate Alternative
Structure. Upon the timely delivery by TCI of an Initial Election Notice
pursuant to this Section 9.3 specifying TCI's election to sell its Membership
Interest to Insight without an election by TCI to negotiate an Alternative
Structure, TCI shall be obligated to sell and Insight shall be obligated to
purchase, in accordance with this Article 9, all of TCI's Membership Interest
for a cash price equal to the Equity Value of such Membership Interest.
(c) Election to Sell or Exit With an Election to Negotiate
Alternative Structure. Upon the timely delivery by TCI of an Initial Election
Notice pursuant to this Section 9.3 specifying TCI's election to sell its
Membership Interest to Insight or otherwise effect an exit from the Company and
specifying TCI's election to negotiate an Alternative Structure, the Members
will negotiate in good faith and use commercially reasonable efforts (taking
into account any tax, regulatory, or economic considerations) for a reasonable
period (not to exceed sixty days) to agree on an Alternative Structure.
(1) If the Members agree on an Alternative
Structure within such sixty day period, TCI and Insight shall be obligated to
effect TCI's exit from the Company, in accordance with this Article 9 and the
terms of the Alternative Structure.
(2) If the Members are unable to reach agreement
on an Alternative Structure within such sixty day period, then TCI shall elect,
by giving written notice to Insight within fifteen Business Days of the end of
such sixty day period, either to (1) sell its Membership Interest to Insight, in
which event TCI shall be obligated to sell and Insight shall be obligated to
purchase, in accordance with this Article 9, all of TCI's Membership Interest
for a cash price equal to the Equity Value of such Membership Interest, or (2)
terminate the purchase and sale process commenced pursuant to Insight's Exit
Notice, subject to Section 9.6. If TCI fails to give a timely notice to Insight
pursuant to the preceding sentence, TCI shall be deemed to have made an election
pursuant to clause (2) of the preceding sentence.
(d) Failure to Make a Timely Election. If TCI fails to give an
Initial Election Notice to Insight within ninety days after its receipt of
Insight's Exit Notice, TCI shall be deemed to have made an election pursuant to
either Section 9.3(a), 9.3(b) or 9.3(c) as Insight shall determine in its sole
discretion by giving written notice to TCI within five Business Days after the
end of such ninety day period.
9.4 Insight's Options as Non-Initiating Member.
If Insight receives an Exit Notice from TCI pursuant to Section 9.1 and
does not make (or is deemed not to have made) an election to postpone pursuant
to Section 9.2, Insight shall elect, by giving written notice (an "Initial
Election Notice") of its election to TCI within ninety days after its
- 41 -
<PAGE>
receipt of the Exit Notice, either to (1) sell its Membership Interest to TCI,
or (2) purchase TCI's Membership Interest.
(a) Election to Sell. Upon the timely delivery by Insight of
an Initial Election Notice pursuant to this Section 9.4 specifying its election
to sell its Membership Interest to TCI, Insight shall be obligated to sell and
TCI shall be obligated to purchase, in accordance with this Article 9, all of
Insight's Membership Interest, for an amount in cash equal to the Equity Value
of such Membership Interest.
(b) Election to Purchase. Upon the timely delivery by Insight
of an Initial Election Notice pursuant to this Section 9.4 specifying its
election to purchase TCI's Membership Interest, and upon the failure (or deemed
failure) of TCI to make an election to negotiate an Alternative Structure
pursuant to Section 9.5, TCI shall be obligated to sell and Insight shall be
obligated to purchase, in accordance with this Article 9, all of TCI's
Membership Interest, for an amount in cash equal to the Equity Value of such
Membership Interest.
(c) Failure to Make a Timely Election If Insight fails to give
an Initial Election Notice to TCI within ninety days after its receipt of TCI's
Exit Notice, Insight shall be deemed to have made an election pursuant to either
Section 9.4(a) or 9.4(b) as TCI shall determine in its sole discretion by giving
written notice to Insight within five Business Days after the end of such ninety
day period.
9.5 TCI's Option to Negotiate Alternative Structure.
Upon its receipt of an Initial Election Notice from Insight pursuant to
Section 9.4 specifying Insight's election to purchase TCI's Membership Interest,
TCI may elect, by giving written notice to Insight within fifteen Business Days
of its receipt of Insight's Initial Election Notice, to enter into negotiations
with Insight to agree on an Alternative Structure. If TCI fails to give a timely
notice pursuant to the preceding sentence specifying such an election, TCI shall
be deemed not to have made such an election. Upon TCI's timely delivery of its
election to negotiate an Alternative Structure, the Members will negotiate in
good faith and use commercially reasonable efforts (taking into account any tax,
regulatory, or economic considerations) for a reasonable period (not to exceed
sixty days) to agree on an Alternative Structure.
(a) If the Members agree on an Alternative Structure within
such sixty day period, TCI and Insight shall be obligated to effect TCI's exit
from the Company in accordance with this Article 9 and the terms of the
Alternative Structure.
(b) If the Members are unable to reach agreement on an
Alternative Structure within such sixty day period, then TCI shall elect, by
giving written notice to Insight within fifteen Business Days of the end of such
sixty day period, either to (1) sell its Membership Interest to Insight, in
which event TCI shall be obligated to sell and Insight shall be obligated to
purchase, in accordance with this Article 9, all of TCI's Membership Interest
for a cash price equal to the Equity
- 42 -
<PAGE>
Value of such Membership Interest, or (2) terminate the purchase and sale
process commenced pursuant to Insight's Exit Notice, subject to Section 9.6. If
TCI fails to give a timely notice to Insight pursuant to the preceding sentence,
TCI shall be deemed to have made an election pursuant to clause (2) of the
preceding sentence.
9.6 Insight's Option to Require TCI to Purchase Insight's Membership
Interest.
If TCI elects (or is deemed to have elected) to terminate the purchase
and sale process pursuant to Section 9.3(c)(2) or Section 9.5(b), Insight may
elect, by giving written notice to TCI within five Business Days of Insight's
receipt of TCI's election to terminate (or within five Business Days of TCI's
deemed election to terminate), to require TCI to purchase Insight's Membership
Interest. Upon the timely delivery by Insight of a notice pursuant to the
preceding sentence specifying Insight's election to require TCI to purchase
Insight's Membership Interest, Insight shall be obligated to sell and TCI shall
be obligated to purchase, in accordance with this Article 9, all of Insight's
Membership Interest for a cash price equal to the Equity Value of such
Membership Interest. If Insight fails to make a timely election pursuant to the
first sentence of this Section 9.6, Insight shall be deemed to have agreed to
the termination of the purchase and sale process commenced by the Initiating
Member's Exit Notice.
9.7 Default by Member.
(a) If either Member becomes obligated to purchase the other
Member's Membership Interest under this Article 9 pursuant to an Exit Notice, or
if Insight becomes obligated to effect an Alternative Structure under this
Article 9 pursuant to Section 9.3(c)(1) or Section 9.5(a), and such Member
defaults in its obligation to purchase the selling Member's Membership Interest
on the date specified in Section 9.9(a) for the closing of the purchase and sale
of the selling Member's Membership Interest or Insight defaults in its
obligation to effect an Alternative Structure, then the non-defaulting Member
may elect either:
(1) to purchase the Membership Interest of the
defaulting Member for a cash price equal to 95% of the Equity Value of such
Membership Interest and otherwise on the terms and subject to the conditions set
forth in this Article 9; or
(2) to cause the Company to be liquidated and
dissolved in accordance with Article 11; or
(3) to terminate the buy/sell process commenced
by the Initiating Member's Exit Notice and continue the Company.
(b) The three options that may be elected by the
non-defaulting Member pursuant to Section 9.7(a) are exclusive of each other and
are exclusive of all other rights and remedies that may otherwise have been
available to the non-defaulting Member at law or equity as a result of the
defaulting Member's default.
- 43 -
<PAGE>
(c) The non-defaulting Member may make an election pursuant to
Section 9.7(a) by giving written notice of its election to the defaulting Member
at any time within thirty days after the date specified in Section 9.9(a) for
the closing of the purchase and sale of the non-defaulting Member's Membership
Interest or the date scheduled for closing of an Alternative Structure and prior
to such time, if any, as the defaulting Member stands ready, willing, and able
to purchase the non-defaulting Member's Membership Interest in accordance with
this Article 9 or to consummate the Alternative Structure. If the non-defaulting
Member makes a timely election pursuant to Section 9.7(a)(1), the defaulting
Member shall be obligated to sell and the non-defaulting Member shall be
obligated to purchase, in accordance with this Article 9, all of the defaulting
Member's Membership Interest.
9.8 Removal of Insight as Member.
(a) The provisions of this Section 9.8 shall apply if:
(1) a court of competent jurisdiction finds that
Insight has engaged in conduct while acting as Managing Member that constitutes
either fraud against the Company or TCI or a felony involving moral turpitude
and that such conduct has resulted in material harm to the Company or TCI, and
(2) the finding described in Section 9.8(a)(1)
has not been reversed, stayed, enjoined, set aside, annulled, or suspended, and
is not the subject of any pending request for judicial review, reconsideration,
appeal, or stay, and
(3) the time for filing any further request for
judicial review, reconsideration, appeal, or stay of the finding described in
Section 9.8(a)(1) has expired.
(b) If each of the conditions specified in Section 9.8(a) is
satisfied, then (1) TCI shall have the power to appoint three of the five
Representatives of the Management Committee and the Managing Member shall have
the power to appoint two of the five Representatives; provided, that such change
in composition of the Management Committee shall be subject to and conditioned
upon receipt of all necessary governmental approvals and other material third
party consents and (2) TCI shall have the option to purchase all of the Managing
Member's Membership Interest in accordance with the process described in this
Section 9.8(b) and Section 9.8(c). TCI may elect to commence such process by
giving written notice of its election to Insight within ten Business Days after
the condition specified in Section 9.8(a)(3) is satisfied. Upon Insight's
receipt of TCI's notice pursuant to the preceding sentence, Insight and TCI
shall, within thirty Business Days of such receipt, negotiate in good faith to
determine the fair market value of all of the assets of the Company as of the
date TCI delivers notice to Insight pursuant to the first sentence of this
Section 9.8(b) (it being understood and agreed that to the extent the Company
has any Subsidiaries, in making the determination of the value of the Company,
the Subsidiaries shall be taken into account) (the "Fair Market Value of the
Company").
- 44 -
<PAGE>
(1) If Insight and TCI fail to agree upon the
Fair Market Value of the Company within such period, then each of Insight and
TCI will select a nationally recognized investment banking firm or nationally
recognized qualified appraisal firm who will determine the Fair Market Value of
the Company within sixty days of engagement. If the average of the two
appraisals is within 1.5% of the lower of the appraisals, then the Fair Market
Value of the Company will be the average of the two appraisals. If such average
is not within 1.5% of the lower of the two appraisals, the two appraisers
selected by Insight and TCI will select a third nationally recognized investment
banking firm or a nationally recognized qualified appraisal firm who will
conduct a third appraisal, and the Fair Market Value of the Company will be
equal to the average of the two appraisals that are closest to one another,
provided that if the highest and lowest appraisals are equidistant from the
middle appraisal, then the Fair Market Value of the Company will be equal to the
middle appraisal. Each of Insight and TCI shall have the right to submit to all
appraisers a position paper with respect to valuation. Each of Insight and TCI
will bear the expenses of the firm investment banking firm or appraisal firm
that they select, and if a third investment banking firm or appraisal firm is
used, Insight and TCI will share equally the expenses of the third firm. In
conducting the appraisals, the appraisers shall assume that the value of any
business is the price at which the assets of such business as a going concern
would change hands between a willing buyer and a willing seller, on terms and
subject to conditions and costs applicable in the cable television industry
(and, if and to the extent applicable, any other industry in which the Company
or any of its Subsidiaries is engaged) and otherwise use valuation techniques
then prevailing in the cable television industry or such other industry.
(2) If at the time the Fair Market Value of the
Company is being determined pursuant to this Section 9.8 any Retained Franchises
or Exchange Retained Franchises (as defined in the Contribution Agreement) that
are required to be contributed to the Company have not been contributed to the
Company pursuant to the Contribution Agreement, then the Fair Market Value of
the Company shall be determined and calculated as if such Retained Franchises
and Exchange Retained Franchises were then owned by the Company; and if TCI
purchases Insight's Membership Interest pursuant to this Article 9, all
obligations of Insight under the Contribution Agreement with respect to any such
Retained Franchises that are Insight Retained Franchises (including obligations
to contribute the Exchange Retained Franchises to the Company upon transfer from
TCI) shall survive the removal of Insight from the Company upon the sale of its
Membership Interest subject to any conditions on such obligations.
(c) TCI may elect to purchase all of Insight's Membership
Interest and, upon the consummation of such purchase, to remove Insight as a
Member, by giving written notice of its election to Insight within ten Business
Days after the final determination of the Fair Market Value of the Company. Upon
the timely delivery by TCI of notice pursuant to the preceding sentence
specifying its election to purchase Insight's Membership Interest, Insight shall
be obligated to sell and TCI shall be obligated to purchase, in accordance with
this Article 9, all of Insight's Membership Interest for a cash price equal to
the Equity Value of Insight's Membership Interest. If TCI fails to give a timely
notice to Insight pursuant to the first sentence of this Section 9.8(c)
specifying its
- 45 -
<PAGE>
election to purchase Insight's Membership Interest, TCI shall be deemed to have
made an election not to purchase Insight's Membership Interest pursuant to this
Section 9.8, in which event, subject to Sections 9.8(b) and (d), Insight shall
continue as the Managing Member.
(d) The rights of TCI under this Section 9.8 are in addition
to any other rights and remedies available to TCI at law or equity as a result
of any conduct by Insight described in Section 9.8(a).
9.9 General Terms Applicable to Purchase and Sale of Membership
Interests.
(a) The closing of the purchase and sale of a Member's
Membership Interest or of an Alternative Structure in accordance with this
Article 9 shall occur not later than twenty Business Days after the receipt of
all material governmental consents and approvals required in connection with the
sale of the selling Member's Membership Interest in connection with such
Alternative Structure.
(b) The closing of the purchase and sale of the selling
Member's Membership Interest or of the Alternative Structure in accordance with
this Article 9 shall take place at the principal office of the Company or at any
other location agreed to by Insight and TCI.
(c) At the closing of any purchase and sale of the selling
Member's Membership Interest or of any Alternative Structure pursuant to this
Article 9, the purchasing Member or the Company or other buyer in an Alternative
Structure shall pay or cause to be paid to the selling Member, by cash or other
immediately available funds or any other form of consideration mutually agreed
to by the selling Member and the purchasing Member or the consideration agreed
to as part of the Alternative Structure, the purchase price for the Membership
Interest being purchased and the selling Member shall deliver to the purchasing
Member (or its permitted assignee or the Company or other buyer in an
Alternative Structure) good title, free and clear of any liens (other than those
created by this Agreement and those securing financing obtained by the Company
or any Subsidiary), to the Membership Interest being sold.
(d) With respect to the current assets and liabilities of the
Company, the transaction costs and the reserves to be determined as part of the
Equity Value of the Membership Interest to be sold at the closing pursuant to
this Article 9, such current assets and liabilities, costs and reserves shall be
determined by mutual agreement of Insight and TCI at least five days in advance
of the date scheduled for said closing, but to the extent that as of such date
there is a good faith disagreement between the parties as to any portion of such
current assets, liabilities, costs or reserves the parties shall proceed to
closing of such purchase and sale, with closing based on matters not in dispute.
Thereafter, all matters in dispute shall be immediately referred to an
independent public accountant mutually acceptable to Insight and TCI who shall
make such determination as promptly as practicable and whose determination shall
be final and binding upon the parties. If the accountant determines that either
party is entitled to payment from the other party, the party which owes such
payment shall make it to the entitled party in cash (or in the same form of
consideration
- 46 -
<PAGE>
as is being paid in such transaction if the parties have agreed to an
Alternative Structure) in accordance with the accountant's determination.
(e) The Members will cooperate in good faith and use their
respective commercially reasonable efforts to obtain as quickly as practicable
all governmental consents and approvals required in connection with the purchase
and sale of a Member's Membership Interest or an Alternative Structure pursuant
to this Article 9.
(f) From and after the closing, the purchasing Member will be
entitled to indemnification from the selling Member (or another creditworthy
entity reasonably acceptable to the purchasing Member) against any liabilities
of the selling Member as a Member (including without limitation, tax liabilities
of the selling Member for periods prior to the closing) for periods prior to
closing not taken into account in determining the Equity Value of the Membership
Interest purchased by the purchasing Member. The other indemnification
obligations of the selling Member to the purchasing Member shall be
substantially equivalent to its indemnification obligations to the Company
pursuant to the Contribution Agreement. On the date that is one year after the
closing under this Article 9, the selling Member shall be entitled to its
distributable share of any reserves set up pursuant to Section 11.2(d)(2) that
had not yet been used to pay any obligation or liability that relates to the
period prior to the date of closing pursuant to this Article 9 and that would
not be required to be maintained in accordance with generally accepted
accounting principles with respect to the period prior to the date of closing
pursuant to this Article 9.
(g) Each Member agrees that, from and after the date on which
the respective obligations of the Members to purchase and sell the selling
Member's Membership Interest or to effect an Alternative Structure become
effective in accordance with this Article 9, it will negotiate in good faith and
use commercially reasonable efforts to enter into an appropriate purchase
agreement or other agreements on reasonable terms and conditions that are
consistent with the other provisions of this Article 9 and that are otherwise
standard and customary at the time for similar transactions. The Members
recognize that the sixty day period specified in Sections 9.3(c) and 9.5 to
agree on an Alternative Structure relates to agreement on the form and material
terms of the structure and a timetable for entering into the purchase agreement
or other agreements necessary to effect the Alternative Structure, but that
additional time may be required to negotiate and enter into such agreements.
(h) Each Member hereby agrees that the other Member shall be
entitled to an injunction or injunctions to prevent breaches by such Member of
its obligations under this Article 9 and to enforce specifically the terms and
provisions of this Article 9 in any court of the United States or any state
having jurisdiction, in addition to any other remedy to which it is entitled at
law or in equity. If an action is brought by either Member pursuant to this
Section 9.9(h), the other Member shall waive the defense that there is an
adequate remedy at law.
- 47 -
<PAGE>
ARTICLE 10
OTHER BUSINESSES AND INVESTMENT OPPORTUNITIES
10.1 [Intentionally Deleted].
10.2 Limitations on Activities of the Company.
(a) Prior to January 31, 1999, or for such shorter period as
TCI (or its Affiliates) is bound by a similar requirement (as such requirement
is in effect on the date hereof) under that certain Parents Agreement dated as
of January 31, 1996 between TeleCommunications, Inc. and Sprint Corporation (the
"Parents Agreement"), whichever occurs first, the Company will not offer (or
promote or package any of its products or services with or act as a sales agent
for) wireline services (local or long distance) under the brand name of any Bell
Operating Company or any of GTE Corporation, AT&T Corporation, MCI
Communications Corporation, British Telecommunications, plc, WorldCom, Inc.,
Cable & Wireless plc, LCI International Inc. or Frontier Corporation or any of
their respective Affiliates; provided, however, that in no event shall this
restriction apply (1) to the extent that a Controlled Affiliate (as defined in
the Parents Agreement) of Tele-Communications, Inc. would not be subject to a
similar requirement under the Parents Agreement (as a result of any exceptions
in the Parents Agreement to the covenants of Tele-Communications, Inc. and its
Controlled Affiliates thereunder or otherwise) or (2) following the termination
of the Parents Agreement.
(b) Prior to January 31, 1999, or for such shorter period as
TCI (or its Affiliates) is bound by a similar requirement (as such requirement
is in effect on the date hereof) under the Parents Agreement, whichever occurs
first, the Company will not make its distribution facilities available to a
third party in connection with offering local phone service to residential
customers without making the facilities similarly available to Sprint
Corporation; provided, however, (1) the Company itself may offer local phone
service (subject to the restrictions in Section 10.2(a)) without offering its
distribution facilities to Sprint Corporation, and (2) in no event shall this
restriction apply (A) to the extent that a Controlled Affiliate (as defined in
the Parents Agreement) of Tele-Communications, Inc. would not be subject to a
similar requirement under the Parents Agreement (as a result of any exceptions
in the Parents Agreement to the covenants of Tele-Communications, Inc. and its
Controlled Affiliates thereunder or otherwise) or (B) following the termination
of the Parents Agreement.
(c) Prior to January 31, 1999, or for such shorter period as
TCI (or its Affiliates) is bound by a similar requirement (as such requirement
is in effect on the date hereof) under the Parents Agreement, whichever occurs
first, the Company will not make its distribution facilities available to any
Bell Operating Company or any of GTE Corporation, AT&T Corporation, MCI
Communications Corporation, British Telecommunications, plc, WorldCom, Inc.,
Cable & Wireless plc, LCI International Inc. or Frontier Corporation or any of
their respective Affiliates for high speed
- 48 -
<PAGE>
data services without making its facilities similarly available to Sprint
Corporation; provided, however, (1) such facilities may be made available to
other third parties, including @Home, without such facilities being made
available to Sprint Corporation, and (2) in no event shall this requirement
apply (A) to the extent that a Controlled Affiliate (as defined in the Parents
Agreement) of Tele-Communications, Inc. would not be subject to a similar
restriction under the Parents Agreement (as a result of any exceptions in the
Parents Agreement to the covenants of Tele-Communications, Inc. and its
Controlled Affiliates thereunder or otherwise) or (B) following the termination
of the Parents Agreement.
(d) TCI represents and warrants to, and agrees with, Insight
that none of the foregoing restrictions will (1) subject to Section 10.4,
restrict the ability of Insight or its Affiliates (other than the Company) from
engaging in any of the activities specified in Sections 10.2(a), (b) and (c)
other than through the Company; or (2) restrict the Company or its Subsidiaries
from providing wireline backhaul and wireline transport of wireless
communications signals on arms length and customary terms.
10.3 Prohibited Cross-Interests.
(a) Each Member agrees that, during the term of this
Agreement, neither such Member nor any Affiliate of such Member shall, directly
or indirectly, acquire any interest in any business or in any Person if the
acquisition of such interest would cause the Company or any Subsidiary to be in
violation of any Ownership Restriction.
(b) If, during the term of this Agreement, there is a Formal
Determination that either Member's holding of a Membership Interest causes the
Company or any Subsidiary to be in violation of any Ownership Restriction, then
the following provisions of this Section 10.3(b) shall apply. For purposes of
this Section 10.3(b), a "Formal Determination" means (i) an agreement between
Insight and TCI, (ii) a written determination by the FCC (including a
determination by staff employees of the FCC acting under delegated authority),
regardless of whether such determination is subject to administrative or
judicial review, reconsideration, or appeal (except to the extent that, so long
as a stay of any enforcement action by the FCC against the Company or any
Subsidiary as a result of any such violation of an Ownership Restriction is
effective, the Member that caused the violation specifies that any such
determination will not constitute a Formal Determination during the pendency of
any review, reconsideration, or appeal), or (iii) a decision of any court of
competent jurisdiction, regardless of whether such decision is subject to
administrative or judicial review, reconsideration, or appeal (except to the
extent that, so long as a stay of any enforcement action by the FCC against the
Company or any Subsidiary as a result of any such violation of an Ownership
Restriction is effective, the Member that caused the violation specifies that
any such decision will not constitute a Formal Determination during the pendency
of any review, reconsideration, or appeal). Insight and TCI will use their
respective good faith efforts, after consultation with legal counsel, to reach
an agreement as to whether either Member's holding of a Membership Interest
causes the Company or any Subsidiary to be in violation of any Ownership
Restriction.
- 49 -
<PAGE>
(1) The Company will use reasonable efforts to
obtain a stay of any enforcement action by the FCC against the Company or any
Subsidiary as a result of any such violation of an Ownership Restriction (and
the unanimous vote of the Members shall be required for the Company to act
otherwise), and the Members will cooperate reasonably with the Company in such
efforts, to the extent necessary to prevent such violation from having a
material adverse effect on the Company and the Subsidiaries before it is cured.
For purposes of this Section 10.3(b), a material adverse effect on the Company
and the Subsidiaries includes the loss of any license or licenses issued by the
FCC that, in the aggregate, are material to the conduct of the business of the
Company and the Subsidiaries, the imposition of any fines or forfeitures that,
in the aggregate, are material in amount, and limitations on the ability of the
Company or any Subsidiary to conduct its business in the ordinary course
consistent with its past practices.
(2) The Company and the Members will cooperate
reasonably with each other and negotiate in good faith with the FCC to obtain a
determination by the FCC (including a determination by staff employees of the
FCC acting under delegated authority) that certain actions proposed to be taken
by a Member or its Affiliates would cure any such violation of an Ownership
Restriction. The actions proposed to be taken by a Member or its Affiliates to
cure such violation may be those that, in such Member's judgment, are least
detrimental to such Member and its Affiliates, and may include the divestiture
of any asset or the restructuring of any investment.
(3) If there is a Formal Determination that a
Member's holding of a Membership Interest causes the Company or any Subsidiary
to be in violation of any Ownership Restriction, (such Member, the "Curing
Member") agrees to take all actions reasonably necessary to cure any such
violation of an Ownership Restriction; provided, however, that:
(A) if the Company and the Members
receive a determination by the FCC (including a determination by staff employees
of the FCC acting under delegated authority) that certain actions proposed to be
taken by the Curing Member or its Affiliates would cure such violation, then, if
the Curing Member and its Affiliates take such actions, the Curing Member shall
not be required to take any other action under this Section 10.3(b) to cure such
violation until such time, if any, that there is a subsequent Formal
Determination that such actions did not cure such violation;
(B) The Curing Member shall not be required
to take any action to cure such violation prior to the time that such violation
would have a material adverse effect on the Company and the Subsidiaries; and
(C) The Curing Member shall not be required
to take any action to cure any violation that arose from any acquisition made by
the Company or any Subsidiary in violation of Section 10.3(c).
(4) The actions that the Curing Member may be
required to take pursuant to Section 10.3(b)(3), subject to the limitations
therein, shall include, to the extent necessary to cure
- 50 -
<PAGE>
such violation, executing amendments to this Agreement to eliminate any right of
the Curing Member under this Agreement (other than its right to allocations of
income, its right to distributions, its rights under Section 7.5 in the case of
TCI as the Curing Member, its rights under Section 7.6, and its right to approve
any other action by the Company and the Subsidiaries if such action (A) in the
case of an action that does not uniquely affect either Member, such as an
acquisition or disposition of assets or a financing, would have a material
adverse economic effect on the Curing Member or (B) in the case of an action
that uniquely affects either Member, such as a transaction between the Company
and a Member or an Affiliate of a Member, would have an adverse economic effect
on the Curing Member).
(c) Neither Member will approve the acquisition, directly or
indirectly, by the Company or any Subsidiary of any interest in any business or
in any Person if such Member has actual knowledge that consummating such
acquisition would cause either Member or any Affiliate of either Member to be in
violation of any Ownership Restriction; provided that if the Managing Member
desires to cause the Company or a Subsidiary to acquire assets or an interest in
a business or any Person, and the Managing Member does not have actual knowledge
that such acquisition would cause the Company or a Subsidiary, either Member or
any Affiliate of either Member to be in violation of any Ownership Restriction,
then the Managing Member shall provide prior written notice to TCI of such
proposed acquisition at least 30 days prior to entering into a binding agreement
to effect such acquisition and if TCI notifies the Managing Member within
fifteen days of receiving such notice that such acquisition would cause the
Company or a Subsidiary or TCI to be in violation of any Ownership Restriction,
the Managing Member shall not proceed with such acquisition without first
complying with this Section 10.3(c) again, it being understood that if TCI does
not so notify the Managing Member within such fifteen day period then the
Managing Member shall be presumed not to have knowledge that such acquisition
would cause the Company or a Subsidiary, either Member or any Affiliate of
either Member to be in violation of any Ownership Restriction.
10.4 Limitations on Other Activities of the Members.
To the extent that Insight or a Controlled Affiliate of Insight
engages within the geographic portion of the State of Indiana that is located
below the bold line drawn on the map of the State of Indiana attached hereto as
Schedule IV in any of the activities specified in Sections 10.2(a), (b) or (c)
at a time when the Company is prohibited from engaging in such activity, other
than through the Company, for a reasonable period of time (not to exceed 120
days), after TCI (or its Affiliates) are no longer bound by the restrictive
terms of the Sprint PCS Partnership Agreement or the Parents Agreement, as
applicable to the restricted activity at issue, Insight (upon receipt of notice
from TCI of such fact and TCI's election on behalf of the Company in accordance
with this Section 10.4 to exercise its rights under this Section 10.4) and TCI
shall negotiate in good faith to provide the Company the opportunity to acquire
the business related to such activity from Insight or its appropriate Affiliate;
provided that if at such time such business has been discontinued or such assets
(or the equity interests in such Affiliate) have been sold or otherwise disposed
of, none of the parties shall have any further obligation to each other with
respect to any such acquisition opportunity. It is understood and agreed by
Insight and TCI that without limiting any other considerations
- 51 -
<PAGE>
(including any necessary governmental or third party approvals), any such
acquisition by the Company shall be based upon the fair market value of the
business. To the extent Insight and TCI are unable for any reason to reach
agreement within such 120 day period referred to above, none of the parties
shall have any further obligation to each other with respect to any such
acquisition opportunity. TCI shall determine, acting in the best interests of
the Company, whether the Company shall exercise its rights under this Section
10.4 provided that TCI and Insight as part of reaching an agreement for the
Company to make such acquisition, shall also agree on any necessary capital
contributions and/or debt financing necessary to fund such acquisition by the
Company or any Subsidiary pursuant to this Section 10.4.
10.5 No Other Restrictions.
Except as specifically provided above in this Article 10, nothing in
this Agreement shall limit the ability of either Member, or any partner, member,
Affiliate, Controlled Affiliate, agent, or representative of either Member, to
engage in or possess an interest in other business ventures of any nature or
description, independently or with others, whether currently existing or
hereafter created and whether or not competitive with or advanced by the
business of the Company. Neither the Company nor the other Member shall have any
rights in or to the income or profits derived therefrom, nor shall either Member
have any obligation to the other Member with respect to any such enterprise or
related transaction.
ARTICLE 11
DISSOLUTION AND LIQUIDATION OF COMPANY
11.1 Events of Dissolution.
The Company shall be dissolved upon the happening of any of the
following events:
(a) the failure of the Members to continue the Company in
accordance with the provisions of Section 5.4(a) after the resignation of the
Managing Member with the consent of TCI (it being confirmed, with reference to
Section 5.4(c), that the resignation of the Managing Member in violation of this
Agreement shall not cause a dissolution);
(b) the expiration of the term of the Company as set forth in
Section 2.4;
(c) an election to liquidate and dissolve the Company made by
a non-defaulting Member pursuant to Section 9.7(a)(2);
(d) the sale, exchange, involuntary conversion, or other
disposition or transfer of all or substantially all of the assets of the
Company;
(e) upon agreement of Insight and TCI;
- 52 -
<PAGE>
(f) the termination of the Contribution Agreement in
accordance with its terms prior to the Closing (including, without limitation,
pursuant to Section 10.1(e) of the Contribution Agreement); or
(g) subject to any provision of this Agreement that limits or
prevents dissolution, the happening of any event that, under applicable law,
causes the dissolution of a limited liability company.
11.2 Liquidation.
(a) Upon dissolution of the Company for any reason, the
Company shall immediately commence to wind up its affairs. A reasonable period
of time shall be allowed for the orderly termination of the Company business,
discharge of its liabilities, and distribution or liquidation of the remaining
assets so as to enable the Company to minimize the normal losses attendant to
the liquidation process.
(b) Liquidation of the assets of the Company shall be managed
on behalf of the Company by the "Liquidator," which shall be (1) if the Company
is being liquidated pursuant to Section 11.1(c), the non-defaulting Member, and
(2) in all other events, Insight or a liquidating trustee selected by Insight.
The Liquidator shall be responsible for soliciting offers to purchase the
entirety of the Company's assets (including equity interests in other Persons)
or portions or clusters of assets of the Company. The Liquidator shall afford
each Member an opportunity to offer to purchase any assets of the Company that
are offered for sale in connection with the liquidation of the Company to the
extent doing so would be consistent with the orderly liquidation of the Company.
(c) The Liquidator shall cause a full accounting of the assets
and liabilities of the Company to be taken and a statement thereof to be
furnished to each Member within thirty days after the distribution of all of the
assets of the Company.
(d) The property and assets of the Company and the proceeds
from the liquidation thereof shall be applied in the following order of
priority:
(1) first, to payment of the debts and
liabilities of the Company, in the order of priority provided by law (including
any loans by either Member to the Company) and payment of the expenses of
liquidation;
(2) second, to setting up of such reserves as
the Liquidator may deem reasonably necessary for any contingent or unforeseen
liabilities or obligations of the Company or any obligation or liability not
then due and payable; provided, however, that any such reserve shall be paid
over by the Liquidator into a Company account or a liquidating trust account
established for such purpose, to be held in such account for the purpose of
disbursing such reserves in payment of
- 53 -
<PAGE>
such liabilities, and, at the expiration of such holdback period as the
Liquidator shall deem advisable, to distribute the balance thereafter remaining
in the manner hereinafter provided; and
(3) finally, to payment to the Members, in
accordance with Section 4.1(b). The distributions pursuant to this Section
11.2(d)(3) shall, to the extent possible, be made prior to the later of the end
of the Fiscal Year in which the dissolution occurs or the ninetieth day after
the date of dissolution, or such other time period which may be permitted under
Treasury Regulations Section 1.704-1(b)(2)(ii)(b).
(e) If in the course of the liquidation and dissolution of the
Company pursuant to this Article 11, the Liquidator determines that a sale by
all the Members to any Person of their Membership Interests, instead of a sale
by the Company and the Subsidiaries of their respective assets, would more
efficiently effect the liquidation of the Members' economic interests in the
Company or would reduce negative tax consequences to the Members and the
Company, but would not adversely affect the rights and obligations of either
Member (including the tax consequences to either Member), then each Member
agrees to sell its Membership Interest to such Person, and the Liquidator shall
have the authority, pursuant to the power of attorney granted in Section
16.7(b), to execute, acknowledge, deliver, swear to, file, and record all
agreements, instruments, and other documents that may be necessary or
appropriate to effect the sale of such Member's Membership Interest.
(f) Following the dissolution of the Company pursuant to
Section 11.1, the Members will use commercially reasonable efforts to structure
the liquidation of the Company in a manner that minimizes negative tax
consequences to the Members and the Company to the extent doing so would not
materially adversely affect either Member (except to the extent such Member is
adequately compensated by the other Member for such adverse effect). Any
structure agreed to by the Members pursuant to this Section 11.2(f) shall
supersede the other provisions of this Article 11 to the extent it is
inconsistent with such other provisions, but nothing in this Section 11.2(f)
shall modify or otherwise affect the other provisions of this Article 11 if the
Members are unable to agree on such a structure.
11.3 Distribution in Kind.
The Company shall not distribute any non-cash asset to either Member
without the consent of each Member. Any asset distributed in kind to one or more
Members shall first be valued at its fair market value to determine the gain or
loss used in determining Net Profit or Net Loss that would have resulted if such
asset were sold for such value, such gain or loss shall then be allocated
pursuant to Article 4, and the Members' Capital Accounts shall be adjusted to
reflect such gain or loss. The amount distributed and charged to the Capital
Account of each Member receiving an interest in such distributed asset shall be
the fair market value of such interest (net of any liability secured by such
asset that such Member assumes or takes subject to). The fair market value of
any asset distributed in kind in connection with the liquidation of the Company
shall be determined by an independent
- 54 -
<PAGE>
appraiser (any such appraiser must be nationally recognized as an expert in
valuing the type of asset involved) selected by the Liquidator.
11.4 No Action for Dissolution.
The Members acknowledge that irreparable damage would be done to the
goodwill and reputation of the Company if either Member should bring an action
in court to dissolve the Company under circumstances where dissolution is not
required by Section 11.1. This Agreement has been drawn carefully to provide
fair treatment of all parties and equitable payment in liquidation of the
Membership Interests of both Members. Accordingly, except where liquidation and
dissolution are required by Section 11.1, each Member hereby waives and
renounces its right to initiate legal action to seek dissolution or to seek the
appointment of a receiver or trustee to liquidate the Company.
11.5 No Further Claim.
Upon dissolution, each Member shall look solely to the assets of the
Company for the return of its investment, and if the property of the Company
remaining after payment or discharge of the debts and liabilities of the
Company, including debts and liabilities owed to one or more of the Members, is
insufficient to return the aggregate capital contributions of a Member, no
Member shall have any recourse against any other Member.
ARTICLE 12
INDEMNIFICATION
12.1 General.
The Company shall indemnify, defend, and hold harmless each Member and
their respective members, partners, officers, directors, shareholders,
employees, and agents, the employees, officers, and agents of the Company, and
the members of the Management Committee (all indemnified persons being referred
to as "Indemnified Persons" for purposes of this Article 12), from any
liability, loss, or damage incurred by the Indemnified Person by reason of any
act performed or omitted to be performed by the Indemnified Person in connection
with the business of the Company, including costs and attorneys' fees (which
attorneys' fees may be paid as incurred) and any amounts expended in the
settlement of any claims of liability, loss, or damage; provided, however, that,
if the liability, loss, damage, or claim arises out of any action or inaction of
an Indemnified Person, indemnification under this Section 12.1 shall not be
available if the action or inaction is finally adjudicated to have constituted
fraud, gross negligence, breach of fiduciary duty (which shall not be construed
to encompass mistakes in judgment or any breach of any Indemnified Person's duty
of care that did not constitute gross negligence), or willful misconduct by the
Indemnified Person; and provided, further, however, that indemnification under
this Section 12.1 shall be recoverable only from the assets of the Company and
not from any assets of the Members. The Company may pay
- 55 -
<PAGE>
for insurance covering liability of the Indemnified Persons for negligence in
operation of the Company's affairs.
12.2 Exculpation.
No Indemnified Person shall be liable, in damages or otherwise, to the
Company or to either Member for any loss that arises out of any act performed or
omitted to be performed by it or him pursuant to the authority granted by this
Agreement unless the conduct of the Indemnified Person is finally adjudicated to
have constituted fraud, gross negligence, breach of fiduciary duty (which shall
not be construed to encompass mistakes in judgment or any breach of any
Indemnified Person's duty of care that did not constitute gross negligence), or
willful misconduct by such Indemnified Person.
12.3 Persons Entitled to Indemnity.
Any Person who is within the definition of "Indemnified Person" at the
time of any action or inaction in connection with the business of the Company
shall be entitled to the benefits of this Article 12 as an "Indemnified Person"
with respect thereto, regardless of whether such Person continues to be within
the definition of "Indemnified Person" at the time of his or its claim for
indemnification or exculpation hereunder.
12.4 Procedure Agreements.
The Company may enter into agreements with any of its Members,
employees, officers, and agents, any of the officers, directors, shareholders,
employees, and agents of the Managing Member, and any member of the Management
Committee or other Indemnified Person, setting forth procedures for implementing
the indemnities provided in this Article 12.
ARTICLE 13
BOOKS, RECORDS, ACCOUNTING, AND REPORTS
13.1 Books and Records.
The Company shall maintain at its principal office all of the
following:
(a) A current list of the full name and last known business or
residence address of each Member together with the Capital Contributions and
Membership Interest of each Member;
(b) A copy of the Certificate of Formation, this Agreement,
and any and all amendments to either thereof, together with executed copies of
any powers of attorney pursuant to which any certificate or amendment has been
executed;
- 56 -
<PAGE>
(c) Copies of the Company's federal, state, and local income
tax or information returns and reports, if any, for the six most recent taxable
years;
(d) The audited financial statements of the Company for the
six most recent Fiscal Years; and
(e) The Company's books and records for at least the current
and past three Fiscal Years.
13.2 Delivery to Member and Inspection.
(a) Upon the request of a Member, the Company shall promptly
deliver to the requesting Member, at the expense of the Company, a copy of the
information required to be maintained by Section 13.1 except for Section
13.1(e).
(b) Each Member, or its duly authorized representative, has
the right, upon reasonable request, to inspect and copy during normal business
hours any of the Company records.
13.3 Annual Statements.
(a) The Company shall cause to be prepared for each Member at
least annually, at Company expense, audited financial statements of the Company
and a consolidated audited financial statement for the Company and the
Subsidiaries (other than any Subsidiary the financial statements of which
cannot, under generally accepted accounting principles, be consolidated with the
financial statements of the Company), along with supplemental information for
the Company and each Subsidiary included in the consolidated financial
statements, all prepared in accordance with generally accepted accounting
principles and accompanied by a report thereon containing the opinion of Ernst &
Young LLP or other nationally recognized accounting firm chosen by the
Management Committee. The financial statements will include a balance sheet,
statement of income or loss, statement of cash flows, and statement of Members'
equity. The supplemental information will consist of a consolidating balance
sheet and a consolidating statement of operations and Members' equity for the
preceding Fiscal Year. The Company shall distribute the financial statements or
portions thereof to each Member as follows:
(1) the Company shall distribute to each Member
a statement setting forth the net income or loss of the Company for each Fiscal
Year within forty-five days after the close of such Fiscal Year;
(2) the Company shall distribute to each Member
the balance sheet, statement of income or loss, statement of cash flows, and
statement of Members' equity to be included in the financial statements for each
Fiscal Year within forty-five days after the close of such Fiscal Year;
- 57 -
<PAGE>
(3) the Company shall distribute to each Member
the complete audited financial statements for each Fiscal Year as soon as
practicable after the close of such Fiscal Year and, in any event, by March 15
of the year following the close of such Fiscal Year.
(b) The Company shall have prepared at least annually, at
Company expense, Company information necessary for the preparation of each
Member's federal and state income tax returns. The Company shall send the
information described in this paragraph to each Member within ninety days after
the end of each Fiscal Year and shall use commercially reasonable efforts to
send such information to each Member within seventy-five days after the end of
each Fiscal Year.
(c) The Company shall also cause to be distributed to each
Member, within ten days after delivery to the Company, any audited financial
statements that are prepared with respect to any Subsidiary the financial
statements of which are not consolidated with the financial statements of the
Company.
(d) The Company, shall distribute to each Member, promptly
after they become available, copies of the Company's federal, state, and local
income tax or information returns for each taxable year.
13.4 Quarterly Financial Statements.
At the close of each of the first three quarters of any Fiscal Year,
the Company shall cause to be distributed to each Member a quarterly report
covering each calendar quarter of the operations of the Company and each
Subsidiary, consisting of unaudited financial statements (comprising a balance
sheet, a statement of income or loss, and a statement of cash flows), and a
statement of other pertinent information regarding the Company and each such
Subsidiary and their activities. The Company shall cause copies of the
statements and other pertinent information (including a summarized statement of
operations data of the Company that complies with the requirements of APB
Opinion No. 18 and Rule 4-08(g) of Regulation S-X under the Securities Act) to
be distributed to each Member within thirty days after the close of the calendar
quarter to which the statements relate. The Company shall distribute to each
Member (a) a preliminary draft of a statement setting forth the net income or
loss of the Company for each calendar quarter within twenty-one days after the
close of such calendar quarter, and (b) a final statement setting forth the net
income or loss of the Company for each calendar quarter within thirty days after
the close of such calendar quarter. The Company shall also cause to be
distributed to each Member, within ten days after delivery to the Company, any
quarterly report that is prepared with respect to any Subsidiary the operating
results of which are not included in the quarterly report of the Company.
13.5 Monthly Statements.
The Company shall cause to be distributed to each Member a monthly
report covering each calendar month of the operations of the Company and each
Subsidiary, consisting of unaudited statements of income and loss for the
Company and each Subsidiary. The Company shall cause
- 58 -
<PAGE>
copies of the statements to be distributed to each Member within thirty days
after the close of the calendar month covered by such report. The Company shall
also cause to be distributed to each Member, within ten days after delivery to
the Company, any monthly report that is prepared with respect to any Subsidiary
the operating results of which are not included in the monthly report of the
Company. In addition, the Company shall deliver to each Member within fifteen
calendar days after each month end, a report detailing the number of homes
passed by each cable television system owned by the Company, the number of
equivalent basic subscribers served by each such system and the number of
premium subscribers served by each such system (on a premium service-by-service
basis), together with such other operating statistics as may be reasonably
requested by a Member in reasonable advance.
13.6 Operating and Capital Expenditure Budgets.
After consultation with TCI, commencing with the first Fiscal Year
beginning after the Closing, Insight shall cause to be prepared and distributed
to each Member operating and capital expenditure budgets for the Company for
each Fiscal Year.
13.7 Other Information.
The Company shall provide to each Member any other information and
reports relating to any cable television systems or other businesses owned by,
and the financial condition of, the Company, each Subsidiary, and any other
Person in which the Company owns, directly or indirectly, an equity interest,
the Member may reasonably request. The Company shall distribute to each Member,
promptly after the receipt thereof by the Company, any financial or other
information with respect to any Person in which the Company owns, directly or
indirectly, an equity interest, but which is not a Subsidiary.
13.8 Tax Matters.
The Company shall be treated as a partnership for federal and state
income tax and franchise tax purposes. The Company, at Company expense, shall
prepare and timely file with the appropriate authorities all income tax returns
for the Company required to be filed by the Company.
13.9 Other Filings.
The Company, at Company expense, shall also prepare and timely file,
with appropriate federal and state regulatory and administrative bodies, all
reports required to be filed by the Company with those entities under then
current applicable laws, rules, and regulations. The reports shall be prepared
on the accounting or reporting basis required by the regulatory bodies. Upon
written request, each Member shall be provided with a copy of any of the reports
without expense to the requesting Member.
- 59 -
<PAGE>
13.10 Non-Disclosure.
Each Member agrees that, except as otherwise consented to by the other
Member, all non-public information furnished to it or to which it has access
pursuant to this Agreement will be kept confidential and will not be disclosed
by such Member (it being agreed that the standard each Member shall adhere to is
to use the same degree of care it would use for its own confidential
information), or by any of its agents, representatives, or employees, in any
manner whatsoever, in whole or in part, except that:
(a) each Member shall be permitted to disclose such
information to those of its agents, representatives, and employees who need to
be familiar with such information in connection with such Member's investment in
the Company,
(b) each Member shall be permitted to disclose such
information to its Affiliates,
(c) each Member shall be permitted to disclose information to
the extent required by law, including federal or state securities laws or
regulations, or by the rules and regulations of any stock exchange or
association on which securities of such Member or any of its Affiliates are
traded, so long as such Member shall have first afforded the Company with a
reasonable opportunity to contest the necessity of disclosing such information,
(d) each Member shall be permitted to disclose information to
the extent necessary for the enforcement of any right of such Member arising
under this Agreement,
(e) each Member shall be permitted to disclose information to
a permitted Transferee or Successor, so long as (1) such Member shall first have
provided to the other Member written notice thereof and of the identity of the
Person to whom the disclosure is to be made and (2) such Person agrees (in a
writing which provides the Company with an independent right of enforcement) to
be bound by the provisions of this Section 13.10,
(f) each Member shall be permitted to disclose information
that is or becomes generally available to the public other than as a result of a
disclosure by such Member, its agents, representatives, or employees, and
(g) each Member shall be permitted to disclose information
that becomes available to such Member on a nonconfidential basis from a source
(other than the Company, any other Member, or their respective agents,
representatives, and employees) that, to the best of such Member's knowledge, is
not prohibited from disclosing such information to such Member by a legal,
contractual, or fiduciary obligation to the Company or any other Member.
- 60 -
<PAGE>
ARTICLE 14
REPRESENTATIONS BY THE MEMBERS
Each Member represents and warrants to, and agrees with, the other
Member and the Company as follows:
14.1 Investment Intent.
It is acquiring its Membership Interest with the intent of holding the
same for investment for its own account and without the intent or a view to
participating directly or indirectly in, or for resale in connection with, any
distribution of such Membership Interest within the meaning of the Securities
Act or any applicable state securities laws, and it does not intend to divide
its participation with others, nor to resell, assign, or otherwise dispose of
all or any part of its Membership Interest. In making such representation, each
Member acknowledges that a purchase now with an intent to resell by reason of
any foreseeable specific contingency, some predetermined event, or an
anticipated change in market value or in the condition of the Company would
represent a purchase with an intent inconsistent with the foregoing
representation.
14.2 Securities Regulation.
(a) It acknowledges and agrees that the Membership Interest is
being issued and sold in reliance on the exemption from registration contained
in Section 4(2) of the Securities Act and exemptions contained in applicable
state securities laws, and that it cannot and will not be sold or transferred
except in a transaction that is exempt under the Securities Act and those state
acts or pursuant to an effective registration statement under those acts or in a
transaction that is otherwise in compliance with the Securities Act and those
state acts.
(b) It understands that it has no contract right for the
registration under the Securities Act of the Membership Interest for public sale
and that, unless such Membership Interest is registered or an exemption from
registration is available, such Membership Interest may be required to be held
indefinitely.
14.3 Knowledge and Experience.
It has such knowledge and experience in financial, tax, and business
matters as to enable it to evaluate the merits and risks of its investment in
the Company and to make an informed investment decision with respect thereto.
- 61 -
<PAGE>
14.4 Economic Risk.
It is able to bear the economic risk of an investment in its
Membership Interest.
14.5 Binding Agreement.
This Agreement is and will remain its valid and binding agreement,
enforceable in accordance with its terms (subject, as to the enforcement of
remedies, to any applicable bankruptcy, insolvency, or other laws affecting the
enforcement of creditor's rights).
14.6 Tax Position.
Unless it provides prior written notice to the Company, it will not
take a position on its federal income tax return, on any claim for refund, or in
any administrative or legal proceedings that is inconsistent with any
information return filed by the Company or with the provisions of this
Agreement.
14.7 Information.
It has received all documents, books, and records pertaining to an
investment in the Company requested by it. It has had a reasonable opportunity
to ask questions of and receive answers concerning the Company, and all such
questions have been answered to its satisfaction.
ARTICLE 15
AMENDMENTS AND WAIVERS
15.1 Amendments to Operating Agreement.
(a) This Agreement may only be modified or amended with the
consent of Insight and TCI.
(b) The Company shall prepare and file any amendment to the
Certificate of Formation that may be required to be filed under the Act as a
consequence of any amendment to this Agreement.
15.2 Waivers.
The observance or performance of any term or provision of this
Agreement may be waived (either generally or in a particular instance, and
either retroactively or prospectively) by the party entitled to the benefits of
such term or provision.
- 62 -
<PAGE>
ARTICLE 16
MISCELLANEOUS
16.1 Programming and Discounts.
(a) General. Subject to Section 16.1(b) and any other
particular arrangements the Members may agree to with respect to the following,
each Member will use commercially reasonable efforts to make all of the
services, programming and equipment discounts available to such Member available
to the Company.
(b) @Home.
(1) The Members and the Company agree that,
subject to the other provisions of this Section 16.1(b) and only so long as
controlled affiliates (as used in this Section 16.1, "controlled affiliate" has
the meaning given to such term in the @Home Distribution Agreement) of a TCI
Cable Parent continue to be bound by a similar requirement, @Home will be the
exclusive provider of Exclusive Internet Services over the cable plant and
equipment of the TCI Systems and that the TCI Systems will continue to be bound
by the @Home Distribution Agreement as if such TCI Systems were "controlled
affiliates" of a TCI Cable Parent with respect to the distribution and delivery
of Exclusive Internet Services in accordance with the @Home Distribution
Agreement. In furtherance of the foregoing, subject to the other provisions of
this Section 16.1(b) and only so long as controlled affiliates of a TCI Cable
Parent continue to be bound by a similar requirement, the Company and the
Managing Member each agree that it will not provide or distribute, and will not
permit any Person other than @Home and its controlled affiliates to provide or
distribute, Exclusive Internet Services using the cable plant and equipment of
the TCI Systems, in each case without the prior written consent of TCI. The
Members and the Company acknowledge and agree that the foregoing limitations
will not be applicable to the Company's provision over the TCI Systems of other
Internet Services which do not constitute Exclusive Internet Services (including
all Internet Services which are listed as exceptions to the definition of the
term "Restricted Business" in the @Home Distribution Agreement), and with
respect to those Internet Services which do not constitute Exclusive Internet
Services, the Managing Member shall be entitled to make all determinations in
respect of the provision of such Internet Services, subject to the provisions of
this Agreement. The Members and the Company also acknowledge and agree that the
foregoing limitations are also not applicable to the Company's provision over
the Company's cable television systems other than the TCI Systems (such other
systems, the "Non-TCI Systems") of any Internet Services, whether or not they
would constitute Exclusive Internet Services with respect to the TCI Systems in
accordance with the @Home Distribution Agreement, and do not limit the right of
the Company and the Managing Member to manage and operate the Non-TCI Systems as
the Company and the Managing Member determine (but subject to the terms of this
Agreement and the Management Agreement). Without limiting the preceding
sentence, subject to the other provisions of this Section 16.1(b), the parties
agree as follows: (A) the Company and the Managing Member
- 63 -
<PAGE>
agree that they will: (1) manage and operate (and cause the manager under the
Management Agreement to manage and operate) the TCI Systems in accordance with
the terms and conditions set forth in the @Home Distribution Agreement and in
such a manner that the activities and businesses engaged in by the TCI Systems
will not violate or be in contravention of the Cable Parent Exclusivity
Provisions, or cause any TCI Cable Parent or any of its controlled affiliates to
be in violation of such Cable Parent Exclusivity Provisions, (2) provide to
@Home and its representatives such access to the cable plant and equipment of
the TCI Systems as is required in order to satisfy the TCI Cable Parents'
obligations under the @Home Distribution Agreement in respect of such TCI
Systems and as is reasonably necessary in order to distribute the @Home Service
over the cable plant and equipment of such TCI Systems, (3) cooperate with
@Home, TCI Cable Parent and their respective controlled affiliates in order to
schedule and coordinate @Home's roll-out of the @Home Service to the TCI Systems
with the upgrade of the physical cable plant and equipment of such TCI Systems,
including, without limitation, (x) providing the TCI Cable Parent and @Home with
information and periodic updates as to upgrade schedules, and (y) entering into
LCO Agreements (as defined in the @Home Distribution Agreement) in respect of
each TCI System upon the commencement of the offering of the @Home Service in
such TCI System, and (4) cooperate with the TCI Cable Parent and @Home with
respect to the operational matters relating to the distribution of the @Home
Service, including, without limitation, pricing, the programming of the Local
Area (as defined in the @Home Distribution Agreement), billing, customer service
and service offerings; and (B) (1) with respect to the timing and implementation
of Exclusive Internet Services over the TCI Systems, the Managing Member shall
consult and cooperate with the TCI Cable Parent in order to coordinate the
launch of the @Home Service over the TCI Systems as efficiently and
expeditiously as practical and (2) the TCI Cable Parent may disclose to @Home
information relating to the upgrade plans for the TCI Systems for the purpose of
coordinating the @Home build-out and the launch of the @Home Service in such
systems. Subject to the Company's and the Managing Member's compliance with the
foregoing, the TCI Cable Parent agrees that it will use its commercially
reasonable efforts to obtain for the benefit of the TCI Systems the economic and
other benefits available to a controlled affiliate of a TCI Cable Parent under
the @Home Distribution Agreement, on the same basis as, and for so long as, such
benefits are available to other controlled affiliates of the TCI Cable Parent,
including, but not limited to, the benefits available under the MFN Provision
(as defined in the @Home Distribution Agreement) and the ability to purchase
Ancillary Services (as defined in the @Home Distribution Agreement) from @Home
for the TCI Systems to the extent provided in the @Home Distribution Agreement
and as are reasonably necessary to the distribution of the Exclusive Internet
Services on the TCI Systems. TCI's obligations under the foregoing sentence will
terminate if the Company exercises its option set forth below to terminate its
obligation to manage the TCI Systems in accordance with the terms of the @Home
Distribution Agreement or if the Company enters into a separate distribution
agreement with @Home that covers the TCI Systems. In the event the
- 64 -
<PAGE>
@Home Distribution Agreement is amended or modified in such a way as would
reasonably be expected to cause the terms and conditions of the Company's
distribution of the @Home Service over the TCI Systems to be materially more
onerous to the Company than as provided in the @Home Distribution Agreement as
in effect on the date hereof, the TCI Cable Parent shall promptly notify the
Company and the Company shall then have the option to terminate its obligation
to manage the TCI Systems in accordance with the terms of the @Home Distribution
Agreement; provided that the Company's agreement not to provide or distribute,
or permit any Person to provide or distribute, any Exclusive Internet Services
using the cable plant and equipment of the TCI Systems, other than the @Home
Service, shall survive such termination. No amendment to the @Home Distribution
Agreement shall be deemed to cause the terms and conditions of the Company's
distribution of the @Home Service over the TCI Systems to be materially more
onerous to the Company (x) to the extent that such amendment or modification
does not result in such distribution being more onerous than that provided under
any separate agreement between the Company and @Home relating to the
distribution of the @Home Service to the Non-TCI Systems or (y) if the Company
consents to an amendment or modification of any separate agreement between the
Company and @Home in respect of the distribution of the @Home Service to the
Non-TCI Systems, which amendment or modification has substantially the same
effects as the proposed amendment or modification of the @Home Distribution
Agreement. For so long as the TCI Systems are included under the @Home
Distribution Agreement, to the extent the @Home Distribution Agreement is
modified in any respect (or any other event occurs) that would increase the
benefits available to (or reduces the obligations of) a controlled affiliate of
a TCI Cable Parent, the TCI Cable Parent will use its commercially reasonable
efforts to obtain for the benefit of the TCI Systems such increased benefits,
and to the extent the obligations are reduced, the TCI Cable Parent will use its
commercially reasonable efforts to cause such reduced obligations to be
applicable to the TCI Systems, in each case on the same basis as is applicable
to controlled affiliates of the TCI Cable Parent other than the TCI Systems. For
purposes of this Section 16.1(b), the TCI Systems shall, notwithstanding their
contribution to the Company, continue to be deemed to be controlled affiliates
of a TCI Cable Parent for purposes of determining the Company's satisfaction of
its obligations to operate and manage the TCI Systems in accordance with the
@Home Distribution Agreement.
(2) In addition, the Company and the Managing
Member agree to use their commercially reasonable efforts to enter into prior to
the Closing a distribution agreement for the @Home Service for the cable
television systems contributed to the Company by Insight; provided that such
obligation shall survive the Closing if such distribution agreement is not
entered into prior thereto. To the extent that TCI is not able to include the
TCI Systems under the @Home Distribution Agreement following the Closing, the
Company may enter into a distribution agreement with @Home that covers the TCI
Systems and terminate its obligation to manage the TCI Systems in accordance
with the @Home Distribution Agreement; provided, that such agreement shall be
approved by TCI as it relates to the TCI Systems and provided further that the
Company's obligations under this Section 16.1(b) to (i) have @Home be the
exclusive provider of Exclusive Internet Services over the cable plant and
equipment of the TCI Systems, (ii) not provide or distribute or permit any other
Person to provide or distribute Exclusive Internet Services using the cable
plant and equipment of the TCI Systems and (iii) manage the TCI Systems in such
a manner that the activities and business engaged in by them will not violate or
be in contravention of the Cable Parent Exclusivity Provisions will not cause
any TCI Cable Parent or its controlled affiliates to be in violation of such
provisions will continue notwithstanding such separate agreement being entered
into.
- 65 -
<PAGE>
16.2 Cost Sharing; Reimbursement.
If the Closing occurs, the Company shall reimburse each Member for the
out-of-pocket costs and expenses reasonably incurred by such Member (whether
incurred before or after the formation of the Company) in connection with the
formation, organization, and capitalization of the Company (including costs and
expenses incurred in arranging any proposed or consummated financing); provided,
however, such costs and expenses to be reimbursed by the Company do not include
legal fees or other expenses or costs of the Members incurred in connection with
the preparation, execution, delivery and performance of this Agreement, the
Contribution Agreement or any related agreements (other than the financing
agreements of the Company) and except as specifically provided for in the
Contribution Agreement. If the Contribution Agreement is terminated prior to the
Closing, the Company shall not reimburse either Member for any costs, which
shall be borne by the Members as provided in the Contribution Agreement.
16.3 Additional Documents.
At any time and from time to time after the date of this Agreement,
upon the request of the Company or the other Member, each Member shall do and
perform, or cause to be done and performed, all such additional acts and deeds,
and shall execute, acknowledge, and deliver, or cause to be executed,
acknowledged, and delivered, all such additional instruments and documents, as
may be required to best effectuate the purposes and intent of this Agreement.
16.4 Inspection.
Each Member shall have the right at reasonable times to inspect the
books and records of the Company.
16.5 General.
This Agreement: (a) shall be binding on the executors, administrators,
estates, heirs, and legal successors of the Members; (b) be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to conflicts of law principles thereunder; (c) may be executed in more than one
counterpart as of the day and year first above written; and (d) except for the
Contribution Agreement and the other agreements expressly referred to herein to
which the Members or their Affiliates are parties, contains the entire agreement
between the Members as to the subject matter of this Agreement. The waiver of
any of the provisions, terms, or conditions contained in this Agreement shall
not be considered as a waiver of any of the other provisions, terms, or
conditions of this Agreement.
16.6 Notices, Etc.
All notices and other communications required or permitted hereunder
shall be in writing and shall be deemed effectively given or delivered upon
personal delivery, confirmation of telex or
- 66 -
<PAGE>
telecopy, or receipt (which may be evidenced by a return receipt if sent by
registered mail), addressed (a) if to either Member, at the address of such
Member set forth on Schedule I or at such other address as such Member shall
have furnished to the Company in writing, (b) if to the Company, at 126 E. 56th
Street, New York, New York 10022.
16.7 Execution of Papers.
(a) The Members agree to execute such instruments, documents,
and papers as the Management Committee deems necessary or appropriate to carry
out the intent of this Agreement.
(b) Each Member, including each additional and substituted
Member, by the execution of this Agreement, irrevocably constitutes and appoints
the Liquidator its true and lawful attorney-in-fact with full power and
authority in its name, place, and stead to execute, acknowledge, deliver, swear
to, file, and record all agreements, instruments, and other documents that may
be necessary or appropriate to effect the sale of such Member's Membership
Interest pursuant to Section 11.2(e).
(c) The power of attorney granted pursuant to Section 16.7(b)
shall be deemed to be a power coupled with an interest, in recognition of the
fact that each of the Members under this Agreement will be relying upon the
power of the Liquidator to act as contemplated by this Agreement in any filing
and other action by it on behalf of the Company, and shall survive the
bankruptcy, death, adjudication of incompetence or insanity, or dissolution of
any Person hereby giving such powers and the transfer or assignment of all or
any part of such Person's Membership Interest; provided, however, that in the
event of a Transfer by a Member, the powers of attorney given by the transferor
shall survive such Transfer only until such time as the Transferee or Successor
shall have been admitted to the Company as a substituted Member and all required
documents and instruments shall have been duly executed, filed, and recorded to
effect such substitution.
(d) Each Member agrees to be bound by any actions taken by the
Liquidator acting in good faith pursuant to the power of attorney granted
pursuant to Section 16.7(b) that are consistent with and subject to the
provisions of this Agreement and hereby waives any and all defenses that may be
available to contest, negate, or disaffirm any action of the Liquidator taken in
good faith under the power of attorney granted pursuant to Section 16.7(b) that
are consistent with and subject to the provisions of this Agreement.
16.8 Attorneys' Fees.
In the event of commencement of suit or other action by either party
to enforce the provisions of this Agreement, the prevailing party shall be
entitled to receive such attorneys' fees and costs as the court or other forum
in which such suit or action is adjudicated may determine reasonable in addition
to all other relief granted.
- 67 -
<PAGE>
16.9 No Third-Party Beneficiaries.
This Agreement is not intended to, and shall not be construed to,
create any right enforceable by any Person not a party hereto, including any
partner or member of either Member or any creditor of the Company or of either
of the Members.
16.10 Headings.
The headings herein are included for ease of reference only and shall
not control or affect the meaning or construction of the provisions of this
Agreement.
16.11 Board Approval.
Subject to the other provisions of this Section 16.11, the obligations
of TCI and TCI Communications, Inc. under this Agreement are subject to each
obtaining membership, board of director or partnership approval, as applicable,
with respect to this Agreement. In this regard, reference is made to Section
10.1(e) of the Contribution Agreement and Insight's right to terminate the
Contribution Agreement as provided therein upon the failure of TCI and TCI
Communications, Inc. to obtain such approvals on or before the June 1, 1998, and
reference is also made to Section 11.1(f) of this Agreement in the event of any
such termination of the Contribution Agreement. Upon notification to Insight
prior to the dissolution of the Company that the obligations of TCI and TCI
Communications, Inc. under this Agreement are no longer subject to obtaining
such approvals, the first sentence of this Section 16.11 shall automatically be
of no further force and effect and the obligations of TCI and TCI Communications
under this Agreement shall no longer be subject to obtaining any such approvals.
- 68 -
<PAGE>
IN WITNESS WHEREOF, the Members have hereunto set their hands as of
the day first heretofore mentioned.
INSIGHT COMMUNICATIONS COMPANY,
L.P.
By: ICC Associates, L.P., its general partner
By: Insight Communications, Inc., its general
partner
By:
-----------------------------------------------
Name:
Title:
TCI OF INDIANA HOLDINGS, LLC
By: TCI of Indiana, Inc., its managing member
By:
-----------------------------------------------
Name:
Title:
FOR PURPOSES OF SECTION 8.3, SECTION
10.4 AND SECTION 16.1(b) ONLY:
TCI Communications, Inc.
By:
-----------------------------------------------
Name:
Title:
DC01/169511-19 //
<PAGE>
EXHIBIT A
TO
OPERATING AGREEMENT
MANAGEMENT AGREEMENT
<PAGE>
SCHEDULE I
TO
OPERATING AGREEMENT
ADDRESSES OF THE MEMBERS
Insight Communications Company, L.P.
126 E. 56th Street
New York, New York 10022
Attention: Sidney R. Knafel
Facsimile: (212) 371-1549
TCI of Indiana Holdings, LLC
c/o Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111-3000
Attention: William R. Fitzgerald
Facsimile: (303) 267-6672
<PAGE>
SCHEDULE II
TO
OPERATING AGREEMENT
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS; PERCENTAGE INTEREST
I. Formation Contributions Pursuant to Section 3.1(a):
Insight $100
TCI $100
II. Value of Assets Contributed Pursuant to Section 3.1(b):
The aggregate gross fair market value of the assets to be contributed by the
Members at Closing is as follows, which values are subject to adjustment as
specified below in paragraph IV:
Insight $ 327,851,078
TCI 310,851,078
===========
$ 638,702,156
TCI and Insight will negotiate in good faith to reach agreement prior to Closing
on the allocation of the aggregate gross fair market value among the assets to
be contributed by them to the Company. If TCI and Insight are unable to reach
such agreement prior to Closing, then promptly following Closing they will
mutually agree on an appraiser to be hired by the Company to allocate the
aggregate gross fair market values among the assets contributed by them. Neither
TCI nor Insight will take a position that is inconsistent with the allocations
determined by such appraiser. With respect to any of the assets contributed to
the Company by Insight pursuant to Section 3.1(b) that were acquired by Insight
from TCI pursuant to the Exchange Agreement entered into by Insight and TCI on
the date hereof, Insight and TCI agree to use the allocations determined by any
appraiser hired by Insight and TCI in connection with the Exchange Agreement.
III. Members' Debt Assumed by the Company:
The aggregate amount of indebtedness to be assumed by the Company from the
Members at Closing is as follows, which amounts are subject to adjustment as
specified below in paragraph IV:
Insight $ 234,500,000
TCI 217,500,000
===========
$ 452,000,000
<PAGE>
IV. Adjustments to Value of Assets and Amount of Debt Assumed:
If at Closing the estimated TCI Closing Adjustment or Insight Closing Adjustment
(each as defined in the Contribution Agreement) is to be paid to the Company,
the aggregate gross fair market value of the assets to be contributed by the
Member(s) paying such adjustment as set forth above in paragraph II shall be
decreased by the amount of such Closing Adjustment and the amount of
indebtedness to be assumed by the Company from such Member(s) at Closing as set
forth above in paragraph III shall be decreased by the amount of such Closing
Adjustment.
If at Closing the estimated TCI Closing Adjustment or Insight Closing Adjustment
is to be paid by the Company, the aggregate gross fair market value of the
assets to be contributed by the Member(s) entitled to such adjustment as set
forth above in paragraph II shall be increased by the amount of such Closing
Adjustment and the amount of indebtedness to be assumed by the Company from such
Member(s) at Closing as set forth above in paragraph III shall be increased by
the amount of such Closing Adjustment.
V. Capital Accounts of Members Immediately After Closing:
The Capital Accounts of the Members immediately after the Closing, based on the
net fair market value of the assets contributed by the Members, are:
Insight $ 93,351,078
TCI 93,351,078
==========
$186,702,156
VI. Percentage Interests of Members:
The Percentage Interests of the Members immediately after the Closing are:
Insight 50%
TCI 50%
<PAGE>
SCHEDULE III
TO
OPERATING AGREEMENT
INITIAL MEMBERS OF THE MANAGEMENT COMMITTEE
1. Members designated by Insight pursuant to Section 7.2(a):
Sidney Knafel
Michael Willner
Kim Kelly
2. Members designated by TCI pursuant to Section 7.2(a):
William Fitzgerald
Marvin Jones
<PAGE>
SCHEDULE IV
TO
OPERATING AGREEMENT
RESTRICTED SYSTEMS
See Attached Map.
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is made and entered into on the 30th day of
October, 1998, by and between Insight Communications of Indiana, LLC, a Delaware
limited liability company (the "Company") and Insight Communications Company,
L.P., a Delaware limited partnership (the "Manager").
RECITALS
A. Pursuant to an Operating Agreement dated as of May 14, 1998 (as the
same may be amended or modified from time to time, the "Operating Agreement"),
the Company has been formed to own and operate certain cable television systems
and certain other assets, as more fully described in the Operating Agreement.
The business and operations of the Company, as the same may be conducted from
and after the date hereof, are hereinafter referred to as the "Business."
B. Manager has the experience and ability to manage the Business and is
willing to do so, and the Company desires to enter into this Agreement with
Manager providing for the management of the Business on the terms and conditions
set forth herein.
AGREEMENTS
In consideration of the covenants and agreements contained herein, the
Company and Manager agree as follows:
SECTION 1 DEFINITIONS. Except as otherwise defined herein, the
following terms shall have the following meanings when used in this Agreement:
Affiliate. With respect to either the Company or Manager, any other
Person that directly or indirectly through one or more intermediaries controls
or is controlled by or under direct or indirect common control with such party.
Applicable Law. Any statute, ordinance, law, rule or regulation of any
Governmental Authority, or any order, decree, injunction, writ, judgment or
award of any court, arbitrator or other Governmental Authority, applicable to
the Company or the Business.
Authorizations. Any governmental or non-governmental license, permit,
franchise or other authorization, and applications therefor, which are necessary
to conduct the Business.
<PAGE>
GAAP. Generally accepted accounting principles as in effect from time
to time.
Governmental Authority. Any governmental authority or regulatory body,
or any department, agency, division, bureau or other legal body thereof having
jurisdiction over the Company, the Business, or general jurisdiction over all
Persons.
Person. Any individual, corporation, partnership, firm, limited
liability company, joint venture, association, trust, joint stock company,
unincorporated organization or other entity, or a government or any agency or
political subdivision thereof.
Capitalized terms not otherwise defined herein shall have the meanings
given such terms in the Operating Agreement.
SECTION 2 APPOINTMENT. On the terms and conditions hereinafter
provided, the Company hereby appoints Manager, and Manager hereby accepts such
appointment, as manager for all of the operations and conduct of the Business
for a period commencing on the date of Closing, as defined in the Asset
Contribution Agreement dated as of May 14, 1998, as the same may be amended from
time to time in accordance with its terms, by and among the Company and the
other parties thereto, and expiring as provided in Section 5 hereof.
SECTION 3. MANAGEMENT AUTHORITY; MANAGEMENT SERVICES.
3.1 Authority and Services To Be Performed By Manager. (a)(i) Subject
to the limitations set forth in Section 3.1(b) below, Manager shall have full
and exclusive authority to do all such acts and things as may be incidental to,
or necessary, proper or advisable in the furtherance of, the management of the
day-to-day operations and conduct of the Business. Subject to the terms and
conditions of this Agreement, Manager shall provide the Company with such
services as may, from time to time, be appropriate or reasonably required for
the proper and efficient operation and conduct of the Business in accordance
with sound business principles and practices customary in the cable television
industry (collectively, the "Management Services"). The Management Services
shall be provided both at such times as Manager may reasonably deem appropriate
and at such times as the Company may reasonably request.
(ii) Without limiting the generality of the preceding
paragraph, the Management Services shall include the following, but subject to
any applicable limitations set forth in this Agreement:
(1) (A) Evaluation of new equipment, materials and techniques
and making recommendations in accordance with its evaluations, (B) establishment
of general technical
-2-
<PAGE>
standards and procedures and directing their implementation, and (C)
establishment of programs for preventive maintenance and monitoring their
effectiveness;
(2) Supervision of all construction and development arising
out of or related to the operation of the Business, including, without
limitation, the selection and appointment of all subcontractors, equipment
suppliers and vendors;
(3) Supervision of the purchasing of property, real, personal
or mixed, and all materials and supplies, if any, necessary to complete any
construction and development arising out of or related to the Business;
(4) Sale, lease, trade, exchange or other disposition of the
Company's assets in the ordinary course of business and the negotiation of, and
entrance into, in the name of and on behalf of the Company, of all agreements
relating to any of the foregoing;
(5) Negotiation of, and entrance into, in the name of and on
behalf of the Company, of all, contracts, leases, deeds, releases, assignments
and any other agreements on behalf of the Company for the purchase, lease,
license or use of such properties and rights as may be necessary or reasonably
desirable in connection with the Business;
(6) Formulation and supervision of all advertising, marketing
and sales programs and engagement and appointment on behalf of the Company of
advertising, marketing and public relations agencies and consultants for such
purposes;
(7) Subject to the provisions of all Authorizations,
Applicable Law and applicable agreements to which the Company is a party, the
selection and pricing of all services to be provided to the customers of the
cable television systems included in the Business;
(8) Supervision of performance of all aspects of the daily
operation and maintenance of the Business, instruction and supervision of all
personnel necessary to conduct daily operations of the Business and the setting
of salaries and wages for such personnel (with all such employees to be paid by
the Company);
(9) Entrance into, in the name of and on behalf of the
Company, of any agreements arising out of or related to the Business, including,
without limitation, cable television franchises or collective bargaining
agreements with employees of the Company;
(10) Supervision of the maintenance of all accounting,
bookkeeping, billing, collections and other financial systems and records
relating to the Business;
(11) Engagement of, on behalf of the Company, attorneys,
accountants, engineers, consultants and other qualified professionals;
-3-
<PAGE>
(12) Preparation and filing, or causing to be prepared and
filed, all necessary applications, filings, reports, statements and other
documents as are required in connection with the Business with Governmental
Authorities (including any income tax filings);
(13) Purchase of such policies of insurance (including
Manager's blanket coverage) as Manager may from time to time consider necessary
and appropriate in accordance with normal industry practice, with such policy
naming both the Company and Manager (and any other Member of the Company) as
insured thereunder as their interests may appear;
(14) Representation of the Company before all Governmental
Authorities with respect to any matter necessary or desirable to the management
of the Business; and
(15) Taking of any other action in connection with the
construction, development, operation and maintenance of the Business in the
ordinary course of business which is commercially reasonable, appropriate and
necessary.
(b) Notwithstanding the foregoing in Section 3.1(a), the
Manager acknowledges that (i) the Manager shall be subject to the direction and
control of the Management Committee of the Company and (ii) the Manager shall be
subject to all express limitations of the Operating Agreement requiring
approvals of the members of the Management Committee of the Company or the
members of the Company prior to taking of certain actions by the Company and
shall otherwise be subject to the terms of the Operating Agreement, including
Section 16.1 thereof.
3.2 Standard of Care. Manager will use reasonable commercial efforts in
managing the Business; provided, however, that notwithstanding anything
contained herein or Applicable Law to the contrary, neither Manager (nor any of
its direct or indirect partners, shareholders, members, officers, directors,
Affiliates, employees or agents) shall have any liability, express or implied,
for any action taken or omitted to be taken by Manager or for any failure or
delay in performing or exercising any obligation, duty, right, power or
authority possessed by Manager under this Agreement, or any other document
related hereto except for actual losses, if any, suffered by the Company that
are proximately caused either by Manager's gross negligence, willful misconduct
or willful breach of this Agreement.
3.3 Compliance with Authorizations. Notwithstanding anything in this
Agreement to the contrary, the Company shall continue to be the franchisee,
licensee and permittee, as applicable, of all Authorizations of any nature
whatsoever issued by any Governmental Authority in connection with the operation
of the Business and shall retain ultimate control over the Business. The Company
shall also retain ultimate responsibility for compliance with all Applicable Law
and the terms of any applicable Authorizations.
3.4 Payment of Expenses. The Company shall be responsible for the
payment of all costs, expenses and liabilities of any nature whatsoever in
connection with the construction,
-4-
<PAGE>
development, operation, maintenance, repair and ownership of the Business and
the Company shall be the responsible party under all agreements entered into on
behalf of the Company by Manager pursuant hereto.
3.5 Inspection of Records. Originals or copies of all books and records
related to this Management Agreement shall be maintained at the principal office
of Manager and shall be open to the inspection and examination of the Company
and its Members during normal business hours upon reasonable notice.
SECTION 4 COMPENSATION AND EXPENSES.
4.1 Management Fee. As compensation to Manager for the performance of
its services hereunder, the Company shall pay to Manager a management fee
("Management Fee") for each twelve month period during the term of this
Agreement, commencing on the date hereof, equal to three percent (3%) of the
total Gross Operating Revenues of the Company for that year.
4.2 Gross Operating Revenues. The term "Gross Operating Revenues" means
all revenues arising out of or in connection with the operation of the Business,
but exclusive of all proceeds from the sale of assets or from other
extraordinary or non-recurring items and exclusive of all interest, dividends,
royalties, and other similar types of investment income that do not arise from
the operation of the Business in the ordinary course.
4.3 Quarterly Statement. Within 30 days after the end of each fiscal
quarter, the Manager shall submit to the Company a quarterly and a cumulative
year-to-date Gross Operating Revenues statement indicating the quarterly
Management Fee payable and the cumulative year-to-date Management Fee payable to
Manager together with appropriate supporting documentation. Each quarterly
Management Fee payable hereunder shall be adjusted to reflect any cumulative
year-to-date adjustments in Gross Operating Revenues. The Management Fee shall
be payable each quarter within 10 days after the Management Fee statement for
such quarter has been received by the Company.
4.4 Annual Statement. Within 90 days after the end of each fiscal year,
the Company shall cause its independent public accountants to determine the
Gross Operating Revenues of the Company for that year and the amount of the
Management Fee payable to Manager for that year and deliver a copy to Manager.
Manager shall have the right to consult with the accountants regarding the
determination of Gross Operating Revenues prior to the final determination of
Gross Operating Revenues by the accountants. The accountants' determination
shall be final and binding on the Company and Manager.
4.5 Expense Reimbursement. The Management Fee described above shall be
exclusive of reimbursement by the Company to Manager for all direct,
out-of-pocket expenditures incurred by or on behalf of Manager relating to its
obligations under this Agreement
-5-
<PAGE>
as provided for herein, including without limitation, reimbursement for travel
expenses. Manager shall be entitled to reimbursement by the Company for services
that would ordinarily be direct expenditures of the Company. Manager shall act
in good faith and in a reasonable manner in making determinations of
reimbursement. It is understood and agreed that the intent of the expense
reimbursement provisions contained in this Section 4.5 is to reimburse Manager
only for expenses incurred that are directly related to the operation of the
Business and not to reimburse Manager for any corporate overhead (including
bonuses and health, welfare, retirement and other benefits and overhead expenses
of its corporate office management, development, internal accounting and finance
management personnel), which shall be paid out of the Management Fee. Payment of
expense reimbursement shall be made monthly by the Company to Manager within
five days after receipt by the Company of a statement (the "Monthly Expense
Statement") of Manager's estimated reimbursable expenses for the preceding
month. The Monthly Expense Statement shall include an adjustment to reflect the
amount by which actual reimbursable expenses incurred during the month
immediately preceding the month of payment exceeded, or were exceeded by,
Manager's estimated reimbursable expenses with respect to such month.
4.6 Subordination. Manager acknowledges and agrees that notwithstanding
anything else contained herein, payment of the Management Fee may be limited by
the provisions of loan agreements of the Company and that the Management Fee
shall be paid if and only to the extent that such payment will not create a
default under such loan agreements. To the extent that all or any portion of the
Management Fee may not be paid because of the terms of the loan agreements, any
portion of the Management Fee that is deferred shall be paid as soon as the same
may be paid without violating the provisions of the loan agreements. Payments of
any outstanding Management Fees (whether or not deferred) shall be paid prior to
payment of any members distributions or similar payments to the members of the
Company.
SECTION 5 DEFAULT AND TERMINATION.
5.1 A default by Manager or the Company shall occur under this
Agreement if Manager or the Company shall willfully breach in any material
respect any material covenant of this Agreement to be kept and performed by it.
5.2 Subject to Section 5.3 hereof, this Agreement shall be terminated
automatically upon the termination of the Company and may be terminated as
follows:
(a) by either the Company or Manager on written notice to the
other party in the event of any default (as defined in Section 5.1 hereof) by
the other party, as provided in Section 5.1, which is not cured within 90 days
after written notice thereof is received by the defaulting party (or if not
curable within that time period, within a reasonable time thereafter);
(b) by either the Company or Manager on written notice to the
other party upon a sale or other disposition of all or substantially all of the
assets of the Company.
-6-
<PAGE>
(c) Upon the resignation or removal of Insight as Managing
Member pursuant to and in accordance with the terms of the Operating Agreement,
other than in connection with a transfer by Insight of its Membership Interest
to an Affiliate of Insight that is permitted under the terms of the Operating
Agreement.
5.3 In the event of termination of this Agreement pursuant to the terms
hereof, Manager shall be entitled to receive promptly following termination, and
in any event within 30 days thereafter, the amount of any accrued but unpaid
Management Fees and any expense reimbursements.
SECTION 6 INDEMNIFICATION.
6.1 Indemnification by the Company. The Company will indemnify and hold
harmless Manager, its Affiliates, and all direct and indirect officers,
directors, employees, stockholders, partners, members and agents of Manager and
its Affiliates (individually, a "Manager Indemnitee") from and against any and
all claims, demands, costs, damages, losses, liabilities, joint and several,
expenses of any nature (including reasonable attorneys', accountants' and
experts' fees and disbursements, all of which shall be paid by the Company as
incurred by the Manager Indemnitee(s)), judgments, fines, settlements and other
amounts (collectively, "Damages") arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative, or investigative
(collectively "Claims") in which a Manager Indemnitee may be involved or
threatened to be involved, as a party or otherwise, arising out of Manager's
performance of its obligations under this Agreement or arising out of, related
to or in connection with, the Business regardless of whether this Agreement
continues to be in effect or such Manager Indemnitee continues to be an
Affiliate, or an officer, director, employee, stockholder, partner or agent of
Manager, at the time any such Claims are made or Damages incurred, provided that
in respect of any matter in which indemnification is sought, to the extent
applicable: (i) the Manager Indemnitee acted in good faith and in a manner it
reasonably believed to be in the best interest of the Company and, with respect
to any criminal proceeding, had no reasonable cause to believe its conduct was
unlawful, and (ii) the Manager Indemnitee's conduct for which indemnification is
sought did not constitute gross negligence, willful misconduct or a willful
breach of this Agreement. Any indemnification hereunder will be satisfied solely
out of the assets of the Company.
6.2 Indemnification by Manager. Manager will indemnify and hold
harmless the Company, its Affiliates, and all officers, directors, employees,
stockholders, partners, members and agents of the Company and its Affiliates
(individually, a "Company Indemnitee") from and against all Damages arising from
any Claim in which a Company Indemnitee may be involved or threatened to be
involved, as a party or otherwise, arising out of Manager's gross negligence,
willful misconduct or willful breach of this Agreement.
-7-
<PAGE>
6.3 Right to Indemnification Not Exclusive Remedy. The indemnification
rights contained in this Section 6 will be cumulative of and in addition to any
and all other rights, remedies and recourse to which a Manager Indemnitee or a
Company Indemnitee, its heirs, successors, assigns and administrators are
entitled, whether pursuant to some other provision of this Agreement, at law or
in equity; provided, however, it is understood and agreed that notwithstanding
anything contained herein to the contrary, neither Manager (nor any of its
shareholders, officers, directors, employees or agents) shall have any liability
with respect to a breach of, or non-performance under this Agreement except as
expressly specified in this Agreement. The indemnification provided in this
Section 6 will inure to the benefit of the heirs, successors, assigns and
administrators of each Manager Indemnitee and Company Indemnitee.
6.4 Insurance. Manager may purchase, at the Company's expense, and
maintain insurance on behalf of Manager and such other persons as Manager may
reasonably determine against any liability that may be asserted against it or
them in connection with the performance of Manager's obligations under this
Agreement; provided, however, that Manager will not purchase or maintain
insurance against liabilities of Manager or any other person arising out of acts
or omissions which were not made in good faith or which constituted gross
negligence, willful misconduct or a willful breach of this Agreement.
6.5 Interested Transactions. A Manager Indemnitee will not be denied
indemnification in whole or in part under this Section 6 solely because the
Manager Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement.
SECTION 7 MISCELLANEOUS.
7.1 Relationship Among the Parties. Nothing herein contained shall be
deemed to make Manager a partner, co-venturer or other participant in the
business or operations of the Company or in any manner to render Manager liable
as a principal, surety, guarantor, agent or otherwise for any of the debts,
obligations or liabilities of the Company, whether incurred directly by the
Company or by Manager on behalf of the Company in accordance with this
Agreement.
7.2 Other Activities of Manager. Nothing in this Agreement shall limit
or restrict the right of Manager to engage in any other business or to devote
its time and attention to the management or other aspects of any other business
or to render services of any kind. The Company acknowledges that Manager and its
Affiliates own, manage or operate cable television systems throughout the United
States. Manager will devote such of its attention, time, efforts and resources
to the Business as shall be reasonably necessary for it to carry out its duties
hereunder.
7.3 Notices. All notices and other communications given or made
pursuant to this Agreement shall be in writing and shall be deemed to have been
duly given or made as of the
-8-
<PAGE>
date delivered if delivered by hand, by telecopier device (confirmed by hand
delivery or overnight courier service) or by overnight courier service to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
if to the Company, to:
c/o Insight Communications Company, L.P.
126 E. 56th Street
New York, New York 10022
Attention: Mr. Michael Willner
Telephone: (212) 371-2266
Telecopier: (212) 371-1549
with a copy to:
c/o TCI-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: Mr. William R. Fitzgerald
Telephone: (303) 267-4720
Telecopier: (303) 267-6672
if to Manager, to:
Insight Communications Company, L.P.
126 E. 56th Street
New York, New York 10022
Attention: Mr. Michael Willner
Telephone: (212) 371-2266
Telecopier: (212) 371-1549
7.4 Assignability; Benefit and Binding Effect. The Company agrees that
Manager may assign this Agreement, without the consent of the Company, to any
Affiliate of Manager, or any successor to Manager by merger, consolidation or
otherwise. Except as set forth in the preceding sentence, neither party hereto
may assign this Agreement without the prior written consent of the other party.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
7.5 Governing Law. This Agreement shall be governed by the laws of the
State of Delaware as to all matters, including but not limited to matters of
validity, construction, effect, performance and remedies (without giving effect
to the principles of conflicts of law thereof).
-9-
<PAGE>
7.6 Headings. The headings preceding the text of sections and
subsections of this Agreement are included for ease of reference only and shall
not be deemed part of this Agreement.
7.7 Gender and Number. Words used herein, regardless of the gender and
number specifically used, shall be deemed and construed to include any other
gender, masculine, feminine or neuter, and any other number, singular or plural,
as the context requires.
7.8 Entire Agreement. This Agreement represents the entire
understanding and agreement between the Company and Manager with respect to the
specific subject matter hereof. This Agreement supersedes all prior negotiations
between the parties and cannot be amended, supplemented or changed except by an
agreement in writing which makes specific reference to this Agreement or an
agreement delivered pursuant hereto, as the case may be, and which is signed by
the party against which enforcement of any such amendment, supplement or
modification is sought.
7.9 Further Assurances. The parties shall take any actions and execute
any other documents that may be necessary or desirable to the implementation and
consummation of this Agreement or that may be reasonably requested by any other
party hereto. Each party will cooperate with the other party and provide any
assistance reasonably requested by the other party to effectuate the intent of
this Agreement.
7.10 Severability. If any provision of this Agreement or the
application thereof to any person or circumstance shall be held invalid or
unenforceable to any extent by any court of competent jurisdiction, the
remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected thereby and shall be enforced to
the greatest extent permitted by law.
7.11 Counterparts. This Agreement may be signed in counterparts, each
of which shall be deemed to be an original but which, when taken together, shall
constitute one and the same instrument.
[SIGNATURES NEXT PAGE]
-10-
<PAGE>
IN WITNESS WHEREOF, this Management Agreement has been executed by the
parties hereto as of the date first above written.
THE COMPANY:
INSIGHT COMMUNICATIONS OF
INDIANA, LLC
By: Insight Communications Company,
L.P., Member
By: ICC Associates, L.P., its General
Partner
By: Insight Communications, Inc.,
General Partner
By:
----------------------------------
Name: Kim D. Kelly
Title: Executive Vice President, Chief
Operating Officer and Chief
Financial Officer
MANAGER:
INSIGHT COMMUNICATIONS
COMPANY, L.P.
By: ICC Associates, L.P., its General
Partner
By: Insight Communications, Inc.,
General Partner
By:
----------------------------------
Name: Kim D. Kelly
Title: Executive Vice President, Chief
Operating Officer and Chief
Financial Officer
-11-
<PAGE>
OPERATING AGREEMENT
OF
INSIGHT COMMUNICATIONS OF CENTRAL
OHIO, LLC
<PAGE>
OPERATING AGREEMENT
OF
INSIGHT COMMUNICATIONS OF CENTRAL
OHIO, LLC
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINITIONS
1.1 Terms Defined in this Section....................................2
1.2 Terms Defined Elsewhere in this Agreement.......................11
SECTION 2. THE COMPANY AND ITS BUSINESS
2.1 Formation.......................................................12
2.2 Filing of Certificate of Formation..............................12
2.3 Company Name....................................................12
2.4 Term of the Company.............................................13
2.5 Purposes of the Company.........................................13
2.6 Authority of the Company........................................13
2.7 Actions of Company Prior to Closing.............................15
2.8 Scope of Members' Authority.....................................16
2.9 Principal Office and Other Offices; Registered Agent............16
2.10 Foreign Qualification..........................................16
2.11 Fiscal Year....................................................16
2.12 Addresses of the Members.......................................16
2.13 Tax Classification.............................................17
SECTION 3. COMPANY CAPITAL
3.1 Contributions...................................................17
3.2 Additional Capital Contributions................................17
3.3 Assumption of Liabilities.......................................18
3.4 Return of Contributions.........................................18
3.5 Refinancing and Purchase of Senior Debt and Subordinated Debt...18
SECTION 4. CASH DISTRIBUTIONS
4.1 Distributions Prior to Liquidation..............................26
4.2 Withholding.....................................................30
- i -
<PAGE>
Page
----
4.3 Redemption......................................................30
4.4 Certain Remedies................................................32
SECTION 5. ALLOCATIONS OF PROFITS AND LOSSES
5.1 Allocations of Net Profit and Net Loss..........................33
5.2 Special Provisions Regarding Allocations of Income and Loss.....34
5.3 Section 754 Adjustments.........................................37
5.4 Allocations for Tax Purposes....................................37
5.5 Allocations Following a Transfer of Membership Interest.........38
SECTION 6. AUTHORITY OF THE MANAGER; OTHER MATTERS AFFECTING
MANAGER
6.1 Authority of Manager............................................38
6.2 Resignation as Manager..........................................38
6.3 Tax Matters Member..............................................39
6.4 Reimbursement of Expenses.......................................40
SECTION 7. STATUS OF MEMBERS
7.1 No Management and Control.......................................41
7.2 Limited Liability...............................................41
7.3 Return of Distributions of Capital..............................41
7.4 Specific Limitations............................................41
7.5 Issuance of Membership Interests................................42
SECTION 8. MANAGEMENT OF THE COMPANY
8.1 Creation of Management Committee................................42
8.3 Meetings of the Management Committee............................43
8.4 Procedural Matters..............................................43
8.5 Matters Requiring Approval by the Principals....................44
8.6 Permitted Transactions..........................................46
8.7 Other Management Matters........................................47
SECTION 9. ASSIGNMENT, TRANSFER, OR SALE OF INTERESTS IN THE COMPANY
9.1 Limitations on Transfers........................................47
9.2 Assignee........................................................48
9.3 Substitute Members..............................................49
9.4 Other Consents and Requirements.................................49
9.5 Assignment Not In Compliance....................................50
9.6 Tag-Along and Drag-Along Rights.................................50
9.7 Pledge and Assignment of Interest...............................57
9.8 Condition on Change in Control of the Company...................58
- ii -
<PAGE>
Page
----
9.9 Substitution of Parent Undertaking..............................58
9.10 Continuing Rights and Privileges...............................59
9.11 Insight's Right to Put Its Interest.............................59
9.12 Treatment of Certain Membership Interests......................60
SECTION 10. DISSOLUTION AND TERMINATION OF THE COMPANY
10.1 Events of Dissolution..........................................60
10.2 Liquidation....................................................61
10.3 Distribution in Kind...........................................62
10.4 No Action for Dissolution......................................63
10.5 No Further Claim...............................................63
SECTION 11. INDEMNIFICATION
11.1 General........................................................63
11.2 Exculpation....................................................64
11.3 Persons Entitled to Indemnity..................................64
SECTION 12. BOOKS, RECORDS, ACCOUNTING, AND REPORTS
12.1 Books and Records..............................................64
12.2 Delivery to Member and Inspection..............................65
12.3 Annual Statements..............................................65
12.4 Quarterly Financial Statements.................................66
12.5 Monthly Statements.............................................66
12.6 Other Information..............................................67
12.7 Tax Matters....................................................67
12.8 Other Filings..................................................67
12.9 Non-Disclosure.................................................67
SECTION 13. AMENDMENTS AND WAIVERS
13.1 Amendments to Operating Agreement..............................68
13.2 Waivers........................................................69
SECTION 14. STATUS OF PRINCIPALS
14.1 Principals Not Members.........................................69
14.2 Provisions for the Benefit of Principals.......................69
14.3 Assignment or Rights...........................................69
14.4 Termination of Rights and Obligations..........................69
14.5 Actions by Principals..........................................70
14.6 Limited Recourse...............................................70
SECTION 15. MISCELLANEOUS
- iii -
<PAGE>
Page
----
15.1 Captions......................................................70
15.2 Pronouns; Singular and Plural Form............................70
15.3 Further Action................................................70
15.4 Entire Agreement..............................................71
15.5 Agreement Binding.............................................71
15.6 Equitable Remedies............................................71
15.7 Notices.......................................................71
15.8 Severability..................................................71
15.9 Counterparts..................................................72
15.10 Governing Law................................................72
15.11 No Third-Party Beneficiaries.................................72
- iv -
<PAGE>
OPERATING AGREEMENT
OF
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
THIS OPERATING AGREEMENT of INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
is entered into effective as of August 21, 1998, by and among Coaxial
Communications of Central Ohio, Inc., an Ohio corporation, Insight Holdings of
Ohio, LLC, a Delaware limited liability company, Barry Silverstein, an
individual resident of the State of Florida, Dennis McGillicuddy, an individual
resident of the State of Florida, and D. Stevens McVoy, an individual resident
of the State of Ohio.
RECITALS
Barry Silverstein is the sole member of Coaxial LLC, a Delaware limited
liability company, Dennis McGillicuddy is the sole member of Coaxial DJM LLC, a
Delaware limited liability company, and D. Stevens McVoy is the sole member of
Coaxial DSM LLC, a Delaware limited liability company. The Shareholders
collectively own all the issued and outstanding shares of Central.
Insight and the Shareholders have entered into certain Management
Agreements, providing for the management by Insight of the Shareholders. Through
its management of the Shareholders, Insight possesses the right to direct the
business and affairs of the Shareholders, subject to certain exceptions.
Central and Insight desire to enter into this Operating Agreement to
provide for the formation and organization of the Company, the allocation of
profits and losses, cash flow, and other proceeds of the Company between the
Members, the respective rights, obligations, and interests of the Members to
each other and to the Company, and certain other matters. Central, Insight, and
the Principals further desire to set forth in this Operating Agreement certain
agreements and understandings among them concerning the ownership and operation
of the Company and Central. The parties intend, therefore, that this Operating
Agreement will constitute both a "limited liability company agreement" between
the Members for purposes of the Act as well as an agreement among all the
parties with respect to the matters set forth herein.
AGREEMENT
In consideration of the mutual covenants and agreements set forth in
this Agreement, the parties agree as follows.
<PAGE>
SECTION 1. DEFINITIONS
1.1 Terms Defined in this Section.
The following terms, as used in this Agreement, have the meanings set
forth in this Section:
"Act" means the Delaware Limited Liability Company Act, as amended from
time to time.
"Adjusted Capital Account" means with respect to either Member, the
balance in such Member's Capital Account as of the end of the relevant Fiscal
Year, after:
(i) crediting to such Capital Account any amounts that such
Member is obligated to restore to the Company pursuant to Treasury Regulations
Section 1.704-1(b)(2)(ii)(c) or is deemed to be obligated to restore pursuant to
the penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(ii) debiting from such Capital Account the items described in
Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5),
and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to
comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such Person. For purposes of this
definition and the definition of "Subsidiary," the term "controls" means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise. The terms "controlled by" and "under
common control with" have meanings corresponding to the meaning of "controls."
"Agreement" means this Operating Agreement, as it may be amended from
time to time.
"Assignee" means a Person that has acquired a beneficial interest in a
Membership Interest in accordance with the provisions of Section 9 but has not
become a Member in accordance with the provisions of Section 9.3.
"Borrowers" means, with respect to the Senior Debt, Central and Phoenix
Associates, and, with respect to the Subordinated Debt, the Shareholders and
Coaxial Financing Corp., a Delaware corporation.
- 2 -
<PAGE>
"Business Day" means any day (other than a day that is a Saturday or
Sunday) on which banks are permitted to be open for business in the State of New
York.
"Capital Account" means an account to be maintained for each Member in
accordance with the Code, which, subject to any contrary requirements of the
Code, shall equal (i) the amount of money contributed by such Member to the
Company, if any; (ii) the fair market value without regard to Code Section
7701(g) of property, if any, contributed by such Member to the Company (net of
liabilities secured by such contributed property that the Company or the other
Member is considered to assume under Code Section 752); (iii) allocations to
such Member of Net Profit pursuant to Section 5; and (iv) other additions made
in accordance with the Code; and decreased by (i) the amount of cash distributed
to such Member by the Company; (ii) allocations to such Member of Net Loss
pursuant to Section 5; (iii) the fair market value without regard to Code
Section 7701(g) of property distributed to such Member by the Company (net of
liabilities secured by such distributed property that such Member is considered
to assume or is considered to take under Code Section 752); and (iv) other
deductions made in accordance with the Code. The Members' respective Capital
Accounts shall be determined and maintained at all times in accordance with all
the provisions of Treasury Regulations Section 1.704-1(b)(2)(iv).
"Capital Contributions" means, with respect to each Member, the amount
of money and the net fair market value of property contributed by such Member to
the Company pursuant to this Agreement.
"Central" means Coaxial Communications of Central Ohio, Inc., an Ohio
corporation.
"Class A Common Interest" means, at any time, any Common Interest owned
at such time by Insight.
"Class B Common Interest" means, at any time, any Common Interest owned
at such time by Central.
"Closing" and "Closing Date" have the meanings assigned to them in the
Contribution Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any subsequent federal law of similar import, and, to the extent
applicable, the Treasury Regulations.
"Common Interest" means that portion of the Membership Interest of
either Member other than the Preferred A Interest and the Preferred B Interest,
including that portion of the Membership Interest of either Member having the
rights and privileges specified in this Agreement as pertaining to the Common
Interest.
"Company" means the limited liability company formed by the Members
pursuant to this Agreement.
- 3 -
<PAGE>
"Contribution Agreement" means the Contribution Agreement, dated as of
June 30, 1998, between Central and Insight Communications Company, L.P. (which
assigned its rights and delegated its obligations thereunder to Insight), as
amended by amendments thereto dated as of July 15, 1998 and as of August 21,
1998, and as it may hereafter be amended from time to time in accordance with
its terms.
"Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such Fiscal Year, Depreciation shall be determined in the
manner described in Treasury Regulations Section 1.704-1(b)(2)(iv)(g)(3).
"Discount Notes" means the Senior Discount Notes issued by Coaxial LLC
and Coaxial Financing Corp., a Delaware corporation, concurrently with the
Closing.
"Distributable Cash" means, on any Guaranteed Payment Date, Preferred A
Distribution Date, or Preferred B Distribution Date, (a) the total amount on
such date of the Company's cash, cash equivalents, and other assets, such as
marketable securities, that can readily be converted into cash, plus (b) the
amount then available to be borrowed by the Company under any existing credit
facility the proceeds of which may be used to make distributions to Members,
plus (c) the amount of any discretionary capital expenditures made by the
Company during the period since the preceding Guaranteed Payment Date, Preferred
A Distribution Date, or Preferred B Distribution Date, as applicable, less (d)
any portion of such amounts that the Company is then prohibited from
distributing to its Members pursuant to Section 18-607(a) of the Act.
"Fiscal Year" means the Company's fiscal year, as specified in
Section 2.11.
"Gross Asset Value" means with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by
a Member to the Company shall be the gross fair market value of such asset, as
agreed to by the Members;
(ii) The Gross Asset Values of all assets of the Company shall
be adjusted to equal their respective gross fair market values, as determined by
the Management Committee, as of the following times: (A) the acquisition of an
additional interest in the Company by any new or existing Member in exchange for
more than a de minimis Capital Contribution; (B) the distribution by the Company
to a Member of more than a de minimis amount of property (including cash) as
consideration for an interest in the Company; and (C) the liquidation of the
Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g);
provided, however, that the adjustments pursuant to clauses (A) and (B) above
shall be made only if and to the extent that the Manager determines that such
adjustments are necessary or appropriate to reflect the relative economic
interests of the Members in the Company;
- 4 -
<PAGE>
(iii) The Gross Asset Value of any asset of the Company
distributed to either Member shall be the gross fair market value of such asset
on the date of distribution, as agreed to by the Members or, in the absence of
an agreement by the Members, as determined by the Management Committee; and
(iv) The Gross Asset Value of the assets of the Company shall
be increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and
Section 5.3; provided, however, that Gross Asset Value shall not be adjusted
pursuant to this paragraph (iv) to the extent that the Management Committee
determines that an adjustment pursuant to paragraph (ii) of this definition is
necessary or appropriate in connection with a transaction that would otherwise
result in an adjustment pursuant to this paragraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to paragraph (i), (ii), or (iv) of this definition, the Gross Asset
Value of such asset shall thereafter be adjusted by the Depreciation taken into
account with respect to such asset for purposes of computing Net Profit and Net
Loss.
"Insight" means Insight Holdings of Ohio, LLC, a Delaware limited
liability company, or any other Person that succeeds to its Membership Interest
and is admitted as a Member in accordance with the provisions of this Agreement.
"Lien" has the meaning specified in the Contribution Agreement.
"Loan Document" means any agreement or other instrument, including any
note or indenture, evidencing all or any part of the Senior Debt or the
Subordinated Debt or pursuant to which all or any part of the Senior Debt or the
Subordinated Debt exists or is outstanding.
"Management Committee" means the Management Committee established by
Section 8.
"Management Return" means, for each Management Return Payment Date (or
for the date on which a distribution pursuant to Section 10.2(d)(iii)(D) is
made), the product of (x) three percent and (y) the gross revenues received by
the Company from services or goods sold to subscribers or other customers of the
Company (including subscriber fees, pay channel fees, leased channel fees,
installation fees, disconnection fees, launch or incentive fees, and advertising
revenue, but excluding extraordinary or non-recurring income, any customer
deposits (unless forfeited to the Company), interest, dividends, royalties, and
other investment income, and proceeds of the sale of any capital assets or any
financing), determined in accordance in generally accepted accounting principles
consistently applied, during the period beginning on the preceding Management
Return Payment Date (or, in the case of the first Management Return Payment
Date, the Closing Date) and ending on the day prior to such Management Return
Payment Date (or, in
- 5 -
<PAGE>
the case of a distribution pursuant to Section 10.2(d)(iii)(D), the date on
which such distribution is made).
"Manager" means Insight, any new Manager appointed as successor to
Insight in accordance with the provisions of this Agreement, and, to the extent
provided in Section 4.4(b)(ii), a Person designated by the Principals.
"Member" means Central, Insight, and any other Person who may hereafter
become a Member pursuant to this Agreement, but does not include any of the
Principals (except to the extent that any of the Principals hereafter becomes a
Member pursuant to this Agreement).
"Membership Interest" means the entire ownership interest of a Member
in the Company at any particular time, including all of its rights and
obligations hereunder and under the Act, which may include one or more of a
Common Interest (which may be designated as a Class A Common Interest or a Class
B Common Interest), a Preferred A Interest, or a Preferred B Interest.
"Net Profit" and "Net Loss" means for each Fiscal Year or other period,
an amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss, or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(i) Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Net Profit or Net
Loss shall be added to such taxable income or loss;
(ii) Any expenditures of the Company described in Code Section
705(a)(2)(B), or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Treasury Regulations Section 1.704- 1(b)(2)(iv)(i), and which are not otherwise
taken into account in computing such Net Profit or Net Loss, shall be subtracted
from such taxable income or loss;
(iii) If the Gross Asset Value of any asset of the Company is
adjusted pursuant to paragraph (ii) or (iii) of the definition of Gross Asset
Value, the amount of such adjustment shall be taken into account as gain or loss
from the disposition of such asset for purposes of computing Net Profit or Net
Loss;
(iv) Gain or loss resulting from any disposition of property
by the Company with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset Value of
the property disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value;
- 6 -
<PAGE>
(v) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year or other
period;
(vi) Notwithstanding anything to the contrary in the
definition of the terms "Net Profit" and "Net Loss," any items that are
specially allocated pursuant to Section 5.2 of this Agreement shall not be taken
into account in computing Net Profit or Net Loss; and
(vii) For purposes of this Agreement, any deduction for a loss
on a sale or exchange of property that is disallowed to the Company under Code
Section 267(a)(1) or Code Section 707(b) shall be treated as a Code Section
705(a)(2)(B) expenditure.
"Nonrecourse Deductions" means losses, deductions, or Code Section
705(a)(2)(B) expenditures attributable to Partnership Nonrecourse Liabilities.
The amount of Nonrecourse Deductions shall be determined pursuant to Treasury
Regulations Section 1.704-2(c), which provides generally that the amount of
Nonrecourse Deductions for a Fiscal Year shall equal the net increase, if any,
in Partnership Minimum Gain during that Fiscal Year, reduced (but not below
zero) by the aggregate distributions made during that Fiscal Year of proceeds of
a Nonrecourse Liability that are allocable to an increase in Partnership Minimum
Gain.
"Nonrecourse Liability" has the meaning set forth in Treasury
Regulations Section 1.752-1(a)(2).
"Partner Nonrecourse Debt" has the meaning set forth in Treasury
Regulations Section 1.704-2(b)(4), which generally defines "Partner Nonrecourse
Debt" as any liability of the Company to the extent such liability is
nonrecourse and a Member (or related person) bears the economic risk of loss
pursuant to Treasury Regulations Section 1.752-2.
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulations Section 1.704-2(i)(2), which generally defines "Partner
Nonrecourse Debt Minimum Gain" as the Partnership Minimum Gain attributable to
Partner Nonrecourse Debt. The amount of Partner Nonrecourse Debt Minimum Gain
shall be determined in accordance with Treasury Regulations Section
1.704-2(i)(3).
"Partner Nonrecourse Deductions" means losses, deductions, or Code
Section 705(a)(2)(B) expenditures attributable to Partner Nonrecourse Debt. The
amount of Nonrecourse Deductions shall be determined pursuant to Treasury
Regulations Section 1.704-2(i)(2), which provides generally that the amount of
Partner Nonrecourse Deductions for a Fiscal Year shall equal the net increase,
if any, in Partner Nonrecourse Debt Minimum Gain during that Fiscal Year,
reduced (but not below zero) by the proceeds of Partner Nonrecourse Debt
distributed during the Fiscal Year to the Member bearing the economic risk of
loss for such Partner Nonrecourse Debt that are both attributable to such
Partner Nonrecourse Debt and allocable to an increase in Partner Nonrecourse
Debt Minimum Gain.
- 7 -
<PAGE>
"Partnership Minimum Gain" means the excess of the Partnership
Nonrecourse Liabilities over the adjusted tax basis of property securing such
Liabilities. The amount of Partnership Minimum Gain shall be determined in
accordance with Treasury Regulations Section 1.704-2(d), which provides
generally that the amount of Partnership Minimum Gain shall be determined by
first computing for each Nonrecourse Liability any gain the Company would
realize if it disposed of the property subject to that Nonrecourse Liability for
no consideration other than full satisfaction of such Nonrecourse Liability, and
then aggregating the separately computed gains.
"Percentage Interest" means, with respect to a Member, the number of
Units assigned to the Common Interest of such Member divided by the aggregate
number of Units assigned to the Common Interests of both Members.
"Permitted Liens" has the meaning specified in the Contribution
Agreement.
"Person" means an individual, corporation, limited liability company,
association, general partnership, limited partnership, limited liability
partnership, joint venture, trust, estate, or other entity or organization.
"Phoenix Associates" means Phoenix Associates, a Florida general
partnership.
"Preferred A Capital Amount" means, at any time, the product of (A)
$140,000,000 times (B) the percentage of the Preferred A Interest that as of
such time has not been redeemed pursuant to Section 4.3.
"Preferred B Capital Amount" means, at any time, the product of (A) the
sum of (i) $30,000,000 and (ii) the cumulative increases in the Preferred B
Capital Amount made pursuant to Section 4.1(a)(iii), times (B) the percentage of
the Preferred B Interest that as of such time has not been redeemed pursuant to
Section 4.3.
"Preferred A Interest" means that portion of the Membership Interest of
Central (or any other Person that succeeds to that portion of the Membership
Interest of Central) represented by a Capital Account balance of $140,000,000 as
of the Closing and having the rights and privileges specified in this Agreement
as pertaining to the Preferred A Interest.
"Preferred B Interest" means that portion of the Membership Interest of
Central (or any other Person that succeeds to that portion of the Membership
Interest of Central) represented by a Capital Account balance of $30,000,000 as
of the Closing and having the rights and privileges specified in this Agreement
as pertaining to the Preferred B Interest.
"Preferred A Preference Amount" means, for each Preferred A
Distribution Date (or for the date on which a distribution pursuant to Section
10.2(d)(iii)(B) is made), an amount equal to the excess of (A) the product of
(x) the Preferred A Rate and (y) the Preferred A Capital Amount, computed for
the period since the later of the Closing Date or the preceding Preferred A
- 8 -
<PAGE>
Distribution Date on the basis of a 360-day year of twelve 30-day months, over
(B) with respect to the first Preferred A Distribution Date after the date of
this Agreement, a pro rata portion of the Guaranteed Payment Amount, based on
the ratio of the number of days between the Closing Date and such date to the
number of days between the preceding Guaranteed Payment Date (although prior to
the Closing Date) and such date, computed on the basis of a 360-day year of
twelve 30-day months, and, with respect to any other Preferred A Distribution
Date, the Guaranteed Payment Amount.
"Preferred B Preference Amount" shall mean, for each Preferred B
Distribution Date (or for the date on which a distribution pursuant to Section
10.2(d)(iii)(C) is made), the product of (x) the Preferred B Rate and (y) the
Preferred B Capital Amount, computed for the period since the later of the
Closing Date or the preceding Preferred B Distribution Date on the basis of a
360- day year of twelve 30-day months.
"Principals" means Barry Silverstein, Dennis McGillicuddy, and D.
Stevens McVoy, and their respective permitted successors and assigns, as
provided in Section 14.3.
"Representative" means an individual appointed pursuant to Section 8 or
Section 4.4(b)(ii) to serve as a representative on the Management Committee.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means all obligations arising under the Senior Notes and
every subsequent amendment, modification, restructuring, extension, renewal, or
consolidation of any such obligations, and any obligation incurred in
refinancing or replacement of or substitution for any such obligations.
"Senior Notes" means the obligations of Central and Phoenix Associates,
originally incurred under that certain Credit Agreement, dated November 15,
1994, among Central, Phoenix Associates, certain other parties, and the lenders
named therein, as amended, as such obligations shall have been restructured in
connection with the purchase thereof concurrently with the Closing.
"Shareholders" means Coaxial LLC, a Delaware limited liability company,
Coaxial DJM LLC, a Delaware limited liability company, and Coaxial DSM LLC, a
Delaware limited liability company.
"Subordinated Debt" means all obligations arising under the Discount
Notes and the LLC Mirror Notes (as defined in the offering memorandum for the
Discount Notes) issued by Coaxial DJM LLC and Coaxial DSM LLC concurrently with
the Closing, and every subsequent amendment, modification, restructuring,
extension, renewal, or consolidation of any such obligations, and any obligation
incurred in refinancing or replacement of or substitution for any such
obligations.
- 9 -
<PAGE>
"Subsidiary" means any corporation, limited liability company, general
partnership, limited partnership, limited liability partnership, or joint
venture controlled by the Company.
"Tax Matters Member" means the Member designated pursuant to Section
6.3 as the "tax matters partner" of the Company in accordance with Code Section
6231(a)(7).
"Treasury Regulations" means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"Unit" means, for purposes of calculating a Member's Percentage
Interest, the value assigned to such Member's Common Interest in accordance with
the following provisions:
(i) in consideration for the Capital Contributions to be made
pursuant to Section 3.1(a), there shall be assigned to the Class A Common
Interest of Insight, effective on the date of this Agreement, a number of Units
equal to the product of 100,000 times a fraction, the numerator of which is the
sum of $10,000,000 plus the aggregate amount of any Capital Contributions made
by Insight pursuant to Section 2.1(d)(4)(A)(1) of the Contribution Agreement and
the denominator of which is $13,333,333;
(ii) in consideration for the Capital Contributions to be made
pursuant to Section 3.1(a), after giving effect to the issuance to Central of
the Preferred A Interest and the Preferred B Interest, there shall be assigned
to the Class B Common Interest of Central, effective on the date of this
Agreement, a number of Units equal to the product of 100,000 times a fraction,
the numerator of which is $3,333,333 minus the aggregate amount of any Capital
Contributions described in Section 2.1(d)(4) of the Contribution Agreement for
which Central's obligation is canceled pursuant to Section 2.1(d)(4)(B) of the
Contribution Agreement and the denominator of which is $13,333,333;
(iii) in consideration for any Capital Contribution made by
any Person pursuant to Section 2.1(d)(4)(A)(2) of the Contribution Agreement,
there shall be assigned to the Common Interest of such Person, effective as of
the date of this Agreement, a number of Units equal to the product of 100,000
times a fraction, the numerator of which is the amount of all Capital
Contribution made by such Person pursuant to Section 2.1(d)(4)(A)(2) of the
Contribution Agreement and the denominator of which is $13,333,333; and
(iv) there shall be assigned to any other Common Interest
issued pursuant to Section 7.5, including any additional Common Interest issued
to Insight or Central, the number of Units required to be assigned to such
Common Interest under the terms of its issuance.
"Voting Interests" means the Preferred A Interest and the Preferred B
Interest, collectively, except that, at such time as (1) the Preferred A
Interest and the Preferred B Interest both cease to be outstanding, or (2) a
Person other than Central owns a majority of the Preferred
- 10 -
<PAGE>
A Interest and the Preferred B Interest (determined in the manner described in
the following sentence), or (3) none of the Principals owns, directly or
indirectly, any interest in Central, or (4) Central ceases to be controlled,
directly or indirectly, by Insight or any Affiliate of Insight, then "Voting
Interests" shall mean the Common Interests. A "majority" of the outstanding
Voting Interests means, if the Voting Interests consist of the Preferred A
Interest and the Preferred B Interest, any portion of the Preferred A Interest
and the Preferred B Interest that together represents a majority of the sum of
the Preferred A Capital Amount and the Preferred B Capital Amount that is
represented by the total outstanding Preferred A Interest and Preferred B
Interest, and, if the Voting Interests consist of the Common Interests, any
portion of the Common Interests to which has been assigned a majority of the
Units assigned to all the outstanding Common Interests.
1.2 Terms Defined Elsewhere in this Agreement.
For purposes of this Agreement, the following terms have the meanings
set forth in the sections indicated:
Term Section
- ---- -------
AMT Liability Section 4.1(e)(iii)
April Distribution Section 4.1(a)(iv)
Capital Default Section 4.4(a)
Central's Appraiser Section 9.6(e)(i)
Estimated Tax Distributions Section 4.1(a)(iv)
Guaranteed Payment Amount Schedule III
Guaranteed Payment Date Schedule III
Indemnified Persons Section 11.1
Insight Parent Section 3.5(e)
Insight's Appraiser Section 9.6(e)(i)
Liquidator Section 10.2(b)
Management Return Payment Date Schedule III
Offered Asset Purchase Price Section 9.6(g)(iii)(B)
Preferred A Distribution Date Schedule III
Preferred A Rate Schedule III
Preferred B Distribution Date Schedule III
Preferred B PIK Termination Date Schedule III
- 11 -
<PAGE>
Term Section
- ---- -------
Preferred B Rate Schedule III
Regular Tax Liability Section 4.1(e)(ii)
Regulatory Allocations Section 5.2(f)
Related Party Section 8.5(b)(i)
Secretary Section 6.3(c)
Secured Party Section 9.7
Tax Amount Section 4.1(e)
Third Appraiser Section 9.6(e)(iii)
Third-Party Purchaser Section 9.6(a)
Transfer Section 9.1(a)
Unit Liquidation Amount Section 9.6(g)(iii)(A)
SECTION 2. THE COMPANY AND ITS BUSINESS
2.1 Formation.
The Members agree to form the Company as a limited liability company
pursuant to the provisions of the Act. Except as provided in this Agreement, all
rights, liabilities, and obligations of the Members, both as between themselves
and with respect to Persons not parties to this Agreement, shall be as provided
in the Act, and this Agreement shall be construed in accordance with the
provisions of the Act. To the extent that the rights or obligations of either
Member are different by reason of any provision of this Agreement than they
would be in the absence of such provision, this Agreement shall, to the extent
permitted by the Act, control, except that neither Member shall be personally
liable for obligations of the Company beyond the liability provided in the Act.
2.2 Filing of Certificate of Formation.
The Manager has caused a Certificate of Formation conforming with the
Act to be filed with the Secretary of State of Delaware. The Manager will cause
the Certificate of Formation to be filed or recorded in any other public office
where filing or recording is required or advisable. The Members and the Company
shall do, and continue to do, all other things that are required or advisable to
maintain the Company as a limited liability company existing pursuant to the
laws of the State of Delaware.
- 12 -
<PAGE>
2.3 Company Name.
The name of the Company shall be "Insight Communications of Central
Ohio, LLC." The business and operations of the Company may be conducted under
that name or any other name or names that the Manager may from time to time
select. The Company shall file any assumed name certificates and similar
filings, and any amendments thereto, that the Manager considers appropriate or
advisable.
2.4 Term of the Company.
The term of the Company commenced on the date of the filing of the
Certificate of Formation of the Company with the Secretary of State of Delaware
and shall continue until the Company is terminated pursuant to Section 10 of
this Agreement.
2.5 Purposes of the Company.
The purposes of the Company are to do the following, directly or
indirectly through interests in one or more Subsidiaries:
(a) to engage in the business of acquiring, developing,
owning, designing, constructing, maintaining, operating, managing, and selling
the cable television systems and other assets to be contributed to the Company
by Central pursuant to the Contribution Agreement;
(b) to acquire, develop, own, design, construct, maintain,
operate, manage, and sell additional cable television systems;
(c) to acquire, develop, own, design, construct, maintain,
operate, manage, and sell, or invest in, businesses related to and ancillary to
those referred to above (including high-speed data service, Internet access,
telephony services, and other telecommunications and telephony-related
investments or businesses, and video wireless services and wireless
communications services and other wireless-related investments or businesses);
(d) to conduct other business of the type and character in
which cable television operators generally become involved, as the Management
Committee may determine;
(e) to possess, transfer, mortgage, pledge, or otherwise deal
in, and to exercise all rights, powers, privileges, and other incidents of
ownership or possession with respect to securities or other assets held or owned
by the Company, and to hold securities or assets in the name of a nominee or
nominees; and
(f) to form and own one or more corporations, trusts, or
partnerships (but no entity so formed or owned, while it is a Subsidiary, may do
what the Company is prohibited by this Agreement from doing).
- 13 -
<PAGE>
2.6 Authority of the Company.
The Company shall be empowered and authorized to do all lawful acts and
things necessary, appropriate, proper, advisable, incidental to, or convenient
for the furtherance and accomplishment of its purposes. Without limiting the
foregoing, the Company shall be empowered and authorized, for itself or on
behalf of any Subsidiary, to the extent necessary, appropriate, proper,
advisable, incidental to, or convenient for the furtherance and accomplishment
of its purposes, to:
(a) construct, operate, maintain, improve, expand, buy, own,
sell, convey, assign, mortgage, refinance, rent, or lease real and personal
property, which shall be held in the name of the Company or a Subsidiary, as
applicable;
(b) enter into, perform, and carry out contracts, leases, and
agreements of any kind necessary to, in connection with, or incidental to
accomplishing the purposes of the Company;
(c) operate, maintain, finance, improve, construct, own, grant
options with respect to, sell, convey, assign, mortgage, and lease real and
personal property;
(d) sell, exchange, or otherwise dispose of all or any part of
the property and assets of the Company or of any Subsidiary for property, cash,
or on terms, or any combination thereof;
(e) obtain loans, secured and unsecured, for the Company or
any Subsidiary and secure the same by mortgaging, assigning for security
purposes, pledging, or otherwise hypothecating all or any part of the property
and assets of the Company or of any Subsidiary (and in connection therewith to
place record title to any such property or assets in the name or names of a
nominee or nominees);
(f) prepay in whole or in part, refinance, recast, increase,
decrease, modify, amend, restate, or extend any such mortgage, security
assignment, pledge, or other security instrument, and in connection therewith to
execute and deliver, for and on behalf of the Company or any Subsidiary, any
extensions, renewals, or modifications thereof, any new mortgage, security
assignment, pledge, or other security instrument in lieu thereof;
(g) draw, make, accept, endorse, sign, and deliver any notes,
drafts, or other negotiable instruments or commercial paper;
(h) establish, maintain, and draw upon checking, savings, and
other accounts in the name of the Company or any Subsidiary in such banks or
other financial institutions as the Manager may from time to time select;
- 14 -
<PAGE>
(i) employ, fix the compensation of, oversee, and discharge
agents and employees of the Company and of any Subsidiary as it shall deem
advisable in the operation and management of the business of the Company,
including such accountants, attorneys, consultants, engineers, and appraisers,
on such terms and for such compensation, as the Manager shall determine;
(j) enter into management agreements with third parties
pursuant to which the management, supervision, or control of the business or
assets of the Company may be delegated to third parties for reasonable
compensation;
(k) enter into joint ventures, general or limited
partnerships, or other agreements relating to the Company's purposes;
(l) compromise any claim or liability due to the Company or
any Subsidiary;
(m) execute, acknowledge, verify, and file any notifications,
applications, statements, and other filings that the Manager considers necessary
or desirable to be filed with any state or federal securities administrator or
commission;
(n) execute, acknowledge, verify, and file any and all
certificates, documents, and instruments that the Manager considers necessary or
desirable to permit the Company or any Subsidiary to conduct business in any
state in which the Manager deems advisable;
(o) bring and defend actions in law and equity;
(p) to borrow or raise money, and from time to time to issue,
accept, endorse, and execute promissory notes, loan agreements, options, stock
purchase agreements, contracts, documents, checks, drafts, bills of exchange,
warrants, bonds, debentures, and other negotiable or non-negotiable instruments
and evidences of indebtedness, and to secure the payment of any thereof and of
the interest thereon by mortgage upon or pledge, conveyance, or assignment in
trust of, the whole or any part of the property of the Company whether at the
time owned or thereafter acquired and to guarantee the obligations of others and
to sell, pledge, or otherwise dispose of such bonds or other obligations of the
Company for its purposes; and
(q) to maintain an office or offices in such place or places
as the Manager shall determine and in connection therewith to rent or acquire
office space, engage personnel, and do such other acts and things as may be
necessary or advisable in connection with the maintenance of such office, and on
behalf of and in the name of the Company to pay and incur reasonable expenses
and obligations for legal, accounting, investment advisory, consultative, and
custodial services, and other reasonable expenses including taxes, travel,
insurance, rent, supplies, interest, salaries and wages of employees, and all
other reasonable costs and expenses incident to the operation of the Company.
- 15 -
<PAGE>
2.7 Actions of Company Prior to Closing.
Notwithstanding any other provisions hereof, until the Closing, the
sole activities of the Company shall be efforts to obtain the consents and
approvals required under the Contribution Agreement, to cooperate in the
consummation of the transactions contemplated by the Refinancing Proposals (as
defined in the Contribution Agreement), and to otherwise take actions in
accordance with the terms of the Contribution Agreement to consummate the
transactions contemplated thereby.
2.8 Scope of Members' Authority.
Except as otherwise expressly and specifically provided in this
Agreement, neither Member shall have any authority to act for, or assume any
obligation or responsibility on behalf of, the Company.
2.9 Principal Office and Other Offices; Registered Agent.
The address of the Company's registered office that is required to be
maintained by the Company in the State of Delaware pursuant to Section 18-104 of
the Act shall initially be located at 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801, and the name of the Company's registered agent at such
address is The Corporation Trust Company. The principal office of the Company
shall be located at 126 E. 56th Street, New York, New York 10022, or at such
other place as the Management Committee shall from time to time designate. The
Company may maintain any other offices and conduct business at any other places
that the Manager deems advisable. The Company may, upon compliance with the
applicable provisions of the Act, change its principal office or registered
agent from time to time in the discretion of the Management Committee.
2.10 Foreign Qualification.
The Manager shall cause the Company to be authorized to conduct
business legally in the State of Ohio and all other appropriate jurisdictions,
including registration or qualification of the Company as a foreign limited
liability company in those jurisdictions that provide for registration or
qualification and the filing of a certificate of limited liability company in
the appropriate public offices of those jurisdictions that do not provide for
registration or qualification.
2.11 Fiscal Year.
The Fiscal Year of the Company shall be the calendar year, except that
the first Fiscal Year commenced on the date on which the Company was formed
under the Act and the last Fiscal Year shall end on the date on which the
winding up of the Company is completed. The Company
- 16 -
<PAGE>
shall have the same Fiscal Year for income tax purposes and for financial and
partnership accounting purposes.
2.12 Addresses of the Members.
The respective addresses of the Members are set forth on Schedule I.
2.13 Tax Classification.
Notwithstanding any other provision of this Agreement, no Member nor
any Affiliate of any Member, nor any employee of the Company, may take any
action (including the filing of a U.S. Treasury Form 8832 Entity Classification
Election) that would cause the Company to be characterized as an entity other
than a partnership for federal income tax purposes without the affirmative
unanimous consent of the Members and the prior written consent of the
Principals, except that this sentence shall not preclude or in any way limit any
Person from taking any action that would cause any Affiliate of Insight (other
than the Company and any Person more than half of the assets of which consist of
direct or indirect equity interests in the Company at the time such action is
taken) to be characterized as a corporation for federal income tax purposes. A
determination of whether any action would cause the Company to be characterized
as an entity other than a partnership for federal income tax purposes will be
based upon a declaratory judgment or similar relief obtained from a court of
competent jurisdiction, a favorable ruling from the Internal Revenue Service, or
the receipt of an opinion of counsel reasonably satisfactory to the Members.
SECTION 3. COMPANY CAPITAL
3.1 Contributions.
(a) Contributions Pursuant to Contribution Agreement. At the
Closing, or at such later time as provided in Section 2.1(d), Section 8.3(c),
and Section 8.3(d) of the Contribution Agreement, and pursuant to the terms of
the Contribution Agreement:
(i) Central will contribute or cause to be
contributed to the Company, free and clear of all Liens (other than Permitted
Liens), the assets specified in Section 2.1 of the Contribution Agreement
(subject only to Assumed Liabilities as specified in the Contribution Agreement)
and, if applicable, cash in the amount specified in Section 2.1(d) and Section
8.3(d) of the Contribution Agreement; and
(ii) Insight will contribute or cause to be
contributed to the Company, in cash, the sum of Ten Million Dollars.
- 17 -
<PAGE>
(b) Fair Market Value of Contributions. The fair market value
of the assets contributed to the Company by Central pursuant to Section 3.1(a)
shall be as specified in the Contribution Agreement.
3.2 Additional Capital Contributions.
There shall be no further assessments for additional Capital
Contributions by the Members to the Company.
3.3 Assumption of Liabilities.
In accordance with the terms and conditions of the Contribution
Agreement, the Company will, at the Closing, assume and undertake to pay,
discharge, and perform only those obligations and liabilities of Central and
Insight that are specified in Section 4.1 and Section 12.2 of the Contribution
Agreement or are otherwise required to be paid by the Company pursuant to
Section 6.4(b).
3.4 Return of Contributions.
Except as provided in Section 4.3, neither Member shall have the right
to demand a return of all or any part of its Capital Contribution during the
term of the Company, and any return of the Capital Contribution of either Member
shall be only in accordance with the terms of this Agreement.
3.5 Refinancing and Purchase of Senior Debt and Subordinated Debt.
(a) Interim Refinancing.
(i) Insight may obtain and submit to Central and
the Principals at any time and from time to time a proposal from a financial
institution of nationally recognized standing for the refinancing of the Senior
Debt or the Subordinated Debt. In addition, if (A) any portion of the Senior
Debt or the Subordinated Debt becomes due and payable before its stated
maturity, or (B) the Company fails to make any distributions required by Section
4.1(a)(i), Section 4.1(a)(ii), or Section 4.1(a)(iii) on or before the
applicable Guaranteed Payment Date, Preferred A Distribution Date, or Preferred
B Distribution Date, or (C) Insight determines that the Company is likely to be
unable to make all distributions required by Section 4.1(a)(i), Section
4.1(a)(ii), and Section 4.1(a)(iii) at the next applicable Guaranteed Payment
Date, Preferred A Distribution Date, or Preferred B Distribution Date, Insight
shall use commercially reasonable efforts to obtain and submit to Central and
the Principals either (as elected by Insight in good faith) a proposal from a
financial institution of nationally recognized standing for the refinancing of
the Senior Debt and the Subordinated Debt or a proposal from the holders of the
Senior Debt and the Subordinated Debt to modify the terms thereof in response to
the condition described in this sentence.
- 18 -
<PAGE>
(ii) After obtaining any proposal pursuant to
Section 3.5(a)(i), Insight may require that the Borrowers refinance or modify
the Senior Debt or the Subordinated Debt in accordance with the terms of such
proposal, and the parties agree that the Borrowers will comply with such
requirement, so long as the terms of the Senior Debt and the Subordinated Debt
as it would exist after the consummation of such refinancing or modification (A)
would not require any Person or its assets (including assets that may be
acquired after such refinancing or modification) to be liable or otherwise
responsible for the payment or collection of such Senior Debt or Subordinated
Debt, or for the performance of the obligations of any other Person, to a
greater extent than such Person or its assets is liable or otherwise responsible
under the Senior Debt and the Subordinated Debt as it exists prior to the
consummation of such refinancing or modification, (B) would not impose any
covenants on any Person other than a Borrower that are not imposed on such
Person under the Senior Debt and the Subordinated Debt as it will exist at the
Closing, and (C) would not otherwise modify the structure of the Senior Debt or
the Subordinated Debt in a manner that is adverse to the Principals.
(iii) If Insight is unable to obtain a proposal
pursuant to Section 3.5(a)(i) to refinance or modify the Senior Debt or the
Subordinated Debt on terms that conform with the criteria described in Section
3.5(a)(ii), and the second sentence of Section 3.5(a)(i) does not apply, then
the Principals may elect, in their sole discretion, whether the Borrowers will
consummate the refinancing or modification of the Senior Debt and the
Subordinated Debt on the terms of any proposal obtained by Insight and submitted
to Central and the Principals.
(iv) If Insight is unable to obtain a proposal
pursuant to Section 3.5(a)(i) to refinance or modify the Senior Debt or the
Subordinated Debt on terms that conform with the criteria described in Section
3.5(a)(ii) and the second sentence of Section 3.5(a)(i) applies, then the
Principals shall elect either (A) that the Borrowers will consummate the
refinancing or modification of the Senior Debt and the Subordinated Debt on the
terms of the proposal, if any, submitted to Central and the Principals, or (B)
that the Principals shall sell to Insight or a Person designated by Insight, and
Insight or a Person designated by Insight shall purchase from the Principals,
for one dollar (plus the Tax Amount that would be distributable to Central on
the date of the next scheduled April Distribution, calculated as if the
Company's Fiscal Year ended on the closing of such purchase), all of the
outstanding membership interests in the Shareholders; provided, however, that
(A) the Principals may not elect to require that Insight or a Person designated
by Insight purchase all of the outstanding membership interests in the
Shareholders, and the Principals shall be deemed to have elected that the
Borrowers will consummate the proposed refinancing or modification, if the
conditions specified in Section 3.5(f)(vi) are not satisfied at the time that
the Principals make such election, and (B) the Principals shall be deemed to
have elected that the Borrowers will consummate the proposed refinancing or
modification if the Principals fail to notify Insight of their election within
twenty-one days after the delivery to the Principals and their legal counsel of
the proposal obtained by Insight pursuant to Section 3.5(a)(i) and any other
information concerning the proposed refinancing or modification that the
Principals shall have reasonably requested within ten days after their receipt
of such proposal. If the Principals elect to require that Insight or a Person
designated by Insight purchase all of the
- 19 -
<PAGE>
outstanding membership interests in the Shareholders, the closing of such
purchase shall occur immediately prior to the earlier of (A) the acceleration of
the Senior Debt or the Subordinated Debt as it then exists (if acceleration of
the Senior Debt or the Subordinated Debt shall not have already occurred) or (B)
the consummation of the proposed refinancing or modification of the Senior Debt
or the Subordinated Debt, and, upon such closing, Insight agrees that it or its
designee will accept all of the outstanding membership interests in the
Shareholders, provided that neither Insight nor its designee shall thereby
acquire any personal liability for either the Senior Debt or the Subordinated
Debt.
(v) If either the Senior Debt or the Subordinated
Debt is accelerated, then, regardless whether Insight had the opportunity to
obtain a proposal pursuant to Section 3.5(a)(i) to refinance or modify the
Senior Debt or the Subordinated Debt, the Principals may elect to sell to
Insight or a Person designated by Insight, and Insight or a Person designated by
Insight shall purchase from the Principals, for one dollar (plus the Tax Amount
that would be distributable to Central on the date of the next scheduled April
Distribution, calculated as if the Company's Fiscal Year ended on the closing of
such purchase), all of the outstanding membership interests in the Shareholders;
provided, however, that the Principals may not elect to require that Insight or
a Person designated by Insight purchase all of the outstanding membership
interests in the Shareholders if the conditions specified in Section 3.5(f)(vi)
are not satisfied at the time that the Principals would otherwise be permitted
to make such election. If the Principals elect to require that Insight or a
Person designated by Insight purchase all of the outstanding membership
interests in the Shareholders, the closing of such purchase shall occur as soon
as practicable following such election and, in any event, prior to any
redemption of the Preferred A Interest or the Preferred B Interest. Upon such
closing, Insight agrees that it or its designee will accept all of the
outstanding membership interests in the Shareholders, provided that neither
Insight nor its designee shall thereby acquire any personal liability for either
the Senior Debt or the Subordinated Debt.
(b) Refinancing at Maturity of Senior Debt.
(i) Prior to the maturity of the Senior Debt,
Insight shall use commercially reasonable efforts to obtain and submit to
Central and the Principals a proposal from a financial institution of nationally
recognized standing for the refinancing of the Senior Debt at or prior to its
maturity. Insight shall use commercially reasonable efforts to obtain such
proposal sufficiently in advance of the maturity of the Senior Debt so as to
permit the refinancing of the Senior Debt to be consummated at or prior to the
maturity of the Senior Debt in a manner consistent with the rights and
obligations of the parties under this Section 3.5.
(ii) If Insight is able to obtain a proposal pursuant
to Section 3.5(b)(i) to refinance the Senior Debt that (A) would not require any
Person or its assets (including assets that may be acquired after such
refinancing) to be liable or otherwise responsible for the payment or collection
of such Senior Debt, or for the performance of the obligations of any other
Person, to a greater extent than such Person or its assets is liable or
otherwise responsible under the Senior
- 20 -
<PAGE>
Debt as it exists prior to the consummation of such refinancing, (B) would not
impose any covenants on any Person other than a Borrower that are not imposed on
such Person under the Senior Debt as it will exist at the Closing, and (C) would
not otherwise modify the structure of the Senior Debt or the Subordinated Debt
in a manner that is adverse to the Principals, then (1) the parties agree that
the Borrowers will consummate the refinancing of the Senior Debt on the terms of
such proposal and (2) Insight agrees that, if the refinancing contemplated by
such proposal is not consummated for any reason (other than inaction by a
Principal to which Section 3.5(d) applies) prior to the maturity of the Senior
Debt as it exists prior to the consummation of such refinancing, Insight or an
Affiliate of Insight will itself refinance the Senior Debt on the terms of such
proposal (and such substitution of Insight or its Affiliate as the lender shall
not constitute action by Insight or its Affiliate to modify the structure of the
Senior Debt or the Subordinated Debt).
(iii) If Insight is unable to obtain a proposal to
refinance the Senior Debt on terms that conform with the criteria described in
Section 3.5(b)(ii), then the Principals shall elect either (A) that the
Borrowers will consummate the refinancing of the Senior Debt on the terms of the
proposal, if any, submitted to Central and the Principals or (B) that the
Principals shall sell to Insight or a Person designated by Insight, and Insight
or a Person designated by Insight shall purchase from the Principals, for one
dollar (plus the Tax Amount that would be distributable to Central on the date
of the next scheduled April Distribution, calculated as if the Company's Fiscal
Year ended on the closing of such purchase), all of the outstanding membership
interests in the Shareholders; provided, however, that (A) the Principals may
not elect to require that Insight or a Person designated by Insight purchase all
of the outstanding membership interests in the Shareholders, and the Principals
shall be deemed to have elected that the Borrowers will consummate the proposed
refinancing, if the conditions specified in Section 3.5(f)(vi) are not satisfied
at the time that the Principals make such election, and (B) the Principals shall
be deemed to have elected that the Borrowers will consummate the proposed
refinancing if the Principals fail to notify Insight of their election within
twenty-one days after the delivery to the Principals and their legal counsel of
the proposal obtained by Insight pursuant to Section 3.5(b)(i) and any other
information concerning the proposed refinancing that the Principals shall have
reasonably requested within ten days after their receipt of such proposal. If
the Principals elect to require that Insight or a Person designated by Insight
purchase all of the outstanding membership interests in the Shareholders, the
closing of such purchase shall occur immediately prior to the earlier of (A) the
maturity of the Senior Debt as it then exists or (B) the consummation of the
proposed refinancing of the Senior Debt, and, upon such closing, Insight agrees
that it or its designee will accept all of the outstanding membership interests
in the Shareholders, provided that neither Insight nor its designee shall
thereby acquire any personal liability for either the Senior Debt or the
Subordinated Debt.
(iv) Upon the refinancing of any Senior Debt
pursuant to this Section 3.5, including any refinancing pursuant to this Section
3.5(b) (including any such refinancing by Insight or an Affiliate of Insight),
the obligations of Insight under this Section 3.5(b) shall again apply upon the
maturity of the Senior Debt as it exists after the consummation of such
refinancing.
- 21 -
<PAGE>
(v) The obligations of Insight under this Section
3.5(b) shall terminate upon the earliest of (A) the death of the last to die of
Barry Silverstein, Dennis McGillicuddy, and D. Stevens McVoy, (B) the first date
on which none of the Principals owns, directly or indirectly, any interest in
any of the Borrowers, or (C) the receipt by the Principals of an opinion of
their legal counsel that, in its opinion, there are no circumstances under which
the refinancing, retirement, satisfaction, or purchase of the Senior Debt, in
any manner and on any terms, would increase by more than a de minimis amount the
likelihood of those adverse tax consequences to the Principals that were
intended to be avoided by the Senior Debt and the Subordinated Debt, as it will
exist at the Closing.
(c) Funding Purchase of Debt. The Company may make loans to
Insight or any Affiliate of Insight for the purpose of funding the acquisition
by such Person of any of the outstanding Senior Debt or Subordinated Debt. The
proceeds used to make such loans may include the proceeds of the issuance of
Membership Interests (subject to the restrictions on the issuance of Membership
Interests provided in Section 8.5(b)). The terms of any such loan shall:
(i) provide that all obligations and liabilities of
such Person with respect to such loan shall be secured by all of such Person's
interest in the Senior Debt or Subordinated Debt so purchased, and any
replacements or proceeds thereof (but such loan shall otherwise be non-recourse
to such Person);
(ii) require the payment to the Company, either as
principal, interest, or additional interest, of all amounts received by such
Person with respect to the Senior Debt or Subordinated Debt so purchased; and
(iii) require that the Person to which the loan is
made, if other than Insight, remain an Affiliate of Insight.
(d) Financing by the Company. If Insight obtains and submits
to Central and the Principals a proposal for the refinancing or modification of
the Senior Debt or Subordinated Debt pursuant to Section 3.5(a)(i) or Section
3.5(b)(i) and either (1) the terms of the proposed refinancing or modification
conform with the criteria described in Section 3.5(a)(ii) or Section 3.5(b)(ii),
as applicable, or (2) the Principals expressly agreed that the Borrowers will
consummate the refinancing or modification of the Senior Debt and the
Subordinated Debt on the terms of such proposal, and, thereafter, any of the
Principals fails to take any action reasonably necessary to consummate the
refinancing or modification of the Senior Debt and the Subordinated Debt on the
terms of such proposal (including executing and delivering any consent,
approval, or authority) and fails to cure such failure within ten Business Days
after its receipt of written notice from Insight specifying such failure and
specifying that Insight believes this Section 3.5(d) applies to such failure,
then Insight may cause the Company or any Subsidiary of the Company to incur
indebtedness directly, on terms approved by the Management Committee, and use
the proceeds of such indebtedness to purchase or repay the Senior Debt or the
Subordinated Debt.
- 22 -
<PAGE>
(e) Other Actions Prohibited. Insight agrees that, except as
specifically permitted by this Section 3.5, neither Insight nor any of its
Affiliates (including the Company) will take any willful or intentional action
in any capacity (including as manager of the Shareholders) that is intended to
have, and has, the effect of modifying the structure of the Senior Debt or the
Subordinated Debt (such as by imposing any covenants on any Person other than a
Borrower that are not imposed on such Person under the Senior Debt or the
Subordinated Debt as it will exist at the Closing or agreeing that any Person or
its assets would be liable or otherwise responsible for the payment or
collection of the Senior Debt or the Subordinated Debt, or for the performance
of the obligations of any Borrower, to a greater extent than such Person or its
assets is liable or otherwise responsible under the Senior Debt and the
Subordinated Debt as then in effect). The Principals and Central agree that any
action taken by Insight in connection with its management of the business and
operations of the Company, Central, or the Shareholders (whether under this
Agreement or under any of the management agreements between the Shareholders and
Insight) that does not directly relate to the structure of the Senior Debt or
the Subordinated Debt shall not be considered an action that was intended to
have the effect of modifying the structure of the Senior Debt or the
Subordinated Debt unless Insight, in taking such action, intended that a
modification of such structure result from such action. Solely for purposes of
this Section 3.5(e), (1) a Person shall not be considered an Affiliate of
Insight with respect to any action taken by such Person if neither Insight
Parent nor any Person controlling Insight Parent possessed the power, directly
or indirectly, to cause such Person to refrain from taking such action, whether
through the ownership of voting securities, contractually, or otherwise, and (2)
"Insight Parent" means Insight Communications Company, L.P., or, if Insight
ceases to be controlled, directly or indirectly, by one or more individuals who,
on the date of this Agreement, collectively control Insight, the ultimate parent
entity (as determined in accordance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder) of Insight.
(f) Other General Provisions.
(i) The manner of soliciting and obtaining any
refinancing proposal pursuant to this Section 3.5 shall be determined by
Insight. The Principals will cooperate, as reasonably requested by Insight, in
connection with Insight's efforts to solicit and obtain any refinancing proposal
pursuant to this Section 3.5.
(ii) In connection with any refinancing pursuant to
this Section 3.5, the Company shall pay all costs and expenses incurred by any
of the Borrowers, any of the Principals, or any of their respective Affiliates
in connection with the consummation of such refinancing, including the
authorization, preparation, execution, and performance of any agreements or
other instruments relating thereto, to the extent such costs and expenses are
similar in kind to the costs and expenses that the Company would have incurred
in issuing indebtedness similar to the Senior Debt or the Subordinated Debt.
- 23 -
<PAGE>
(iii) In connection with any refinancing or purchase
of any of the Senior Debt or the Subordinated Debt pursuant to this Section 3.5,
Insight and the Principals shall agree to appropriate modifications to the terms
of the Preferred A Interest and the Preferred B Interest, to the extent
necessary to preserve the reasonable expectations of Insight and the Principals
under this Agreement. Any agreement between Insight and the Principals pursuant
to this Section 3.5(f)(iii) as to any modification to the terms of the Preferred
A Interest and the Preferred B Interest shall be binding on the Members.
(iv) For purposes of this Section 3.5,
(A) the terms of any refinancing or
modification of the Senior Debt or the Subordinated Debt will be conclusively
deemed not to modify the structure of the Senior Debt or the Subordinated Debt
in a manner that is adverse to the Principals if, within twenty-one days after
the delivery to the Principals and their legal counsel of the applicable
refinancing or modification proposal and any other information concerning the
proposed refinancing or modification that the Principals shall have reasonably
requested within ten days after their receipt of such proposal, the Principals
do not receive and deliver to Insight an opinion of the Principals' legal
counsel that, in its opinion, consummation of such refinancing or modification
on the terms proposed would modify the structure of the Senior Debt or the
Subordinated Debt in a manner that would increase by more than a de minimis
amount the likelihood of those adverse tax consequences to the Principals that
were intended to be avoided by the Senior Debt and the Subordinated Debt, as it
will exist at the Closing; and
(B) the terms of any refinancing or
modification of the Senior Debt or the Subordinated Debt will be conclusively
deemed to modify the structure of the Senior Debt or the Subordinated Debt in a
manner that is adverse to the Principals if, within twenty-one days after the
delivery to the Principals and their legal counsel of the applicable refinancing
or modification proposal and any other information concerning the proposed
refinancing or modification that the Principals shall have reasonably requested
within ten days after their receipt of such proposal, the Principals receive and
deliver to Insight an opinion of the Principals' legal counsel that, in its
opinion, consummation of such refinancing or modification on the terms proposed
would modify the structure of the Senior Debt or the Subordinated Debt in a
manner that would increase by more than a de minimis amount the likelihood of
those adverse tax consequences to the Principals that were intended to be
avoided by the Senior Debt and the Subordinated Debt, as it will exist at the
Closing.
(v) The Principals agree that any legal counsel
from which the Principals request an opinion described in Section 3.5(f)(iv)
will be reasonably satisfactory to Insight.
(vi) The Principals may not elect to require that
Insight or a Person designated by Insight purchase all of the outstanding
membership interests in the Shareholders pursuant to Section 3.5(a)(iv), Section
3.5(a)(v), or Section 3.5(b)(iii) unless, at the time that the Principals make
such election:
- 24 -
<PAGE>
(A) all outstanding stock of Central shall
have been duly and validly issued and shall be fully paid and nonassessable;
(B) Central shall have no liabilities other
than the Senior Debt, liabilities arising under this Agreement or under any
other agreement between Central and the Company, Insight, or any Affiliate of
the Company or Insight, liabilities incurred at the direction of Insight,
directly or indirectly, through its control over the business and affairs of
Central, and other liabilities (such as accrued administrative expenses) that
are not significant in amount and for which the Principals agree to indemnify
Insight, on terms reasonably satisfactory to Insight;
(C) Central shall have no assets other than
its equity interest in the Company, contractual rights arising under any of the
Loan Documents, this Agreement, and any other agreement between Central and the
Company, Insight, or any Affiliate of the Company or Insight, assets acquired at
the direction of Insight, directly or indirectly, through its control over the
business and affairs of Central, and other assets (such as internal corporate
records) that are not significant in amount;
(D) all of the outstanding shares of Central
shall be free and clear of all claims, liabilities, security interests,
mortgages, liens, pledges, conditions, charges, and encumbrances of any nature
whatsoever, other than liens securing the Senior Debt, the Subordinated Debt,
and any other obligations and liabilities arising under the Loan Documents;
(E) all outstanding membership interests of
the Shareholders shall have been duly and validly issued and shall be fully paid
and nonassessable;
(F) the Shareholders shall have no liabilities
other than the Subordinated Debt, liabilities arising under any agreement
between the Shareholders and Central, the Company, Insight, or any Affiliate of
the Company or Insight, liabilities incurred at the direction of Insight,
directly or indirectly, through its management of the Shareholders, and other
liabilities (such as accrued administrative expenses) that are not significant
in amount and for which the Principals agree to indemnify Insight, on terms
reasonably satisfactory to Insight;
(G) the Shareholders shall have no assets
other than their equity interests in Central, the LLC Mirror Notes, contractual
rights arising under any of the Loan Documents, any agreement between the
Shareholders, and Central, the Company, Insight, or any Affiliate of the Company
or Insight, assets acquired at the direction of Insight, directly or indirectly,
through its management of the Shareholders, and other assets (such as internal
corporate records) that are not significant in amount; and
(H) all of the outstanding membership
interests of the Shareholders shall be free and clear of all claims,
liabilities, security interests, mortgages, liens, pledges, conditions, charges,
and encumbrances of any nature whatsoever, other than liens
- 25 -
<PAGE>
securing the Senior Debt, the Subordinated Debt, and any other obligations and
liabilities arising under the Loan Documents.
(vii) If the Principals elect to require that Insight
or a Person designated by Insight purchase all of the outstanding membership
interests in the Shareholders pursuant to Section 3.5(a)(iv), Section 3.5(a)(v),
or Section 3.5(b)(iii), then (A) the Principals covenant that the conditions
specified in Section 3.5(f)(vi) will also be satisfied at the closing of the
purchase and sale of all of the outstanding membership interests in the
Shareholders, and (B) it shall be a condition to the purchase by Insight or a
Person designated by Insight of the outstanding membership interests in the
Shareholders that the conditions specified in Section 3.5(f)(vi) will also be
satisfied at the closing.
(viii) At Insight's request, Central and the
Principals agree to join in making an election under Code Section 338(h)(10)
with respect to the deemed purchase and sale of the shares of Central resulting
from the purchase and sale of all of the outstanding membership interests in the
Shareholders pursuant to Section 3.5(a)(iv), Section 3.5(a)(v), or Section
3.5(b)(iii).
SECTION 4. CASH DISTRIBUTIONS
4.1 Distributions Prior to Liquidation.
(a) Distributions Generally. Except as provided in Section
10.2(d), the Company shall make cash distributions as follows:
(i) First, on each Guaranteed Payment Date,
commencing on the first Guaranteed Payment Date after the Closing, so long as
the Preferred A Interest is outstanding, the Company shall distribute to the
holder of the Preferred A Interest (A) on the first such date, a pro rata
portion of the Guaranteed Payment Amount, based on the ratio of the number of
days between the Closing Date and such date to the number of days between the
preceding Guaranteed Payment Date (although prior to the Closing Date) and such
date, computed on the basis of a 360- day year of twelve 30-day months, and (B)
on each other such date, the Guaranteed Payment Amount.
(ii) Second, on each Preferred A Distribution Date,
commencing on the first Preferred A Distribution Date after the Closing, so long
as the Preferred A Interest is outstanding, the Company shall distribute to the
holder of the Preferred A Interest the Preferred A Preference Amount.
(iii) Third, on each Preferred B Distribution Date,
commencing on the first Preferred B Distribution Date after the Closing, so long
as the Preferred B Interest is outstanding, the Company shall distribute to the
holder of the Preferred B Interest the Preferred B Preference Amount; provided,
however, that on any such Preferred B Distribution Date falling
- 26 -
<PAGE>
prior to the Preferred B PIK Termination Date, the Company shall, in lieu of
making such distribution, accrue such amount, and any such accrued and unpaid
amount shall be added to the Preferred B Capital Amount.
(iv) Fourth, no less than three days prior to April
15 of each year, the Company shall distribute to each Member holding a Common
Interest, the excess of such Member's Tax Amount over the amounts previously
distributed to such Member under this Section 4.1(a)(iv), including Estimated
Tax Distributions (the "April Distribution"). If the Company's taxable income
for any year is increased above the amount used to compute the April
Distribution as a result of an adjustment deemed necessary by the Company or as
the result of a tax audit, the Company shall distribute to the Members holding
the Common Interests such amount as the Management Committee shall determine is
appropriate, in its good faith discretion, taking into account the respective
additional federal, state, and local tax liability of the Members as a result of
such increase and any related penalties and interest. The Company shall also
make distributions ("Estimated Tax Distributions") for the payment of taxes at
such times as either Member would be required to pay federal estimated taxes in
an amount not in excess of the Company's good faith estimate of the Tax Amount
for the period to which such estimated taxes relate. Notwithstanding anything to
the contrary herein, distributions under this Section 4.1(a)(iv) shall be made
in proportion to the Members' Percentage Interests.
(v) Fifth, on each Management Return Payment Date,
commencing on the first Management Return Payment Date after the Closing, the
Company shall distribute to the Manager the Management Return.
(vi) Thereafter, at such times and in such amounts
as the Management Committee may determine, to the Members holding Common
Interests in proportion to their Percentage Interests.
(b) Late Distributions.
(i) If the Company fails to make any distribution
required to be made pursuant to Section 4.1(a)(i) on or before the applicable
Guaranteed Payment Date, then the Guaranteed Payment Amount payable with respect
to that Guaranteed Payment Date shall be increased at a rate per year equal to
the Preferred A Rate for the number of days from the applicable Guaranteed
Payment Date to the date on which the required distribution is actually made.
(ii) If the Company fails to make any distribution
required to be made pursuant to Section 4.1(a)(ii) on or before the applicable
Preferred A Distribution Date, then the amount to be distributed with respect to
that Preferred A Distribution Date shall be increased at a rate per year equal
to the Preferred A Rate for the number of days from the applicable Preferred A
Distribution Date to the date on which the required distribution is actually
made.
- 27 -
<PAGE>
(iii) If the Company fails to make any distribution
required to be made pursuant to Section 4.1(a)(iii) on or before the applicable
Preferred B Distribution Date, then the amount to be distributed with respect to
that Preferred B Distribution Date shall be increased at a rate per year equal
to the Preferred B Rate for the number of days from the applicable Preferred B
Distribution Date to the date on which the required distribution is actually
made; provided, however, that this Section 4.1(b)(iii) shall apply only to
distributions required to be made on Preferred B Distribution Dates occurring on
or after the Preferred B PIK Termination Date.
(iv) If the Company fails to make any distribution
required to be made pursuant to Section 4.1(a)(v) on or before the applicable
Management Return Payment Date, then the amount to be distributed with respect
to that Management Return Payment Date shall bear interest at the Preferred A
Rate from that Management Return Payment Date to the date that the required
distribution is actually made.
(c) Borrowings for Guaranteed Payments. To the extent the
Company does not have sufficient cash to make the distribution required to be
made pursuant to Section 4.1(a)(i) then, unless the Manager or the Principals
object, the Manager shall cause the Company to borrow funds in order to make
such distributions in a full and timely manner.
(d) Treatment of Guaranteed Payments. The distributions
provided for in Section 4.1(a)(i) are required to be made without regard to the
income of the Company and shall be treated as guaranteed payments as described
in Code Section 707(c). No Member shall take a position inconsistent with such
treatment.
(e) Determination of Tax Amount. For purposes of Section
4.1(a)(iv), the "Tax Amount" of a Member holding a Common Interest means, the
sum of such Member's tax liabilities for all previous Fiscal Years, determined
in accordance with, and subject to, the following:
(i) The tax liability of a Member holding a Common
Interest for any Fiscal Year shall be the greater of such Member's Regular Tax
Liability or its AMT Liability for such Fiscal Year.
(ii) The "Regular Tax Liability" of a Member holding
a Common Interest for any Fiscal Year shall be determined separately for
ordinary income and each character of capital gain income to which separate
federal income tax rates may apply, and for each such type of income shall be
computed as the product of (A) the excess of (1) the aggregate amount of taxable
income (if any) allocated to such Member with respect to its Common Interest in
such Fiscal Year over (2) the aggregate amount of taxable losses (if any)
allocated to such Member with respect to its Common Interest for all prior
Fiscal Years since the beginning of the Company and not previously taken into
account for purposes of computing such Member's Tax Amount, and (B) the highest
marginal combined federal, state, and local tax rate (taking into count the
- 28 -
<PAGE>
provisions of Code Section 68) imposed on an individual resident in New York
City for income of such type.
(iii) The "AMT Liability" of a Member holding a
Common Interest for any Fiscal Year shall be computed as the product of (A) the
aggregate amount of alternative minimum taxable income (if any) allocated to
such Member with respect to its Common Interest in such Fiscal Year (less any
alternative minimum tax losses allocated to such Member with respect to its
Common Interest for all prior Fiscal Years since the beginning of the Company
and not previously taken into account for purposes of computing such Member's
Tax Amount) and (B) the highest marginal combined federal, state, and local tax
rate imposed on the alternative minimum taxable income of an individual resident
in New York City (taking into account the lack of deductibility for state and
local taxes under the federal alternative minimum tax).
(iv) For purposes of determining a Member's Regular
Tax Liability or AMT Liability, any Member who receives a Common Interest in a
transfer with respect to which an election under Code Section 754 has not been
made (or is not in effect) shall be deemed to have been allocated any taxable
losses or income allocated to the transferor of such Common Interest. For
purposes of determining a Member's April Distribution, any Member who receives a
Common Interest in a transfer with respect to which an election under Code
Section 754 has not been made (or is not in effect) shall be deemed to have
received any distributions made pursuant to Section 4.1(a)(iv) to the transferor
of such Common Interest.
(v) Notwithstanding anything to the contrary
herein, for purposes of calculating a Member's Tax Amount under this Section
4.1(e), the taxable income or taxable loss (including alternative minimum
taxable income and alternative minimum taxable loss) allocated to a Member shall
exclude (and no April Distributions or Estimated Tax Distributions shall be made
with respect to) (A) gain allocated to any Member with respect to the sale,
exchange, or other actual or deemed disposition of any assets contributed to the
Company by either Member, (B) gross income allocated to the holder of the
Preferred A Interest with respect to distributions made under Section 4.1(a)(i),
(C) gross income allocated to the holder of the Preferred A Interest under
Section 5.2(h), (D) gross income allocated to the holder of the Preferred B
Interest under Section 5.2(i), and (E) gross income allocated to the Manager
under Section 5.2(k).
(f) Delaying Distributions. If (i) any default (other
than a notification or delivery default) shall have occurred and be continuing
under any of the Loan Documents, or if Insight in good faith determines that
such a default under any of the Loan Documents is reasonably likely to occur,
and (ii) Insight determines in good faith that, as a result of such existing or
anticipated default, it would be in the best interests of the Company for the
Company not to make any distribution required pursuant to Section 4.1(a)(i),
Section 4.1(a)(ii), or Section 4.1(a)(iii), and (iii) Insight notifies the
Principals in writing that it has made such determination, then Insight may
cause the Company not to make such distribution until such time as Insight shall
have determined that it is no longer in the best interests of the Company for
the Company not to make such distribution. To the extent, but only for so long
as, Insight is authorized by this
- 29 -
<PAGE>
Section 4.1(f) to cause the Company not to make such distribution, then (i)
neither Insight nor the Company shall have any liability to the holder of the
Preferred A Interest or the holder of the Preferred B Interest as a result of
the Company's failure to make any distribution required pursuant to Section
4.1(a)(i), Section 4.1(a)(ii), or Section 4.1(a)(iii), and (ii) the Company's
failure to make such distribution shall not constitute a Capital Default. The
provisions of Section 4.1(b) shall apply to the Company's failure to make any
distribution required pursuant to Section 4.1(a)(i), Section 4.1(a)(ii), or
Section 4.1(a)(iii) notwithstanding Insight's rights under this Section 4.1(f)
to cause the Company not to make any such distribution.
4.2 Withholding.
All amounts withheld pursuant to the Code or any provision of any state
or local tax law with respect to any payment or distribution to the Company or
the Members shall be treated as amounts distributed to Members pursuant to
Section 4 for all purposes of this Agreement.
4.3 Redemption.
(a) Redemption of Preferred B Interest.
(i) Subject to Section 4.3(a)(iv), the Company
shall redeem the Preferred B Interest in full on the tenth anniversary of the
Closing Date. Subject to Section 4.3(a)(iv), the Company shall redeem the
Preferred B Interest in full if (A) the Discount Notes shall have been
accelerated, (B) the holders of the Discount Notes shall have commenced the
enforcement of any remedies available to them under any agreement under which
shares of Central and the LLC Mirror Notes (as defined in the offering
memorandum for the Discount Notes) are pledged as security for the Discount
Notes, (C) at least ten days shall have elapsed since the maturity or
acceleration of the Discount Notes, and (D) the holders of the Discount Notes,
acting on their own behalf or through the trustee of the Discount Notes, shall
have requested redemption of the Preferred B Interest in accordance with the
provisions of any agreement under which shares of Central and the LLC Mirror
Notes (as defined in the offering memorandum for the Discount Notes) are pledged
as security for the Discount Notes.
(ii) The Company may redeem the Preferred B
Interest, in whole or in part, at any time at its option if (A) the Principals
shall have received an opinion of their legal counsel that the redemption of the
Preferred B Interest would not, in its opinion, increase by more than a de
minimis amount the likelihood of those adverse tax consequences to the
Principals that were intended to be avoided by the Senior Debt and the
Subordinated Debt, as it will exist at the Closing, and (B) the Borrowers would
be permitted under the Loan Documents to use the proceeds of the redemption of
the Preferred B Interest to repay or purchase the Subordinated Debt.
- 30 -
<PAGE>
(iii) Except as expressly provided in this Section
4.3(a), the Company may not redeem the Preferred B Interest, in whole or in
part, without the consent of the Principals.
(iv) Notwithstanding Section 4.3(a)(i), the Company
shall not redeem the Preferred B Interest if the Company is required to redeem
the Preferred A Interest pursuant to Section 4.3(b)(i) and has not yet done so.
(v) If the Company redeems all or part of the
Preferred B Interest pursuant to this Section 4.3(a), the redemption price shall
equal the sum of (A) the amount that would be distributed to the holder of the
Preferred B Interest with respect to the redeemed portion of the Preferred B
Interest pursuant to Section 10.2(d)(iii)(C) upon dissolution and liquidation of
the Company, assuming that the distribution pursuant to Section 10.2(d)(iii)(C)
was made on the date of such redemption and that the proceeds of the liquidation
of the Company were sufficient to permit the Company to make the full
distribution provided for in Section 10.2(d)(iii)(C), plus (B) the amount of any
premium required to be paid by the Borrowers to the holders of the Subordinated
Debt in connection with the Borrowers' use of the proceeds of the redemption of
the Preferred B Interest to repay or purchase the Subordinated Debt.
(b) Redemption of Preferred A Interest.
(i) The Company shall redeem the Preferred A
Interest in full if (A) the Senior Notes shall be payable in full (either upon
reaching their stated maturity or upon their acceleration), (B) the holders of
the Senior Notes shall have commenced the enforcement of any remedies available
to them under any agreement under which the Preferred A Interest is pledged as
security for the Senior Notes, (C) at least ten days shall have elapsed since
the maturity or acceleration of the Senior Notes, and (D) the holders of the
Senior Notes, acting on their own behalf or through the trustee of the Senior
Notes, shall have requested redemption of the Preferred A Interest in accordance
with the provisions of any agreement under which the Preferred A Interest is
pledged as security for the Senior Notes.
(ii) The Company may redeem the Preferred A
Interest, in whole or in part, at any time at its option if (A) the Principals
shall have received an opinion of their legal counsel that the redemption of the
Preferred A Interest would not, in its opinion, increase by more than a de
minimis amount the likelihood of those adverse tax consequences to the
Principals that were intended to be avoided by the Senior Debt and the
Subordinated Debt, as it will exist at the Closing, and (B) the Borrowers would
be permitted under the Loan Documents to use the proceeds of the redemption of
the Preferred A Interest to repay or purchase the Senior Debt.
(iii) Except as expressly provided in this Section
4.3(b), the Company may not redeem the Preferred A Interest, in whole or in
part, without the consent of the Principals.
- 31 -
<PAGE>
(iv) If the Company redeems all or part of the
Preferred A Interest pursuant to this Section 4.3(b), the redemption price shall
equal the sum of (A) the amount that would be distributed to the holder of the
Preferred A Interest with respect to the redeemed portion of the Preferred A
Interest pursuant to Section 10.2(d)(iii)(A) and Section 10.2(d)(iii)(B) upon
dissolution and liquidation of the Company, assuming that the distributions
pursuant to Section 10.2(d)(iii)(A) and Section 10.2(d)(iii)(B) were made on the
date of such redemption and that the proceeds of the liquidation of the Company
were sufficient to permit the Company to make the full distributions provided
for in Section 10.2(d)(iii)(A) and Section 10.2(d)(iii)(B), plus (B) the amount
of any premium required to be paid by the Borrowers to the holders of the Senior
Debt in connection with the Borrowers' use of the proceeds of the redemption of
the Preferred A Interest to repay or purchase the Senior Debt.
4.4 Certain Remedies.
(a) As used in this Agreement, a "Capital Default" means:
(i) Except as provided in Section 4.1(f), the
failure of the Company to make any distribution required pursuant to Section
4.1(a)(i), Section 4.1(a)(ii), or Section 4.1(a)(iii) on or before the
applicable Guaranteed Payment Date, Preferred A Distribution Date, or Preferred
B Distribution Date (other than a distribution pursuant to Section 4.1(a)(iii)
required to be made before the Preferred B PIK Termination Date), if on such
date the Company had Distributable Cash (taking into account any other
distributions pursuant to Section 4.1(a)(i), Section 4.1(a)(ii), or Section
4.1(a)(iii) that were made on such date and after giving effect to any
borrowings pursuant to Section 4.1(c)), in an amount at least equal to the
entire amount of such distribution; provided, however, that the failure to make
any such distribution shall not constitute a Capital Default (A) if a Person
designated by the Principals shall have become an additional Manager pursuant to
Section 4.4(b)(ii) and such Person shall have had the power to cause such
distribution to be made or (B) to the extent such distribution would violate any
covenant contained in any agreement or other instrument, including any note or
indenture, evidencing any indebtedness of the Company to a Person that is not an
Affiliate of either Member or pursuant to which any such indebtedness of the
Company exists or is outstanding; or
(ii) The redemption of the Preferred A Interest or
the Preferred B Interest in violation of Section 4.3; provided, however, that
such redemption shall not constitute a Capital Default if a Person designated by
the Principals shall have become an additional Manager pursuant to Section
4.4(b)(ii) and such Person shall have caused such redemption to occur; or
(iii) The willful and intentional breach by Insight
of any of its obligations under Section 3.5.
(b) Upon the occurrence of a Capital Default:
- 32 -
<PAGE>
(i) Insight shall indemnify, defend, and hold
harmless Central, each other Borrower, and each of the Principals, from any
liability, loss, or damage incurred by any such Person, including costs and
attorneys' fees (which attorneys' fees may be paid as incurred) and any amounts
expended in the settlement of any claims of liability, loss, or damage, and
including any tax liabilities incurred as a result of the receipt of any
indemnification payment under this Section 4.4(b)(i), that either (A) arise out
of or result from such Capital Default or (B) to the extent such Capital Default
consists of an action taken to modify the structure of the Senior Debt or the
Subordinated Debt, arise out of or result from any failure of the Senior Debt
and the Subordinated Debt to prevent those adverse tax consequences to the
Principals that were intended to be avoided by the Senior Debt and the
Subordinated Debt, as it will exist at the Closing. Insight acknowledges and
agrees that any Capital Default could result in significant tax liabilities
being incurred by the Principals, and that such tax liabilities are included in
the possible damages for which the Principals would be entitled to indemnity
under this Section 4.4(b)(i).
(ii) Subject to the receipt of any required
consents, approvals, waivers, or authorizations of governmental authorities, (A)
the number of Representatives constituting the Management Committee shall be
increased to six, three of which shall be appointed by holders of a majority of
the outstanding Voting Interests and three of which shall be appointed by the
Principals, and (B) a Person designated by the Principals shall become an
additional Manager of the Company and shall have the authority to exercise, to
the same extent as Insight, all powers designated in this Agreement as powers of
the Manager or delegated to the Manager by the Management Committee, including
the power to cause distributions to be made to the Members in accordance with
Section 4.1(a)(i), Section 4.1(a)(ii), and Section 4.1(a)(iii) or to cause the
Preferred A Interest or the Preferred B Interest to be redeemed pursuant to
Section 4.3.
SECTION 5. ALLOCATIONS OF PROFITS AND LOSSES
5.1 Allocations of Net Profit and Net Loss.
(a) Allocations of Net Profit. For purposes of
maintaining Capital Accounts, except as otherwise provided in this Agreement,
Net Profit for each taxable year (or portion thereof) shall be allocated to the
Members as follows:
(i) First, to the Members to reverse any
allocations of Net Losses to the Members pursuant to Section 5.1(b)(iii) and
Section 5.1(b)(ii) (in reverse order to the order in which such Net Losses were
allocated to the Members) to the extent not previously reversed under this
Section 5.1(a)(i); and
(ii) Thereafter, to the Members holding Common
Interests in proportion to their Percentage Interests.
(b) Allocations of Net Loss. Net Loss for each taxable
year (or portion thereof) shall be allocated to the Members as follows:
- 33 -
<PAGE>
(i) First, to the Members in proportion to their
Percentage Interests; provided, however, that no allocation pursuant to this
Section 5.1(b)(i) shall reduce a Member's Adjusted Capital Account balance below
zero;
(ii) Second, to the Members in proportion to their
positive Adjusted Capital Account balances until each Member's Adjusted Capital
Account balance is at zero; and
(iii) Thereafter, to all Members in proportion to
their Percentage Interests.
5.2 Special Provisions Regarding Allocations of Income and Loss.
The following special allocations for purposes of maintaining Capital
Accounts shall be made in the following order:
(a) Minimum Gain Chargeback. Except as otherwise
provided in Treasury Regulations Section 1.704-2(f), notwithstanding any other
provision of this Section 5, if there is a net decrease in Partnership Minimum
Gain for any Fiscal Year, each Member shall be specially allocated items of
Company income and gain for such Fiscal Year (and if necessary for succeeding
Fiscal Years) in an amount equal to such Member's share of the net decrease in
Partnership Minimum Gain, determined in accordance with Treasury Regulations
Section 1.704-2(g). Allocations made pursuant to the preceding sentence shall be
made in proportion to the respective amounts required to be allocated to each
Member pursuant thereto. The items of Company income and gain to be allocated
pursuant to this Section 5.2(a) shall be determined in accordance with Treasury
Regulations Section 1.704-2(f)(6) and Treasury Regulations Section
1.704-2(j)(2). The amount of Partnership Minimum Gain shall be determined in
accordance with Treasury Regulations Section 1.704-2(d). This Section 5.2(a) is
intended to comply with the minimum gain chargeback requirement in Treasury
Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
(b) Partner Minimum Gain Chargeback. Except as otherwise
provided in Treasury Regulations Section 1.704-2(i)(4), notwithstanding any
other provision of this Section 5 except Section 5.2(a), if during any Fiscal
Year there is a net decrease in Partner Nonrecourse Debt Minimum Gain, each
Member that has a share of that Partner Nonrecourse Debt Minimum Gain
(determined in accordance with Treasury Regulations Section 1.704-2(i)(5)) as of
the beginning of such Fiscal Year shall be allocated items of Company income and
gain for the Fiscal Year (and, if necessary, for succeeding Fiscal Years) equal
to that Member's share of the net decrease in the Partner Nonrecourse Debt
Minimum Gain (determined in accordance with Treasury Regulations Section
1.704-2(i)(4)). Allocations pursuant to the preceding sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items of Company income and gain to be allocated pursuant
to this Section 5.2(b) shall be determined in accordance with Treasury
Regulations Section 1.704-2(i)(4) and Treasury
- 34 -
<PAGE>
Regulations Section 1.704-2(j)(2). The amount of Partner Nonrecourse Debt
Minimum Gain shall be determined in accordance with Treasury Regulations Section
1.704-2(i)(3). This Section 5.2(b) is intended to comply with the minimum gain
chargeback requirement in Treasury Regulations Section 1.704-2(i)(4) and shall
be interpreted consistently therewith.
(c) Nonrecourse Deductions. Nonrecourse Deductions for
any Fiscal Year or other period shall be specially allocated between the Members
in proportion to their Percentage Interests.
(d) Partner Nonrecourse Deductions. Any Partner
Nonrecourse Deductions for any Fiscal Year or other period shall be specially
allocated to the Member that bears the economic risk of loss with respect to the
Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are
attributable in accordance with Treasury Regulations Section 1.704-2(i).
(e) Qualified Income Offset. If either Member
unexpectedly receives any adjustments, allocations, or distributions described
in Treasury Regulations Sections 1.704- 1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Company income and
gain shall be specially allocated to such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury Regulations, the
Adjusted Capital Account of such Member as quickly as possible; provided,
however, that an allocation pursuant to this Section 5.2(e) shall be made if and
only to the extent that such Member would have an Adjusted Capital Account after
all other allocations provided for in this Section 5 have been tentatively made
as if this Section 5.2(e) were not in this Agreement.
(f) Curative Allocations. The allocations set forth in
the foregoing provisions of this Section 5.2 (the "Regulatory Allocations") are
intended to comply with certain requirements of the Treasury Regulations. It is
the intent of the Members that, to the extent possible, all Regulatory
Allocations shall be offset either with other Regulatory Allocations or with
special allocations of other items of Company income, gain, loss, or deduction
pursuant to this Section 5.2. Therefore, notwithstanding any other provision of
this Section 5 (other than the Regulatory Allocations), the Company shall make
such offsetting special allocations of Company income, gain, loss, or deduction
in whatever manner that the Management Committee determines is appropriate so
that, after such offsetting allocations are made, each Member's Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Member would have had if the Regulatory Allocations were not in this Agreement.
In exercising its discretion under this Section 5.2(f), the Management Committee
shall take into account future Regulatory Allocations under Section 5.2(a) and
Section 5.2(b) that, although not yet made, are likely to offset other
Regulatory Allocations previously made under Section 5.2(c) and Section 5.2(d).
(g) Recharacterization of Payments. If any payments or
expenses deducted for federal income tax purposes by a Member are
recharacterized by a final determination of the Internal Revenue Service as
nondeductible contributions to the Company, any corresponding items of loss or
deduction available to the Company shall be allocated to such Member so that, to
the
- 35 -
<PAGE>
extent possible, such Member has the same tax consequences as it would have had
if such payments or expenses had been deductible by such Member.
(h) Allocations with Respect to Preferred A Interest.
There shall be allocated to the holder of the Preferred A Interest an amount of
gross income of the Company for any taxable year equal to the cumulative
distributions made with respect to the Preferred A Interest pursuant to Section
4.1(a)(ii) (including any late payments on such distributions pursuant to
Section 4.1(b)(ii)) in such taxable year.
(i) Allocations with Respect to Preferred B Interest.
There shall be allocated to the holder of the Preferred B Interest an amount of
gross income of the Company for any taxable year equal to the sum of (A)
cumulative distributions made with respect to the Preferred B Interest pursuant
to Section 4.1(a)(iii) (including any late payments on such distributions
pursuant to Section 4.1(b)(iii)) in such taxable year and (B) the cumulative
amount of increases in the Preferred B Capital Amount pursuant to Section
4.1(a)(iii) occurring during such taxable year.
(j) Allocations to Central.
(i) There shall be allocated to Central an amount
of gross income of the Company for any taxable year equal to $513,400 (pro-rated
for any taxable year having less than 365 days), but only to the extent that the
cumulative allocations made under this Section 5.2(j)(i) (in all taxable years)
do not exceed $4,107,200.
(ii) There shall be allocated to Central an amount
of gross income of the Company for any taxable year equal to $161,300 (pro-rated
for any taxable year having less than 365 days), but only to the extent that the
cumulative allocations made under this Section 5.2(j)(ii) (in all taxable years)
do not exceed $1,613,000.
(k) Allocations to Manager. There shall be allocated to
the Manager an amount of gross income of the Company for any taxable year equal
to the cumulative distributions made to the Manager pursuant to Section
4.1(a)(v) during such taxable year.
(l) Amortization Deductions Attributable to Certain
Intangible Assets. Amortization deductions attributable to intangible assets
contributed to the Company by Central that have an initial Gross Asset Value in
excess of initial adjusted basis for federal income tax purposes shall be
allocated as follows: (i) in any taxable year, amortization deductions equal to
the amortization deductions for income tax purposes available with respect to
such assets shall be allocated to Insight, (ii) in any taxable year,
amortization deductions in excess of amortization deductions for income tax
purposes shall be allocated to Central, provided that the cumulative allocations
made to Central under this clause shall not exceed the initial Gross Asset Value
of such assets reduced by $30 million, provided further that no allocation
pursuant to this clause shall reduce Central's Adjusted Capital Account balance
below zero, (iii) thereafter, all amortization
- 36 -
<PAGE>
deductions in respect of such assets shall be allocated to Insight, provided
that no allocation pursuant to this clause shall reduce Insight's Adjusted
Capital Account balance below zero, and (iv) any remaining amortization
deductions available with respect to such assets shall be allocated to Central
to the extent of Central's positive Adjusted Capital Account balance and
thereafter to the Members in accordance with their Percentage Interests. Any
"book-up" or recapture of the amortization deductions described in the preceding
sentence shall be allocated to the Member to which the previously claimed
deduction was allocated.
(m) Allocations Upon Liquidation. Notwithstanding
anything to the contrary herein, upon a liquidation of the Company, allocations
of Net Profit and Net Loss, and if necessary, of gross income and deductions,
shall be made so that, after such allocations have been made, the Capital
Accounts of the Members will equal as closely as possible the amounts to be
distributed to the Members pursuant to Section 10.2(d)(iii), with distributions
under Section 10.2(d)(iii)(E) made in proportion to each Member's Percentage
Interests.
5.3 Section 754 Adjustments.
To the extent any adjustment to the adjusted tax basis of any asset of
the Company pursuant to Code Section 734(b) or Code Section 743(b) is required,
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into
account in determining Capital Accounts, the amount of such adjustment shall be
treated as an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases such basis), and such gain or loss shall be
specially allocated to the Members in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to such
section of the Treasury Regulations. An election under Code Section 754 shall be
made by the Company only with the consent of the Principals.
5.4 Allocations for Tax Purposes.
(a) Except as otherwise provided herein, for federal
income tax purposes, (i) each item of income, gain, loss and deduction shall be
allocated between the Members in the same manner as its correlative items of
"book" income, gain, loss or deduction is allocated pursuant to Section 5.1,
Section 5.2, and Section 5.3, and (ii) each tax credit shall be allocated to the
Members in the same manner as the receipt or expenditure giving rise to such
credit is allocated pursuant to Section 5.1, Section 5.2, and Section 5.3.
(b) In accordance with Code Section 704(c) and the
Treasury Regulations thereunder, income, gain, loss, and deduction with respect
to any property contributed to the capital of the Company shall, solely for tax
purposes, be allocated between the Members so as to take account of any
variation between the adjusted basis of such property to the Company for federal
income tax purposes and its initial Gross Asset Value. The Company shall use the
"traditional method" of making Code Section 704(c) allocations (as described in
Treasury Regulations Section 1.704-3(b)).
- 37 -
<PAGE>
(c) If the Gross Asset Value of any asset of the Company is
adjusted pursuant to paragraph (ii) of the definition of Gross Asset Value,
subsequent allocations of income, gain, loss, and deduction with respect to such
asset shall take account of any variation between the adjusted basis of such
asset for federal income tax purposes and its Gross Asset Value in the same
manner as under Code Section 704(c) and the Treasury Regulations thereunder.
(d) Any elections or other decisions relating to
allocations described in Section 5.4(b) and Section 5.4(c) shall be made by the
Management Committee in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to Section 5.4(b) and Section
5.4(c) are solely for purposes of federal, state, and local taxes and shall not
affect, or in any way be taken into account in computing, either Member's
Capital Account or share of Net Profit, Net Loss, other items, or distributions
pursuant to any provision of this Agreement.
5.5 Allocations Following a Transfer of Membership Interest.
If a Membership Interest is transferred in accordance with Section 9 of
this Agreement, Net Profit and Net Loss shall be allocated between the periods
before and after the transfer by the interim closing of the Company books method
set forth in Treasury Regulation Section 1.706- 1(c)(2)(ii). As of the date of
such transfer, the transferee shall succeed to the Capital Account of the
transferor with respect to the transferred Membership Interest. This paragraph
shall apply for purposes of computing a Member's Capital Account and for federal
income tax purposes.
SECTION 6. AUTHORITY OF THE MANAGER; OTHER
MATTERS AFFECTING MANAGER
6.1 Authority of Manager.
The Manager agrees that, except as otherwise expressly provided herein,
the Manager acting alone shall not give any consent to any matter or take any
other action as the Manager, including acting on behalf of or binding the
Company with respect to any matter in respect of which approval by the
Management Committee or the Members is required by the provisions of this
Agreement or the Act, unless such consent, matter, or other action shall first
have been adopted or approved by the Management Committee or the Members, as the
case may be, or authority to consent to such matter or to take such other action
shall have been expressly delegated to the Manager by the Management Committee
or the Members, as the case may be, in each case in accordance with the
provisions of this Agreement or the Act as applicable.
- 38 -
<PAGE>
6.2 Resignation as Manager.
(a) Insight may not resign as the Manager without the
consent of holders of a majority of the outstanding Voting Interests and the
consent of the Principals (except in the case of a Transfer of all of Insight's
Membership Interest that is permitted by this Agreement, including a Transfer
pursuant to Section 9.11, where the Assignee of Insight's Membership Interest
has been admitted as a substitute Member in accordance with Section 9.3). If
holders of a majority of the outstanding Voting Interests and the Principals
consent to such resignation, the Company shall dissolve in accordance with the
provisions of Section 10 unless, within ninety days after the resignation of
Insight as the Manager, all the Members and the Principals elect to continue the
business of the Company and agree to the appointment, effective as of the date
of the resignation of Insight as the Manager, of one or more new Managers.
(b) Any change in the identity of the Manager shall be
subject to and conditioned upon receipt of all necessary governmental approvals
and other material third-party consents.
(c) Without limiting any other rights or remedies that
the Company or Central may have at law or in equity, upon any resignation by
Insight as the Manager in violation of this Agreement, then, notwithstanding any
other provision of this Agreement to the contrary, no consent of Insight
required under any provision of this Agreement shall any longer be required and
Central shall be entitled to grant all such consents and take all actions
relating to the Company and its business.
6.3 Tax Matters Member.
(a) The Manager is hereby designated as the Tax Matters
Member of the Company, as provided in Treasury Regulations pursuant to Code
Section 6231 and analogous provisions of state law. Each Member, by the
execution of this Agreement, consents to such designation of the Tax Matters
Member and agrees to execute, certify, acknowledge, deliver, swear to, file, and
record at the appropriate public offices such documents as may be necessary or
appropriate to evidence such consent.
(b) The Manager, as the Tax Matters Member, is authorized
to represent the Company before taxing authorities and courts in tax matters
affecting the Company and the Members in their capacity as Members and is
entitled to take any actions on behalf of the Company in any such tax
proceedings that the Manager, in its reasonable business judgment, deems to be
in the best interests of the Company and the Members, except that, without the
written consent of Central and the Principals, the Manager shall not extend the
statute of limitations for assessment of tax deficiencies against the Members
with respect to adjustments to the Company's federal, state, and local tax
returns, agree to any deficiency or other adjustment of any kind that adversely
affects Central or any of the Principals, make any material tax elections, or
execute any agreements or other documents relating to or affecting any tax
matters
- 39 -
<PAGE>
that are binding on the Company or Central or any of the Principals; provided,
however, that intangible assets contributed to the Company by Central that have
an initial Gross Asset Value in excess of their initial adjusted basis for
federal income tax purposes shall be amortized over a 25- year period.
(c) To the extent and in the manner provided by
applicable law and Treasury Regulations, the Tax Matters Member shall furnish
the name, address, profits interest, and taxpayer identification number of each
Member and any Assignee to the Secretary of the Treasury or his delegate (the
"Secretary").
(d) The Tax Matters Member shall notify each Member and
each Principal of any audit that is brought to the attention of the Tax Matters
Member by notice from the Internal Revenue Service, and shall forward to each
Member and each Principal copies of any written notices, correspondence,
reports, or other documents received by the Tax Matters Member in connection
with such audit within ten Business Days following its notification by the
Internal Revenue Service or its receipt, as the case may be. The Tax Matters
Member shall provide each Member and each Principal with reasonable advance
notice of, and shall afford each Member and each Principal the right to
participate in, any administrative proceedings or other material discussions
with the Internal Revenue Service, including any closing conference with the
examiner and any appeals conference, relating to the Company.
(e) The Tax Matters Partner shall, at the Company's
expense, cause all federal, state, local, and other tax returns and reports
(including amended returns) required to be filed by the Company or any
Subsidiary to be prepared and timely filed with the appropriate authorities. The
Tax Matters Partner shall cause all income or franchise tax returns or reports
required to be filed by the Company or any Subsidiary to be sent to each Member
and each Principal for review at least five Business Days prior to filing, and
the Tax Matters Partner shall afford each Member and each Principal a reasonable
opportunity to comment on any such return prior to filing.
(f) Any Member that receives a notice of an
administrative proceeding under Code Section 6223 relating to the Company shall
promptly notify the Tax Matters Member of the treatment of any Company item on
such Member's federal income tax return that is or may be inconsistent with the
treatment of that item on the Company's return.
(g) Any Member that enters into a settlement agreement
with the Secretary with respect to any Company item shall notify the Tax Matters
Member of such agreement and its terms within thirty days after its date, and
the Tax Matters Member shall notify each other Member and each Principal of the
settlement agreement within thirty days of such notification.
- 40 -
<PAGE>
6.4 Reimbursement of Expenses.
(a) The Company shall reimburse the Manager for all
direct, out-of-pocket expenses incurred by or on behalf of the Manager that
directly relate to its management of the business and operations of the Company,
including any such expenses incurred in connection with the management of the
Shareholders pursuant to the management agreements between the Shareholders and
Insight; provided, however, that the Manager shall not be entitled to
reimbursement from the Company for corporate overhead (including employee
bonuses and health, welfare, retirement, and other employee benefits and
overhead expenses of its corporate office management, development, internal
accounting, and finance management personnel).
(b) The Company shall reimburse the Borrowers for all
direct, out-of-pocket expenses incurred by or on behalf of the Borrowers in
complying with the terms of the Loan Documents (excluding any payment of
principal or interest under the Senior Debt or the Subordinated Debt). The
Company shall pay, or shall reimburse the Borrowers for, any amounts required to
be paid by any Borrower as a result of any indemnification or reimbursement
obligation arising under any of the Loan Documents or otherwise arising in
connection with the offer or sale of any of the Senior Debt or the Subordinated
Debt. Notwithstanding the foregoing, no Borrower shall be entitled to
reimbursement from the Company for costs and expenses incurred in connection
with maintaining the legal existence of any Borrower, preparing and filing tax
returns and reports on behalf of the Borrower, or any other similar recurring
expenses.
SECTION 7. STATUS OF MEMBERS
7.1 No Management and Control.
Except as expressly provided in this Agreement, neither Member (other
than the Manager) shall take part in or interfere in any manner with the
control, conduct, or operation of the Company or have any right or authority to
act for or bind the Company or to vote on matters relating to the Company.
7.2 Limited Liability.
Neither Member shall be bound by or personally liable for the expenses,
liabilities, or obligations of the Company. In no event shall either Member be
required to make up a deficiency in its Capital Account upon the dissolution and
termination of the Company.
7.3 Return of Distributions of Capital.
A Member may, under certain circumstances, be required by law to return
to the Company, for the benefit of the Company's creditors, amounts previously
distributed. Neither Member shall be obligated by this Agreement to pay those
distributions to or for the account of the Company or any creditor of the
Company. However, if any court of competent jurisdiction
- 41 -
<PAGE>
holds that, notwithstanding the provisions of this Agreement, a Member must
return or pay over any part of those distributions, the obligation shall be that
of such Member alone and not of the other Member. Any payment returned to the
Company by a Member or made directly by a Member to a creditor of the Company
shall be deemed a Capital Contribution by such Member.
7.4 Specific Limitations.
Neither Member shall have the right or power to (a) resign as a Member
(except in the case of a Transfer of all of a Member's Membership Interest that
is permitted by this Agreement, including a Transfer pursuant to Section 9.11,
where the Assignee of such Member's Membership Interest has been admitted as a
substitute Member in accordance with Section 9.3, and except as provided in
Section 6.2(a) with respect to the Manager), (b) reduce its Capital Contribution
except as a result of the dissolution of the Company or as otherwise provided by
law, or (c) demand or receive property other than cash in return for its Capital
Contribution. Except as otherwise set forth in this Agreement or in any
agreement permitted to be entered into under this Agreement with respect to the
purchase, redemption, retirement, or other acquisition of Membership Interests,
neither Member shall have priority over the other Member either as to the return
of its Capital Contribution or as to Net Profit, Net Loss, or distributions.
Other than upon the termination and dissolution of the Company as provided by
this Agreement, and except has provided in Section 4.3, there has been no time
agreed upon when the Capital Contribution of either Member will be returned.
7.5 Issuance of Membership Interests.
Subject to any approval that may be required by Section 8.5(b) and, if
such approval is required, in accordance with the terms thereof, the Manager may
issue additional Membership Interests to any Person and may admit to the Company
as additional Members the Persons acquiring such Membership Interests, if such
Persons were not previously admitted as Members. The Persons acquiring such
Membership Interests shall have the rights and be subject to the obligations
attributable to such Membership Interests in the form issued to them. A Person
admitted as a new Member shall only be entitled to distributions and allocations
of Net Profit and Net Loss attributable to the period beginning on the effective
date of its admission to the Company, and the Company shall attribute Net Profit
and Net Loss to the period before the effective date of the admission of a new
Member and to the period beginning on the effective date of the admission of a
new Member by the closing of the books method.
SECTION 8. MANAGEMENT OF THE COMPANY
8.1 Creation of Management Committee.
(a) Except as otherwise expressly provided in this Agreement,
the business and operations of the Company shall be managed by a Management
Committee consisting of four Representatives, three of which shall be appointed
by holders of a majority of the outstanding
- 42 -
<PAGE>
Voting Interests and one of which shall be appointed by the Principals. The
initial Representatives are specified in Schedule II.
(b) All decisions of the Management Committee shall be by
resolution duly adopted in accordance with the provisions of this Agreement. The
Management Committee may delegate such general or specific authority to the
Manager and the officers of the Company as it from time to time considers
desirable, and the Manager and the officers of the Company may exercise the
authority granted to them, subject to any restraints or limitations imposed by
the Management Committee and the provisions of Section 8.5 and any other express
provisions of this Agreement.
8.2 Appointment and Removal of Representatives.
(a) The Chairman and Secretary of the Management Committee
shall be chosen by the Management Committee.
(b) Holders of a majority of the outstanding Voting
Interests may vote at any time to remove any of the Representatives previously
appointed by the holders of a majority of the outstanding Voting Interests, with
or without cause, and may replace any Representative so removed, by sending
notice of such removal and replacement to the other Members and the Principals.
The Principals may at any time remove the Representative appointed by them, with
or without cause, and may replace the Representative so removed, by sending
notice of such removal and replacement to the Members. No Representative shall
be removed from office, with or without cause, other than as provided in the
preceding two sentences.
(c) If any Representative is unwilling or unable to serve
as such or is removed from office, before the transaction of any other business
by the Management Committee, holders of a majority of the outstanding Voting
Interests, in the case of any Representative appointed by holders of a majority
of the outstanding Voting Interests, or the Principals, in the case of the
Representative appointed by the Principals, shall appoint a successor to such
Representative.
(d) No compensation of, or expenses incurred by, the
Representatives incident to their duties and responsibilities as such under this
Agreement shall be paid by, or charged to, the Company.
8.3 Meetings of the Management Committee.
The Management Committee shall hold one regular meeting each year at
such time and place as shall be determined by the Chairman of the Management
Committee. Special meetings of the Management Committee may be called at any
time by any Representative upon not less than three Business Days' prior notice
to the other Representatives, which may be waived by each Representative either
before or after the meeting. Except as otherwise determined by the
- 43 -
<PAGE>
Chairman of the Management Committee, all special and regular meetings of the
Management Committee shall be held at the principal office of the Company.
8.4 Procedural Matters.
(a) Each Representative shall have one vote in all
matters presented to the Management Committee for decision or approval. At all
meetings of the Management Committee, except as otherwise expressly provided for
in this Agreement, the affirmative vote of a majority of the Representatives,
present at such meeting in person or by proxy, shall be required for all actions
and decisions of the Management Committee. If a majority of the Representatives
are not present in person or represented by proxy at any meeting, the
Representatives present may adjourn the meeting from time to time, without
notice other than an announcement at the meeting, until a majority of the
Representatives shall be present or represented.
(b) Any notice of a special meeting of the Management
Committee shall state the purpose for which such meeting has been called.
(c) Each Representative entitled to vote at a meeting of
the Management Committee or to express consent to any action in writing without
a meeting or to express consent to any action pursuant to any other provision of
this Agreement may authorize another Representative or any individual reasonably
acceptable to the other Representatives to act for him by proxy. Any
Representative may designate another individual reasonably acceptable to the
other Representatives to act as the alternate of such Representative at any
meeting of the Management Committee.
(d) Any action required or permitted to be taken by the
Management Committee may be taken without a meeting if all Representatives
consent in writing to such action. Such consent shall have the same effect as a
vote of the Management Committee. Members of the Management Committee shall have
the right to participate in a meeting of the Management Committee by means of a
conference telephone or similar communications equipment by means of which all
Representatives participating in the meeting can hear each other and be heard,
and such participation shall constitute presence in person at the meeting.
(e) The Management Committee shall cause to be kept a
book of minutes of all of its meetings in which there shall be recorded the time
and place of each such meeting, whether regular or special, and if special, by
whom called, the notice thereof given, the names of those present, and the
proceedings thereof.
8.5 Matters Requiring Approval by the Principals.
Notwithstanding any provision in this Agreement to the contrary, and in
addition to any other consent or approval that may be required by the express
terms of this Agreement, without the consent of the Principals, which may be
withheld by the Principals in their sole discretion, the
- 44 -
<PAGE>
Company shall not, and neither the Manager nor the Management Committee shall
have any authority to cause the Company to, or cause or permit any Subsidiary
to:
(a) enter into any transaction between the Company or any
Subsidiary and either Member or any Affiliate of either Member, unless such
transaction is on commercially reasonable terms;
(b) except for a Membership Interest issued in accordance
with Section 2.1(d)(4)(A) of the Contribution Agreement, issue any Membership
Interest or any option, warrant, or other debt or equity interest convertible
into or evidencing the right to acquire (whether or not for additional
consideration) any Membership Interest, unless:
(i) either (A) at least twenty-five percent of the
Membership Interests or other debt or equity interests so issued are issued to
Persons that are not Related Parties of Insight (for purposes of this Section
8.5(b), a "Related Party" of Insight means any Affiliate of Insight, any member,
partner, officer, director, shareholder, employee, or agent of Insight or of any
Affiliate of Insight, and any Person that has a material financial relationship
with Insight or any Affiliate of Insight), or (B) the Company has obtained and
delivered to Central and the Principals an opinion of an independent investment
banking firm of nationally recognized standing that the terms and conditions on
which such Membership Interests or other debt or equity interests are to be
issued are fair, from an economic standpoint, to the Company and the holders of
the outstanding Membership Interests; and
(ii) any of such Membership Interests or other debt
or equity interests that are issued to Persons that are Related Parties of
Insight are issued on the same terms and conditions as the Membership Interests
or other debt or equity interests that are issued to Persons that are not
Related Parties of Insight; and
(iii) the Company shall have afforded the Principals
or their designee (provided that such designee, if it is not Central, shall be
entirely owned, directly or indirectly, by one or more of the Principals and
shall be owned, at least in part, directly or indirectly, by Dennis
McGillicuddy) the opportunity to acquire a portion of the Membership Interests
or other debt or equity interests so issued (other than any Membership Interests
or other debt or equity interests that are issued to Persons that are not
Related Parties of Insight) equal to a fraction, the numerator of which is the
number of Units assigned to the Common Interests held by Central or otherwise
held directly or indirectly by the Principals immediately prior to such issuance
and the denominator of which is the sum of the number of Units assigned to all
Common Interests held by Insight and Related Parties of Insight prior to such
issuance plus the number of Units assigned to the Common Interests held by
Central or otherwise held directly or indirectly by the Principals immediately
prior to such issuance;
(c) sell or otherwise dispose of, or cause or permit any
Subsidiary to sell or otherwise dispose of, any assets of the Company or any
Subsidiary that were contributed to the
- 45 -
<PAGE>
Company by Central or any assets of the Company or any Subsidiary the initial
adjusted tax basis of which is determined, in whole in part, with reference to
the adjusted tax basis of the assets contributed by Central, except upon the
liquidation and dissolution of the Company in accordance with Section 10 and
except for:
(i) sales and dispositions of assets that do not
involve the disposition of any of the Company's cable television subscribers;
and
(ii) any disposition of assets that does not,
together with all prior dispositions previously made by the Company, represent a
portion of the Company's business serving more than 1,000 cable television
subscribers in the aggregate;
(d) sell or otherwise dispose of, or cause or permit any
Subsidiary to sell or otherwise dispose of, any assets of the Company or any
Subsidiary if such sale or other disposition would trigger the right of any
holder of any of the Senior Debt or any of the Subordinated Debt to require that
any of such Senior Debt or Subordinated Debt be repaid, purchased, or redeemed;
(e) enter into any agreement restricting the ability of
the Company to make any distribution required to be made pursuant to Section
4.1(a)(i), Section 4.1(a)(ii), or Section 4.1(a)(iii) or to redeem the Preferred
B Interest to the extent required by Section 4.3;
(f) liquidate or dissolve except in accordance with
Section 10; or
(g) do any act in contravention of this Agreement, the
Certificate of Formation of the Company, or the Act.
The parties acknowledge and agree that each provision of this Section
8.5 is intended to be a separate condition and that therefore, for example, a
sale or disposition described in Section 8.5(c) would require the consent of the
Principals under Section 8.5(c) even if such sale or other disposition did not
require the consent of the Principals under any other provision of this Section
8.5. The parties agree to negotiate in good faith and, if such negotiations are
successful, to enter into an amendment to this Agreement that would (a) permit
the Company to consummate transactions that are intended to qualify, in whole or
in part, under Code Section 1031, so long as, in the opinion of
nationally-recognized tax counsel based on an appraisal acceptable to the
Principals, the aggregate federal, state, or local tax liability of the
Principals resulting from all such dispositions and any dispositions made
pursuant to Section 8.5(c)(ii) does not exceed $2,750,000, (b) provide a means
to allow the Principals to pay any federal, state, or local tax liability in
excess of $2,750,000 if any transaction that was intended to be within the
limitations in clause (a) ultimately generates a greater federal, state, or
local tax liability to the Principals than was originally contemplated, (c)
allocate any additional depreciation and amortization for tax purposes and other
economic factors resulting from the recognition of income or gain in any
transaction that was intended to qualify under Code Section 1031, and (d) make
additional changes
- 46 -
<PAGE>
to this Agreement consistent with the principles underlying the amendments
described in the foregoing clauses.
8.6 Permitted Transactions.
(a) Other Businesses. Nothing in this Agreement shall
limit the ability of either Member, any partner, Affiliate, or agent of either
Member, or any Representative to engage in or possess an interest in other
business ventures of any nature or description, independently or with others,
whether currently existing or hereafter created and whether or not competitive
with or advanced by the business of the Company. Neither the Company nor the
other Member shall have any rights in or to the income or profits derived
therefrom, nor shall either Member have any obligation to the other Member with
respect to any such enterprise or related transaction. The foregoing provisions
shall not impair or otherwise affect any limitation to which either Member is or
may be subject with respect to his business activities under any other agreement
between the Company and such Member.
(b) Dealings with the Company. Subject to Section 8.5(a),
the Company may, in the discretion of the Management Committee, contract with
any Person (including either Member or any Person that is an Affiliate of either
Member or in which either Member may be interested) for the performance of any
services that may reasonably be required to carry on the business of the
Company, and any such Person dealing with the Company, whether as an independent
contractor, agent, employee, or otherwise, may receive from others or from the
Company profits, compensation, commissions, or other income incident to such
dealings.
8.7 Other Management Matters.
(a) Central and the Shareholders as Affiliates of
Insight. The parties agree that each Shareholder shall be an Affiliate of
Insight for purposes of this Agreement so long as the management agreement
between Insight and such Shareholder remains in effect and that Central shall be
an Affiliate of Insight for purposes of this Agreement so long the management
agreements between Insight and Shareholders holding a majority of the
outstanding shares of Central remain in effect. Notwithstanding the foregoing or
any other provision of this Agreement, Insight shall not be in violation of any
provision of this Agreement restricting any action by its Affiliates with
respect to any action taken by Central or any Shareholder to the extent that
such action was caused to be taken by one or more of the Principals exercising
authority reserved to the Principals under the management agreements between
Insight and Shareholders, and Insight shall not be in violation of any provision
of this Agreement requiring any action by its Affiliates with respect to any
action not taken by Central or any Shareholder to the extent that such action
was prevented from being taken by one or more of the Principals exercising
authority reserved to the Principals under the management agreements between
Insight and Shareholders.
- 47 -
<PAGE>
(b) Programming and Other Discounts. Insight agrees to
make available to the Company the benefits of any currently existing programming
or equipment discounts or other similar beneficial arrangements that are
available to Insight Communications Company, L.P.
SECTION 9. ASSIGNMENT, TRANSFER, OR SALE OF
INTERESTS IN THE COMPANY
9.1 Limitations on Transfers.
(a) Except as provided in Section 9.1(b), neither Member
may sell, assign, transfer, or otherwise dispose of, or pledge, hypothecate, or
otherwise encumber all or any part of its Membership Interest (any such action,
a "Transfer"), whether voluntarily, involuntarily, or by operation of law,
unless approved by the other Member and the Principals. Notwithstanding the
approval of the other Member and the Principals to any Transfer by a Member, the
rights of any Assignee shall be subject at all times to the limitations set
forth in Section 9.2.
(b) The restrictions of Section 9.1(a) shall not apply
and no consent of the other Member or the Principals shall be required for:
(i) a Transfer to an Affiliate of the transferring
Member;
(ii) a redemption of the Preferred A Interest or the
Preferred B Interest pursuant to Section 4.3;
(iii) a Transfer pursuant to Section 9.7;
(iv) a sale of all or part of the Common Interest
of Insight if Insight complies with Section 9.6(a);
(v) a sale of all or part of the Common Interest
of Central in accordance with Section 9.6(a), Section 9.6(b), or Section 9.6(c);
or
(vi) a sale of Insight's Membership Interest to a
Person designated by the Principals pursuant to Section 9.11.
9.2 Assignee.
If the provisions of this Section 9 have been complied with, an
Assignee shall be entitled to receive distributions of cash or other property,
and allocations of Net Profit and Net Loss and of items of income, deduction,
gain, loss, or credit, from the Company attributable to the assigned Membership
Interests from and after the effective date of the assignment, and shall have
the right to receive a copy of the financial statements required herein to be
provided the Members, but an Assignee shall have no other rights of a Member
herein, such as rights to any other information,
- 48 -
<PAGE>
an accounting, inspection of books or records, or voting as a Member on matters
required by law, unless and until such Assignee is admitted as a substitute
Member pursuant to the provisions of Section 9.3. The Company and the Manager
shall be entitled to treat the assignor as the absolute owner of the Membership
Interests in all respects, and shall incur no liability for distributions,
allocations of Net Profit or Net Loss, or transmittal of reports and notices
required to be given to Members that are made in good faith to the assignor
until the effective date of the assignment, or, in the case of the transmittal
of reports (other than the financial statements referred to above) or notices,
until the Assignee is so admitted as a substitute Member. The effective date of
an assignment shall be the first day of the calendar month following the month
in which the Manager has received an executed instrument of assignment in
compliance with this Section 9 or the first day of a later month if specified in
the executed instrument of assignment. The Assignee shall be deemed an Assignee
on the effective date, and shall be only entitled to distributions and
allocations of Net Profit and Net Loss attributable to the period beginning on
the effective date of assignment. The Company shall attribute Net Profit and Net
Loss to the period before the effective date of assignment and to the period
beginning on the effective date of assignment by the interim closing of the
Company books method set forth in Treasury Regulation Section 1.706-
1(c)(2)(ii). Each Assignee will inherit the balance of the Capital Account, as
of the effective date of assignment, of the assignor with respect to the
Membership Interests assigned.
9.3 Substitute Members.
Any Assignee of Insight's Membership Interest pursuant to Section 9.11
shall be automatically admitted as a substitute Member. Any other Assignee may
not become a substitute Member unless all of the following conditions are first
satisfied:
(a) a duly executed and acknowledged written instrument
of assignment shall have been filed with the Company, specifying the Membership
Interests being assigned and setting forth the intention of the assignor that
the Assignee succeed to the assignor's interest as a substitute Member;
(b) the assignor and Assignee shall have executed and
acknowledged any other instruments that the Principals, in the case of a
Transfer by Insight, or Insight, in the case of any other Transfer, deems
necessary or desirable for substitution, including the written acceptance and
adoption by the Assignee of the provisions of this Agreement and the assumption
by the Assignee of all obligations of the assignor under this Agreement
(including, in the case of a Transfer by Insight, the obligations of Insight
under Section 3.5);
(c) except in the case of an assignment permitted by
Section 9.1(b), the Principals, in the case of a Transfer by Insight, or
Insight, in the case of any other Transfer, shall have consented in writing to
the admission of the Assignee as a substitute Member, the granting of which may
be withheld by the Principals or Insight, as applicable, in their or its sole
and absolute discretion; and
- 49 -
<PAGE>
(d) the assignment to the Assignee shall have complied
with the other provisions of this Section 9.
9.4 Other Consents and Requirements.
Any Transfer must be in compliance with all requirements imposed by any
state securities administrator having jurisdiction over the Transfer and the
United States Securities and Exchange Commission and must not cause the Company
or any Subsidiary to be in violation of any cable television franchise, any
provision of the Communications Act of 1934, as amended, or any other law
subsequently enacted, or any rule, regulation, or policy of the Federal
Communications Commission promulgated thereunder restricting the ownership and
control of communications properties (including cable television systems,
television broadcast stations, radio broadcast stations, telephone companies,
and newspapers), including those relating to multiple ownership, cross-ownership
and cross-interest, as those terms are commonly understood in the communications
industry.
9.5 Assignment Not In Compliance.
Any Transfer in contravention of any of the provisions of this Section
9 (whether voluntarily, involuntarily or by operation of law) shall be void and
of no effect, and shall neither bind nor be recognized by the Company.
9.6 Tag-Along and Drag-Along Rights.
(a) Tag-Along Rights. If Insight desires at any time to
sell to any other Person (the "Third-Party Purchaser") all or any part of any
Common Interest held by Insight, Insight shall send Central and the Principals a
written notice of the proposed sale and shall afford Central the opportunity to
sell to the Third-Party Purchaser, for the type of consideration provided in
Section 9.6(d), on terms equivalent as to purchase price per Unit (subject to
Section 9.6(g)) and otherwise identical (subject to Section 9.6(f)) to those
applicable to the sale of the Common Interest proposed to be sold by Insight,
that percentage of its Common Interest equal to a fraction, the numerator of
which is the number of Units assigned to the Common Interest proposed to be sold
by Insight and the denominator of which is the number of Units assigned to all
of the Common Interests of Insight. For purposes of this Section 9.6(a), Central
shall have been afforded the opportunity to sell its Common Interest if Central
and the Principals shall have received, at least thirty days prior to the sale
by Insight, the notice from Insight referred to in the first sentence of this
Section 9.6(a), specifying the material terms of the proposed sale, the purchase
price and other terms and conditions of payment, and the anticipated date on or
about which the proposed sale is to be made, and accompanied by an offer from
the Third-Party Purchaser to purchase Central's Common Interest on the terms
described in this Section 9.6(a). Central shall accept the offer to sell its
Common Interest pursuant to this Section 9.6(a) if the Principals so elect, and
Insight's notice to Central and the Principals pursuant to this Section 9.6(a)
shall specify the deadline before which the Principals must notify Insight of
their election that Central sell any of
- 50 -
<PAGE>
its Common Interest pursuant to this Section 9.6(a), which deadline may not be
before the later of (1) the fifteenth day after the Principals' receipt of
Insight's notice or (2) the fifth day after the amount of consideration
allocable to Insight's Common Interest is agreed to between Insight and the
Principals or otherwise determined pursuant to Section 9.6(e). Any purchase and
sale of any part of Central's Common Interest pursuant to this Section 9.6(a)
shall be conditioned on the consummation of the purchase and sale of Insight's
Common Interest to which this Section 9.6(a) applies.
(b) Drag-Along Rights. In connection with any sale by
Insight of all or any part of its Common Interests, Insight may elect to require
that Central sell (and, upon such election, Central shall be obligated to sell)
to the Third-Party Purchaser, for the type of consideration provided in Section
9.6(d), on terms equivalent as to purchase price per Unit (subject to Section
9.6(g)) and otherwise identical (subject to Section 9.6(f)) to those applicable
to the sale by Insight of its Common Interest, that percentage of its Common
Interest equal to a fraction, the numerator of which is the number of Units
assigned to the Common Interest to be sold by Insight and the denominator of
which is the number of Units assigned to all of the Common Interests of Insight.
Notwithstanding the foregoing, Insight's right to elect that Central sell all or
part of its Common Interest and Central's obligation to sell all or part of its
Common Interest shall be subject to any required consent or approval of the
holders of the Senior Debt or the holders of the Subordinated Debt and to any
liens securing the Senior Debt, the Subordinated Debt, or any other obligations
and liabilities arising under the Loan Documents. Any purchase and sale of all
or part of Central's Common Interest pursuant to this Section 9.6(b) shall be
conditioned on the consummation of the purchase and sale of Insight's Common
Interest to which this Section 9.6(b) applies.
(c) Put and Call of Central's Common Interest.
(i) Prior to the consummation of any transaction or
series of related transactions that would result in Insight ceasing to be
controlled, directly or indirectly, by one or more individuals who, on the date
of this Agreement, collectively control Insight (other than a transaction to
which Section 9.6(a) applies), Insight shall send Central and the Principals a
written notice setting forth the material terms of the proposed transaction and
setting forth the purchase price that would be paid for Central's Common
Interest if the Principals make an election pursuant to this Section 9.6(c), as
determined in accordance with Section 9.6(e). Within fifteen days after their
receipt of such notice, the Principals may elect, by delivering written notice
of their election to Insight, to require that Insight purchase all of Central's
Common Interest and that Central sell all of its Common Interest to Insight, for
the purchase price determined pursuant to Section 9.6(e) (subject to Section
9.6(g)) and otherwise on terms comparable (subject to Section 9.6(f)) to those
applicable to the transaction involving Insight to which this Section 9.6(c)
applies. Upon an election by the Principals pursuant to this Section 9.6(c),
Insight shall be obligated to purchase and Central shall be obligated to sell
all of Central's Common Interest. Insight's notice to Central and the Principals
pursuant to this Section 9.6(c)(i) shall specify the deadline before which the
Principals must notify Insight of their election to require that Central sell
its Common Interest
- 51 -
<PAGE>
pursuant to this Section 9.6(c), which deadline may not be before the later of
(A) the fifteenth day after the Principals' receipt of Insight's notice or (B)
the fifth day after the amount of consideration allocable to Insight's Common
Interest is agreed to between Insight and the Principals or otherwise determined
pursuant to Section 9.6(e).
(ii) In connection with the consummation of any
transaction or series of related transactions that would result in Insight
ceasing to be controlled, directly or indirectly, by one or more individuals
who, on the date of this Agreement, collectively control Insight (other than a
transaction to which Section 9.6(a) applies), Insight may elect to require that
Central sell (and, upon such election, Central shall be obligated to sell) to
Insight all of Central's Common Interest for the purchase price determined
pursuant to Section 9.6(e) (subject to Section 9.6(g)) and otherwise on terms
comparable (subject to Section 9.6(f)) to those applicable to the transaction
involving Insight to which this Section 9.6(c) applies. Notwithstanding the
foregoing, Insight's right to elect that Central sell its Common Interest and
Central's obligation to sell its Common Interest shall be subject to any
required consent or approval of the holders of the Senior Debt or the holders of
the Subordinated Debt and to any liens securing the Senior Debt, the
Subordinated Debt, or any other obligations and liabilities arising under the
Loan Documents.
(iii) Any purchase and sale of Central's Common
Interest pursuant to this Section 9.6(c) shall be conditioned on the
consummation of the transaction involving Insight to which this Section 9.6(c)
applies.
(iv) The closing of the purchase and sale of
Central's Common Interest pursuant to this Section 9.6(c) shall occur
concurrently with the closing of the transaction that results in Insight ceasing
to be controlled, directly or indirectly, by one or more individuals who, on the
date of this Agreement, collectively control Insight. At the closing of the
purchase and sale of Central's Common Interest pursuant to this Section 9.6(c),
Insight shall pay or cause to be paid to Central the purchase price in the form
provided in Section 9.6(d), and Central will convey to Insight all of its Common
Interest free and clear of all claims, liabilities, security interests,
mortgages, liens, pledges, conditions, charges, and encumbrances of any nature
whatsoever, other than the rights granted to other parties under this Agreement
and liens securing the Senior Debt, the Subordinated Debt, and any other
obligations and liabilities arising under the Loan Documents.
(d) Consideration for Purchase of Central's Common
Interest; Tax Loans.
(i) In case of a sale of all or part of Central's
Common Interest pursuant to Section 9.6(a), Section 9.6(b), or Section 9.6(c),
the purchase price shall be paid through the delivery to Central of property
(including cash) of the same kind, and in the same proportions, as that received
by Insight or any direct or indirect owner of Insight in connection with the
transaction that triggered the right or obligation of Central to sell all or
part of Central's Common Interest pursuant to Section 9.6(a), Section 9.6(b), or
Section 9.6(c). For purposes of this Section 9.6(d)(i) and Section 9.6(e), any
liabilities assumed by the purchaser as part of the transaction that
- 52 -
<PAGE>
triggered the right or obligation of Central to sell all or part of Central's
Common Interest pursuant to Section 9.6(a), Section 9.6(b), or Section 9.6(c)
(whether assumed directly or indirectly as part of the acquisition of the
outstanding equity interests in any entity, other than liabilities of the
Company) shall be treated as cash received by the selling Person. Any property
other than cash received by Central pursuant to this Section 9.6(d)(i) shall
have the same rights as to liquidity and marketability, including, in the case
of securities, registration rights, as the property received by Insight or any
direct or indirect owner of Insight.
(ii) To the extent that (A) the amount of cash plus
the fair market value of any marketable securities received by Central as
consideration for the sale of Central's Common Interest pursuant to Section
9.6(b) or Section 9.6(c)(ii), is less than the tax liabilities of Central, the
Principals, and their respective Affiliates resulting from the sale of Central's
Common Interest, and (B) Central (or any Person, including any Principal, to
whom the consideration for the sale of Central's Common Interest is distributed
by Central and the Shareholders) is unable, after using commercially reasonable
efforts, to borrow the amount of such tax liabilities on the terms described in
clauses (1), (2), and (3) of the last sentence of this Section 9.6(d)(ii) with
respect to loans from Insight and at an interest rate not materially higher than
that described in clause (4) of the last sentence of this Section 9.6(d)(ii)
with respect to loans from Insight, then Insight agrees to lend to Central the
amount of such tax liabilities (less any amount that Central was able to borrow
from a lender other than Insight). Any such loan from Insight shall (1) be
non-recourse to the borrower, (2) secured only by any consideration received by
Central as consideration for the sale of its Common Interest, other than cash,
marketable securities, and any security given to secure Central's borrowings
pursuant to this Section 9.6(d)(ii) from a lender other than Insight, (3) not
require that it be repaid prior to such time as Central (or any successor) is
able to liquidate the consideration (other than cash and marketable securities)
received for the sale of Central's Common Interest, and (4) bear interest at the
weighted average cost of funds of Insight Communications Company, L.P. and its
subsidiaries for their secured debt or, if Insight Communications Company, L.P.
and its subsidiaries have no secured debt, for their senior debt.
(e) Allocation of Consideration. If Insight (i) sends a
notice to Central and the Principals pursuant to Section 9.6(a) or makes an
election pursuant to Section 9.6(b) with respect to any proposed sale to a
Third-Party Purchaser that contemplates a sale of all or part of Insight's
Common Interest in conjunction with other assets or (ii) sends a notice to
Central pursuant to Section 9.6(c)(i), Insight and the Principals shall cause
the amount of consideration proposed to be paid in any such transaction that is
allocable to Insight's Common Interest to be determined. Unless Insight and the
Principals otherwise agree (either as to the applicable value or as to an
alternative method of determining such value, including the use of a single
appraiser agreed upon between Insight and the Principals), the amount of
consideration allocable to all or part of Insight's Common Interest shall be
determined as provided below in this Section 9.6(e):
(i) Insight shall deliver to the Principals a
notice stating that Insight intends to send a notice or make an election to
which this Section 9.6(e) applies and identifying an appraiser ("Insight's
Appraiser") who has been retained by the Company to allocate the total
- 53 -
<PAGE>
consideration proposed to be paid in such transaction pursuant to this Section
9.6(e). Within ten business days after their receipt of Insight's notice
pursuant to the preceding sentence, the Principals shall send a notice to
Insight identifying a second appraiser ("Central's Appraiser") who shall also be
retained by the Company to make such allocation pursuant to this Section 9.6(e).
(ii) Insight's Appraiser and Central's Appraiser
shall submit their independent determinations of the amount of consideration
allocable to the portion of Insight's Common Interest proposed to be transferred
(directly or indirectly) within thirty days after the date on which Central's
Appraiser is retained. If the respective determinations of Insight's Appraiser
and Central's Appraiser vary by less than ten percent of the higher
determination, the amount of consideration allocable to the portion of Insight's
Common Interest proposed to be transferred (directly or indirectly) shall be the
average of the two determinations.
(iii) If the respective determinations of Insight's
Appraiser and Central's Appraiser vary by ten percent or more of the higher
determination, the two appraisers shall promptly designate a third appraiser
(the "Third Appraiser"), who shall also be retained by the Company to make an
allocation or conduct an appraisal pursuant to this Section 9.6(e). Insight's
Appraiser and Central's Appraiser shall be instructed not to, and neither Member
nor any Affiliate of either Member shall, provide any information to the Third
Appraiser as to the determinations of Insight's Appraiser and Central's
Appraiser or otherwise influence the Third Appraiser's determination in any way.
The Third Appraiser shall submit its determination of the amount of
consideration allocable to the portion of Insight's Common Interest proposed to
be transferred (directly or indirectly) within thirty days after the date on
which the Third Appraiser is retained. If a Third Appraiser is retained, the
amount of consideration allocable to the portion of Insight's Common Interest
proposed to be transferred (directly or indirectly) shall equal the average of
the two closest of the three determinations, except that, if the difference
between the highest and middle determinations is no more than 105% and no less
than 95% of the difference between the middle and lowest determinations, then
the amount of consideration allocable to the portion of Insight's Common
Interest proposed to be transferred (directly or indirectly) shall equal the
middle determination.
(iv) Any appraiser retained pursuant to this Section
9.6(e) shall be nationally recognized as being qualified and experienced in the
appraisal of cable television systems, assets comparable to Insight's Common
Interest, any other assets proposed to be sold by Insight, and any other assets
owned by relevant Persons owning direct or indirect ownership interests in
Insight, each as applicable, and shall not be an Affiliate of either Member. All
fees and expenses of any appraiser retained pursuant to this Section 9.6(e)
shall be paid by the Company.
(v) In determining the fair market value of any
asset, to the extent relevant to its allocation of consideration to Insight's
Common Interest, each appraiser retained pursuant to this Section 9.6(e) shall
(A) assume that the fair market value of the applicable asset is the price at
which the asset would change hands between a willing buyer and a willing seller,
- 54 -
<PAGE>
neither being under any compulsion to buy or sell and each having reasonable
knowledge of all relevant facts; (B) assume that the applicable asset would be
sold for cash; (C) use valuation techniques then prevailing in the relevant
industry; (D) assume that any assets constituting a going concern would be sold,
in the aggregate, as a going concern, in a single transaction; (E) assume that
the value of Insight's Common Interest includes the value of any right of
Insight or any Affiliate of Insight to control the Company, regardless whether
such right inures in any other Membership Interest or arises under any other
agreement.
(vi) For purposes of Section 9.6(a), Section 9.6(b),
or Section 9.6(c), the purchase price to be paid for any portion of Insight's
Common Interest proposed to be transferred (directly or indirectly) shall be the
amount of the total consideration that is allocated to such portion of Insight's
Common Interest pursuant to this Section 9.6(e) (subject to Section 9.6(g)).
(f) Absence of Representations.
(i) In connection with any sale by Central pursuant
to Section 9.6(a), Section 9.6(b), or Section 9.6(c), neither Central nor any
Principal shall be required to (i) make any representation or warranty to the
Third-Party Purchaser other than (A) a representation and warranty to the effect
that, at the closing of the purchase and sale of Central's Common Interest,
Central will hold its Common Interest free and clear of all claims, liabilities,
security interests, mortgages, liens, pledges, conditions, charges, and
encumbrances of any nature whatsoever, other than the rights granted to other
parties under this Agreement and liens securing the Senior Debt, the
Subordinated Debt, and any other obligations and liabilities arising under the
Loan Documents, and (B) customary, non-operational representations and
warranties (such as those relating to Central's legal existence and corporate
authority, due authorization of the purchase and sale agreement, and the absence
of legal impediments to the consummation of the sale that relate specifically to
Central), (ii) make any covenant except as to the delivery to the Third-Party
Purchaser of Central's Common Interest, or (iii) indemnify the Third-Party
Purchaser for any liability other than damages resulting from a breach of the
representations described in this Section 9.6(f).
(ii) Notwithstanding the foregoing provisions of
this Section 9.6(f), but subject to Section 9.6(f)(iii), in connection with any
sale by Central pursuant to Section 9.6(a) or Section 9.6(b), Central shall be
responsible for Central's proportionate share (calculated per Unit) of any
purchase price reduction or indemnity obligation of Insight that is attributable
to:
(A) a breach of any customary
representation, warranty, or covenant relating to the business, operations, or
liabilities of the Company (but not any representation, warranty, or covenant
that relates specifically to Insight, such as those relating to Insight's legal
existence and authority, due authorization of the purchase and sale agreement,
and the absence of legal impediments to the consummation of the sale by
Insight); and
- 55 -
<PAGE>
(B) any provision in the purchase and sale
agreements with respect to the Common Interests that requires customary deferred
adjustments to the purchase price (such as those relating to net working
capital, cash flow, and numbers of subscribers) until a reasonable period after
the closing of the purchase and sale of the Common Interest pursuant to Section
9.6(a) or Section 9.6(b).
(iii) Under no circumstances shall Central be
required to reimburse Insight for any part of any special, incidental,
consequential, exemplary, or punitive damages that may be payable to any
Third-Party Purchaser as a result of any breach by Insight of any representation
or warranty in connection with the sale of Common Interests pursuant to Section
9.6(a) or Section 9.6(b).
(g) Reallocation of Purchase Price.
(i) Subject to Section 9.6(g)(iv), in connection
with any sale to a Third-Party Purchaser pursuant to Section 9.6(a) or Section
9.6(b) of all or a majority of the outstanding Common Interests that includes a
sale of all or a majority of the Common Interest held by Insight and the same
percentage of the Common Interest held by Central, if Insight has received an
offer described in Section 9.6(g)(iii)(B) and, before giving effect to this
Section 9.6(g), the consideration that would be paid to Insight per Unit for its
Common Interest would be less than the Unit Liquidation Amount, then the total
consideration to be paid by the Third-Party Purchaser to Insight and Central for
their Common Interest shall be reallocated so that:
(A) the amount paid to Insight for its
Common Interest, in the aggregate, shall equal the lesser of (1) the product of
the Unit Liquidation Amount times the number of Units assigned to the Common
Interest being sold by Insight and (2) the total consideration to be paid by the
Third-Party Purchaser to Insight and Central for their Common Interests; and
(B) the amount paid to Central for its
Common Interest, in the aggregate, shall equal the amount, if any, by which the
total consideration to be paid by the Third- Party Purchaser to Insight and
Central for their Common Interests exceeds the amount payable to Insight
pursuant to Section 9.6(g)(i)(A).
(ii) Subject to Section 9.6(g)(iv), in connection
with any transaction described in Section 9.6(c), if Insight has received an
offer described in Section 9.6(g)(iii)(B) and the amount of consideration that
is allocated to Insight's Common Interest pursuant to Section 9.6(e) is less
than the Unit Liquidation Amount, then the purchase price to be paid for
Central's Common Interest shall be reduced by the lesser of (A) one-half of the
amount by which the amount of consideration that is allocated to Insight's
Common Interest pursuant to Section 9.6(e) is less than the Unit Liquidation
Amount, and (B) the purchase price to be paid for Central's Common Interest
before giving effect to this Section 9.6(g).
- 56 -
<PAGE>
(iii) For purposes of this Section 9.6(g),
(A) the "Unit Liquidation Amount" means the
amount that would have been distributed to Insight upon dissolution and
liquidation of the Company with respect to its Common Interest, per Unit, if (1)
the assets of the Company had been sold for the Offered Asset Purchase Price,
(2) Net Profit and Net Loss and items specially allocated in accordance with
Section 5.2, including any gain or loss resulting from the sale described in
clause (1), were allocated in accordance with Section 5, (3) the Company paid
its accrued, but unpaid, liabilities, other than liabilities that would have
been assumed by the purchaser in connection with the sale described in clause
(1), and (4) the Company distributed the remaining proceeds received by it (net
of reserves for contingent or unknown liabilities and any transaction costs that
would have been incurred in connection with such sale) to the Members in
liquidation; and
(B) the "Offered Asset Purchase Price" means
the highest purchase price offered to be paid by any Person that is not an
Affiliate of Insight for all the assets of the Company in a bona fide written
offer where (1) all terms and conditions of such offer with respect to
representations, warranties, covenants, indemnities, adjustments, closing
conditions, and other relevant non-price matters are customary, (2) the offeror
was legally qualified and financially capable (taking into account reasonable
expectations of financing availability) to purchase the assets of the Company
and, at the time the offer was made, there were no significant risks that the
offeror would be unable to close the purchase of the assets of the Company on
the offered terms, and (3) not more than thirty days before the execution of a
binding agreement for the transfer (directly or indirectly) of all of Insight's
Common Interest to which this Section 9.6(g) would apply, Insight sought the
consent of the Principals pursuant to Section 8.5(c) and, if applicable, Section
8.5(d) to a sale of all the assets of the Company to the Person making such
offer, on the terms described in such offer, and the Principals declined to
consent to such sale; provided, however, that if the terms and conditions of any
such offer with respect to relevant non- price matters are less favorable to the
Company, taken as a whole, than the terms and conditions of the sale of the
Common Interests to the Third-Party Purchaser, so as to affect value, then the
amount of the purchase price offered to be paid in such offer shall be reduced
by an appropriate amount to reflect the differences in such terms and
conditions, as agreed to between Insight and the Principals or, if they fail to
agree on the amount, as determined by an independent investment banking firm of
nationally recognized standing that is agreed to between Insight and the
Principals, or if they fail to agree on such investment banking firm, as agreed
to by an independent investment banking firm of nationally recognized standing
selected by Insight and an independent investment banking firm of nationally
recognized standing selected by the Principals.
(iv) This Section 9.6(g) shall not apply to any sale
of Common Interests occurring prior to the second anniversary of the Closing
Date or any transaction described in Section 9.6(c) occurring prior to the
second anniversary of the Closing Date.
- 57 -
<PAGE>
9.7 Pledge and Assignment of Interest.
Central may pledge its Membership Interest only for the purposes of
securing the Senior Debt, the Subordinated Debt, and any other obligations and
liabilities arising under the Loan Documents. Insight may pledge its Membership
Interest only for the purposes of securing obligations of Insight Communications
Company, L.P. and its subsidiaries under its senior bank credit agreement, and
every subsequent amendment, modification, restructuring, extension, renewal, or
consolidation of such obligations, and any obligation incurred in refinancing or
replacement of or substitution for such obligations. Notwithstanding any
provision of this Agreement to the contrary, any Person to which Central or
Insight pledges its Membership Interest pursuant to this Section 9.7 (each, a
"Secured Party") may exercise all rights and remedies incident to the pledge of
such Membership Interest, which may include authority for the Secured Party
(without dissolving the Company unless dissolution is required by law):
(a) to cause the pledged Membership Interest to be
assigned in whole or in part on one or more occasions to one or more Persons
(which may include the Secured Party); provided, however, that any Transfer of
Insight's Common Interest upon the exercise of any rights or remedies incident
to any pledge thereof shall be conditioned on Insight's compliance with Section
9.6(a);
(b) to cause any assignee of the pledged Membership
Interest to be admitted as a Member having the interest so assigned;
(c) to cause the holder of the pledged Membership
Interest to resign as a Member once all of its Membership Interest has been
assigned; and
(d) to cause one or more amended Certificates of
Formation to be filed with respect to the Company.
9.8 Condition on Change in Control of the Company.
Prior to the consummation of any transaction or series of related
transactions by Insight or any of its Affiliates, including any Transfer by
Insight of all or any part of its Membership Interest, that would trigger the
right of any holder of any of the Senior Debt or any of the Subordinated Debt to
require that such Senior Debt or Subordinated Debt be repaid, purchased, or
redeemed, Insight or, in the case of a Transfer, Insight or its Assignee shall:
(a) agree to purchase such Senior Debt or Subordinated
Debt from the holder thereof in the event the holder elects to require that such
Senior Debt or Subordinated Debt be repaid, purchased, or redeemed, and, upon
such purchase, Insight or its Assignee shall waive any right to require that
such Senior Debt or Subordinated Debt be repaid, purchased, or redeemed, or
- 58 -
<PAGE>
(b) obtain an irrevocable, binding agreement of the
holder of such Senior Debt or Subordinated Debt not to require that such Senior
Debt or Subordinated Debt be repaid, purchased, or redeemed upon the
consummation of such Transfer.
9.9 Substitution of Parent Undertaking.
Prior to the consummation of any transaction or series of related
transactions, including any Transfer, that would result in Insight ceasing to be
controlled, directly or indirectly, by one or more individuals who, on the date
of this Agreement, collectively control Insight, Insight shall cause the Person
that, after giving effect to such transaction, would be the ultimate parent
entity (as determined in accordance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder) of Insight, or such other Person reasonably acceptable to the
Principals, to execute and deliver to Central and the Principals an agreement,
substantially in the form of the parent undertaking executed and delivered by
Insight Communications Company, L.P. in connection with the execution and
delivery of this Agreement.
9.10 Continuing Rights and Privileges.
Notwithstanding the sale or other disposition by Central of all of its
Common Interest in accordance with this Agreement, Central shall continue to be
a Member of the Company so long as it continues to hold the Preferred A Interest
or the Preferred B Interest and shall have the rights and privileges specified
in this Agreement as pertaining to the Preferred A Interest or the Preferred B
Interest or specified in this Agreement as rights and privileges of Central.
9.11 Insight's Right to Put Its Interest.
Insight may elect at any time, by delivering written notice of its
election to Central and the Principals, to require that a Person designated by
the Principals purchase all of Insight's Membership Interest, for one dollar
(plus the Tax Amount that would be distributable to Insight on the date of the
next scheduled April Distribution after the closing of such purchase, calculated
as if the Company's Fiscal Year ended on the closing of such purchase). Upon an
election by Insight pursuant to this Section 9.11, the Principals shall be
obligated to cause a Person designated by the Principals to purchase and Insight
shall be obligated to sell all of Insight's Membership Interest. Insight's right
to make an election pursuant to this Section 9.11, and any purchase and sale of
Insight's Membership Interest pursuant to this Section 9.11, shall be subject to
the following provisions:
(a) At the closing of the purchase and sale of Insight's
Membership Interest pursuant to this Section 9.11, the Person designated by the
Principals shall pay to Insight one dollar and shall assign to Insight its right
to receive that portion of the next April Distribution after the closing equal
to the balance of the purchase price for Insight's Membership Interest, and
Insight will convey to the Person designated by the Principals all of its
Membership Interest free
- 59 -
<PAGE>
and clear of all claims, liabilities, security interests, mortgages, liens,
pledges, conditions, charges, and encumbrances of any nature whatsoever, other
than the rights granted to other parties under this Agreement. The Company shall
pay to Insight that portion of the next April Distribution after the closing
that was assigned to Insight, which payment shall be considered payment by the
Person designated by the Principals of the balance of the purchase price for
Insight's Membership Interest.
(b) The closing of the purchase and sale of Insight's
Membership Interest pursuant to this Section 9.11 shall occur on a date to be
specified by the Principals that is within 180 days after the Principals'
receipt of Insight's election pursuant to this Section 9.11, subject to the
receipt of all necessary governmental approvals and other material third-party
consents.
(c) Each of the management agreements between Insight and
the Shareholders shall terminate automatically upon the closing of the purchase
and sale of Insight's Membership Interest pursuant to this Section 9.11.
9.12 Treatment of Certain Membership Interests.
Any Membership Interests purchased by the Principals or their designee,
if it is not Central, pursuant to Section 8.5(b)(iii) shall be treated as if
such Membership Interests were owned by Central for purposes of this Section 9
(which includes Insight's right to require that such Membership Interests be
sold under certain circumstances pursuant to Section 9.6(b) or Section 9.6(c)
and the Principals' right to require that such Membership Interests be purchased
under certain circumstances pursuant to Section 9.6(a) or Section 9.6(c), in
each case on the same terms as would be applicable to Membership Interests owned
by Central).
SECTION 10. DISSOLUTION AND TERMINATION OF THE
COMPANY
10.1 Events of Dissolution.
The Company shall be dissolved upon the happening of any of the
following events:
(a) December 31, 2058;
(b) if the Principals consent to the resignation of
Insight as Manager pursuant to Section 6.2(a) but the Members and the Principals
do not elect to continue the Company thereafter in accordance with the
provisions of Section 6.2(a);
(c) upon agreement of Insight and the Principals;
(d) upon the affirmative vote of holders of a majority of
the outstanding Voting Interests; provided, however, that the holders of the
outstanding Voting Interests may not vote to
- 60 -
<PAGE>
dissolve the Company at any time prior to the earlier of (1) the death of the
last to die of Barry Silverstein, Dennis McGillicuddy, and D. Stevens McVoy, or
(2) the receipt by the Principals of an opinion of their legal counsel that the
dissolution and liquidation of the Company would not, in its opinion, increase
by more than a de minimis amount the likelihood of adverse tax consequences to
the Principals (other than adverse tax consequences that are incurred after the
triggering of all adverse tax consequences to the Principals relating to the
Senior Debt, the Subordinated Debt, and the holding of the Preferred A Interest
and the Preferred B Interest);
(e) upon the sale of all or substantially all of the
assets of the Company in a manner permitted by this Agreement;
(f) the termination of the Contribution Agreement in
accordance with its terms prior to the Closing; or
(g) subject to any provision of this Agreement that
limits or prevents dissolution, the happening of any event that, under
applicable law, causes the dissolution of a limited liability company.
10.2 Liquidation.
(a) Upon dissolution of the Company for any reason, the
Company shall immediately commence to wind up its affairs. A reasonable period
of time shall be allowed for the orderly termination of the Company business,
discharge of its liabilities, and distribution or liquidation of the remaining
assets so as to enable the Company to minimize the normal losses attendant to
the liquidation process.
(b) Liquidation of the assets of the Company shall be
managed on behalf of the Company by the "Liquidator," which shall be (i) if
Insight wrongfully caused the dissolution of the Company, a liquidating trustee
selected by the Principals, and (ii) in all other events, Insight or a
liquidating trustee selected by Insight. The Liquidator shall be responsible for
soliciting offers to purchase the entirety of the Company's assets (including
equity interests in other Persons) or portions or clusters of assets of the
Company.
(c) The Liquidator shall cause a full accounting of the
assets and liabilities of the Company to be taken and a statement thereof to be
furnished to each Member and each Principal within thirty days after the
distribution of all of the assets of the Company.
(d) The property and assets of the Company and the
proceeds from the liquidation thereof shall be applied in the following order of
priority:
(i) first, to payment of the debts and liabilities
of the Company, in the order of priority provided by law (including any loans by
either Member to the Company) and payment of the expenses of liquidation;
- 61 -
<PAGE>
(ii) second, to setting up of such reserves as the
Liquidator may deem reasonably necessary for any contingent or unforeseen
liabilities or obligations of the Company or any obligation or liability not
then due and payable; provided, however, that any such reserve shall be paid
over by the Liquidator into a Company account or a liquidating trust account
established for such purpose, to be held in such account for the purpose of
disbursing such reserves in payment of such liabilities, and, at the expiration
of such holdback period as the Liquidator shall deem advisable, to distribute
the balance thereafter remaining in the manner hereinafter provided; and
(iii) finally, remaining proceeds shall be
distributed to the Members as follows:
(A) First, if the Preferred A Interest is then
outstanding, to the holder of the Preferred A Interest in an amount equal to the
sum of (x) the amount of any distributions that were required to be made
pursuant to Section 4.1(a)(i) but were not made (including any increase to such
amount pursuant to Section 4.1(b)(i)), plus (y) a pro rata portion of the
Guaranteed Payment Amount, based on the ratio of the number of days between the
immediately preceding Guaranteed Payment Date and the date on which the
distribution is made pursuant to this Section 10.2(d)(iii)(A) to the number of
days between the immediately preceding Guaranteed Payment Date and the next
following Guaranteed Payment Date, computed on the basis of a 360-day year of
twelve 30-day months;
(B) Second, if the Preferred A Interest is
then outstanding, to the holder of the Preferred A Interest in an amount equal
to the sum of (x) the Preferred A Capital Amount, plus (y) the amount of any
distributions that were required to be made pursuant to Section 4.1(a)(ii) but
were not made (including any increase to such amount pursuant to Section
4.1(b)(ii)), plus (z) the amount by which the Preferred A Preference Amount
exceeds the amount described in clause (y) of Section 10.2(d)(iii)(A);
(C) Third, if the Preferred B Interest is
then outstanding, to the holder of the Preferred B Interest in an amount equal
to the sum of (x) the Preferred B Capital Amount, plus (y) the amount of any
distributions that were required to be made pursuant to Section 4.1(a)(iii) but
were not made (including any increase to such amount pursuant to Section
4.1(b)(iii)), plus (z) the Preferred B Preference Amount;
(D) Fourth, to the Manager in an amount equal
to the sum of (x) the amount of any distributions that were required to be made
pursuant to Section 4.1(a)(v) but were not made (including any increase to such
amount pursuant to Section 4.1(b)(iv)), plus (y) the Management Return;
(E) Thereafter, pro rata to the Members in
proportion to their remaining positive Capital Account balances, after reducing
the Members' Capital Account
- 62 -
<PAGE>
balances to take into account distributions pursuant to the foregoing paragraphs
of this Section 10.2(d)(iii).
The distributions pursuant to this Section 10.2(d)(iii) shall, to the extent
possible, be made prior to the later of the end of the Fiscal Year in which the
dissolution occurs or the ninetieth day after the date of dissolution, or such
other time period which may be permitted under Treasury Regulations Section
1.704-1(b)(2)(ii)(b).
10.3 Distribution in Kind.
The Company shall not distribute any non-cash asset to either Member
without the consent of each Member and the Principals, except that, upon
liquidation of the Company, the Company may distribute identical assets (such as
shares of stock or other securities) to the Members pro rata pursuant to Section
10.2(d)(iii)(E). The amount distributed and charged to the Capital Account of
each Member receiving any non-cash asset shall be the fair market value of such
asset, as agreed to by the Members and the Principals (net of any liability
secured by such asset that such Member assumes or takes subject to). Gain or
loss on the disposition of any asset distributed in kind to one or more Members
shall be determined as if such asset were sold for its fair market value, as
agreed to by the Members and the Principals, and such gain or loss shall then be
allocated pursuant to Section 5.
10.4 No Action for Dissolution.
The Members acknowledge that irreparable damage would be done to the
goodwill and reputation of the Company if either Member should bring an action
in court to dissolve the Company under circumstances where dissolution is not
required by Section 10.1. This Agreement has been drawn carefully to provide
fair treatment of all parties and equitable payment in liquidation of the
Membership Interests of both Members. Accordingly, except where liquidation and
dissolution are required by Section 10.1, each Member hereby waives and
renounces its right to initiate legal action to seek dissolution or to seek the
appointment of a receiver or trustee to liquidate the Company or to seek
partition of any assets of the Company.
10.5 No Further Claim.
Upon dissolution, each Member shall look solely to the assets of the
Company for the return of its investment, and if the property of the Company
remaining after payment or discharge of the debts and liabilities of the
Company, including debts and liabilities owed to one or more of the Members, is
insufficient to return the aggregate capital contributions of a Member, neither
Member shall have any recourse against the other Member.
- 63 -
<PAGE>
SECTION 11. INDEMNIFICATION
11.1 General.
The Company shall indemnify, defend, and hold harmless each Member and
its members, partners, officers, directors, shareholders, employees, and agents,
the employees, officers, and agents of the Company, the Principals, and the
Representatives (all indemnified persons being referred to as "Indemnified
Persons" for purposes of this Section 11.1), from any liability, loss, or damage
incurred by the Indemnified Person by reason of any act performed or omitted to
be performed by the Indemnified Person in connection with the business of the
Company (including, in the case of Insight, any such act in connection with the
management of the Shareholders pursuant to the management agreements between the
Shareholders and Insight, or arising by reason of Insight's status as manager of
the Shareholders), including costs and attorneys' fees (which attorneys' fees
may be paid as incurred) and any amounts expended in the settlement of any
claims of liability, loss, or damage; provided, however, that, if the liability,
loss, damage, or claim arises out of any action or inaction of an Indemnified
Person, indemnification under this Section 11.1 shall not be available if the
action or inaction constituted fraud, gross negligence, breach of fiduciary duty
(which shall not be construed to encompass mistakes in judgment or any breach of
any Indemnified Person's duty of care that did not constitute gross negligence),
willful misconduct, or a breach of this Agreement by the Indemnified Person; and
provided, further, however, that indemnification under this Section 11.1 shall
be recoverable only from the assets of the Company and not from any assets of
the Members. The Company may pay for insurance covering liability of the
Indemnified Persons for negligence in operation of the Company's affairs.
11.2 Exculpation.
No Indemnified Person shall be liable, in damages or otherwise, to the
Company or to either Member for any loss that arises out of any act performed or
omitted to be performed by it or him pursuant to the authority granted by this
Agreement unless the conduct of the Indemnified Person constituted fraud, gross
negligence, breach of fiduciary duty (which shall not be construed to encompass
mistakes in judgment or any breach of any Indemnified Person's duty of care that
did not constitute gross negligence), willful misconduct, or a breach of this
Agreement by such Indemnified Person.
11.3 Persons Entitled to Indemnity.
Any Person who is within the definition of "Indemnified Person" at the
time of any action or inaction in connection with the business of the Company
shall be entitled to the benefits of Section 11.1 as an "Indemnified Person"
with respect thereto, regardless of whether such Person continues to be within
the definition of "Indemnified Person" at the time of his or its claim for
indemnification or exculpation hereunder.
- 64 -
<PAGE>
SECTION 12. BOOKS, RECORDS, ACCOUNTING, AND
REPORTS
12.1 Books and Records.
The Company shall maintain at its principal office all of the
following:
(a) A current list of the full name and last known business or
residence address of each Member together with the Capital Contributions and
Membership Interest of each Member;
(b) A copy of the Certificate of Formation, this Agreement,
and any and all amendments to either thereof, together with executed copies of
any powers of attorney pursuant to which any certificate or amendment has been
executed;
(c) Copies of the Company's federal, state, and local income
tax or information returns and reports, if any, for the six most recent taxable
years;
(d) The audited financial statements of the Company for the
six most recent Fiscal Years; and
(e) The Company's books and records for at least the current
and past three Fiscal Years.
12.2 Delivery to Member and Inspection.
(a) Upon the request of a Member or a Principal, the Company
shall promptly deliver to the requesting Member or Principal, at the expense of
the Company, a copy of the information required to be maintained by Section 12.1
except for Section 12.1(e).
(b) Each Member and each Principal, or its duly authorized
representative, has the right, upon reasonable request, to inspect and copy
during normal business hours any of the Company records.
12.3 Annual Statements.
(a) The Company shall cause to be prepared for each Member and
each Principal at least annually, at Company expense, audited financial
statements of the Company and a consolidated audited financial statement for the
Company and the Subsidiaries in accordance with generally accepted accounting
principles, along with supplemental information for the Company and each
Subsidiary, and accompanied by a report thereon containing the opinion of Ernst
& Young LLP or other nationally recognized accounting firm chosen by the
Management Committee. The financial statements will include a balance sheet,
statement of income or loss,
- 65 -
<PAGE>
statement of cash flows, and statement of Members' equity. The supplemental
information will consist of a consolidating balance sheet and a consolidating
statement of operations and Members' equity for the preceding Fiscal Year. The
Company shall distribute the financial statements or portions thereof to each
Member and each Principal as follows:
(i) the Company shall distribute to each Member and
each Principal a statement setting forth the net income or loss of the Company
for each Fiscal Year within forty-five days after the close of such Fiscal Year;
(ii) the Company shall distribute to each Member and
each Principal the balance sheet, statement of income or loss, statement of cash
flows, and statement of Members' equity to be included in the financial
statements for each Fiscal Year within forty-five days after the close of such
Fiscal Year;
(iii) the Company shall distribute to each Member and
each Principal the complete audited financial statements for each Fiscal Year as
soon as practicable after the close of such Fiscal Year and, in any event, by
March 15 of the year following the close of such Fiscal Year.
(b) The Company shall have prepared at least annually, at
Company expense, Company information necessary for the preparation of each
Member's federal and state income tax returns. The Company shall send the
information described in this paragraph to each Member and each Principal within
ninety days after the end of each Fiscal Year and shall use commercially
reasonable efforts to send such information to each Member and each Principal
within seventy-five days after the end of each Fiscal Year.
(c) The Company shall also cause to be distributed to
each Member and each Principal, within ten days after delivery to the Company,
any audited financial statements that are prepared with respect to any
Subsidiary the financial statements of which are not consolidated with the
financial statements of the Company.
(d) The Company, shall distribute to each Member and each
Principal, promptly after they become available, copies of the Company's
federal, state, and local income tax or information returns for each taxable
year.
12.4 Quarterly Financial Statements.
At the close of each of the first three quarters of any Fiscal Year,
the Company shall cause to be distributed to each Member and each Principal a
quarterly report covering each calendar quarter of the operations of the Company
and the Subsidiaries, consisting of unaudited financial statements (comprising a
balance sheet, a statement of income or loss, and a statement of cash flows),
and a statement of other pertinent information regarding the Company and the
Subsidiaries and their activities. The Company shall cause copies of the
statements and other pertinent
- 66 -
<PAGE>
information (including selected financial data of the Company that complies with
the requirements of APB Opinion No. 18 and Rule 4-08(g) of Regulation S-X under
the Securities Act and any other applicable rules pursuant to Regulation S-X
under the Securities Act) to be distributed to each Member and each Principal
within thirty days after the close of the calendar quarter to which the
statements relate. The Company shall distribute to each Member and each
Principal a statement setting forth the net income or loss of the Company for
each calendar quarter within thirty days after the close of such calendar
quarter. The Company shall also cause to be distributed to each Member and each
Principal, within ten days after delivery to the Company, any quarterly report
that is prepared with respect to any Subsidiary the operating results of which
are not included in the quarterly report of the Company.
12.5 Monthly Statements.
The Company shall cause to be distributed to each Member and each
Principal a monthly report covering each calendar month of the operations of the
Company and each Subsidiary, consisting of unaudited statements of income and
loss for the Company and each Subsidiary. The Company shall cause copies of the
statements to be distributed to each Member and each Principal within thirty
days after the close of the calendar month covered by such report. The Company
shall also cause to be distributed to each Member and each Principal, within ten
days after delivery to the Company, any monthly report that is prepared with
respect to any Subsidiary the operating results of which are not included in the
monthly report of the Company.
12.6 Other Information.
The Company shall provide to each Member and each Principal any other
information and reports relating to any cable television systems or other
businesses owned by, and the financial condition of, the Company, each
Subsidiary, and any other Person in which the Company owns, directly or
indirectly, an equity interest, that such Member or Principal may reasonably
request, including, in the case of Central, any information that Central is
required to distribute to holders of the Senior Debt. or the Subordinated Debt.
The Company shall distribute to each Member and each Principal, promptly after
the receipt thereof by the Company, any financial or other information with
respect to any Person in which the Company owns, directly or indirectly, an
equity interest, but which is not a Subsidiary.
12.7 Tax Matters.
To the extent permitted by law, the Company shall be treated as a
partnership for federal and state income tax and franchise tax purposes. This
Section 12.7 shall not prohibit any Member or any Affiliate of any Member from
taking any action that is not prohibited by Section 2.13.
- 67 -
<PAGE>
12.8 Other Filings.
The Company, at Company expense, shall also prepare and timely file,
with appropriate federal and state regulatory and administrative bodies, all
reports required to be filed by the Company with those entities under then
current applicable laws, rules, and regulations. The reports shall be prepared
on the accounting or reporting basis required by the regulatory bodies. Upon
written request, the Manager shall provide each Member and each Principal with a
copy of any of such reports, without expense to the requesting Member or
Principal.
12.9 Non-Disclosure.
Any Member or Principal to which non-public information is furnished
pursuant to this Agreement agrees to keep such information confidential and not
to disclose such information, in any manner whatsoever, in whole or in part, and
to use the degree of care that it uses with respect to its own confidential
information to prevent disclosure of such information by its agents,
representatives, or employees, in any manner whatsoever, in whole or in part,
except that:
(a) each Member and Principal shall be permitted to
disclose such information to those of its agents, representatives, and employees
who need to be familiar with such information in connection with such Member or
Principal's investment in the Company,
(b) each Member and Principal shall be permitted to
disclose such information to its Affiliates,
(c) Central shall be permitted to disclose such
information to its lenders and to the other Borrowers, and each Borrower shall
be permitted to disclose such information to its lenders;
(d) the Principals may use such information, as
appropriate, in the preparation of their personal financial statements and other
similar documents, which may then be disclosed by the Principals as they deem
appropriate;
(e) each Member shall be permitted to disclose
information to the extent required by law, including federal or state securities
laws or regulations, or by the rules and regulations of any stock exchange or
association on which securities of such Member or any of its Affiliates are
traded, so long as such Member shall have first afforded the Company with a
reasonable opportunity to contest the necessity of disclosing such information,
(f) each Member and Principal shall be permitted to
disclose information to the extent necessary for the enforcement of any right or
the performance of any obligation of such Member and Principal (including
obligations of a Member in its capacity as Manager) arising under this
Agreement,
- 68 -
<PAGE>
(g) each Member and Principal shall be permitted to
disclose information that is or becomes generally available to the public other
than as a result of a disclosure by such Member or Principal, its agents,
representatives, or employees, and
(h) each Member and Principal shall be permitted to
disclose information that becomes available to such Member or Principal on a
nonconfidential basis from a source (other than the Company, a Member, or their
respective agents, representatives, and employees) that such Member or Principal
believes is not prohibited from disclosing such information to such Member or
Principal by a legal, contractual, or fiduciary obligation to the Company or
either Member.
SECTION 13. AMENDMENTS AND WAIVERS
13.1 Amendments to Operating Agreement.
(a) This Agreement may only be modified or amended with
the consent of all the Members and the Principals.
(b) The Company shall prepare and file any amendment to
the Certificate of Formation that may be required to be filed under the Act as a
consequence of any amendment to this Agreement.
13.2 Waivers.
The observance or performance of any term or provision of this
Agreement may be waived (either generally or in a particular instance, and
either retroactively or prospectively) by the party entitled to the benefits of
such term or provision, but no provision of this Agreement may be waived except
by a written instrument specifically waiving such provision and executed by the
party to be charged with such waiver, and no provision of this Agreement may be
waived by Central without the prior written consent of the Principals in a
written instrument specifically consenting to such waiver. No delay on the part
of either Member in exercising any right, power, or privilege under this
Agreement shall operate as a waiver thereof, nor shall any waiver on the part of
either Member of any right, power, or privilege under this Agreement operate as
a waiver of any other right, power, or privilege under this Agreement, nor shall
any single or partial exercise of any right, power, or privilege under this
Agreement preclude any other or further exercise thereof or the exercise of any
other right, power, or privilege under this Agreement.
SECTION 14. STATUS OF PRINCIPALS
- 69 -
<PAGE>
14.1 Principals Not Members.
The Principals are not members of the Company for purposes of the Act
and shall have none of the rights of a member of a limited liability company
under the Act, except to the extent that the Principals are afforded such rights
under the express provisions of this Agreement.
14.2 Provisions for the Benefit of Principals.
The parties acknowledge that the Principals have a significant economic
interest in the Company through their ownership of the Shareholders and are
relying on the provisions of this Agreement to protect and preserve such
interest. Accordingly, each provision of this Agreement is intended to be for
the benefit of, and shall be enforceable by, the Principals.
14.3 Assignment or Rights.
None of the rights of any Principal under this Agreement may be
assigned or otherwise transferred except, following the death of a Principal,
pursuant to the laws of descent and distribution.
14.4 Termination of Rights and Obligations.
Notwithstanding any provision of this Agreement to the contrary, all
rights of the Principals under this Agreement shall terminate at such time as
the Principals cease to own, directly or indirectly, any interest in the
Company.
14.5 Actions by Principals.
Any action to be taken by the Principals under this Agreement
(including exercising any right, granting any consent or approval, making any
election, or giving any notice) shall be taken by all of the Principals
collectively, with the decision to take or to refrain from taking any such
action being made by the Principals in such manner as they may agree upon among
themselves. The Principals shall from time to time jointly designate one or more
agents to execute on their behalf any instrument necessary to evidence any
action taken collectively by the Principals under this Agreement. The Company
and each Member shall be entitled to rely upon any instrument delivered to it
under this Agreement and purporting to be (a) the joint designation by the
Principals of any such agent or (b) an instrument executed by such agent to
evidence any action taken collectively by the Principals under this Agreement,
and may assume that any Person signing such instrument has been duly authorized
to do so.
- 70 -
<PAGE>
14.6 Limited Recourse.
Each party agrees that no Principal shall have any personal liability
whatsoever under this Agreement, and any damages suffered by any party as a
result of any failure of a Principal to perform his obligations under this
Agreement, to the extent such party would be entitled to remedy therefor but for
this Section 14.6, shall be satisfied, if at all, from the assets of Central.
SECTION 15. MISCELLANEOUS
15.1 Captions.
All article, section, or paragraph captions contained in this Agreement
are for convenience only and shall not be deemed part of this Agreement.
15.2 Pronouns; Singular and Plural Form.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, and neuter as the identity of the Person or Persons
referred to may require, and all words shall include the singular or plural as
the context or the identity of Persons may require. The words "include,"
"includes," and "including" are not limiting.
15.3 Further Action.
Each Member agrees to execute, with acknowledgment or affidavit, if
required, any documents and writings in furtherance of this Agreement, including
(a) amendments of this Agreement adopted pursuant to this Agreement, (b) any
amendments, certificates, and other documents that the Company deems necessary
or appropriate to qualify or continue the Company as a limited liability company
in all jurisdictions in which the Company conducts or plans to conduct business
or owns or plans to own property, and (c) all agreements, certificates, tax
statements, tax returns, and other documents that may be required of the Company
or its Members under applicable law.
15.4 Entire Agreement.
This Agreement contains the entire understanding among the parties and
supersedes any prior understandings and agreements among them regarding the
subject matter of this Agreement.
15.5 Agreement Binding.
This Agreement shall be binding upon the successors and assigns of the
parties.
- 71 -
<PAGE>
15.6 Equitable Remedies.
The rights and remedies of the parties under this Agreement are not
mutually exclusive. Each of the parties confirms that damages at law may not
always be an adequate remedy for a breach or threatened breach of this Agreement
and agrees that, in the event of a breach or threatened breach of any provision
of this Agreement, the respective rights and obligations under this Agreement
shall be enforceable by specific performance, injunction, or other equitable
remedy.
15.7 Notices.
All notices, demands, and requests required or permitted to be given
under the provisions of this Agreement shall be in writing and shall be deemed
to have been duly delivered and received (a) on the date of personal delivery,
or (b) on the date of receipt (as shown on the return receipt) if mailed by
registered or certified mail, postage prepaid and return receipt requested, or
if sent by Federal Express or similar courier service, with all charges prepaid,
in each case addressed to the Member or Principal at the address set forth on
Schedule I or at the last address furnished by the Member or Principal to the
other parties by notice pursuant to this Section 15.7. Nothing in this Section
15.7 shall preclude the delivery of notices by appropriate means other than
those described above, including telex or facsimile.
15.8 Severability.
If any provision or part of any provision of this Agreement shall be
invalid or unenforceable in any respect, such provision or part of any provision
shall be ineffective to the extent of such invalidity or unenforceability only,
without in any way affecting the remaining parts of such provision or the
remaining provision of this Agreement.
15.9 Counterparts.
This Agreement may be signed in counterparts with the same effect as if
the signature on each counterpart were upon the same instrument.
15.10 Governing Law.
This Agreement shall be governed, construed, and enforced in accordance
with the laws of the State of Delaware (without regard to the choice of law
provisions thereof).
15.11 No Third-Party Beneficiaries.
This Agreement is not intended to, and shall not be construed to,
create any right enforceable by any Person that is not a party to this
Agreement, including any creditor of the Company or of any of the Members or
Principals.
- 72 -
<PAGE>
[BLANK PAGE]
- 73 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the date first written above.
MEMBERS:
COAXIAL COMMUNICATIONS OF CENTRAL
OHIO, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
INSIGHT HOLDINGS OF OHIO, LLC
By: Insight Communications Company, L.P.,
its member
By: ICC Associates, L.P., its general
partner
By: Insight Communications, Inc., its
general partner
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
PRINCIPALS:
---------------------------------
Barry Silverstein
---------------------------------
Dennis McGillicuddy
- 74 -
<PAGE>
---------------------------------
D. Stevens McVoy
- 75 -
<PAGE>
SCHEDULE I
TO
OPERATING AGREEMENT
ADDRESSES OF THE PARTIES
Insight Holdings of Ohio, LLC
c/o Insight Communications, Inc.
126 E. 56th Street
New York, New York 10022
Coaxial Communications of Central
Ohio, Inc.
c/o Coaxial Communications
5111 Ocean Boulevard
Suite C
Sarasota, Florida 34242
Barry Silverstein
c/o Coaxial Communications
5111 Ocean Boulevard
Suite C
Sarasota, Florida 34242
Dennis McGillicuddy
c/o Coaxial Communications
5111 Ocean Boulevard
Suite C
Sarasota, Florida 34242
D. Stevens McVoy
c/o Coaxial Communications
5111 Ocean Boulevard
Suite C
Sarasota, Florida 34242
- 76 -
<PAGE>
SCHEDULE II
TO
OPERATING AGREEMENT
INITIAL MEMBERS OF THE MANAGEMENT COMMITTEE
1. Initial Representatives designated by a majority of the outstanding
Voting Interests pursuant to Section 8.1(a):
Sidney R. Knafel
Michael S. Willner
Kim D. Kelly
2. Initial Representative designated by the Principals pursuant to Section
8.1(a):
Dennis J. McGillicuddy
<PAGE>
SCHEDULE III
TO
OPERATING AGREEMENT
TERMS RELATING TO PREFERRED INTERESTS
"Guaranteed Payment Amount" means $2,991,791.38.
"Guaranteed Payment Date" means each February 15 and August 15 of each
year.
"Management Return Payment Date" means each February 15 and August 15
of each year.
"Preferred A Distribution Date" means each February 15 and August 15 of
each year.
"Preferred A Rate" means ten percent per year; provided, however, that
the Preferred A Rate shall be increased by the amount of any increase in the
interest rate payable with respect to the Senior Notes pursuant to Section 4 of
the Senior Notes Registration Rights Agreement, dated as of August 21, 1998.
"Preferred B Distribution Date" means each February 15 and August 15 of
each year.
"Preferred B PIK Termination Date" means August 15, 2003.
"Preferred B Rate" means twelve and seven-eighths percent per year;
provided, however, that the Preferred B Rate shall be increased by the amount of
any increase in the interest rate payable with respect to the Discount Notes
pursuant to Section 4 of the Discount Notes Registration Rights Agreement, dated
as of August 21, 1998.
<PAGE>
MANAGEMENT AGREEMENT
OF
COAXIAL LLC
THIS MANAGEMENT AGREEMENT OF COAXIAL LLC, is entered into effective as
of August 21, 1998, by and between Coaxial LLC, a limited liability company
organized pursuant to the Delaware Limited Liability Company Act (the
"Company"), Insight Holdings of Ohio, LLC, a Delaware limited liability company
(the "Manager"), and, solely for purposes of Section 3.3 of this Agreement,
Barry Silverstein, an individual resident of the State of Florida.
RECITAL
Member is the sole member of the Company. The Company and the Manager
have agreed that the Company will retain the Manager to direct the business and
affairs of the Company with respect to certain matters, including certain
indebtedness of the Company and the business and affairs of Central with respect
to its interest in the Operating Company and certain indebtedness of Central, on
the terms and conditions set forth herein.
AGREEMENT
In consideration of the mutual covenants and agreements set forth in
this Agreement, the parties agree as follows.
SECTION 1
DEFINITIONS
The following terms, as used in this Agreement, have the meanings set
forth in this Section:
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such Person. For purposes of this
definition, the term "controls" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract, or
otherwise. The terms "controlled by" and "under common control with" have
meanings corresponding to the meaning of "controls."
"Agreement" means this Management Agreement, as it may be amended,
restated, modified, or supplemented from time to time in accordance with its
terms.
"Central" means Coaxial Communications of Central Ohio, Inc., an Ohio
corporation, and its successors-in-interest.
<PAGE>
"Close Corporation Agreement" means the Close Corporation Agreement of
Central, dated as of August 21, 1998, among Central and the shareholders of
Central.
"Contribution Agreement" means the Contribution Agreement, dated as of
June 30, 1998, between Central and Insight Communications Company, L.P. (which
assigned its rights thereunder to the Manager), as amended by amendments thereto
dated as of July 15, 1998 and as of August 21, 1998, and as it may hereafter be
amended from time to time in accordance with its terms.
"Discount Notes" means the Senior Discount Notes issued by the Company
and Coaxial Financing Corp., a Delaware corporation, concurrently with the
Closing (as defined in the Contribution Agreement).
"Member" means Barry Silverstein, and any successor-in-interest to
Barry Silverstein as member of the Company..
"Operating Agreement" means the Operating Agreement, dated as of August
21, 1998, among Central, the Manager, and the Principals (as defined therein),
with respect to the Operating Company.
"Operating Company" means Insight Communications of Central Ohio, LLC,
a Delaware limited liability company.
"Person" means an individual, corporation, limited liability company,
association, general partnership, limited partnership, limited liability
partnership, joint venture, trust, estate, or other entity or organization.
"Senior Debt" means all obligations of Central and Phoenix Associates,
a Florida general partnership, originally incurred under that certain Credit
Agreement, dated November 15, 1994, among Central, Phoenix Associates, certain
other parties, and the lenders named therein, as amended, as such obligations
shall have been restructured in connection with the purchase thereof
concurrently with the Closing (as defined in the Contribution Agreement), and
every subsequent amendment, modification, restructuring, extension, renewal, or
consolidation of any such obligations, and any obligation incurred in
refinancing or replacement of or substitution for any such obligations.
"Subordinated Debt" means all obligations arising under the Discount
Notes and the LLC Mirror Notes (as defined in the offering memorandum for the
Discount Notes) issued by Coaxial DJM LLC and Coaxial DSM LLC concurrently with
the Closing (as defined in the Contribution Agreement), and every subsequent
amendment, modification, restructuring, extension, renewal, or consolidation of
any such obligations, and any obligation incurred in refinancing or replacement
of or substitution for any such obligations.
- 2 -
<PAGE>
SECTION 2
APPOINTMENT OF MANAGER
2.1 Appointment.
On the terms and conditions provided in this Agreement, but subject to
Section 2.2, the Company hereby appoints the Manager, and Manager hereby accepts
such appointment, as manager of the Company, and the Company hereby delegates to
the Manager, and the Manager hereby accepts, all rights, powers, and discretion
of the Member under the Operating Agreement of the Company.
2.2 Exceptions.
The rights, powers, and authority delegated to the Manager under this
Agreement do not include:
(a) any right, power, or authority to take any of the actions
described in Section 5.2 of the Operating Agreement of the Company without the
written consent of the Member;
(b) any right, power, or authority to cause the Company to
exercise any of its rights as a shareholder of Central pursuant to the Close
Corporation Agreement;
(c) any right, power, or authority with respect to any
Reserved Matter (as defined in the Close Corporation Agreement);
(d) any right, power, or authority with respect to preparing
and filing federal, state, local, and other tax returns and reports (including
amended returns) required to be filed by the Company;
(e) any right, power, or authority with respect to the
exercise of any of the rights of the Company as a shareholder of Central
pursuant to the Close Corporation Agreement; or
(f) any right, power, or authority with respect to any matter
that does not involve (1) the Company's activities and operations relating to
the Company's ownership of shares of Central and its exercise of any rights
incident thereto, (2) its incurring of any Subordinated Debt and its performance
of its obligations under any agreement or other instrument, including any note
or indenture, evidencing all or any part of the Subordinated Debt or pursuant to
which all or any part of the Subordinated Debt exists or is outstanding, or (3)
the initiation of any voluntary proceeding with respect to any reorganization,
arrangement, or similar adjustment of
- 3 -
<PAGE>
the Company's debts under any law relating to bankruptcy, insolvency, or
reorganization or relief of debtors.
2.3 Rights Retained by Member.
All rights, powers, and authority, not delegated to the Manager under
this Agreement are reserved to the Member, in its capacity as member of the
Company.
2.4 Compensation.
The Manager shall not be entitled to any compensation from the Company
under this Agreement.
2.5 Term of this Agreement.
The term of this Agreement shall commence on the Closing Date (as
defined in the Contribution Agreement) and shall terminate at such time as (a)
Central no longer holds any Preferred A Interest or Preferred B Interest (as
such terms are defined in the Operating Agreement), (b) the Company no longer
holds any shares of Central, (c) the Manager sells its membership interest in
the Operating Company to a Person designated by the Principals (as defined in
the Operating Agreement), pursuant to Section 9.11 of the Operating Agreement,
(d) Insight shall have resigned as manager of the Operating Company in violation
of Section 6.1(a) of the Operating Agreement, or (e) the Member shall have sold
his membership interest in the Company to Insight or a Person designated by
Insight pursuant to Section 3.5(a)(iv), Section 3.5(a)(v), or Section
3.5(b)(iii) of the Operating Agreement. Except as set forth in the preceding
sentence, this Agreement shall not otherwise be terminated without the consent
of the Member and the Manager.
SECTION 3
OTHER MATTERS
3.1 Other Businesses.
The Manager or any Affiliate, agent, or representative of the Manager,
may engage in or possess an interest in other business ventures of any nature or
description, independently or with others, whether currently existing or
hereafter created and whether or not competitive with or advanced by the
business of the Company. The Company shall not have any rights in or to the
income or profits derived therefrom.
- 4 -
<PAGE>
3.2 Relationship Between the Parties.
Nothing herein contained shall be deemed to make the Manager a partner,
co-venturer, or other participant in the business or operations of the Company
or in any manner to render the Manager liable as a principal, surety, guarantor,
agent, or otherwise for any of the debts, obligations, or liabilities of the
Company, whether incurred directly by the Company or by the Manager on behalf of
the Company in accordance with this Agreement. The Manager is not a member of
the Company for purposes of the Delaware Limited Liability Company Act and, with
respect to the Company, shall have none of the rights of a member of a limited
liability company under the Delaware Limited Liability Company Act.
3.3 Covenants of the Member.
(a) By executing this Agreement, the Member agrees not to
cause the Company to do or agree to do any of the following prior to the
termination of this Agreement:
(1) sell or issue any membership interest in the
Company or any option, warrant, or other debt or equity interest convertible
into any membership interest in the Company;
(2) admit any Person as an additional member of
the Company;
(3) engage in any business activity other than
(A) the acquisition, ownership, holding, and disposition of shares of Central,
and exercising all rights incident thereto, and (B) the performance of its
obligations under any agreement or other instrument, including any note or
indenture, evidencing all or any part of the Subordinated Debt or pursuant to
which all or any part of the Subordinated Debt exists or is outstanding;
(4) merge or consolidate with or into any other
Person;
(5) liquidate or dissolve;
(6) acquire, by purchase or lease, any assets;
(7) sell, assign, transfer, or otherwise dispose
of, or pledge, hypothecate, or otherwise encumber its shares in Central, except
in accordance with any agreement or other instrument, including any note or
indenture, evidencing all or any part of the Subordinated Debt or pursuant to
which all or any part of the Subordinated Debt exists or is outstanding;
(8) prepay, purchase, or redeem any Subordinated
Debt;
(9) enter into or amend any contract or other
agreement with respect to the incurring or repayment, purchase, or redemption of
any Subordinated Debt;
- 5 -
<PAGE>
(10) initiate any voluntary proceeding with
respect to any reorganization, arrangement, or similar adjustment of the
Company's debts under any law relating to bankruptcy, insolvency, or
reorganization or relief of debtors; or
(11) take any action prohibited by any covenant
contained in any agreement or other instrument, including any note or indenture,
evidencing all or any part of the Subordinated Debt or pursuant to which all or
any part of the Subordinated Debt exists or is outstanding, with respect to the
management of the Company.
(b) By executing this Agreement, the Member agrees not to take
or agree to take either of the following actions prior to the termination of
this Agreement:
(1) sell, assign, pledge, or otherwise encumber
or transfer all or any part of his interest in the Company to any Person, except
for (A) a transfer following the death of the Member, pursuant to the laws of
descent and distribution and (B) a sale to Insight or a Person designated by
Insight pursuant to Section 3.5(a)(iv), Section 3.5(a)(v), or Section
3.5(b)(iii) of the Operating Agreement; or
(2) amend the Operating Agreement of the Company.
3.4 Covenants of the Company with Respect to Central.
The Company agrees not to cause Central to take or agree to take any of
the following actions prior to the termination of this Agreement:
(a) sell or issue any shares of Central or any option,
warrant, or other debt or equity interest convertible into shares of Central;
(b) engage in any business activity other than (1) the
acquisition, ownership, holding, and disposition of membership interests in the
Operating Company, and exercising all rights incident thereto, and (2) the
performance of its obligations under any agreement or other instrument,
including any note or indenture, evidencing all or any part of the Senior Debt
or pursuant to which all or any part of the Senior Debt exists or is
outstanding;
(c) amend any provision of Central's Articles of Incorporation
or amend or terminate the Close Corporation Agreement of Central;
(d) amend, alter, or repeal any provision of its Code of
Regulations;
(e) merge or consolidate with or into any other Person;
(f) liquidate or dissolve;
- 6 -
<PAGE>
(g) acquire, by purchase or lease, any assets;
(h) sell, assign, transfer, or otherwise dispose of, or
pledge, hypothecate, or otherwise encumber (1) its membership interest in the
Operating Company, except as permitted by the Operating Agreement, or (2) any of
the Assets (as defined in the Contribution Agreement), except for the
contribution of such Assets to the Operating Company pursuant to the
Contribution Agreement and the Operating Agreement;
(i) prepay, purchase, or redeem any Senior Debt; or
(j) enter into or amend any contract or other agreement with
respect to the incurring or repayment, purchase, or redemption of any Senior
Debt.
3.5 Books and Records.
The Manager shall keep accurate books and records of the operation of
the Company which shall be appropriate and adequate for the Company's business
and for carrying out the provisions of this Agreement. All books and records
maintained by the Manager on behalf of the Company shall be available for
inspection and copying by the Member or his duly authorized representatives upon
request.
3.6 Company Funds.
The Manager shall not commingle the Company's funds with the separate
funds of the Manager, its Affiliates, or any other Person.
3.7 Exculpation.
The Manager shall not be liable, in damages or otherwise, to the
Company or to the Member for any loss that arises out of any act performed or
omitted to be performed by the Manager pursuant to the authority granted by this
Agreement unless the conduct of the Manager constituted fraud, gross negligence,
breach of fiduciary duty (which shall not be construed to encompass mistakes in
judgment or any breach of the Manager's duty of care that did not constitute
gross negligence), willful misconduct, or a breach of this Agreement by the
Manager.
- 7 -
<PAGE>
SECTION 4
MISCELLANEOUS
4.1 Captions.
All section or paragraph captions contained in this Agreement are for
convenience only and shall not be deemed part of this Agreement.
4.2 Pronouns, Singular and Plural Form.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, and neuter as the identity of the Person or Persons
referred to may require, and all words shall include the singular or plural as
the context or the identity of Persons may require.
4.3 Further Action.
The parties shall execute and deliver all documents, provide all
information, and take, or forbear from, all actions that may be necessary or
appropriate to achieve the purposes of this Agreement.
4.4 Entire Agreement.
This Agreement contains the entire understanding among the parties and
supersede any prior understandings and agreements between them regarding the
subject matter of this Agreement.
4.5 Assignment.
Neither party hereto may assign this Agreement without the prior
written consent of the other party, except that the Manager may, without the
prior written consent of the Company, assign this Agreement to any purchaser of
all of the Manager's membership interest in the Operating Company.
4.6 Agreement Binding.
This Agreement shall be binding upon the successors and assigns of the
parties.
- 8 -
<PAGE>
4.7 Severability.
If any provision or part of any provision of this Agreement shall be
invalid or unenforceable in any respect, such provision or part of any provision
shall be ineffective to the extent of such invalidity or unenforceability only,
without in any way affecting the remaining parts of such provision or the
remaining provision of this Agreement.
4.8 Counterparts.
This Agreement may be signed in counterparts with the same effect as if
the signature on each counterpart were upon the same instrument.
4.9 Governing Law.
This Agreement shall be governed, construed, and enforced in accordance
with the laws of the State of Delaware (without regard to the choice of law
provisions thereof).
4.10 No Third-Party Beneficiaries.
Each provision of this Agreement is intended to be for the benefit of,
and shall be enforceable by, the Member. Except as provided in the preceding
sentence, this Agreement is not intended to, and shall not be construed to,
create any right enforceable by any Person not a party hereto.
- 9 -
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement to be
effective as of the date first written above.
COAXIAL LLC
By:
-------------------------------------------
Barry Silverstein,
its sole member
INSIGHT HOLDINGS OF OHIO, LLC
By: Insight Communications Company, L.P., its
member
By: ICC Associates, L.P., its general partner
By: Insight Communications, Inc., its general
partner
By:
-------------------------------------------
Name:
Title:
FOR PURPOSES OF SECTION 3.3 ONLY:
----------------------------------------------
Barry Silverstein
- 10 -
<PAGE>
MANAGEMENT AGREEMENT
OF
COAXIAL DJM LLC
THIS MANAGEMENT AGREEMENT OF COAXIAL DJM LLC, is entered into
effective as of August 21, 1998, by and between Coaxial DJM LLC, a limited
liability company organized pursuant to the Delaware Limited Liability Company
Act (the "Company"), Insight Holdings of Ohio, LLC, a Delaware limited
liability company (the "Manager"), and, solely for purposes of Section 3.3 of
this Agreement, Dennis McGillicuddy, an individual resident of the State of
Florida.
RECITAL
Member is the sole member of the Company. The Company and the Manager
have agreed that the Company will retain the Manager to direct the business and
affairs of the Company with respect to certain matters, including certain
indebtedness of the Company and the business and affairs of Central with
respect to its interest in the Operating Company and certain indebtedness of
Central, on the terms and conditions set forth herein.
AGREEMENT
In consideration of the mutual covenants and agreements set forth in
this Agreement, the parties agree as follows.
SECTION 1
DEFINITIONS
The following terms, as used in this Agreement, have the meanings set
forth in this Section:
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such Person. For purposes of
this definition, the term "controls" means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, by contract, or
otherwise. The terms "controlled by" and "under common control with" have
meanings corresponding to the meaning of "controls."
"Agreement" means this Management Agreement, as it may be amended,
restated, modified, or supplemented from time to time in accordance with its
terms.
<PAGE>
"Central" means Coaxial Communications of Central Ohio, Inc., an Ohio
corporation, and its successors-in-interest.
"Close Corporation Agreement" means the Close Corporation Agreement of
Central, dated as of August 21, 1998, among Central and the shareholders of
Central.
"Contribution Agreement" means the Contribution Agreement, dated as of
June 30, 1998, between Central and Insight Communications Company, L.P. (which
assigned its rights thereunder to the Manager), as amended by amendments
thereto dated as of July 15, 1998 and as of August 21, 1998, and as it may
hereafter be amended from time to time in accordance with its terms.
"Discount Notes" means the Senior Discount Notes issued by Coaxial LLC
and Coaxial Financing Corp., a Delaware corporation, concurrently with the
Closing (as defined in the Contribution Agreement).
"Member" means Dennis McGillicuddy, and any successor-in-interest to
Dennis McGillicuddy as member of the Company..
"Operating Agreement" means the Operating Agreement, dated as of
August 21, 1998, among Central, the Manager, and the Principals (as defined
therein), with respect to the Operating Company.
"Operating Company" means Insight Communications of Central Ohio, LLC,
a Delaware limited liability company.
"Person" means an individual, corporation, limited liability company,
association, general partnership, limited partnership, limited liability
partnership, joint venture, trust, estate, or other entity or organization.
"Senior Debt" means all obligations of Central and Phoenix Associates,
a Florida general partnership, originally incurred under that certain Credit
Agreement, dated November 15, 1994, among Central, Phoenix Associates, certain
other parties, and the lenders named therein, as amended, as such obligations
shall have been restructured in connection with the purchase thereof
concurrently with the Closing (as defined in the Contribution Agreement), and
every subsequent amendment, modification, restructuring, extension, renewal, or
consolidation of any such obligations, and any obligation incurred in
refinancing or replacement of or substitution for any such obligations.
"Subordinated Debt" means all obligations arising under the Discount
Notes and the LLC Mirror Notes (as defined in the offering memorandum for the
Discount Notes) issued by the Company and Coaxial DSM LLC concurrently with the
Closing (as defined in the Contribution Agreement), and every subsequent
amendment, modification, restructuring, extension, renewal,
-2-
<PAGE>
or consolidation of any such obligations, and any obligation incurred in
refinancing or replacement of or substitution for any such obligations.
SECTION 2
APPOINTMENT OF MANAGER
2.1 Appointment.
On the terms and conditions provided in this Agreement, but subject to
Section 2.2, the Company hereby appoints the Manager, and Manager hereby
accepts such appointment, as manager of the Company, and the Company hereby
delegates to the Manager, and the Manager hereby accepts, all rights, powers,
and discretion of the Member under the Operating Agreement of the Company.
2.2 Exceptions.
The rights, powers, and authority delegated to the Manager under this
Agreement do not include:
(a) any right, power, or authority to take any of the actions
described in Section 5.2 of the Operating Agreement of the Company without the
written consent of the Member;
(b) any right, power, or authority to cause the Company to
exercise any of its rights as a shareholder of Central pursuant to the Close
Corporation Agreement;
(c) any right, power, or authority with respect to any
Reserved Matter (as defined in the Close Corporation Agreement);
(d) any right, power, or authority with respect to preparing
and filing federal, state, local, and other tax returns and reports (including
amended returns) required to be filed by the Company;
(e) any right, power, or authority with respect to the
exercise of any of the rights of the Company as a shareholder of Central
pursuant to the Close Corporation Agreement; or
(f) any right, power, or authority with respect to any matter
that does not involve (1) the Company's activities and operations relating to
the Company's ownership of shares of Central and its exercise of any rights
incident thereto, (2) its incurring of any Subordinated Debt and its
performance of its obligations under any agreement or other instrument,
including any note or indenture, evidencing all or any part of the Subordinated
Debt or pursuant to which all or any part of the Subordinated Debt exists or is
outstanding, or (3) the initiation of any
-3-
<PAGE>
voluntary proceeding with respect to any reorganization, arrangement, or
similar adjustment of the Company's debts under any law relating to bankruptcy,
insolvency, or reorganization or relief of debtors.
2.3 Rights Retained by Member.
All rights, powers, and authority, not delegated to the Manager under
this Agreement are reserved to the Member, in its capacity as member of the
Company.
2.4 Compensation.
The Manager shall not be entitled to any compensation from the Company
under this Agreement.
2.5 Term of this Agreement.
The term of this Agreement shall commence on the Closing Date (as
defined in the Contribution Agreement) and shall terminate at such time as (a)
Central no longer holds any Preferred A Interest or Preferred B Interest (as
such terms are defined in the Operating Agreement), (b) the Company no longer
holds any shares of Central, (c) the Manager sells its membership interest in
the Operating Company to a Person designated by the Principals (as defined in
the Operating Agreement), pursuant to Section 9.11 of the Operating Agreement,
(d) Insight shall have resigned as manager of the Operating Company in
violation of Section 6.1(a) of the Operating Agreement, or (e) the Member shall
have sold his membership interest in the Company to Insight or a Person
designated by Insight pursuant to Section 3.5(a)(iv), Section 3.5(a)(v), or
Section 3.5(b)(iii) of the Operating Agreement. Except as set forth in the
preceding sentence, this Agreement shall not otherwise be terminated without
the consent of the Member and the Manager.
SECTION 3
OTHER MATTERS
3.1 Other Businesses.
The Manager or any Affiliate, agent, or representative of the Manager,
may engage in or possess an interest in other business ventures of any nature
or description, independently or with others, whether currently existing or
hereafter created and whether or not competitive with or advanced by the
business of the Company. The Company shall not have any rights in or to the
income or profits derived therefrom.
-4-
<PAGE>
3.2 Relationship Between the Parties.
Nothing herein contained shall be deemed to make the Manager a
partner, co-venturer, or other participant in the business or operations of the
Company or in any manner to render the Manager liable as a principal, surety,
guarantor, agent, or otherwise for any of the debts, obligations, or
liabilities of the Company, whether incurred directly by the Company or by the
Manager on behalf of the Company in accordance with this Agreement. The Manager
is not a member of the Company for purposes of the Delaware Limited Liability
Company Act and, with respect to the Company, shall have none of the rights of
a member of a limited liability company under the Delaware Limited Liability
Company Act.
3.3 Covenants of the Member.
(a) By executing this Agreement, the Member agrees not to
cause the Company to do or agree to do any of the following prior to the
termination of this Agreement:
(1) sell or issue any membership interest in the
Company or any option, warrant, or other debt or equity interest convertible
into any membership interest in the Company;
(2) admit any Person as an additional member of the
Company;
(3) engage in any business activity other than (A)
the acquisition, ownership, holding, and disposition of shares of Central, and
exercising all rights incident thereto, and (B) the performance of its
obligations under any agreement or other instrument, including any note or
indenture, evidencing all or any part of the Subordinated Debt or pursuant to
which all or any part of the Subordinated Debt exists or is outstanding;
(4) merge or consolidate with or into any other
Person;
(5) liquidate or dissolve;
(6) acquire, by purchase or lease, any assets;
(7) sell, assign, transfer, or otherwise dispose of,
or pledge, hypothecate, or otherwise encumber its shares in Central, except in
accordance with any agreement or other instrument, including any note or
indenture, evidencing all or any part of the Subordinated Debt or pursuant to
which all or any part of the Subordinated Debt exists or is outstanding;
(8) prepay, purchase, or redeem any Subordinated
Debt;
(9) enter into or amend any contract or other
agreement with respect to the incurring or repayment, purchase, or redemption
of any Subordinated Debt;
-5-
<PAGE>
(10) initiate any voluntary proceeding with respect
to any reorganization, arrangement, or similar adjustment of the Company's
debts under any law relating to bankruptcy, insolvency, or reorganization or
relief of debtors; or
(11) take any action prohibited by any covenant
contained in any agreement or other instrument, including any note or
indenture, evidencing all or any part of the Subordinated Debt or pursuant to
which all or any part of the Subordinated Debt exists or is outstanding, with
respect to the management of the Company.
(b) By executing this Agreement, the Member agrees not to
take or agree to take either of the following actions prior to the termination
of this Agreement:
(1) sell, assign, pledge, or otherwise encumber or
transfer all or any part of his interest in the Company to any Person, except
for (A) a transfer following the death of the Member, pursuant to the laws of
descent and distribution and (B) a sale to Insight or a Person designated by
Insight pursuant to Section 3.5(a)(iv), Section 3.5(a)(v), or Section
3.5(b)(iii) of the Operating Agreement; or
(2) amend the Operating Agreement of the Company.
3.4 Covenants of the Company with Respect to Central.
The Company agrees not to cause Central to take or agree to take any
of the following actions prior to the termination of this Agreement:
(a) sell or issue any shares of Central or any option,
warrant, or other debt or equity interest convertible into shares of Central;
(b) engage in any business activity other than (1) the
acquisition, ownership, holding, and disposition of membership interests in the
Operating Company, and exercising all rights incident thereto, and (2) the
performance of its obligations under any agreement or other instrument,
including any note or indenture, evidencing all or any part of the Senior Debt
or pursuant to which all or any part of the Senior Debt exists or is
outstanding;
(c) amend any provision of Central's Articles of
Incorporation or amend or terminate the Close Corporation Agreement of Central;
(d) amend, alter, or repeal any provision of its Code of
Regulations;
(e) merge or consolidate with or into any other Person;
(f) liquidate or dissolve;
-6-
<PAGE>
(g) acquire, by purchase or lease, any assets;
(h) sell, assign, transfer, or otherwise dispose of, or
pledge, hypothecate, or otherwise encumber (1) its membership interest in the
Operating Company, except as permitted by the Operating Agreement, or (2) any
of the Assets (as defined in the Contribution Agreement), except for the
contribution of such Assets to the Operating Company pursuant to the
Contribution Agreement and the Operating Agreement;
(i) prepay, purchase, or redeem any Senior Debt; or
(j) enter into or amend any contract or other agreement with
respect to the incurring or repayment, purchase, or redemption of any Senior
Debt.
3.5 Books and Records.
The Manager shall keep accurate books and records of the operation of
the Company which shall be appropriate and adequate for the Company's business
and for carrying out the provisions of this Agreement. All books and records
maintained by the Manager on behalf of the Company shall be available for
inspection and copying by the Member or his duly authorized representatives
upon request.
3.6 Company Funds.
The Manager shall not commingle the Company's funds with the separate
funds of the Manager, its Affiliates, or any other Person.
3.7 Exculpation.
The Manager shall not be liable, in damages or otherwise, to the
Company or to the Member for any loss that arises out of any act performed or
omitted to be performed by the Manager pursuant to the authority granted by
this Agreement unless the conduct of the Manager constituted fraud, gross
negligence, breach of fiduciary duty (which shall not be construed to encompass
mistakes in judgment or any breach of the Manager's duty of care that did not
constitute gross negligence), willful misconduct, or a breach of this Agreement
by the Manager.
-7-
<PAGE>
SECTION 4
MISCELLANEOUS
4.1 Captions.
All section or paragraph captions contained in this Agreement are for
convenience only and shall not be deemed part of this Agreement.
4.2 Pronouns, Singular and Plural Form.
All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine, and neuter as the identity of the Person or Persons
referred to may require, and all words shall include the singular or plural as
the context or the identity of Persons may require.
4.3 Further Action.
The parties shall execute and deliver all documents, provide all
information, and take, or forbear from, all actions that may be necessary or
appropriate to achieve the purposes of this Agreement.
4.4 Entire Agreement.
This Agreement contains the entire understanding among the parties and
supersede any prior understandings and agreements between them regarding the
subject matter of this Agreement.
4.5 Assignment.
Neither party hereto may assign this Agreement without the prior
written consent of the other party, except that the Manager may, without the
prior written consent of the Company, assign this Agreement to any purchaser of
all of the Manager's membership interest in the Operating Company.
4.6 Agreement Binding.
This Agreement shall be binding upon the successors and assigns of the
parties.
-8-
<PAGE>
4.7 Severability.
If any provision or part of any provision of this Agreement shall be
invalid or unenforceable in any respect, such provision or part of any
provision shall be ineffective to the extent of such invalidity or
unenforceability only, without in any way affecting the remaining parts of such
provision or the remaining provision of this Agreement.
4.8 Counterparts.
This Agreement may be signed in counterparts with the same effect as
if the signature on each counterpart were upon the same instrument.
4.9 Governing Law.
This Agreement shall be governed, construed, and enforced in
accordance with the laws of the State of Delaware (without regard to the choice
of law provisions thereof).
4.10 No Third-Party Beneficiaries.
Each provision of this Agreement is intended to be for the benefit of,
and shall be enforceable by, the Member. Except as provided in the preceding
sentence, this Agreement is not intended to, and shall not be construed to,
create any right enforceable by any Person not a party hereto.
-9-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement to be
effective as of the date first written above.
COAXIAL DJM LLC
By:
-------------------------------------
Dennis McGillicuddy,
its sole member
INSIGHT HOLDINGS OF OHIO, LLC
By: Insight Communications Company, L.P., its
member
By: ICC Associates, L.P., its general partner
By: Insight Communications, Inc., its general
partner
By:
-------------------------------------
Name:
Title:
FOR PURPOSES OF SECTION 3.3 ONLY:
----------------------------------------
Dennis McGillicuddy
-10-
<PAGE>
MANAGEMENT AGREEMENT
OF
COAXIAL DSM LLC
THIS MANAGEMENT AGREEMENT OF COAXIAL DSM LLC, is entered into
effective as of August 21, 1998, by and between Coaxial DSM LLC, a limited
liability company organized pursuant to the Delaware Limited Liability Company
Act (the "Company"), Insight Holdings of Ohio, LLC, a Delaware limited
liability company (the "Manager"), and, solely for purposes of Section 3.3 of
this Agreement, D. Stevens McVoy, an individual resident of the State of Ohio.
RECITAL
Member is the sole member of the Company. The Company and the Manager
have agreed that the Company will retain the Manager to direct the business
and affairs of the Company with respect to certain matters, including certain
indebtedness of the Company and the business and affairs of Central with
respect to its interest in the Operating Company and certain indebtedness of
Central, on the terms and conditions set forth herein.
AGREEMENT
In consideration of the mutual covenants and agreements set forth in
this Agreement, the parties agree as follows.
SECTION 1
DEFINITIONS
The following terms, as used in this Agreement, have the meanings set
forth in this Section:
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such Person. For purposes of
this definition, the term "controls" means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting securities, by contract,
or otherwise. The terms "controlled by" and "under common control with" have
meanings corresponding to the meaning of "controls."
"Agreement" means this Management Agreement, as it may be amended,
restated, modified, or supplemented from time to time in accordance with its
terms.
- 1 -
<PAGE>
"Central" means Coaxial Communications of Central Ohio, Inc., an Ohio
corporation, and its successors-in-interest.
"Close Corporation Agreement" means the Close Corporation Agreement
of Central, dated as of August 21, 1998, among Central and the shareholders of
Central.
"Contribution Agreement" means the Contribution Agreement, dated as
of June 30, 1998, between Central and Insight Communications Company, L.P.
(which assigned its rights thereunder to the Manager), as amended by
amendments thereto dated as of July 15, 1998 and as of August 21, 1998, and as
it may hereafter be amended from time to time in accordance with its terms.
"Discount Notes" means the Senior Discount Notes issued by Coaxial
LLC and Coaxial Financing Corp., a Delaware corporation, concurrently with the
Closing (as defined in the Contribution Agreement).
"Member" means D. Stevens McVoy, and any successor-in-interest to
D. Stevens McVoy as member of the Company..
"Operating Agreement" means the Operating Agreement, dated as of
August 21, 1998, among Central, the Manager, and the Principals (as defined
therein), with respect to the Operating Company.
"Operating Company" means Insight Communications of Central Ohio,
LLC, a Delaware limited liability company.
"Person" means an individual, corporation, limited liability company,
association, general partnership, limited partnership, limited liability
partnership, joint venture, trust, estate, or other entity or organization.
"Senior Debt" means all obligations of Central and Phoenix
Associates, a Florida general partnership, originally incurred under that
certain Credit Agreement, dated November 15, 1994, among Central, Phoenix
Associates, certain other parties, and the lenders named therein, as amended,
as such obligations shall have been restructured in connection with the
purchase thereof concurrently with the Closing (as defined in the Contribution
Agreement), and every subsequent amendment, modification, restructuring,
extension, renewal, or consolidation of any such obligations, and any
obligation incurred in refinancing or replacement of or substitution for any
such obligations.
"Subordinated Debt" means all obligations arising under the Discount
Notes and the LLC Mirror Notes (as defined in the offering memorandum for the
Discount Notes) issued by the Company and Coaxial DJM LLC concurrently with
the Closing (as defined in the Contribution Agreement), and every subsequent
amendment, modification, restructuring, extension, renewal,
- 2 -
<PAGE>
or consolidation of any such obligations, and any obligation incurred in
refinancing or replacement of or substitution for any such obligations.
SECTION 2
APPOINTMENT OF MANAGER
2.1 Appointment.
On the terms and conditions provided in this Agreement, but subject
to Section 2.2, the Company hereby appoints the Manager, and Manager hereby
accepts such appointment, as manager of the Company, and the Company hereby
delegates to the Manager, and the Manager hereby accepts, all rights, powers,
and discretion of the Member under the Operating Agreement of the Company.
2.2 Exceptions.
The rights, powers, and authority delegated to the Manager under this
Agreement do not include:
(a) any right, power, or authority to take any of the
actions described in Section 5.2 of the Operating Agreement of the Company
without the written consent of the Member;
(b) any right, power, or authority to cause the Company to
exercise any of its rights as a shareholder of Central pursuant to the Close
Corporation Agreement;
(c) any right, power, or authority with respect to any
Reserved Matter (as defined in the Close Corporation Agreement);
(d) any right, power, or authority with respect to preparing
and filing federal, state, local, and other tax returns and reports (including
amended returns) required to be filed by the Company;
(e) any right, power, or authority with respect to the
exercise of any of the rights of the Company as a shareholder of Central
pursuant to the Close Corporation Agreement; or
(f) any right, power, or authority with respect to any
matter that does not involve (1) the Company's activities and operations
relating to the Company's ownership of shares of Central and its exercise of
any rights incident thereto, (2) its incurring of any Subordinated Debt and
its performance of its obligations under any agreement or other instrument,
including any note or indenture, evidencing all or any part of the
Subordinated Debt or pursuant to which all or any part of the Subordinated
Debt exists or is outstanding, or (3) the initiation of any
- 3 -
<PAGE>
voluntary proceeding with respect to any reorganization, arrangement, or
similar adjustment of the Company's debts under any law relating to
bankruptcy, insolvency, or reorganization or relief of debtors.
2.3 Rights Retained by Member.
All rights, powers, and authority, not delegated to the Manager under
this Agreement are reserved to the Member, in its capacity as member of the
Company.
2.4 Compensation.
The Manager shall not be entitled to any compensation from the
Company under this Agreement.
2.5 Term of this Agreement.
The term of this Agreement shall commence on the Closing Date (as
defined in the Contribution Agreement) and shall terminate at such time as (a)
Central no longer holds any Preferred A Interest or Preferred B Interest (as
such terms are defined in the Operating Agreement), (b) the Company no longer
holds any shares of Central, (c) the Manager sells its membership interest in
the Operating Company to a Person designated by the Principals (as defined in
the Operating Agreement), pursuant to Section 9.11 of the Operating Agreement,
(d) Insight shall have resigned as manager of the Operating Company in
violation of Section 6.1(a) of the Operating Agreement, or (e) the Member
shall have sold his membership interest in the Company to Insight or a Person
designated by Insight pursuant to Section 3.5(a)(iv), Section 3.5(a)(v), or
Section 3.5(b)(iii) of the Operating Agreement. Except as set forth in the
preceding sentence, this Agreement shall not otherwise be terminated without
the consent of the Member and the Manager.
SECTION 3
OTHER MATTERS
3.1 Other Businesses.
The Manager or any Affiliate, agent, or representative of the
Manager, may engage in or possess an interest in other business ventures of
any nature or description, independently or with others, whether currently
existing or hereafter created and whether or not competitive with or advanced
by the business of the Company. The Company shall not have any rights in or to
the income or profits derived therefrom.
- 4 -
<PAGE>
3.2 Relationship Between the Parties.
Nothing herein contained shall be deemed to make the Manager a
partner, co-venturer, or other participant in the business or operations of
the Company or in any manner to render the Manager liable as a principal,
surety, guarantor, agent, or otherwise for any of the debts, obligations, or
liabilities of the Company, whether incurred directly by the Company or by the
Manager on behalf of the Company in accordance with this Agreement. The
Manager is not a member of the Company for purposes of the Delaware Limited
Liability Company Act and, with respect to the Company, shall have none of the
rights of a member of a limited liability company under the Delaware Limited
Liability Company Act.
3.3 Covenants of the Member.
(a) By executing this Agreement, the Member agrees not to
cause the Company to do or agree to do any of the following prior to the
termination of this Agreement:
(1) sell or issue any membership interest in
the Company or any option, warrant, or other debt or equity interest
convertible into any membership interest in the Company;
(2) admit any Person as an additional member
of the Company;
(3) engage in any business activity other
than (A) the acquisition, ownership, holding, and disposition of shares of
Central, and exercising all rights incident thereto, and (B) the performance
of its obligations under any agreement or other instrument, including any note
or indenture, evidencing all or any part of the Subordinated Debt or pursuant
to which all or any part of the Subordinated Debt exists or is outstanding;
(4) merge or consolidate with or into any
other Person;
(5) liquidate or dissolve;
(6) acquire, by purchase or lease, any assets;
(7) sell, assign, transfer, or otherwise
dispose of, or pledge, hypothecate, or otherwise encumber its shares in
Central, except in accordance with any agreement or other instrument,
including any note or indenture, evidencing all or any part of the
Subordinated Debt or pursuant to which all or any part of the Subordinated
Debt exists or is outstanding;
(8) prepay, purchase, or redeem any
Subordinated Debt;
(9) enter into or amend any contract or other
agreement with respect to the incurring or repayment, purchase, or redemption
of any Subordinated Debt;
- 5 -
<PAGE>
(10) initiate any voluntary proceeding with
respect to any reorganization, arrangement, or similar adjustment of the
Company's debts under any law relating to bankruptcy, insolvency, or
reorganization or relief of debtors; or
(11) take any action prohibited by any
covenant contained in any agreement or other instrument, including any note or
indenture, evidencing all or any part of the Subordinated Debt or pursuant to
which all or any part of the Subordinated Debt exists or is outstanding, with
respect to the management of the Company.
(b) By executing this Agreement, the Member agrees not to
take or agree to take either of the following actions prior to the termination
of this Agreement:
(1) sell, assign, pledge, or otherwise
encumber or transfer all or any part of his interest in the Company to any
Person, except for (A) a transfer following the death of the Member, pursuant
to the laws of descent and distribution and (B) a sale to Insight or a Person
designated by Insight pursuant to Section 3.5(a)(iv), Section 3.5(a)(v), or
Section 3.5(b)(iii) of the Operating Agreement; or
(2) amend the Operating Agreement of the Company.
3.4 Covenants of the Company with Respect to Central.
The Company agrees not to cause Central to take or agree to take any
of the following actions prior to the termination of this Agreement:
(a) sell or issue any shares of Central or any option,
warrant, or other debt or equity interest convertible into shares of Central;
(b) engage in any business activity other than (1) the
acquisition, ownership, holding, and disposition of membership interests in
the Operating Company, and exercising all rights incident thereto, and (2) the
performance of its obligations under any agreement or other instrument,
including any note or indenture, evidencing all or any part of the Senior Debt
or pursuant to which all or any part of the Senior Debt exists or is
outstanding;
(c) amend any provision of Central's Articles of
Incorporation or amend or terminate the Close Corporation Agreement of
Central;
(d) amend, alter, or repeal any provision of its
Code of Regulations;
(e) merge or consolidate with or into any other Person;
(f) liquidate or dissolve;
- 6 -
<PAGE>
(g) acquire, by purchase or lease, any assets;
(h) sell, assign, transfer, or otherwise dispose of, or
pledge, hypothecate, or otherwise encumber (1) its membership interest in the
Operating Company, except as permitted by the Operating Agreement, or (2) any
of the Assets (as defined in the Contribution Agreement), except for the
contribution of such Assets to the Operating Company pursuant to the
Contribution Agreement and the Operating Agreement;
(i) prepay, purchase, or redeem any Senior Debt; or
(j) enter into or amend any contract or other agreement with
respect to the incurring or repayment, purchase, or redemption of any Senior
Debt.
3.5 Books and Records.
The Manager shall keep accurate books and records of the operation of
the Company which shall be appropriate and adequate for the Company's business
and for carrying out the provisions of this Agreement. All books and records
maintained by the Manager on behalf of the Company shall be available for
inspection and copying by the Member or his duly authorized representatives
upon request.
3.6 Company Funds.
The Manager shall not commingle the Company's funds with the
separate funds of the Manager, its Affiliates, or any other Person.
3.7 Exculpation.
The Manager shall not be liable, in damages or otherwise, to the
Company or to the Member for any loss that arises out of any act performed or
omitted to be performed by the Manager pursuant to the authority granted by
this Agreement unless the conduct of the Manager constituted fraud, gross
negligence, breach of fiduciary duty (which shall not be construed to
encompass mistakes in judgment or any breach of the Manager's duty of care
that did not constitute gross negligence), willful misconduct, or a breach of
this Agreement by the Manager.
- 7 -
<PAGE>
SECTION 4
MISCELLANEOUS
4.1 Captions.
All section or paragraph captions contained in this Agreement are for
convenience only and shall not be deemed part of this Agreement.
4.2 Pronouns, Singular and Plural Form.
All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine, and neuter as the identity of the Person or Persons
referred to may require, and all words shall include the singular or plural as
the context or the identity of Persons may require.
4.3 Further Action.
The parties shall execute and deliver all documents, provide all
information, and take, or forbear from, all actions that may be necessary or
appropriate to achieve the purposes of this Agreement.
4.4 Entire Agreement.
This Agreement contains the entire understanding among the parties
and supersede any prior understandings and agreements between them regarding
the subject matter of this Agreement.
4.5 Assignment.
Neither party hereto may assign this Agreement without the prior
written consent of the other party, except that the Manager may, without the
prior written consent of the Company, assign this Agreement to any purchaser
of all of the Manager's membership interest in the Operating Company.
4.6 Agreement Binding.
This Agreement shall be binding upon the successors and assigns of
the parties.
- 8 -
<PAGE>
4.7 Severability.
If any provision or part of any provision of this Agreement shall be
invalid or unenforceable in any respect, such provision or part of any
provision shall be ineffective to the extent of such invalidity or
unenforceability only, without in any way affecting the remaining parts of
such provision or the remaining provision of this Agreement.
4.8 Counterparts.
This Agreement may be signed in counterparts with the same effect as
if the signature on each counterpart were upon the same instrument.
4.9 Governing Law.
This Agreement shall be governed, construed, and enforced in
accordance with the laws of the State of Delaware (without regard to the
choice of law provisions thereof).
4.10 No Third-Party Beneficiaries.
Each provision of this Agreement is intended to be for the benefit
of, and shall be enforceable by, the Member. Except as provided in the
preceding sentence, this Agreement is not intended to, and shall not be
construed to, create any right enforceable by any Person not a party hereto.
- 9 -
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement to
be effective as of the date first written above.
COAXIAL DSM LLC
By:
---------------------------------------------
D. Stevens McVoy,
its sole member
INSIGHT HOLDINGS OF OHIO, LLC
By: Insight Communications Company, L.P., its
member
By: ICC Associates, L.P., its general partner
By: Insight Communications, Inc., its general
partner
By:
---------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
FOR PURPOSES OF SECTION 3.3 ONLY:
---------------------------------------------
D. Stevens McVoy
- 10 -
<PAGE>
PARENT UNDERTAKING
This PARENT UNDERTAKING (the "Undertaking"), entered into as of the
21st day of August 1998, is given by Insight Communications Company, L.P., a
Delaware limited partnership ("Insight Parent"), for and in favor of Coaxial
Communications of Central Ohio, Inc., an Ohio corporation ("Central"), Phoenix
Associates, a Florida general partnership, Coaxial LLC, a Delaware limited
liability company, Coaxial DJM LLC, a Delaware limited liability company, and
Coaxial DSM LLC, a Delaware limited liability company, Barry Silverstein, Dennis
McGillicuddy, and D. Stevens McVoy.
WITNESSETH:
WHEREAS, Central and Insight Parent have entered into a Contribution
Agreement, dated as of June 30, 1998, as amended (the "Contribution Agreement"),
relating to the formation of Insight Communications of Central Ohio, LLC (the
"Operating LLC"), and the contribution to the Operating LLC (i) by Central of
substantially all the assets of its cable television systems in and around
Columbus, Ohio, and (ii) by Insight of cash in the amount of Ten Million
Dollars, all as specified in the Contribution Agreement;
WHEREAS, pursuant to Section 12.4 of the Contribution Agreement and
concurrently with the execution and delivery of this Undertaking, Insight Parent
is assigning all of Insight Parent's rights and delegating all of Insight
Parent's obligations under the Contribution Agreement to a Delaware limited
liability company ("Insight") of which Insight Parent is the sole member;
WHEREAS, pursuant to the Contribution Agreement, Central, the
Principals, and Insight (as assignee of Insight Parent) will enter into an
Operating Agreement substantially in the form of Exhibit A to the Contribution
Agreement (the "Operating Agreement"), relating to the organization of the
Operating LLC, the respective rights, obligations, and interests of the Members
to each other and to the Operating LLC, and certain other matters; and
WHEREAS, Insight Parent's entering into this Undertaking is a material
inducement for Central to have agreed to such assignment to Insight under the
Contribution Agreement and for Central to enter into the Operating Agreement
with Insight;
NOW, THEREFORE, in consideration of Central's entering into the
Contribution Agreement and agreeing to the assignment of Insight Parent's rights
and the delegation of Insight Parent's duties under the Contribution Agreement
to Insight, Insight Parent hereby agrees, for the benefit and in favor of
Central, the other Borrowers, and the Principals:
<PAGE>
SECTION 1. DEFINITIONS
Certain capitalized terms used herein but not otherwise defined herein
shall have the meanings given to such terms in the Operating Agreement.
SECTION 2. OBLIGATIONS
2.1 Indemnity. From and after the execution and delivery of the
Operating Agreement, in the event of any breach of Section 3.5(e) of the
Operating Agreement, Insight Parent agrees to indemnify, defend, and hold
harmless Central, each other Borrower, and each of the Principals, from any
liability, loss, or damage incurred by any such Person, including costs and
attorneys' fees (which attorneys' fees may be paid as incurred) and any amounts
expended in the settlement of any claims of liability, loss, or damage, and
including any tax liabilities incurred as a result of the receipt of any
indemnification payment under this Section 2.1 or any indemnification payment
under Section 4.4(b)(i) of the Operating Agreement, that either (A) arise out of
or result from such breach or (B) arise out of or result from any failure of the
Senior Debt and the Subordinated Debt to prevent those adverse tax consequences
to the Principals that were intended to be avoided by the Senior Debt and the
Subordinated Debt, as it will exist at the Closing. Insight Parent acknowledges
and agrees that any breach of Section 3.5(e) of the Operating Agreement could
result in significant tax liabilities being incurred by the Principals, and that
such tax liabilities are included in the possible damages for which the
Principals would be entitled to indemnity under this Section 2.1.
2.2 Limitation. The indemnity provided in Section 2.1 shall not apply
to any breach of Section 3.5(e) of the Operating Agreement that occurs after the
consummation of any transaction or series of related transactions described in
Section 9.9 of the Operating Agreement and the execution and delivery to Central
and the Principals of the substitute parent undertaking required to be executed
and delivered to Central and the Principals pursuant to Section 9.9 of the
Operating Agreement.
2.3 Representations. Insight Parent hereby represents and warrants to
Central, each other Borrower, and each of the Principals that this Undertaking
has been duly executed and delivered by Insight Parent and constitutes its
legal, valid, and binding obligation, enforceable against it in accordance with
its terms except as the enforceability of this Undertaking may be affected by
bankruptcy, insolvency, or similar laws affecting creditors' rights generally or
by general principles of equity.
SECTION 3. WAIVER; REMEDIES
The observance of any term of this Undertaking may be waived (either
generally or in a particular instance and either retroactively or prospectively)
by the Principals, but any such waiver shall be effective only if in a writing
signed by the Principals. Except as otherwise provided herein, no failure or
delay of Central, any other Borrower, or any of the Principals
- 2 -
<PAGE>
in exercising any power or right under this Undertaking shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power.
SECTION 4. ASSIGNMENT
Insight Parent's obligations under this Undertaking shall not be
assignable without the prior written consent of the Principals. The rights of
Central, each other Borrower, and each of the Principals under this Undertaking
shall not be assignable without the prior written consent of Insight Parent.
This Undertaking shall (a) be binding upon Insight Parent and its successors,
and (b) inure to the exclusive benefit of, and be enforceable by, Central, each
other Borrower, and each of the Principals.
SECTION 5. MISCELLANEOUS
5.1 Severability. Every provision of this Undertaking is intended to be
severable. If any term or provision hereof is illegal, invalid or unenforceable
for any reason whatsoever, that term or provision will be enforced to the
maximum extent permissible and such illegality, invalidity, or unenforceability
shall not affect the validity or legality of the remainder of this Undertaking.
5.2 Governing Law. The internal laws of the State of New York (without
regard to principles of conflict of law) shall govern the validity of this
Undertaking, the construction of its terms, and the interpretation of the rights
and duties of Insight Parent.
5.3 Notices. Any notice, payment, demand, or communication required or
permitted to be given pursuant to this Undertaking shall be given in the manner
specified in the Operating Agreement, with any notice to Insight Parent being
sent to the address of Insight and any notice to any of the Borrowers being sent
to the address of Central.
5.4 Entire Agreement. The provisions of this Undertaking set forth the
entire agreement and understanding of Insight Parent in favor of Central, the
other Borrowers, and the Principals as to the subject matter hereof and
supersede all prior agreements, oral or written, and other communications among
Insight Parent, Central, the other Borrowers, and the Principals relating to the
subject matter hereof, except that nothing in this Undertaking is intended to
supersede or otherwise impair any of the rights or obligations of Insight under
the Operating Agreement, including Section 3.5 and Section 4.5 thereof.
[signature follows on separate page]
- 3 -
<PAGE>
IN WITNESS WHEREOF, Insight Parent has caused this Undertaking to be
duly executed and delivered by its officer or other duly authorized signatory
thereunto duly authorized as of the date first above written.
INSIGHT COMMUNICATIONS COMPANY, L.P.
By: ICC Associates, L.P., its General Partner
By: Insight Communications, Inc., General Partner
By:
-----------------------------------------------
Michael S. Willner
President
- 4 -
<PAGE>
INSIGHT HOLDINGS OF OHIO, LLC
OPERATING AGREEMENT
OPERATING AGREEMENT, dated as of August 21, 1998 (this
"Agreement"), of INSIGHT HOLDINGS OF OHIO, LLC, a Delaware limited liability
company.
R E C I T A L S
WHEREAS, Insight has caused the formation of a limited
liability company and desires to establish the respective rights and obligations
of the Members pursuant to the Delaware Limited Liability Company Act in
connection with the operation of INSIGHT HOLDINGS OF OHIO, LLC.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties executing
this Agreement below, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In this Agreement, the following terms shall
have the meanings set forth below when used in this Agreement with initial
capital letters:
"Accounting Period" shall mean, as the context may require,
the period commencing on the date of this Agreement or on the day following the
last day of the immediately preceding Accounting Period, and ending on the next
succeeding of the following: (a) the last day of each Fiscal Year of the
Company; (b) the date upon which the Company shall be dissolved; or (c) any day
designated by the Tax Matters Partner as the date upon which an Accounting
Period shall end.
"Adjusted Basis" shall mean, as of any date of determination,
the Company's adjusted basis in any asset as of such date, as determined for
federal income tax purposes pursuant to Section 1011 of the Code.
"Affiliate" shall mean, with respect to any Person, any other
Person controlling, controlled by or under common control with such Person, with
"control" for such purpose meaning the possession, directly or indirectly, of
the power to direct or cause the direction of the management
<PAGE>
and policies of a Person, whether through the ownership of voting securities or
voting interests, by contract or otherwise.
"Agreement" shall mean this Operating Agreement as amended
from time to time.
"Capital Account" shall mean as of any date the Capital
Contribution to the Company by a Member, adjusted as of such date pursuant to
the terms and provisions of this Agreement.
"Capital Contribution" shall mean any contribution by a Member
to the capital of the Company in cash, property or services rendered, as set
forth on Schedule A.
"Carrying Value" shall mean (i) with respect to any asset
(other than cash) included in a Capital Contribution of a Member, the fair
market value of such contributed property on the date of contribution reduced,
but not below zero, by all depreciation, amortization, and similar expense
charged to the Members' Capital Accounts with respect to such property and (ii)
with respect to any other asset, the Adjusted Basis thereof.
"CATV Systems" shall mean any cable distribution system that
receives broadcast signals by antennae, microwave transmission, satellite
transmission or any other form of transmission that amplifies such signals and
distributes them.
"Certificate of Formation" shall mean the Certificate of
Formation of the Company filed with the Secretary of State of the State of
Delaware on July 14, 1998.
"Claims" shall have the meaning set forth in Section 11.2 of
this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor to that Code.
"Company" shall refer to INSIGHT HOLDINGS OF OHIO, LLC, a
Delaware limited liability company.
"Credit Agreement" shall mean that certain Third Amended and
Restated Credit Agreement, dated as of January 22, 1998, by and among Insight,
the Lenders party thereto, CIBC, Inc. and Fleet Bank, N.A., as Co-Agents, and
The Bank of New York, as Issuing Bank and as agent, as amended, restated,
modified or supplemented from time to time, including any increase, deferral,
renewal, extension or refinancing thereof or any senior credit facility entered
into hereafter by Insight or any subsidiary Affiliate.
"Default Rule" shall mean a rule stated in the Delaware Act:
(i) which structures, defines, or regulates the finances,
governance, operations, or other aspects of a limited liability company
organized under the Delaware Act, and
(ii) which applies except to the extent it is negated or
modified through the provisions of a limited liability company's
certificate of formation or operating agreement.
2
<PAGE>
"Delaware Act" shall mean the Delaware Limited Liability
Company Act.
"Dissolution Event" shall have the meaning set forth in
Section 10.1 of this Agreement.
"Distribution" shall mean the amount of cash and the fair
market value of any other property paid to a Member by the Company.
"Fiscal Year" shall mean the fiscal year of the Company, which
shall be the year ending December 31.
"GAAP" shall mean generally accepted accounting principles
applied on a consistent basis.
"Indemnified Persons" shall have the meaning set forth in
Section 11.1 of this Agreement.
"Insight" shall mean Insight Communications Company, L.P., a
Delaware limited partnership and the sole Member of the Company.
"Insight Ohio" shall mean Insight Communications of Central
Ohio, LLC, a Delaware limited liability company.
"Liquidator" shall have the meaning set forth in Section
10.4.1 of this Agreement.
"Loss" shall mean the taxable loss of the Company for any
Fiscal Year or portion thereof, as computed for federal income tax purposes in
accordance with Section 703(a) of the Code. For this purpose, all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be aggregated, but there shall be excluded
from such computation any item of income, gain, loss, or deduction which is
specifically allocated.
"Member" shall mean each Person who executes a counterpart of
this Agreement and is admitted as a member of the Company in accordance with
Section 4.2 of this Agreement.
"Minimum Gain" shall mean "partnership minimum gain" as
defined in Treasury Regulation Section 1.704-2(d).
"Net Agreed Value" shall mean
(i) in the case of any Capital Contribution other than cash,
the fair market value of such property at the time of contribution
reduced by any indebtedness secured by such property and assumed or
taken subject to by the Company upon such contribution under Section
752 of the Code, and
(ii) in the case of any property (other than cash) distributed
to a Member, the fair market value of such property at the time of such
distribution reduced by any indebtedness
3
<PAGE>
secured by such property and assumed or taken subject to by such Member
upon such distribution under Section 752 of the Code.
"Partner Nonrecourse Debt" shall have the meaning set forth in
Treasury Regulation 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" shall have the meaning
set forth in Treasury Regulation 1.704-2(i)(3).
"Percentage Interest" shall mean with respect to any Member,
the amount denoted as such opposite the Member's name in Schedule A to this
Agreement.
"Person" shall mean any natural person, corporation,
governmental authority, limited liability company, partnership, trust,
unincorporated association or other commercial or legal entity.
"Profit" shall mean the taxable income of the Company for any
Fiscal Year or portion thereof as computed for federal income tax purposes in
accordance with Section 703(a) of the Code. For this purpose, all items of
income, gain, loss, or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be aggregated, but there shall be excluded
from such computation any item of income, gain, loss, or deduction which is
specifically allocated.
"Records" shall mean:
(i) true and full information regarding the status of the
business and financial condition of the Company;
(ii) copies of the Company's federal, state, and local
income tax returns;
(iii) a current list of the name and last known business,
residence, or mailing address of each Member;
(iv) a copy of this Agreement, the Certificate of Formation,
and all amendments thereto, together with executed copies of any
written powers of attorney pursuant to which this Agreement and the
Certificate of Formation and all amendments thereto have been executed;
(v) true and full information regarding the amount of cash
and a description and statement of the value of any other property or
services contributed by each Member and which each Member has agreed to
contribute in the future, and the date on which each Member became a
Member;
(vi) a copy of each material contract entered into by the
Company;
(vii) minutes of the meetings of the Members; and
(viii) other information regarding the affairs of the Company
as required by an act of the Members or as is prudent and desirable in
the opinion of the Members.
4
<PAGE>
"Tax Matters Partner" shall be the Member designated in
Section 8.5 hereof.
"Treasury Regulations" shall mean all temporary and final
regulations promulgated under the Code as from time to time in effect.
"Unrealized Gain" shall mean, with respect to any asset and as
of any date of determination, the excess, if any, of the then current fair
market value of such asset over the Carrying Value thereof as of such date.
"Unrealized Loss" shall mean, with respect to any asset and as
of any date of determination, the excess, if any, of the then current Carrying
Value of such asset over the fair market value thereof as of such date.
ARTICLE II
RELATIONSHIP OF THIS AGREEMENT TO
THE CERTIFICATE OF FORMATION AND TO THE
DEFAULT RULES PROVIDED BY THE DELAWARE ACT
2.1 Relationship of this Agreement to the Default Rules
Provided by the Delaware Act.
Regardless of whether this Agreement specifically refers to
particular Default Rules:
(a) if any provision of this Agreement conflicts with a
Default Rule, the provision of this Agreement shall control and the Default Rule
shall be modified or negated accordingly, and
(b) if it is necessary to construe a Default Rule as
modified or negated in order to effectuate any provision of this Agreement, the
Default Rule shall be modified or negated accordingly.
2.2 Relationship Between this Agreement
and the Certificate of Formation.
If a provision of this Agreement differs from a provision of
the Certificate of Formation, then to the extent allowed by law this Agreement
shall govern.
ARTICLE III
ORGANIZATION
3.1 Formation. One or more Persons has acted as an
organizer to form a limited liability company by preparing, executing and filing
the Certificate of Formation pursuant to the Delaware Act.
5
<PAGE>
3.2 Name. The name of the Company is INSIGHT HOLDINGS OF
OHIO, LLC.
3.3 Office of the Company. The principal office of the
Company shall be126 East 56th Street, New York, New York 10022, or such other
place as the Members shall from time to time designate. The Company may
establish any other places of business as the Members may from time to time deem
advisable.
3.4 Registered Agent and Registered Office. The
registered agent and registered office of the Company shall be as designated in
the Certificate of Formation. The registered office and registered agent may be
changed from time to time by filing the address of the new registered office
and/or the name of the new registered agent with the Secretary of State of the
State of Delaware pursuant to the Delaware Act.
3.5 Term. The term of the Company shall be until December
31, 2060, unless the existence of the Company is terminated sooner pursuant to
this Agreement or the Delaware Act.
3.6 Purpose. The Company is formed for any lawful
business purpose or purposes. The business of the Company is to conduct any
lawful business including (without limitation), directly or through Persons in
which the Company invests, to acquire franchises to operate, and to own, invest
in, design, construct, maintain, manage and operate, one or more CATV Systems or
wireless cable systems, or entities providing telecommunications services, and
to do all things reasonably incidental thereto, including borrowing money and
securing such borrowings by mortgage, pledge, or other lien, and leasing or
disposing of CATV Systems. The initial business of the Company shall be to
acquire a membership interest in Insight Ohio and to act as manager of Insight
Ohio in connection with Insight Ohio's CATV Systems serving areas in and around
Columbus, Ohio, pursuant to that certain Contribution Agreement, dated as of
June 30, 1998, between Coaxial Communications of Central Ohio, Inc. and Insight,
which Contribution Agreement has been assigned to the Company.
ARTICLE IV
MEMBERS
4.1 Names and Addresses. The name and address of each
Member is as set forth in Schedule A to this Agreement.
4.2 Additional Members. A Person may be admitted as a
Member after the date of this Agreement upon the unanimous consent of the
Members and upon compliance with the terms of this Agreement and any other
conditions imposed by the Members from time to time for the admission of
additional or substitute Members.
4.3 Books and Records. The Company shall keep the
Records at its principal place of business or at the office of Insight.
6
<PAGE>
4.4 Information. Each Member and its agents may inspect
the Records during ordinary business hours and upon reasonable notice at the
principal office the Company, or other location of the Records.
4.5 Limitation of Liability. Each Member's liability
shall be limited as set forth in this Agreement, the Delaware Act and other
applicable law. No Member shall be personally liable for any indebtedness,
liability or obligation of the Company without entering into a written agreement
assuming such personal liability, except that each Member shall remain
personally liable for the payment of its Capital Contribution and as otherwise
set forth in this Agreement, the Delaware Act and any other applicable law.
4.6 Priority and Return of Capital. No Member shall have
priority over any other Member, whether for the return of a Capital Contribution
or for Profits, Losses, or Distributions; provided, however, that this Section
4.6 shall not apply to loans or other indebtedness (as distinguished from a
Capital Contribution) made by a Member to the Company.
4.7 Liability of a Member to the Company. A Member who or
which rightfully receives the return of any portion of a Capital Contribution is
liable to the Company only to the extent now or hereafter provided by the
Delaware Act. A Member who or which receives a Distribution made by the Company
in violation of this Agreement or made when the Company's liabilities exceed its
assets (after giving effect to such Distribution) shall be liable to the Company
for the amount of such Distribution.
4.8 Financial Adjustments. No Members admitted after the
date of this Agreement shall be entitled to any retroactive allocation of
losses, income or expense deductions incurred by the Company. The Tax Matters
Partner may, in its discretion, at the time a Member is admitted, close the
books and records of the Company (as though the Fiscal Year had ended) or make
pro rata allocations of loss, income and expense deductions to such Member for
that portion of the Fiscal Year in which such Member was admitted in accordance
with the Code.
ARTICLE V
MANAGEMENT
5.1 Management. The Company shall be managed by its
Members. Each Member shall have the right to act for and bind the Company in its
ordinary course of its business.
5.2 Meeting of and Voting by the Members.
5.2.1 Meetings; Notice. Meetings of the Members
may be called at any time by any Member and shall be held at the Company's
principal office or at any other place, within or outside the State of Delaware,
designated in any notice of such meeting. If no such designation is made, the
place of any such meeting shall be the principal office of the Company. Written
or oral notice stating the place, day and hour of the meeting indicating that it
is being issued by or at the direction of the Member calling the meeting,
stating the purpose or purposes for which the meeting is called shall be
delivered no fewer than ten nor more than sixty days before the date of the
meeting.
7
<PAGE>
Notice of a meeting need not be given to any Member who submits a signed waiver
of notice, in person or by proxy, whether before or after the meeting. The
attendance of a Member at a meeting, in person or by proxy, without protesting
prior to the conclusion of the meeting the lack of notice of such meeting, shall
constitute a waiver of notice by it.
5.2.2 Record Date. For the purpose of determining
the Members entitled to notice of or to vote at any meeting of Members or any
adjournment of such meeting, or Members entitled to receive payment of any
Distribution, or to make a determination of Members for any other purpose, the
date on which notice of the meeting is mailed or the date on which the
resolution declaring Distribution is adopted, as the case may be, shall be the
record date for making such a determination. When a determination of Members
entitled to vote at any meeting of Members has been made pursuant to this
Section, the determination shall apply to any adjournment of the meeting.
5.2.3 Quorum; Manner of Acting. Members holding
not less than all the Percentage Interests, represented in person or by proxy,
shall constitute a quorum at any meeting of Members. If a quorum is present at
any meeting, the vote or written consent of Members holding all the Percentage
Interests shall constitute the act of the Members.
5.2.4 Action by Members Without a Meeting.
Whenever the Members of the Company are required or permitted to take any
action, such action may be taken without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken shall be
signed by each of the Members.
5.2.5 Proxies. A Member may vote in person or by
proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Every proxy must be signed by the Member or its
attorney-in-fact. No proxy shall be valid after the expiration of three years
from the date thereof unless otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the Member executing it, except if the proxy
states that it is irrevocable and if it is coupled with an interest in law
sufficient to support an irrevocable power.
5.2.6 Duties of Members. The Members shall
devote such time to the business and affairs of the Company as is necessary to
carry out the Members' duties set forth in this Agreement. Each Member shall
perform its duties in good faith, in a manner it reasonably believes to be in
the best interests of the Company and with such care as an ordinarily prudent
person in a similar position would use under similar circumstances. A Member who
so performs such duties shall not have any liability by reason of being or
having been a Member. Nothing contained in this Agreement shall be deemed to
require the Members to manage the Company as its sole and exclusive function and
the Members may have other business interests and may engage in other activities
in addition to those relating to the Company. Neither the Company nor any Member
shall have any right pursuant to this Agreement to share or participate in such
other business interests or activities or to the income or proceeds derived
therefrom.
5.2.7 Liability and Indemnification. A Member
shall not be liable to the Company or the other Member for any loss or damage
sustained by the Company or the other Member, unless the loss or damage shall
have been the result of fraud, the gross negligence or willful misconduct of
such Member.
8
<PAGE>
5.2.8 Officers. The Members may designate one or
more individuals as officers of the Company, who shall have such titles and
exercise and perform such powers and duties as shall be assigned to them from
time to time by the Members. Any officer may be removed by the Members at any
time, with or without cause. Subject to the preceding sentence, each officer
shall hold office until his or her successor is elected and qualified. Any
number of offices may be held by the same individual. The salaries and other
compensation of the officers shall be fixed by the Members.
5.3 Expenses. The Company shall pay or reimburse any
Person for any fees or expenses (including out-of-pocket expenses or allocated
overhead), incurred by such Person in respect of the executive management of the
business or operations of the Company or any of its subsidiaries.
ARTICLE VI
CAPITAL CONTRIBUTIONS
6.1 Capital Contributions. Each Member shall contribute
the amount set forth in Schedule A to this Agreement as the Capital Contribution
to be made by such Member.
6.2 Additional Contributions. Except as set forth in
Section 6.1 of this Agreement, no Member shall be required to make any Capital
Contribution.
6.3 Capital Accounts. A Capital Account shall be
maintained for each Member in accordance with Section 8.2 of this Agreement.
6.4 Transfers. Upon a permitted sale or other transfer of
any interest in the Company, the Capital Account relating to such transferred
interest shall become the Capital Account of the Person to which or whom such
interest is sold or transferred, in accordance with Section 8.2(c) of this
Agreement.
6.5 Modifications. The manner in which Capital Accounts
are to be maintained pursuant to this Agreement is intended to comply with the
requirements of Section 704(b) of the Code. If in the opinion of the Tax Matters
Partner, on the advice of the Company's tax advisers, the manner in which
Capital Accounts are to be maintained pursuant to this Agreement should be
modified to comply with Section 704(b) of the Code, then the method in which
Capital Accounts are maintained shall be so modified; provided, however, that
any change in the manner of maintaining Capital Accounts shall not materially
alter the economic agreement between or among the Members as expressed in this
Agreement without the consent of each Member.
6.6 Deficit Capital Account. Except as otherwise required
in the Delaware Act or this Agreement, no Member shall have any liability to
restore all or any portion of a deficit balance in a Capital Account.
6.7 Withdrawal or Reduction of Capital Contributions. A
Member shall not receive from the Company any portion of a Capital Contribution
until all indebtedness, liabilities
9
<PAGE>
of the Company, except any indebtedness, liabilities and obligations to Members
on account of their Capital Contributions, have been paid or there remains
property of the Company sufficient to pay them. A Member, irrespective of the
nature of the Capital Contribution of such Member, has only the right to demand
and receive cash in return for such Capital Contribution.
6.8 No Rights of Redemption or Return of Contribution.
Except in accordance with the provisions of this Agreement, no Member has a
right to have its Membership Interests or its Capital Contributions returned
prior to the dissolution of the Company.
ARTICLE VII
Allocations and Distributions
7.1 Allocation of Profits and Losses.
(a) Profits for each Accounting Period shall be
allocated among the Members as follows:
(1) First, to the Members with deficit
Capital Account balances at the end of such Accounting Period (but prior to any
allocation of Profits pursuant to this Section 7.1(a)), in proportion to such
deficits, until such deficits are reduced to zero;
(2) Second, to the Members if Members'
Capital Accounts do not correspond to their Percentage Interests at the end of
such Accounting Period (after the allocation of Profits provided for in Section
7.1(a)(1), but prior to any other allocations of Profits pursuant to this
Section 7.1(a)) so as to make Members' Capital Accounts correspond to their
Percentage Interests; and
(3) The balance, to the Members in
proportion to their Percentage Interests.
(b) Losses for each Accounting Period shall be
allocated as follows:
(1) First, to the Members if Members'
Capital Accounts do not correspond to their Percentage Interests at the end of
such Accounting Period, so as to make Members' Capital Accounts correspond to
their Percentage Interests; and
(2) The balance, to the Members in
proportion to the Percentage Interests.
7.2 Distributions. All Distributions other than
Distributions pursuant to Section 7.4 hereof shall be made to the Members in
proportion to the amounts by which their Capital Contributions exceed all
Distributions previously made to such Members until each has received amounts in
the aggregate equal to its Capital Contribution, and then in proportion to their
Percentage Interests.
10
<PAGE>
7.3 No Right to Distributions Except
Upon Dissolution of the Company.
The occurrence of a Dissolution Event with respect to the
Company shall entitle each Member to receive the Distributions set forth in
Section 7.4. In the absence of a Dissolution Event, no Member shall have any
right to receive Distributions.
7.4 Distributions Upon Dissolution of the Company. Upon
dissolution of the Company, the Company shall satisfy (or provide for the
satisfaction of) all the Company's debts and other obligations (including any
debts to Members and former Members). Thereafter, all Distributions shall be
made to the Members in proportion to the positive balances of such Members'
Capital Accounts (after such Capital Accounts have been adjusted to take into
account all events related to such dissolution).
7.5 Offset. The Company may offset all amounts owing to
the Company by a Member against any Distribution to be made to such Member.
7.6 Limitation Upon Distributions. No Distribution shall
be declared and paid unless, after such Distribution is made, the assets of the
Company are in excess of all liabilities of the Company.
7.7 Interest on and Return of Capital Contributions. No
Member shall be entitled to interest on its Capital Contribution or to a return
of its Capital Contribution, except as specifically set forth in this Agreement.
ARTICLE VIII
Tax Matters
8.1 Tax Characterization and Returns.
(a) The Members acknowledge that for federal, state
and local tax purposes the Company will be disregarded as an entity separate
from its Member at all times at which it has only one Member and treated as a
"partnership" at all other times. All provisions of this Agreement and the
Certificate of Formation are to be construed so as to preserve that tax status.
Without limiting the foregoing, to the extent the Tax Matters Partner determines
that provisions of this Agreement are inconsistent with the Company's tax status
at any time at which the Company has only one Member, those provisions shall not
apply at such time.
(b) To the extent applicable, within ninety (90) days
after the end of each Fiscal Year, the Tax Matters Partner will cause to be
delivered to each Person who was a Member at any time during such Fiscal Year a
Form K-1 and such other information, if any, with respect to the Company as may
be necessary for the preparation of each Member's federal, state or local income
tax (or information) returns, including a statement showing each Member's share
of income, gain or loss, and credits for the Fiscal Year.
11
<PAGE>
8.2 Capital Accounts.
(a) The Capital Account of each Member shall be
increased by
(1) the amount of all Capital Contributions
made by such Member (which amount, in the case of contributed property other
than cash, shall be the Net Agreed Value thereof) and
(2) all Profit and each item of income and gain
which is allocated to the Member pursuant to Section 7.1, 8.3(b), and 8.3(c)
hereof (computed in each instance with the adjustments detailed in Section
8.2(b) below)
and decreased by
(x) all Loss and each item of loss and
deduction which is allocated to the Member pursuant to Section 7.1, 8.3(b), and
8.3(c) (computed in each instance with the adjustments detailed in Section
8.2(b) below) and
(y) all cash and the Net Agreed Value of any
property distributed by the Company to such Member pursuant to this Agreement.
(b) Solely for the purposes of maintaining the
Members' Capital Accounts, the Profit or Loss of the Company and each item of
income, gain, loss, or deduction which is specially allocated pursuant to
Section 8.3(b) and 8.3(c) shall be adjusted as follows:
(1) Any income of the Company that is exempt
from federal income tax shall be added to such Profit or Loss;
(2) all deductions for depreciation, cost
recovery, amortization, or similar items attributable to any property (other
than cash) contributed by a Member to the Company (including adjustments under
Section 48(q) of the Code) shall be determined as if the Adjusted Basis of such
property on the date of contribution was equal to the Carrying Value of such
property on such date, in accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(g);
(3) Any income, gain or loss attributable to
the taxable disposition of any asset shall be determined by the Company as if
the Adjusted Basis of such asset as of the date of disposition were equal to the
Carrying Value of such asset as of such date;
(4) All fees and other expenses incurred by the
Company to promote the sale of (or to sell) an interest that can neither be
deducted nor amortized under Section 709 of the Code shall be treated as an item
of deduction.
(5) The computation of all items of income,
gain, loss, and deduction shall be made without regard to any adjustment in the
basis of Company asset as a result of an election under Section 754 of the Code
which may be made by the Company (except to the extent required by Treasury
Regulation Section 1.704-1(b)(2)(iv)(m)) and, as to those items
12
<PAGE>
described in Section 705(a)(2)(B) of the Code, without regard to the fact that
such items are neither currently deductible nor capitalizable for federal income
tax purposes; and
(6) In the event that any Distribution is made
to a Member other than in cash (including liquidating Distributions), the
Capital Accounts of the Members, immediately prior to such distribution, shall
be appropriately adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to the distributed property (determined on the
basis of the fair market value of the property at the time of distribution).
(c) A transferee will succeed to the Capital Account
(or such portion thereof) relating to the interest transferred, and there shall
be no adjustment to the Capital Accounts as a result of such transfer except as
otherwise required under Treasury Regulation Section 1.704-1. If, however, the
transfer causes a termination of the Company under Section 708(b)(1)(B) of the
Code, then, to the extent required by regulations or otherwise deemed advisable
by the Tax Matters Partner, the Company's assets shall be deemed to have been
distributed in liquidation of the Company to the remaining Members (including
such transferee) and recontributed by such Members and such transferee in
reconstitution of the Company, and the Capital Accounts of the Members in such
reconstituted Company shall at such time be determined, and shall thereafter be
maintained, in accordance with the rules set forth in this Agreement.
Section 8.3 Special Tax Rules
(a) Special Rules Relating to Contributed Property.
Solely for tax purposes (and not for Capital Account purposes), in the case of
any property (other than cash) included in a Capital Contribution, items of
income, gain, loss, deduction, and credit attributable to such contributed
property shall be allocated as follows:
(1) first, among the Members in a manner that
takes into account the variation between the fair market value of such property
and its Adjusted Basis at the time of contribution (in accordance with Section
704(c) of the Code and applicable Regulations), and
(2) thereafter, in accordance with Section 7.1
and the other provisions of this Article.
(b) Guaranteed Payments. Notwithstanding the
foregoing, in the event that any fees, interest, or other amounts paid or
payable to any Member are deducted by the Company in reliance on Sections 707(a)
or 707(c) of the Code, and such fees, interest, or other amounts are disallowed
as deductions to the Company and are recharacterized as Company distributions,
there shall be allocated to such Member, prior to the allocations provided in
Section 7.1, an amount of Company gross income for the year in which such fees,
interest, or other amounts are treated as Company distributions equal to such
fees, interest, or other amounts so treated as distributions.
(c) Special Overrides.
(1) Solely for purposes of determining a Member's Capital
Account in applying the provisions of this clause (c), the anticipated
adjustments, allocations, and distributions described in
13
<PAGE>
Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4)-(6) shall be taken into
account, and each Member shall be deemed obligated to restore any deficit in its
Capital Account to the extent of the sum of its share of the Minimum Gain, as
determined pursuant to Treasury Regulation Section 1.704-2(g)(i), and its share
of the Partner Nonrecourse Debt Minimum Gain, as determined pursuant to Treasury
Regulation Section 1.704-2(i)(5).
(2) Notwithstanding any other provision of this Agreement, no
allocation of Loss, or other allocation of loss or deduction, shall be made to
any Member if such allocation would result in such Member having a negative
balance in its Capital Account at the close of any Fiscal Year in excess of the
amount it would be required to restore on a liquidation of the Company at the
close of such Fiscal Year (or a liquidation of such Member's interest in the
Company).
(3) Notwithstanding any other provision of this Agreement, in
the event any Member unexpectedly receives an adjustment, allocation, or
distribution described in clause (4), (5), or (6) of Treasury Regulation Section
1.704-1(b)(2)(ii)(d) that results in such Member having a negative balance in
its Capital Account at the close of any Fiscal Year in excess of the amount that
it is required to restore on a liquidation of the Company at the close of such
Fiscal Year (or of the Member's interest in the Company), or for any other
reason has a deficit Capital Account balance in excess of such amount, such
Member shall, prior to the allocations otherwise provided in this Section, be
allocated Profit (and other income and gain) in an amount and manner sufficient
to eliminate such excess as promptly as possible.
(4) In accordance with and pursuant to Treasury Regulation
1.704-2(i)(1), all partner nonrecourse deductions (as defined in that
Regulation) shall be allocated to the Member that bears the economic risk of
loss on the debt giving rise to such deductions as determined under that
Regulation. Further, in accordance with and pursuant to Treasury Regulation
1.704-2(f) and -2(i)(4) (and subject to the exceptions set forth therein), if
there is a net decrease in either the Company's Minimum Gain or Partner
Nonrecourse Debt Minimum Gain or both during any Fiscal Year, all Members shall
be allocated, before any other allocation is made of Profit (and other income
and gain) or Loss (or other loss or deduction) for such Fiscal Year, items of
income and gain for such Fiscal Year (and, if necessary, subsequent years) in an
amount equal to the Member's share in the decrease in Minimum Gain or Partner
Nonrecourse Debt Minimum Gain, as determined pursuant to Treasury Regulation
Sections 1.704-2(g)(2) and 1.704-2(i)(4).
(5) It is the intent of the parties to this Agreement that the
chargeback provisions and the limitation on loss allocations provided in this
Section satisfy the "allocation of nonrecourse liability" rules provided in
Treasury Regulation 1.704-2 and the requirements of Treasury Regulation
1.704-1(b)(2)(ii)(d) (relating to the alternate test for economic effect and
"qualified income offset"). It is further intended that the allocations under
this Section shall effect an allocation for federal income tax purposes in a
manner consistent with Section 704(b) and (c) of the Code and comply with any
limitations or restrictions therein. If for any reason the allocations contained
in this Agreement shall conflict with the Regulations promulgated under Section
704 of the Code, the Members acknowledge that such Regulations shall control.
(6) The allocations set forth in this Section (the "Regulatory
Allocations") are intended to comply with certain requirements of Treasury
Regulations Section 1.704-1(b). The Regulatory Allocations may not be consistent
with the manner in which the Members intend to
14
<PAGE>
divide Company Distributions. Accordingly, the Tax Matters Partner (or any
successor thereto) is hereby authorized, with the advice of the company's tax
advisers, to devise other allocations of income, gains and losses and other
items among the Members as may be necessary so as to prevent the Regulatory
Allocations from distorting the manner in which Company Distributions will be
divided among the Members; provided, however, that any change in the manner of
maintaining Capital Accounts shall not materially alter the economic agreement
between or among the Members as expressed in this Agreement without the consent
of each Member. In general, the Members anticipate that this will be
accomplished by specially allocating items of income, gain, loss and deduction
among the Members so that the net amount of the Regulatory Allocations and such
special allocations to such Member is zero. However, the Tax Matters Partner
shall have discretion to accomplish this result in any reasonable manner.
8.4 Accounting Decisions
(a) Subject to the provisions of this Agreement, the
Tax Matters Partner will make all decisions as to accounting matters.
(b) Subject to the provisions of this Agreement, the
Tax Matters Partner may cause the Company to make whatever elections the Company
may make under the Code, including the election referred to in Section 754 of
the Code to adjust the basis of Company assets.
(c) The Company shall make the following elections
on the appropriate tax returns:
(1) To adopt the calendar year as the Fiscal
Year;
(2) To adopt the accrual method of accounting
for income tax purposes and keep the Company's books and records in accordance
with GAAP;
(3) If a Distribution as described in Section
734 of the Code occurs or if a transfer of a Membership Interest described in
Section 743 of the Code occurs, upon the written request of any Member, to elect
to adjust the basis of the property of the Company pursuant to Section 754 of
the Code;
(4) To elect to amortize the organizational
expenses of the Company and the start up expenditures of the Company under
Section 195 of the Code ratably over a period of sixty months as permitted by
Section 709(b) of the Code; and
(5) Any other election that the Tax Matters
Partner may deem appropriate and in the best interests of the Members. Neither
the Company nor any Member may make an election for the Company to be excluded
from the application of Subchapter K of Chapter I of Subtitle A of the Code or
any similar provisions of applicable state law, and no provisions of this
Agreement shall be interpreted to authorize any such election.
8.5 Tax Matters Partner. Insight shall be the "tax
matters partner" of the Company pursuant to Section 6231(a)(7) of the Code. Any
Member who is designated as successor Tax Matters Partner shall take any action
as may be necessary to cause each other Member to
15
<PAGE>
become a "notice partner" within the meaning of Section 6223 of the Code. The
Tax Matters Partner shall not extend the statute of limitations, compromise any
tax controversy or take any other material action except after consultation with
the Members.
8.6 Tax Returns. The Tax Matters Partner shall cause to
be prepared and filed all necessary federal, state and local income tax returns
for the Company. Each Member shall furnish to the Tax Matters Partner all
pertinent information in its possession relating to Company operations that is
necessary to enable the Company's income tax returns to be prepared and filed.
8.7 Tax Withholdings. The Company shall at all time be
entitled to make payments with respect to any Member in amounts required to
discharge any legal obligation of the Company pursuant to any provision of the
Code or any other tax provision or any provision enacted in the future imposing
a similar obligation on the Company to withhold or make payments to any
governmental authority with respect to any United States federal, state or local
tax liability of such Member arising as a result of such Member's interest in
the Company. Each such payment made to any governmental authority shall be
deemed to be a loan by the Company to such Member and shall not be deemed to be
a distribution. The amount of such payments made with respect to any Member,
plus interest at an annual rate equal to two percent plus the Company's highest
borrowing rate on each such amount from the date of each such payment until such
amount is repaid to the Company, shall be repaid to the Company by (i) deduction
from the current or next succeeding distribution or distributions otherwise
payable to such Member pursuant to this Agreement or (ii) earlier payment of
such amounts and interest by such Member to the Company.
ARTICLE IX
Transfers
No Member may transfer, sell, gift, or otherwise
dispose of all, or any portion of, or any interest or rights in, the interest in
the Company owned by the Member without the consent of all of the Members. Each
Member hereby acknowledges the reasonableness of this prohibition in view of the
purposes of the Company and the relationship among the Members. The transfer of
any interest in the Company in violation of the prohibition contained in this
Article IX shall be deemed invalid, null and void, and of no force and effect.
Any Person to whom interests in the Company are attempted to be transferred in
violation of this Article IX shall not be entitled to vote on matters coming
before the Members, participate in the management of the Company, act as an
agent of the Company, receive Distributions or have any other rights in or with
respect to the interest in the Company. Notwithstanding the foregoing, each of
the Members hereby consents to the pledge of the interests in the Company
pursuant to the Amended and Restated Security Agreement, dated as of March 4,
1993, by and among Insight, the Lenders party thereto, Canadian Imperial Bank of
Commerce, as Documentation Agent for the Lenders, and the Bank of New York, as
Administrative Agent for the Lenders, as amended, restated, modified or
supplemented from time to time, including as a result of any increase, deferral,
renewal, extension or refinancing of the Credit Agreement, and consents to any
transfer of such interests upon any foreclosure or other exercise of remedies in
respect of such pledge.
16
<PAGE>
ARTICLE X
Dissolution; Winding Up
10.1 Dissolution. The Company shall be dissolved upon the
happening of any of the following events (each, a "Dissolution Event"):
(a) when the period fixed for its duration in
Section 3.5 has expired;
(b) upon the vote of all the Members;
(c) the occurrence of an event described in Section
18-304 of the Delaware Act regarding bankruptcy or insolvency
of any Member; or
(d) the entry of a decree of judicial dissolution
under the Delaware Act.
10.2 Voluntary Withdrawal. Except as expressly permitted
in this Agreement, a Member shall not voluntarily withdraw or take any other
voluntary action which, directly or indirectly, causes a Dissolution Event.
10.3 Effect of Dissolution. Except as permitted by the
Delaware Act, upon dissolution the Company shall cease to carry on its business
and shall file a Certificate of Cancellation as provided in Section 18-203 of
the Delaware Act.
10.4 Winding Up, Liquidation and Distribution of Assets.
10.4.1 Upon dissolution, an accounting shall be made
by the Company's independent accountants of the accounts of the Company and of
the Company's assets, liabilities and operations, from the date of the previous
accounting until the date of the Dissolution Event. The Member appointed by the
other Member as the liquidator (the "Liquidator") shall immediately proceed to
wind up the affairs of the Company.
10.4.2 If the Company is dissolved and its affairs
are to be wound up, the Liquidator shall:
(i) Sell or otherwise liquidate all of the
Company's assets as promptly as practicable,
(ii) Discharge all liabilities of the Company,
including liabilities to Members who are
creditors to the extent otherwise permitted
by law, other than any liabilities to
Members for distributions declared but not
yet paid by the Company, and establish such
reserves as may be reasonably necessary to
provide for contingent liabilities of the
Company,
(iii) Allocate any profit or loss resulting from
the sales of Company assets to the Members
in accordance with this Agreement, and
17
<PAGE>
(iv) Distribute the remaining assets in the
following order:
(1) If any assets of the Company are to
be distributed in-kind, the net fair
market value of such assets as of
the date of the Dissolution Event
shall be determined by an
independent appraisal or the Tax
Matters Partner. Such assets shall
be deemed to have been sold as of
the date of dissolution for their
fair market value, and the Capital
Accounts of the Members shall be
adjusted pursuant to the provisions
of this Agreement to reflect such
deemed sale.
(2) In accordance with Section 7.4
hereof, either in cash or in-kind,
as determined by the Liquidator,
with any assets distributed in-kind
being valued for this purpose at
their fair market value in
accordance with the requirements set
forth in Treasury Regulation Section
1.704-1(b)(2)(ii)(b)(2).
10.4.3 Notwithstanding anything to the contrary in
this Agreement, upon a liquidation within the meaning of Treasury Regulation
Section 1.704-1(b)(2)(ii)(g), if any Member has a deficit Capital Account (after
giving effect to all contributions, Distributions, allocations and other Capital
Account adjustments for all Fiscal Years, including the year in which the
liquidation occurs), such Member shall have no obligation to make any
contribution to capital, and the negative balance of such Member's Capital
Account shall not be considered a debt owed by such Member to the Company or to
any other Person for any purpose whatsoever.
10.4.4 Upon completion of the winding up,
liquidation and distribution of assets, the Company shall be deemed terminated.
10.5 Return of Contributions to Capital Nonrecourse to
Other Members. Except as provided by law or as expressly provided in this
Agreement, upon dissolution each Member shall look solely to the assets of the
Company for the return of its Capital Contribution. If the Company property
remaining after the payment or discharge of the debts and liabilities of the
Company is insufficient to return the Capital Contributions of one or more
Members, such Member or Members shall have no recourse against any other Member.
ARTICLE XI
INDEMNIFICATION
11.1 Exculpatory Provisions. None of the Members nor any
of their respective shareholders, members, partners, officers, directors,
employees or control persons (as such term is defined in the Securities Act of
1933, as amended, and the rules and regulations thereunder) of such Members
(collectively, the "Indemnified Persons") shall be liable directly or
indirectly, to the Company or to any other Member for any act or omission (in
relation to the Company or this Agreement) taken or omitted by such Indemnified
Person in good faith, provided that such act or omission did not constitute
gross negligence, fraud or willful violation of the law or this Agreement.
18
<PAGE>
11.2 Indemnification of Members. The Company shall, to the
fullest extent permitted by the Delaware Act, indemnify and hold harmless each
Indemnified Person against all claims, liabilities and expenses of whatever
nature ("Claims") relating to activities undertaken in connection with the
Company, including but not limited to amounts paid in satisfaction of judgments,
in compromise or as fines and penalties, and counsel, accountants' and experts'
and other fees, costs and expenses reasonably incurred in connection with the
investigation, defense or disposition (including by settlement) of any action,
suit or other proceeding, whether civil or criminal, before any court or
administrative body in which such Indemnified Person may be or may have been
involved, as a party or otherwise, or with which such Indemnified Person may be
or may have been threatened, while acting as such Indemnified Person, provided
that no indemnity shall be payable hereunder against any liability incurred by
such Indemnified Person by reason of such Indemnified Person's gross negligence,
fraud or willful violation of the law or this Agreement or with respect to any
matter as to which such Indemnified Person shall have been adjudicated not to
have acted in good faith.
11.3 Advance of Expenses. Expenses incurred by an
Indemnified Person in defense or settlement of any Claim that may be subject to
a right of indemnification hereunder may be advanced by the Company prior to the
final disposition thereof upon receipt of an undertaking by or on behalf of the
Indemnified Person to repay such amount if it shall ultimately be determined
that the Indemnified Person is not entitled to be indemnified by the Company.
11.4 Control of Claim. The Company shall have the right to
select counsel (provided such counsel is reasonably satisfactory to the
Indemnified Person) and to control the defense of any action giving rise to a
Claim, provided that an Indemnified Person may nevertheless employ counsel to
represent and defend it, but the Company will not be required to pay the fees
and disbursements of more than one counsel in any jurisdiction in any proceeding
(unless by reason of potential conflicts of interest, representation by more
than one counsel is necessary). The right to control the defense of any action
shall not include the right to enter into a settlement with respect to such
action, unless such settlement is for money damages only (and the Company first
posts a bond or other security satisfactory to the Indemnified Person
sufficient, without regard to the provisions of Section 11.6, to cover the full
amount of the proposed settlement).
11.5 Non-Exclusivity. The right of any Indemnified Person
to the indemnification provided herein shall be cumulative of, and in addition
to, any and all rights to which such Indemnified Person may otherwise be
entitled by contract or as a matter of law or equity and shall extend to such
Indemnified Person's successors, assigns and legal representatives.
11.6 Satisfaction from Company Assets. All judgments
against the Company or an Indemnified Person, in respect of which such
Indemnified Person is entitled to indemnification, shall first be satisfied from
Company assets before the Indemnified Person is responsible therefor.
11.7 Notices of Claims. Promptly after receipt by an
Indemnified Person of notice of the commencement of any action or proceeding or
threatened action or proceeding involving a Claim, such Indemnified Person will,
if a claim for indemnification in respect thereof is to be made against the
Company, give written notice to the Company and each other Member of the
commencement of such action, provided that the failure of any Indemnified Person
to give notice as provided herein shall not relieve the Company of its
obligations under this Article XI, except to
19
<PAGE>
the extent that the Company is actually prejudiced by such failure to give
notice. Each such Indemnified Person shall keep the Company and each other
Member apprised of the progress of any such proceeding.
ARTICLE XII
General Provisions
12.1 Notices. Any notice, demand or other communication
required or permitted to be given pursuant to this Agreement shall have been
sufficiently given for all purposes if (a) delivered personally to the party or
to an executive officer of the party to whom such notice, demand or other
communication is directed or (b) sent by registered or certified mail, postage
prepaid, addressed to the Member or the Company at its address set forth in this
Agreement. Except as otherwise provided in this Agreement, any such notice shall
be deemed to be given three business days after the date on which it was
deposited in a regularly maintained receptacle for the deposit of United States
mail, addressed and sent as set forth in this Section.
12.2 Amendments. This Agreement contains the entire
agreement between the Members with respect to the subject matter of this
Agreement, and supersedes each course of conduct previously pursued or
acquiesced in, and each oral agreement and representation previously made, by
the Members with respect thereto, whether or not relied or acted upon. No course
of performance or other conduct subsequently pursued or acquiesced in, and no
oral agreement or representation subsequently made, by the Members, whether or
not relied or acted upon, and no usage of trade, whether or not relied or acted
upon, shall amend this Agreement or impair or otherwise affect any Member's
obligations pursuant to this Agreement or any rights and remedies of a Member
pursuant to this Agreement. No amendment to this Agreement shall be effective
unless made in a writing duly executed by all Members and specifically referring
to each provision of this Agreement being amended.
12.3 Headings. The headings in this Agreement are for
convenience only and shall not be used to interpret or construe any provision of
this Agreement.
12.4 Waiver. No failure of a Member to exercise, and no
delay by a Member in exercising, any right or remedy under this Agreement shall
constitute a waiver of such right or remedy. No waiver by a Member of any such
right or remedy under this Agreement shall be effective unless made in a writing
duly executed by all Members and specifically referring to each such right or
remedy being waived.
12.5 Sole Member. Upon formation, there shall be only one
Member of the Company. Unless and until there is more than one Member, all
references in this Agreement to Members shall be deemed to be references to the
sole Member.
12.6 Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law. However, if any provision of this Agreement shall be
prohibited by or invalid under such law, it shall be deemed modified to conform
to the minimum requirements of such law or, if for any reason it is not deemed
20
<PAGE>
so modified, it shall be prohibited or invalid only to the extent of such
prohibition or invalidity without the remainder thereof or any other such
provision being prohibited or invalid.
12.7 Binding. This Agreement shall be binding upon and
inure to the benefit of all Members, and to the extent permitted by this
Agreement, their respective legal successors and assignees.
12.8 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
12.9 Governing Law. This Agreement shall be governed by,
and interpreted and construed in accordance with, the laws of the State of
Delaware without regard to principles of conflict of laws.
12.10 Further Assurances. The Members each agree to
cooperate, and to execute and deliver in a timely fashion any and all additional
documents and do such further acts as may be necessary to effectuate the
purposes of the Company and this Agreement.
IN WITNESS WHEREOF, the parties have executed this Operating
Agreement as of the date first written above.
Insight Communications Company, L.P.
By: ICC Associates, L.P., its general partner
By: Insight Communications, Inc., its general partner
By: /s/ Kim D. Kelly
-------------------------------------
Name: Kim D. Kelly
Title: Executive Vice President and
Chief Financial and Operating Officer
Insight Holdings of Ohio, LLC
By: Insight Communications Company, L.P., its
initial member
By: ICC Associates, L.P., its general partner
By: Insight Communications, Inc., its
general partner
By: /s/ Kim D. Kelly
---------------------------------
Name: Kim D. Kelly
Title: Executive Vice President and
Chief Financial and Operating Officer
21
<PAGE>
Schedule A
Members
Capital Percentage
Name Address Contributions Interests
- ---- ------- ------------- ----------
Insight Communications 126 East 56th Street $10,000,000 100%
Company, L.P. New York, NY 10022
<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 the Registration Statement (Form S-1) 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
May 10, 1999
<PAGE>
Exhibit 23.2(a)
Consent of Independent Auditors
-------------------------------
The Board of Directors and Stockholders
TCI 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
May 10, 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
May 10, 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
May 10, 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,
May 10, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 19,902,000
<SECURITIES> 0
<RECEIVABLES> 8,397,000
<ALLOWANCES> (409,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 195,479,000
<DEPRECIATION> (40,067,000)
<TOTAL-ASSETS> 659,837,000
<CURRENT-LIABILITIES> 36,107,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (7,928,000)
<TOTAL-LIABILITY-AND-EQUITY> 659,837,000
<SALES> 0
<TOTAL-REVENUES> 112,902,000
<CGS> 0
<TOTAL-COSTS> 98,696,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,106,000
<INCOME-PRETAX> 141,873,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 141,873,000
<DISCONTINUED> 0
<EXTRAORDINARY> (3,267,000)
<CHANGES> 0
<NET-INCOME> 138,606,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
