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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER: 333-89179
KNOLOGY, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 58-2424258
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
KNOLOGY, INC.
1241 O.G. SKINNER DRIVE
WEST POINT, GEORGIA 31833
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 645-8553
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Not Applicable
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated herein by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates is
not applicable as no public market exists for the voting stock of the
registrant.
As of February 29, 2000, we had 6,476 shares of common stock,
48,462,499 shares of Series A preferred stock and 21,180,131 shares of Series B
preferred stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
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TABLE OF CONTENTS
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PART I
ITEM 1. BUSINESS .................................................................................................. 1
ITEM 2. PROPERTIES................................................................................................. 33
ITEM 3. LEGAL PROCEEDINGS.......................................................................................... 33
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................................ 34
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS.............................................................................. 35
ITEM 6. SELECTED FINANCIAL DATA.................................................................................... 36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................................................. 38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................................ 47
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING FINANCIAL DISCLOSURE.................................................................. 47
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................................................... 47
ITEM 11. EXECUTIVE COMPENSATION..................................................................................... 51
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................................................... 53
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................. 55
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.............................................................................. 57
SIGNATURES........................................................................................................... 63
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS........................................................................... F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON THE FINANCIAL STATEMENT
SCHEDULES...................................................................................................... S-1
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THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. IN ADDITION, MEMBERS OF OUR SENIOR MANAGEMENT
MAY, FROM TIME TO TIME, MAKE CERTAIN FORWARD-LOOKING STATEMENTS CONCERNING OUR
OPERATIONS, PERFORMANCE AND OTHER DEVELOPMENTS. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT
OF VARIOUS FACTORS, INCLUDING THOSE SET FORTH UNDER THE CAPTION "BUSINESS--RISK
FACTORS" AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K, AS WELL AS FACTORS
WHICH MAY BE IDENTIFIED FROM TIME TO TIME IN OUR OTHER FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION OR IN THE DOCUMENTS WHERE SUCH
FORWARD-LOOKING STATEMENTS APPEAR.
PART I
ITEM 1. BUSINESS
OUR STRUCTURE.
We were formed in September 1998. We own 100% of KNOLOGY Holdings,
Inc., Interstate Telephone Company, Inc., Valley Telephone, Inc., Globe
Telecommunications, Inc. and ITC Globe, Inc. We acquired these companies in
November 1999 from ITC Holding Company, Inc. and other stockholders of KNOLOGY
Holdings. This transaction is described in more detail under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
KNOLOGY HOLDINGS
KNOLOGY Holdings has been providing cable television service since
1995, telephone and high-speed Internet access services since 1997 and broadband
carrier services since 1998. KNOLOGY Holdings owns, operates and manages
interactive broadband networks in the six metropolitan areas of Montgomery and
Huntsville, Alabama; Columbus and Augusta, Georgia; Panama City, Florida and
Charleston, South Carolina; and it plans to expand to additional mid-sized
cities in the southeastern United States.
KNOLOGY Holdings began providing cable television service by acquiring
cable television systems in Montgomery, Alabama and Columbus, Georgia in 1995
and using those systems as a base for constructing new interactive broadband
networks. Since acquiring the Montgomery and Columbus systems, we have
significantly expanded these networks and upgraded the acquired networks to
offer additional broadband communications services.
In December 1997, KNOLOGY Holdings acquired a cable television system
in Panama City Beach, Florida. We are currently upgrading this cable system and
extending the network into the Panama City metro area. We expect to complete
this upgrade in 2000.
In early 1998, KNOLOGY Holdings began expanding into Augusta, Georgia
and Charleston, South Carolina by obtaining new franchise agreements with the
local governments and by constructing new interactive broadband networks. We
expect to complete construction of these networks by 2003.
In June 1998, KNOLOGY Holdings acquired TTE Inc., a reseller of local,
long distance and operator services to small and medium-sized business customers
throughout South Carolina.
In October 1998, KNOLOGY Holdings acquired the Cable Alabama cable
television system serving the Huntsville, Alabama area. The existing Cable
Alabama plant is being upgraded to an interactive broadband network which will
be completed by 2001.
INTERSTATE TELEPHONE AND VALLEY TELEPHONE
Interstate Telephone and Valley Telephone provide local telephone
services throughout the Georgia/Alabama border area known as the valley, which
includes the towns of West Point, Georgia, Lanett, Alabama and Valley, Alabama
and unincorporated portions of counties in both states.
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GLOBE TELECOMMUNICATIONS
Globe Telecommunications was formed in 1983 to be a deregulated
provider of services for Valley Telephone. Globe Telecommunications has been
providing deregulated services to Interstate Telephone since 1996. Globe
Telecommunications provides local and long distance services to residential and
business customers. Globe Telecommunications also has been providing competitive
local telephone services to residential and business customers located in the
Newnan, Georgia area since April 1998 and likely will begin providing these
services to Fairburn and Union City, Georgia in the second quarter of 2000.
ITC GLOBE
ITC Holding Company formed ITC Globe in 1997 to be a provider of local
broadband services in West Point, Georgia and the Alabama/Georgia border area.
ITC Globe, under the trade name "KNOLOGY Connecting The Valley," also provides
traditional (analog) cable television, digital cable television and high-speed
Internet access to customers within the local telephone territory of Interstate
Telephone and Valley Telephone.
RELATIONSHIPS WITH AFFILIATES.
ITC Holding, a diversified telecommunications company, previously owned
90% of our stock, which it distributed to its stockholders on February 7, 2000.
We receive services from and/or provide services to various companies that may
be deemed related parties, including EarthLink, Inc. (formerly MindSpring
Enterprises, Inc.) and ITC DeltaCom, Inc. These relationships and services are
described in detail under the caption "Certain Transactions and Relationships."
We believe that the transactions with EarthLink, ITC DeltaCom and other
companies that may be deemed related parties, are representative of arms-length
transactions and we expect that our existing contracts with these companies will
continue.
One of our principal stockholders, SCANA Communications, Inc., is also
a stockholder of ITC Holding. In addition to investing in us, SCANA
Communications loaned us money in the past. We lease pole space from SCANA
Corporation, the parent company of SCANA Communications, which owns and operates
public utilities in South Carolina. See "Certain Transactions and Relationships"
for a description of our relationship with SCANA Communications and SCANA
Corporation.
OVERVIEW OF OUR SERVICES.
We offer our customers broadband communications services, including:
o traditional and digital cable television;
o local and long distance telephone; and
o high-speed Internet access.
Our customers have the choice of receiving these services individually
or as part of a bundle of services. In addition, we sell access to our network
and provide various network-related services to other telecommunications
companies, such as long distance telephone companies and Internet service
providers.
We provide these services using high-speed broadband networks that are
two-way interactive. Broadband networks are high-capacity, which means they can
handle large volumes of voice, video and data. Two-way interactive networks give
customers the ability to send and receive signals at the same time. Two-way
interactive networks are required for telephone service and provide for higher
speed Internet connections than traditional one-way networks. It is important to
our strategy to provide bundled high-speed communications services that our
networks are broadband and two-way interactive.
For the year ended December 31, 1999, video services accounted for 53% of
our consolidated revenue; telephone services acconted for 43%; and high-speed
Internet services and other revenue accounted for 4%. Other revenue consisted
principally of revenue from broadband carrier services and video production
services.
We own, operate and manage interactive broadband networks in six
metropolitan areas: Montgomery and Huntsville, Alabama; Columbus and Augusta,
Georgia; Panama City, Florida; and Charleston, South Carolina. We also provide
local telephone services throughout the Georgia/Alabama border area known as the
valley, which includes the towns of West Point, Georgia, Lanett, Alabama and
Valley, Alabama and unincorporated portions of counties in both states. Our
local telephone service in the valley area is provided over a traditional copper
wire network while our cable and Internet services in that area are provided
over our broadband network. We also provide local telephone service in Newnan,
Georgia over a leased broadband network. We plan to expand to additional cities
in the southeastern United States.
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Because we deliver multiple services to our customers, we report the
total number of our various revenue-generating service connections for local
telephone, cable programming and Internet access, rather than the total number
of customers. As of December 31, 1999, we had 138,713 revenue-generating service
connections, including 115,175 connections to customers through our high-speed
broadband networks and the remainder over leased facilities or traditional
copper telephone lines.
AS OF DECEMBER 31, 1999
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Connections(1)
Video ................. 89,937
Telephone:
On-Net(2) ........... 35,879
Off-Net(3) .......... 7,908
Internet .............. 4,989
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Total Connections....... 138,713
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Marketable Homes
passed(4) ............. 305,773
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(1) Connections represent revenue-generating connections. For video and
high-speed Internet, connections represent the number of customers
subscribing to the service. For telephone, connections represent the number
of lines connected. For example, a telephone customer that has two lines
would be counted as two connections.
(2) On-net refers to lines provided over our broadband networks. It includes
23,538 lines provided using traditional copper wire telephone lines.
(3) Off-net consists of all telephone connections provided within our network
area over telephone lines leased from third parties.
(4) Marketable homes passed are the number of living units, such as single
residence homes, apartments and condominium units, passed by our cable
television distribution network.
All of our network has the ability to provide broadband communications
services except for our network located in Huntsville, Alabama, which is
currently being upgraded. We expect that the Huntsville upgrade will be complete
in 2001.
OUR STRATEGY
We have developed the following strategy for the implementation and
operation of our business:
o BUILD AND OPERATE RELIABLE INTERACTIVE BROADBAND NETWORKS. By
designing, constructing and operating our own high-capacity,
interactive broadband networks, we can provide our residential and
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business customers a wide range of high-quality broadband
communications services. We believe that this gives us a
competitive advantage over cable, telephone and wireless systems
that do not have the capability to provide a wide range of
communication services.
We also believe that our high-capacity networks, which are
substantially protected by redundant paths, give us a quality and
reliability advantage over other lower-capacity cable systems that
do not have significant redundant paths. Redundant paths increase
reliability by providing an alternate route for signals to travel
if network problems arise. In addition, we use a specially
designed powering system, which is backed up at various points
along our network by a generator and a backup power source. This
allows service to continue in case of a power outage. We can
monitor our network 24 hours per day, seven days per week, at our
network operations center.
o PROVIDE BUNDLED OFFERINGS. We believe that by bundling video,
voice and data communications services we can distinguish
ourselves from our competition. We believe that the cost savings
on a bundle of services and the advantages of one-stop shopping
will be attractive to new customers, particularly since most of
our prospective customers presently buy services from multiple
sources. We also believe that customers will be less likely to
switch should competitors offer lower prices on individual
services because of the cost savings associated with purchasing a
bundle of services from us. The ability to realize an overall
profit on a bundle of services should give us greater pricing
flexibility.
o BE FIRST TO MARKET MULTIPLE BROADBAND COMMUNICATIONS SERVICES. We
believe that we are the first providers of a bundled video, voice
and data broadband services package in Montgomery, Columbus,
Panama City, Augusta, Charleston and Huntsville. We intend to be
the first to offer a similar services package in each new market
that we enter. We want to capitalize on our position as a new
communications company that brings competition and choice to
cities. We believe that many companies may seek to provide bundled
communications services over the next several years. We expect
that later entrants in a market will have greater difficulty
making a profit. In addition, constructing networks uses space on
various rights of way, which may be limited or more expensive for
later entrants.
o EXPAND TO ADDITIONAL MARKETS. We intend to expand to additional
cities in the southeastern United States. We plan to target
cities:
o that have an average of at least 70 homes per mile;
o that generally have populations of at least 100,000; and
o in which we believe we can capture a substantial number of
cable television customers and can be the leading provider of
bundled communications services.
o FOCUS ON THE CUSTOMER. We believe the quality and responsiveness
of our customer service differentiates us from our competitors.
Our customer service representatives in each market handle
customer-related functions 24 hours a day. We also monitor our
networks 24 hours a day, seven days a week.
o BROADBAND CARRIER SERVICES STRATEGY. We use extra, unused capacity
on our networks to develop and offer wholesale services to local
and long distance telephone companies, Internet services providers
and other integrated services providers. Our entry into a local
market with a newly constructed high-capacity network offers other
service providers a reliable and cost competitive alternative to
telephone services provided by the incumbent local phone company.
We believe that we have a competitive advantage due to the
high-quality of our networks and the fact that it passes
substantially every home and business in our service area.
INDUSTRY STRUCTURE AND TECHNOLOGY
GENERAL
As a result of the Telecommunications Act of 1996, cable television
companies may provide telephone service and vice versa, local telephone
companies may provide long distance service and vice versa, and all may provide
numerous ancillary services. Municipalities must grant cable television
franchises to qualified applicants. This change in the regulatory landscape,
along with the substantial growth in use of the Internet, has led to a rush by
communications companies and others such as power companies to provide a full
range of voice, video and data communications services to consumers.
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COMMUNICATIONS TECHNOLOGIES AND SERVICES
We have set forth below a brief description of the current
communications industry structure and the technology generally used by each
system, including hurdles that providers face in offering new services.
CABLE TELEVISION. Cable television systems generally consist of coaxial
cable, which carries signals via radio frequency, and/or fiber optic cable,
which carries signals via light waves generated by a laser. The cable runs
through the air attached to poles or underground past the homes in a service
area, connecting to each house individually through a cable connection box
located outside of the house. Subscriber homes have internal wiring running from
the cable connection box to one or more boxes into which users connect
television sets and set-top terminals used for special services, descrambling,
pay-per-view and other features. Traditional coaxial cable networks have
numerous amplifiers located along the network to restore the strength of the
signal, which diminishes as it travels. Amplifiers produce interference or noise
which increases as the number of amplifiers increases. Fiber optic networks do
not use amplifiers since their larger lasers send signals further so they do not
need amplifying.
The number of channels or features that a cable system can offer varies
with the capacity of the cable network and the electronic equipment that
compresses and amplifies the signal. Additional equipment may compensate for a
lower-capacity network, but too much equipment results in noise or interference,
leading to a lower-quality signal. Many traditional cable companies have sought
to increase capacity through the use of additional equipment, and customers have
experienced increased interference.
Many cable television systems use one-way noninteractive cable, and
accordingly do not have the ability to provide telephone service, which requires
a two-way interactive cable. Several cable companies, including large cable
companies, offer high-speed data transmission and provide Internet access using
cable modems which are one-way noninteractive. However, such service generally
cannot deliver high-speed performance until the cable has been upgraded to
increase capacity and add two-way interactivity.
WIRELESS CABLE. Wireless cable technology allows the transmission of
television, high-speed computer data, and facsimile transmissions via microwave
frequencies. Wireless cable has been used to serve primarily rural areas where
laying traditional cable is not economically feasible. The wireless cable system
sends signals from a centrally located facility equipped with transmitters,
antennas, satellite dishes and scrambling and descrambling equipment to
subscribers with rooftop antennas and the necessary converters. Because wireless
cable signals use microwaves, they require line-of-sight transmission from the
central source to the subscribers. Obstructions such as large buildings, trees
and uneven terrain can interfere with reception, although signal repeaters that
receive and re-transmit signals to avoid obstructions alleviate these
shortcomings.
OTHER SATELLITE TECHNOLOGIES. Satellite television companies provide
satellite transmission of video and audio services directly to the customer's
home. Such satellite transmission requires hardware and software to receive and
decrypt satellite television programming. Satellite broadcasting does not
require ground construction to install, maintain or upgrade services. Rather,
the programming is transmitted from a ground station to the subscriber using a
communications satellite. A subscriber must purchase or lease a satellite dish
to receive signals and a receiver system to process and descramble signals for
television viewing. Echostar and DirecTV provide direct broadcast satellite
services using high-power communications satellites and small dish receivers.
These systems generally offer more channels than cable systems.
Congress recently passed the Intellectual Property and Communications
Omnibus Reform Act of 1999 which expands the statutory copyright license for
satellite carriers to include local signals. Under this new act, satellite
carriers may carry a local television broadcast station in the station's local
market subject to the availability of channel capacity and compliance with many
of the same signal carriage rules that apply to cable television systems. For
example, satellite carriers that choose to retransmit a local signal in a
television market must carry all of the local television stations in the market
that demand carriage. Satellite carriers may not carry a local television
station without the station's consent. The act required the FCC to develop other
rules relating to signal carriage, such as rules:
o to permit a network affiliate to preserve its right to be the
exclusive network station in a market;
o to permit stations to be the exclusive distributors of syndicated
programming in their markets; and
o to protect the rights of sports teams to control distribution of
their games in the area where the games are played, known as
"sports blackout" rules.
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Currently small satellite dishes are not two-way interactive, and
therefore are not suitable for telephone or Internet services. Residential
systems use telephone lines to transmit to the Internet and satellite
transmission for reception from the Internet. This approach still has dial-up
delays, but it has many of the same advantages as Internet access over a
broadband network. However, satellite transmission may cause an echo during
voice transmissions due to the long distance to and from the satellite.
TRADITIONAL TELEPHONE. Traditional telephone service is provided by
local telephone systems consisting of a network of switches, transmission
facilities between switches, and connections between customer premises and a
local switch. Switches are devices that direct voice and data traffic. A switch
looks at incoming voice or data to determine its destination and routes the
traffic accordingly. A call can be routed by the local switch directly to the
called party if that party is served by the same switch, to another local or
toll switch for delivery to the called party, or through one or more switches of
a long distance carrier to a more distant local switch for ultimate delivery to
the called party. The transmission facilities connecting switches are comprised
primarily of high-capacity fiber optic cables. Customer premises usually consist
of copper wire lines that run through the air or underground to each of the
premises served. They generally carry analog transmissions and have relatively
low transmission capacity, sufficient to carry only one two-way voice
conversation.
Capacity can be expanded by advanced techniques such as integrated
services digital network or ISDN, which permits voice and data transmissions to
occur simultaneously and can support some level of video teleconferencing.
However, local connections, even with integrated services digital network,
generally do not have sufficient capacity for large-scale provision of video
services.
Digital subscriber line or DSL uses transmission equipment placed at
the customer premises and at the location where most of the network switches and
equipment are located to increase transmission speeds on copper wire local
connections. Widespread deployment of digital subscriber line technology is
limited by the length and gauge of the copper wire connections plus the use of
extenders.
WIRELESS TELEPHONES. Wireless telephone technology, which includes
cellular and a technology commonly called PCS, is based upon the division of a
given market area into a number of smaller geographic areas, or cells. Each cell
has a base station or cell site, which is a physical location equipped with
transmitter-receivers and other equipment that communicate by radio signal with
wireless telephones located within range of the cell. Cells generally have an
operating range from two to 25 miles. Each cell site connects to a switch, which
in turn connects to the local telephone network. The switch directs the voice
and data traffic from and to the wireless telephone customer. When a subscriber
in a particular cell dials a number, the wireless telephone sends the call by
radio signal to the cell site, which then sends it to the switch. The switch
completes the call by connecting it with the landline telephone network or
another wireless telephone unit. Incoming calls are received by the mobile
switch, which instructs the appropriate cell to complete the communications link
by radio signal between the cell site and the wireless telephone. Like local
landline telephone networks, wireless telephony technologies generally do not
have sufficient capacity for large scale provision of video and data services,
although some new higher-capacity technologies may become available in the near
future that support a wider range of services.
New fixed wireless services, such as Local Multipoint Distribution
Service, or LMDS and 39 GHz Service, are being developed and deployed. These
services have generally been allocated greater bandwidth than mobile wireless
services, and are expected to compete more directly with wireline providers in
providing voice, data, and video services. Because these services are in the
early stages of deployment, we cannot predict the impact that such services may
have on our business.
INTERNET ACCESS. Most Internet access takes place over telephone lines
using computer modems. This form of transmission works well for smaller amounts
of data, but telephone lines generally cannot handle large volumes of
information, multimedia applications or high-speed data transmissions. This
often results in lengthy delays. Also, Internet service providers have limited
numbers of ports available for customers to dial in to the Internet, and their
customers may experience difficulties obtaining access to the Internet or may be
disconnected if activity is too limited. High-speed cable modems used over
traditional one-way noninteractive cable networks permit high-speed broadband
reception from the Internet, but require communications from the user to the
Internet to be over telephone lines.
OUR INTERACTIVE BROADBAND NETWORKS
Our interactive broadband networks are:
o high-speed,
o high-capacity,
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- two-way interactive, which means that the customers have the
ability to send and receive signals at the same time; and
- hybrid fiber-coaxial networks, which means that the network is
made up of a combination of high-capacity fiber-optic cables and
traditional coaxial cables.
Our hybrid fiber-coaxial network is designed using redundant
fiber-optic cables. Redundant cables increase reliability by providing an
alternate route for signals to travel if network problems arise. By comparison,
most traditional cable television systems do not have significant redundant
cables. In addition, we provide power to our system from locations along the
network called hub sites, each of which is equipped with a generator and battery
back-up power source to allow service to continue in a power outage.
Our interactive broadband networks can support numerous channels of
basic and premium cable television services, telephone services, Internet access
and other broadband communications services. Our networks have extra capacity,
so we can add new services as content and technology become available.
We offer local telephone service over these networks in much the same
way local phone companies provide service. We provide dial tone service and
install a network interface box outside a customer's home. We may add wiring
inside the premises as well. We can offer multiple lines of telephone service.
Our networks interconnect with those of other local phone companies through a
nine-state interconnection agreement with BellSouth Telecommunications, Inc. We
provide long distance service using leased facilities from other
telecommunications service providers. We have entered into an agreement with
Business Telecom, Inc. under which:
- we lease a portion of Business Telecom's long distance telephone
facilities; and
- Business Telecom provides us with call switching services and
operator and directory assistance.
This agreement with Business Telecom expires in September 2000. We have
a minimum annual purchase commitment of $50,000 under this agreement which we
have always met or surpassed. We have entered into an agreement with
ITC DeltaCom under which:
- we lease a portion of ITC DeltaCom's long distance telephone and
Internet facilities; and
- ITC DeltaCom provides us with call switching services and operator
and directory assistance.
This agreement with ITC DeltaCom expires in May 2000. We do not have a
minimum purchase commitment under this agreement.
We provide high-speed Internet access services using high-speed cable
modems in much the same way customers currently receive Internet services over
modems linked to the local telephone network. The cable modems we presently use
are typically 50 times faster than regular phone dial-up modems. Our customer's
cable line with cable modem connects directly into the Internet. The Internet
connection is always active and there is no need to dial up for access to the
Internet or wait to connect through a port leased by an Internet service
provider.
ITC DeltaCom provides us with the technical Internet services that
allow us to offer Internet access to our customers. ITC DeltaCom is an affiliate
of our company. We believe that the terms of our agreements with ITC DeltaCom
are comparable to what we could obtain for similar services from an unaffiliated
company.
Since the cable equipment industry is a consolidated industry, there
are relatively few manufacturers of cable equipment. We purchase digital cable
equipment from one supplier. This supplier has informed us that it may decide
not to sell equipment to us in some new markets. We are currently in discussions
with this supplier and are optimistic that this supplier will sell equipment for
all of our new markets. If we are unable to resolve this issue with this
supplier favorably or are unable to identify an alternate source of digital
cable equipment, our ability to expand into some new markets may be impaired.
OUR BROADBAND COMMUNICATIONS SERVICES
CABLE TELEVISION. We offer our customers three types of cable
television services: expanded basic, premium, and digital. Customers generally
pay fixed monthly fees for cable programming and premium television services,
which constitute our principal sources of revenue.
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Most customers choose to subscribe to expanded basic cable service. We
call this service expanded basic because it includes many more channels than
traditional basic cable service. Our expanded basic cable service consists of
approximately 65-75 channels of programming, including:
o television signals from local broadcast stations;
o television signals from so-called super stations such as WGN
(Chicago);
o numerous satellite-delivered non-broadcast channels such as CNN,
MTV, ESPN, The Discovery Channel and Nickelodeon;
o displays of information featuring news, weather, stock and
financial market reports; and
o public, government and educational access channels.
We offer a variety of premium services for an extra monthly charge.
Premium services include channels with feature motion pictures such as HBO,
Showtime and Cinemax or other special channels. We also provide our customers:
o access to additional channels offering pay-per-view feature
movies, live and taped sports events, concerts and other special
features which involve a charge for each viewing;
o access to home shopping networks; and
o specialty services such as digital audio service.
Programming for our cable television systems comes from over 70
national and local television networks. Since January 1, 1996, our arrangements
with many of these networks, constituting approximately 60% of our channels,
have been obtained through our association with the National Cable Television
Cooperative, Inc. The National Cable Television Cooperative obtains programming
rates from most major networks, which rates are made available to us as a member
of the cooperative. By obtaining programming rates through the cooperative, we
benefit from volume discounts not otherwise available to us which more than
offset the annual fees we pay to be a member of the cooperative. In addition,
the cooperative handles our contracting and billing arrangements with the
networks. Although we can terminate our membership in the cooperative at any
time, we plan to continue our membership for the foreseeable future.
We began offering digital video service in November 1998. Digital cable
uses compression technology to significantly increase the number of television
channels. Digital technology converts signals into a digital format and
compresses many such signals into the space normally occupied by one signal. At
the home, a set-top video terminal converts the digital signal back into
channels that can be viewed on a normal television set. We added digital video
as an additional service without reducing the current number of basic channels.
Digital technology also permits us to offer near video-on-demand, which include
movies or other programs that commence in frequent intervals, to customers for a
fee per viewing basis.
TELEPHONE. Our telephone service includes residential and small
business local and long distance telephone services. Our customers pay a fixed
monthly rate for all local calling. Customers may elect to receive call waiting,
call forwarding, voice mail and other value-added services, which generally
involve an additional fixed charge per month per telephone line. We generally
price our services at rates comparable to those of our competitors, although
typically our value-added services are less expensive than those of our
competition. We offer all of our cable television services customers a discount
on telephone service. Our long distance service offers features and prices
comparable to those of our competitors.
INTERNET SERVICES. Our high-speed data service offers customers
high-speed connections to the Internet using cable modems. The Internet
connection using a cable modem is always active, so our customers do not have to
dial in and wait for access. Since a customer's service is offered over the
existing connection in the home, no second phone line is required and there is
no disruption of service when the phone rings or when the television is on. We
charge a fixed monthly fee for connection to the Internet. We offer discounts on
our high-speed Internet service to customers who also purchase our cable
television service or telephone service.
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BROADBAND CARRIER SERVICES. We use extra, unused capacity on our
networks to offer wholesale services to other local and long distance telephone
companies, Internet services providers and other integrated services providers.
We call these services our "broadband carrier services." We believe our newly
constructed interactive broadband networks offer other service providers a
reliable and cost competitive alternative to telephone services provided by the
incumbent local telephone company.
We sell access to our network to long distance telephone companies for
interstate and intrastate long distance phone calls to and from our customers.
We sell access to our network to connect local telephone companies to small
business customers. We offer traditional special access and local private line
services through our network by providing high capacity connections to medium
and large commercial users, local telephone companies and other carriers
throughout a metropolitan service area. Special access lines are dedicated lines
that connect customers directly to a long distance carrier. Private lines are
dedicated lines linking a customer location to one or more other customer
locations.
We provide services to Internet service providers which allows them to
expand into areas where our network is located. In August 1998, we entered into
an agreement with EarthLink, Inc., a large Internet service provider of which
ITC Holding is a large stockholder, which allows EarthLink to offer high-speed
Internet access to its customers in Montgomery, Alabama using our network. We
entered into a similar agreement with A World of Difference, Inc., in August
1999 for the Charleston area.
FUTURE BROADBAND COMMUNICATIONS SERVICES. We believe that our
interactive broadband networks may enable us to provide additional broadband
services in the future, including:
o Interactive energy management services in partnership with power
companies, which allow customers to monitor energy usage and cost
online;
o Security services, including closed-circuit television security
monitoring and alarm systems;
o Voice transmission using the Internet, which integrates
traditional telephone functions with Internet-based technology;
and
o High-speed, high-capacity transmission of data using advanced
transfer protocols, such as the asynchronous transfer mode method
of transmission.
MARKETS AND SUBSCRIBERS
CURRENT MARKETS
Our interactive broadband networks currently serve:
o Montgomery, Alabama;
o Huntsville, Alabama;
o Columbus, Georgia;
o Augusta, Georgia;
o Charleston, South Carolina;
o Panama City, Florida; and
o a rural area on the Georgia/Alabama border known as the valley.
We provide video, telephone and Internet services over a broadband network in
Montgomery, Huntsville, Columbus, Augusta, Charleston and Panama City. In the
valley area, we provide telephone service over a traditional copper wire
telephone network and video and Internet services over a broadband network.
We believe that our ability to increase and maintain our subscribers
has been due largely to:
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o our commitment to customer service;
o the number of channels we offer; and
o our reliability and quality of the picture and sound over our
networks.
NEW MARKETS
We plan to expand to additional cities in the southeastern United
States. We plan to target cities:
o that have an average of 70 homes per mile;
o with populations generally of at least 100,000; and
o in which we believe we can attract a significant portion of the
cable television customers and can become the leading provider of
bundled communications services.
NETWORK CONSTRUCTION AND OPERATIONS
NETWORK CONSTRUCTION
With the exception of the Georgia/Alabama border area where we maintain
our own construction crews, we use contractors for the construction of our
networks, including both the laying of underground cable and attaching aerial
cable to utility poles. We serve as the manager of the construction process,
directing and supervising the various construction crews. We have 59 employees
dedicated to monitoring and facilitating the construction of our networks. Our
approach to construction reflects our commitment to customer service. We notify
potential customers before commencing underground construction and restore any
damaged property. Based on past experience, we believe the construction of a new
network in a new market will take approximately four years.
NETWORK OPERATIONS AND MAINTENANCE
Technicians in each of our service areas schedule and perform
installations and repairs and monitor the performance of our interactive
broadband networks. We operate a network operations center in West Point,
Georgia, and we monitor our networks 24 hours a day, seven days a week. Our
technicians perform maintenance and repair of the network on an ongoing basis.
We maintain the quality of our networks to minimize service interruptions and
extend the networks' operational life.
FRANCHISES
Cable television systems and local telephone systems generally are
constructed and operated under the authority of nonexclusive franchises, granted
by local and/or state governmental authorities. Franchises typically contain
many conditions, such as:
o time limitations on commencement and completion of system
construction;
o customer service standards;
o minimum number of channels; and
o the provision of free service to schools and certain other public
institutions.
We believe that the conditions in our franchises are fairly typical.
Our franchises generally provide for the payment of fees to the municipality
ranging from 3% to 5% of revenues from telephone and cable television service,
respectively. Our franchises generally have ten to 15 year terms, and we expect
our franchises to be renewed by the relevant franchising authority before or
upon expiration.
Prior to the scheduled expiration of most franchises, we initiate
renewal proceedings with the relevant franchising authorities. The Cable
Communications Policy Act of 1984 provides for an orderly franchise renewal
process in which the franchising authorities may not unreasonably deny renewals.
If a renewal is withheld and the franchising authority takes over operation of
the affected cable system or awards the franchise to another party, the
franchising authority must pay the cable operator the "fair market value" of the
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system. The Cable Communications Policy Act of 1984 also established
comprehensive renewal procedures requiring that the renewal application be
evaluated on its own merit and not as part of a comparative process with other
proposals. The following table lists our franchises by location, term and
expiration date.
LOCATION TERM EXPIRATION DATE
-------- ---- ---------------
SOUTH CAROLINA
Charleston.............. 15 4/28/2013
North Charleston........ 15 6/12/2013
Charleston County....... 15 12/15/2013
Mount Pleasant.......... 15 12/15/2013
Hanahan................. 15 12/8/2013
Summerville............. 15 2/10/2014
Lincolnville............ 15 12/2/2013
Goose Creek............. 15 11/11/2013
Berkeley County......... 15 7/20/2013
GEORGIA
Augusta/Richmond County. 15 1/20/2013
Columbia County......... 11 11/1/2009
Columbus Renewal........ 10 3/16/2009
West Point.............. 15 1/19/2013
FLORIDA
Panama City............. 18 3/10/2016
Bay County.............. 8 1/5/2006
Lynn Haven.............. 18 5/12/2016
City of Callaway........ 10 9/28/2009
Cedar Grove............. 15 6/9/2013
ALABAMA
Prattville.............. 15 7/7/2013
Maxwell AFB............. 4 9/30/2003
Autauga County.......... 15 10/15/2013
Montgomery.............. 10 3/6/2005
Huntsville.............. 2(1) 3/7/2001
Madison................. 8(1) 10/22/2006
Madison County.......... 11(1) 11/20/2009
Redstone Arsenal........ * *
Limestone County........ 6 5/7/2005
Chambers County......... 15 12/15/2012
Lanett.................. 15 1/20/2013
Valley.................. 15 1/12/2013
- --------------
(1) This number represents the number of years left under the franchise when we
acquired the franchise in the 1998 Cable Alabama acquisition.
* We are operating in this market under a letter agreement while our franchise
application is pending.
The Cable Communications Policy Act of 1984 also prohibits franchising
authorities from granting exclusive franchises or unreasonably refusing to award
additional franchises covering an existing cable system's service area. This
simplifies the application process for our obtaining a new franchise. This
process usually takes about six to nine months. While this makes it easier for
us to enter new markets, it also makes it easier for competitors to enter the
markets in which we currently have franchises.
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SWITCHING
Switches are devices located along the network that direct voice and
data traffic. Our switching equipment allows us to provide enhanced custom
calling services including call waiting, call forwarding and three-way-calling.
Residences and businesses are connected to the switches primarily with copper
lines. We believe our network equipment and infrastructure is in good condition.
Much of our network equipment and infrastructure has been replaced within the
past three years.
INTERCONNECTION
We rely on local telephone companies and other companies to connect
calls to users who are not our customers. We have access to BellSouth's
telephone network under a nine-state interconnection agreement. The
Telecommunications Act of 1996 established certain requirements and standards
for interconnection arrangements, and our interconnection agreement with
BellSouth is based on these requirements. However, these requirements and
standards are still being developed and implemented by the FCC in conjunction
with the states through a process of negotiation and arbitration, as discussed
below under the caption "Our Business -Legislation and Regulation -- Federal
Regulation of Telecommunications Services."
The key terms of our interconnection agreement with BellSouth are:
o the right to connect to each others facilities;
o the rates we pay each other for handling and delivery of one
another's telephone traffic; and
o the right to attach network facilities to each other's telephone
poles and rights of way.
Under the Telecommunications Act of 1996, BellSouth is required to
allow us to interconnect to their network. Pursuant to the Telecommunications
Act and the terms of our existing agreement, we can either:
o automatically renew our existing interconnection agreement by
notifying BellSouth of our intention to renew within the
applicable timeframe:
o negotiate the terms of a new agreement with BellSouth;
o choose another interconnection agreement that BellSouth has with
another telephone company and enter into an interconnection
agreement on those same terms and conditions; or
o accept the default pricing and terms and conditions offered by
BellSouth.
We do not plan to renew our current interconnection agreement. Because
of recent FCC regulations we expect to be able to enter into a new
interconnection agreement with better rates. We plan to negotiate our own terms
with BellSouth. BellSouth may not agree to favorable terms since BellSouth is
our competitor. However, if we are not able to negotiate favorable terms, we
will select another interconnection agreement that BellSouth has entered into
with another telephone company and enter into an interconnection agreement with
BellSouth using those terms and conditions.
The terms of our interconnection agreement have also been approved by
the Georgia, Alabama, Florida and South Carolina state public utility
commissions. Our new agreement will be subject to approval by the Georgia,
Alabama, Florida and South Carolina state public utility commissions. Approvals
of other state public utility commissions will be required in connection with
the provision of telephone service in other states.
It is generally expected that the Telecommunications Act of 1996 will
continue to undergo considerable interpretation and implementation over the next
several years, which could have a negative impact on our interconnection
agreement with BellSouth. Our ability to compete successfully in the provision
of services will depend on the timing of such implementing regulations and
whether they are favorable to us.
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SALES AND MARKETING
MARKETING STRATEGY
We believe that we are the first provider of a bundled video, voice and
data broadband communications services package in our current markets, and we
intend to be first to market a similar services package in new cities. We
believe that cost savings on a bundle of services and the advantages of one-stop
shopping will be attractive to new customers, particularly since most of our
prospective customers now buy services from multiple sources. We intend to
emphasize our position as a new communications company that brings competition
and choice to cities where we provide service. We also work to attract new cable
television subscribers in areas in which our network has expanded. Our focus
includes multiple dwelling units, many of which are subject to exclusivity
arrangements with other cable providers that have not yet expired or which
involve more complex arrangements with the property owner.
CABLE TELEVISION. To attract cable television subscribers in new areas,
we mount extensive marketing campaigns prior to initiation of service with
door-to-door solicitations and flyers followed by direct mail and telemarketing.
We also use these solicitation efforts in our existing markets to encourage
people who previously have not chosen any cable service to use our cable service
or to encourage people who use another cable service to switch to our service.
We have a sales staff in each of our markets, including residential and business
sales managers, sales representatives and customer service representatives. We
use our own installation and repair crews and those of outside contractors to
install new service quickly.
TELEPHONE AND INTERNET. For our telephone and Internet marketing, we
have focused on subscribers of our cable television services through direct
mail, door-to-door solicitations, flyers and telemarketing. We offer our cable
television customers discounted rates for telephone service and high-speed
Internet service. We emphasize the cost savings of a bundle of services. We also
provide high-speed Internet access to certain Internet service providers who in
turn resell the service to their customers. We have sales managers for our
telephone and Internet services, and sales representatives focusing on bundled
services.
CUSTOMER SERVICE. Customer service is an essential element of our
operations and marketing, and we believe our quality and responsiveness
differentiates us from our competitors. A significant number of our employees
are dedicated to customer service activities, including
o order taking;
o customer activations;
o billing inquiries and collections;
o service upgrades;
o provision of customer premises equipment; and
o administration of our customer satisfaction program.
In addition, we provide 24-hour customer service, operate customer phone centers
in each of our service areas, and operate a back-up customer phone center in
West Point, Georgia. We monitor our networks 24 hours a day, seven days a week
and strive to resolve problems prior to a customer being aware of any service
interruptions.
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COMPETITION
OTHER CABLE SYSTEMS
Other cable television operations exist in each of our current markets.
Our competitors include AT&T Cable Services, Comcast Cable Communications, Time
Warner Cable, Mediacom and Charter Communications. We compete with these
competitors on terms of pricing and programming content, including the number of
channels and the availability of local programming. We obtain our programming by
entering into contracts or arrangements with cable programming vendors. A cable
programming vendor may enter into an exclusive arrangement with one of our cable
television competitors. This would create a competitive advantage for the cable
television competitor by restricting our access to programming. Each of AT&T
Cable Services, Comcast Cable Communications and Time Warner Cable have entered
into exclusivity arrangements with the WeB channel, which is the distribution
channel for WB programming, in different markets. We provide programming in each
of these markets as well, and these exclusivity arrangements restrict our access
to programming.
We expect that we will have competition with other cable television
providers in each of our future markets. In addition, Federal law prohibits
cities from granting exclusive cable franchises and from unreasonably refusing
to grant additional, competitive franchises. This makes it easier for
competitors to enter our markets. In addition, an increasing number of cities
are considering the feasibility of owning their own cable systems in a manner
similar to city-provided utility services.
A continuing trend toward business combinations and alliances in the
cable television area and the telecommunications industry as a whole may create
significant new competitors for us. This trend toward business combinations may
be shrinking the number of attractive acquisition targets.
OTHER TELEVISION PROVIDERS
Cable television distributors may, in certain markets, compete for
customers with other video programming distributors and other providers of
entertainment, news and information. The competitors in these markets include:
o broadcast television; and
o satellite and wireless cable systems.
We compete with these competitors on terms of pricing and programming content,
including the number of channels and the availability of local programming. We
often are not the first provider of video programming in our market, and we have
to compete with other companies that have long-standing customer relationships
with the residents in these areas. The Telecommunications Act of 1996 may create
more competition for current cable television distributors, as it allows local
telephone companies to provide video services in their local service areas.
Alternative methods of distributing the same or similar video
programming offered by cable television systems exist. Congress and the FCC have
encouraged these alternative methods and technologies in order to offer services
in direct competition with existing cable systems. In addition to broadcast
television stations, we compete with other multichannel program service
providers.
We encounter competition from direct broadcast satellites systems that
transmit signals to small dish antennas owned by the end-user. DirecTV and
Echostar offer multichannel programming through high power communications
satellites to a dish antenna with a diameter of only approximately 18 inches.
Although satellite television providers presently serve a relatively small
percentage of pay television subscribers, their share has been growing steadily.
Competition from direct broadcast satellites could become substantial as
developments in technology increase satellite transmitter power and decrease the
cost and size of equipment. The Intellectual Property and Communications Omnibus
Reform Act of 1999 permits satellite carriers to carry local television
broadcast stations, is expected to enhance satellite carriers' ability to
compete with us for subscribers. As a result, competition from these companies
may increase.
Wireless cable represents another type of video distribution service.
These systems deliver programming services over microwave channels to
subscribers who have a special antenna. Wireless cable systems are less capital
intensive, are not required to obtain local franchises or pay franchise fees,
and are subject to fewer regulatory requirements than cable television systems.
Although there are relatively few systems in the United States right now, many
markets have been licensed or tentatively licensed. The FCC has granted the use
of certain frequencies to these services and expanded the channels reserved for
educational purposes. The FCC's actions enable a single entity to develop a
wireless cable system with up to 35 channels and thus could compete more
effectively with cable television.
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We also compete with systems that provide multichannel program services
directly to hotel, motel, apartment, condominium and other multiunit complexes
through a satellite master antenna, which is a single satellite dish for an
entire building or complex. These systems are generally free of any regulation
by state and local governmental authorities. Pursuant to the Telecommunications
Act of 1996, these systems called satellite master antenna television systems,
are not commonly owned or managed and do not cross public rights-of-way do not
need a franchise to operate.
The Telecommunications Act of 1996 eliminated many restrictions on
local telephone companies offering video programming, and we may face increased
competition from them. Several major local telephone companies, including
BellSouth, have announced plans to provide video services to homes.
TELEPHONE
In providing local and long distance telephone services, we compete
with the incumbent local phone company in each of our markets. We are not the
first provider of telephone services in most of our markets, and we have to
convince people in our markets to switch from other telephone companies to us.
BellSouth is the incumbent local phone company and is a particularly strong
competitor in our current markets and throughout the southeastern United States
where we hope to expand. We also compete with long distance phone companies such
as AT&T, MCI WorldCom and Sprint.
We continue to expect to face intense competition in providing our
telephone and related telecommunications services. The Telecommunications Act of
1996 allows service providers to enter markets that were previously closed to
them. Incumbent local telephone carriers are no longer protected from
significant competition in local service markets. In addition, under certain
circumstances regional Bell operating companies may enter the long distance
market. These provisions blur the distinctions that previously existed between
local and long distance services.
One major impact of the Telecommunications Act of 1996 may be a trend
toward the use and acceptance of bundled service packages. As a result, we will
be competing with:
o incumbent local telephone companies such as BellSouth as well as
other competitive local telephone companies;
o traditional providers of long distance services such as AT&T, MCI
WorldCom and Sprint; and
o other providers of cable television service such as AT&T Cable
Services, Comcast Cable Communications, Time Warner Cable,
Mediacom and Charter Communications, Inc.
Our ability to compete successfully will depend on the attributes of the overall
bundle of services we are able to offer, including our price, features, and
customer service.
We compete with Business Telecom and ITC DeltaCom in providing
telephone services to business customers. We purchase services from Business
Telecom and ITC DeltaCom. Our agreements with Business Telecom and ITC DeltaCom
are described above under the heading "-- Our Interactive Broadband Networks."
Wireless telephone service such as cellular and PCS currently is viewed
by consumers as a supplement to, not a replacement for, traditional telephone
service. Wireless service generally is more expensive than traditional local
telephone service and is priced on a usage-sensitive basis. In addition, the
transmission quality of wireless service is not comparable to wireline service.
However, in the future the rate and quality differential between wireless and
traditional telephone service may decrease and lead to more competition between
providers of these two types of services.
INTERNET SERVICES
Providing Internet access services is a rapidly growing business and
competition is increasing in each of our markets. Some of our competitors have
competitive advantages over us, such as greater experience, resources, marketing
capabilities and stronger name recognition.
In providing Internet access services, we compete with:
o Internet service providers;
o providers of satellite-based Internet services;
o other long distance telephone companies; and
o cable television companies.
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Other technologies also offer high-speed, high capacity connections to the
Internet. We compete with companies offering broadband connections such as
DirecPC, one of the principal providers of satellite-based Internet services in
the United States; long distance telephone companies such as AT&T and MCI
WorldCom; traditional dial-up Internet service providers; and cable modem
services such as Excite@Home, a joint venture among a number of major cable
companies.
A large number of companies provide businesses and individuals with
direct access to the Internet and a variety of supporting services. In addition,
many companies such as America Online, CompuServe, MSN, Prodigy and WebTV offer
online services consisting of access to closed, proprietary information networks
with services similar to those available on the Internet, in addition to direct
access to the Internet. These companies generally offer Internet services over
telephone lines using computer modems. A few Internet service providers also
offer high-speed integrated services digital network connections to the
Internet.
EarthLink, a large Internet service provider that purchases Internet
related services from us, is also a competitor.
A few satellite companies provide broadband access to the Internet from
desktop PCs using a small dish antenna and receiver kit comparable to that used
for satellite television reception. DirecPC is one of the largest providers of
satellite-based Internet services in the United States.
Long distance companies are aggressively entering the Internet access
markets. Long distance carriers have substantial transmission capabilities and
have an established billing system that permits them easily to add new services.
We expect competition from such companies to be vigorous due to their greater
resources, operating history and name recognition.
Other cable television companies may enter the Internet services
market. We believe that some of the existing cable television providers are
beginning to provide such services in some of their major markets or clusters,
including major metropolitan areas in the southeast. The joint venture,
Excite@Home, is offering high-speed Internet service using cable modems in areas
where its affiliates have high-capacity networks. We believe that high-speed
Internet services ultimately will be offered by other cable providers and
companies in most of our present and future service areas.
LEGISLATION AND REGULATION
The cable television industry currently is regulated by the FCC, some
state governments and most local governments. Telecommunications services are
regulated by the FCC and state public utility commissions. Internet services
generally are not subject to regulation. Legislative and regulatory proposals
under consideration by Congress and federal agencies may materially affect the
cable television and telecommunications industries. The following is a summary
of federal laws and regulations affecting the growth and operation of the cable
television and telecommunications industries and a description of certain state
and local laws.
From time to time, federal and state legislators propose legislation
that could affect our business, either beneficially or adversely, such as by
increasing competition or affecting the cost of its operations. Additionally,
the FCC and state regulatory bodies, may adopt rules, regulations or policies
that may affect our business. We cannot predict the impact of such legislative
actions on its operations. The following description of certain regulatory
factors does not purport to be a complete summary of all present and proposed
legislation and regulations pertaining to our operations.
CABLE COMMUNICATIONS POLICY ACT OF 1984
The Cable Communications Policy Act of 1984 established comprehensive
national standards and guidelines for the regulation of cable television systems
and identified the boundaries of permissible federal, state and local government
regulation. The FCC has responsibility for adopting rules to implement this Act.
Among other things, the Cable Communications Policy Act of 1984 affirmed the
right of franchising authorities to award one or more franchises within their
jurisdictions. It also prohibited non-grandfathered cable television systems
from operating without a franchise in such jurisdictions. The Cable
Communications Policy Act of 1984 provides that in granting or renewing
franchises, franchising authorities may establish requirements for cable-related
facilities and equipment, but may not establish or enforce requirements for
video programming or information services other than in broad categories.
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CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION ACT OF 1992
The Cable Television Consumer Protection and Competition Act of 1992
permitted a greater degree of regulation of the cable industry with respect to,
among other things:
o rates for cable programming services;
o program access and exclusivity arrangements;
o access to cable channels by unaffiliated programming services;
o terms and conditions for the lease of channel space for commercial
use by parties unaffiliated with the cable operator;
o ownership of cable systems;
o customer service requirements;
o requiring cable companies to carry certain television broadcast
stations or to permit television stations to withhold consent for
cable systems to carry their stations;
o technical standards; and
o cable equipment compatibility.
Additionally, the legislation encouraged competition with existing
cable television systems by:
o allowing municipalities to own and operate their own cable
television systems without a franchise;
o preventing franchising authorities from granting exclusive
franchises or unreasonably refusing to award additional franchises
covering an existing cable system's service area; and
o prohibiting the common ownership of cable systems and other types
of multichannel video distribution systems.
The Cable Television Consumer Protection and Competition Act of 1992 also
precluded video programmers affiliated with cable television companies from
favoring cable operators over competitors and required such programmers to sell
their programming to other multichannel video distributors. The FCC has
responsibility for adopting rules to implement this Act.
TELECOMMUNICATIONS ACT OF 1996
The Telecommunications Act of 1996 and the FCC rules implementing this
Act radically altered the regulatory structure of telecommunications markets by
mandating that states permit competition for local telephone services. This Act
permitted regional Bell operating companies to apply to the FCC for authority to
provide long distance services. It also included significant changes in the
regulation of cable operators. For example, the FCC's authority to regulate the
cable programming service tier rates of all cable operators expired on March 31,
1999. The legislation also:
o repeals the anti-trafficking provisions of the Cable Television
Consumer Protection and Competition Act of 1992, which required
cable systems to be owned by the same person or company for at
least three years before they could be sold to a third party;
o limits the rights of franchising authorities to require certain
technology or to prohibit or condition the provision of
telecommunications services by the cable operator;
o requires cable operators to fully block or scramble both the audio
and video on sexually-explicit or indecent programming on channels
primarily dedicated to sexually-oriented programming;
o adjusts the favorable pole attachment rates afforded cable
operators under federal law such that they may be increased,
beginning in 2001, if the cable operator also provides
telecommunications services over its network;
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o allows cable operators to enter telecommunications markets which
historically have been closed to them; and
o allows some telecommunications providers to begin providing
competitive cable service in their local service areas.
FEDERAL REGULATION OF CABLE SERVICES
The FCC, the principal federal regulatory agency with jurisdiction over
cable television, has promulgated regulations covering many aspects of cable
television operations. The FCC may enforce its regulations through the
imposition of fines, the issuance of cease and desist orders and/or the
imposition of other administrative sanctions, such as the revocation of FCC
licenses. A brief summary of certain federal regulations follows.
RATE REGULATION. The Cable Television Consumer Protection and
Competition Act of 1992 authorized rate regulation for certain cable
communications services and equipment in communities where the cable operator is
not subject to effective competition. The Cable Television Consumer Protection
and Competition Act of 1992 requires the FCC to resolve complaints about rates
for cable programming service tier services and to reduce any such rates found
to be unreasonable. It also limits the ability of many cable systems to raise
rates for basic services. Cable services offered on a per channel or on a per
program basis are not subject to rate regulation by either franchising
authorities or the FCC. Notwithstanding the above, the Telecommunications Act of
1996 deregulated cable programming service rates as of March 31, 1999. After
March 31, 1999, only the basic tier of service, which does not include the
expanded basic tier of service, and equipment used to receive the basic tier of
service remains subject to rate regulation.
The Cable Television Consumer Protection and Competition Act of 1992
requires communities to certify with the FCC before regulating basic cable
rates. The FCC's rate regulations do not apply where a cable operator
demonstrates that it is subject to effective competition. We meet the FCC
definition of effective competition in the areas that we currently serve. To the
extent that any municipality attempts to regulate our basic rates or equipment,
we believe we could demonstrate to the FCC that our systems all face effective
competition and, therefore, are not subject to rate regulation.
CARRIAGE OF BROADCAST TELEVISION SIGNALS. The Cable Television Consumer
Protection and Competition Act of 1992 established signal carriage requirements.
These requirements allow commercial television broadcast stations that are local
to a cable system to elect every three years whether to require the cable system
to carry the station or whether to require the cable system to negotiate for
consent to carry the station. The third must-carry elections were made in
October 1999. Stations are generally considered local to a cable system where
the system is located in the station's Nielsen designated market area. Cable
systems must obtain retransmission consent for the carriage of all distant
commercial broadcast stations, except for certain superstations, which are
commercial satellite-delivered independent stations such as WGN. We carry some
stations pursuant to retransmission consents and pay fees for such consents or
have agreed to carry additional services pursuant to retransmission consent
agreements.
Local non-commercial television stations are also given mandatory
carriage rights, subject to certain exceptions, within a certain limited radius.
Non-commercial stations are not given the option to negotiate for retransmission
consent.
NONDUPLICATION OF NETWORK PROGRAMMING. Cable television systems that
have 1,000 or more subscribers must, upon the appropriate request of a local
television station, delete or "black out" the simultaneous or nonsimultaneous
network programming of a distant same-network station when the local station has
contracted for such programming on an exclusive basis.
DELETION OF SYNDICATED PROGRAMMING. Cable television systems that have
1,000 or more subscribers must, upon the appropriate request of a local
television station, delete or "black out" the simultaneous or nonsimultaneous
syndicated programming of a distant station when the local station has
contracted for such programming on an exclusive basis.
REGISTRATION PROCEDURES AND REPORTING REQUIREMENTS. Prior to commencing
operation in a particular community, all cable television systems must file a
registration statement with the FCC listing the broadcast signals they will
carry and certain other information. Additionally, cable operators periodically
are required to file various informational reports with the FCC. Cable operators
that operate in certain frequency bands, including our company, are required on
an annual basis to file the results of their periodic cumulative leakage testing
measurements. Operators that fail to make this filing or who exceed the FCC's
allowable cumulative leakage index risk being prohibited from operating in those
frequency bands in addition to other sanctions.
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TECHNICAL REQUIREMENTS. Historically, the FCC has imposed technical
standards applicable to the cable channels on which broadcast stations are
carried, and has prohibited franchising authorities from adopting standards
which were in conflict with or more restrictive than those established by the
FCC. The FCC has applied its standards to all classes of channels which carry
downstream National Television System Committee video programming. The FCC also
has adopted standards applicable to cable television systems using frequencies
in certain bands in order to prevent harmful interference with aeronautical
navigation and safety radio services and has also established limits on cable
system signal leakage. The Cable Television Consumer Protection and Competition
Act of 1992 requires the FCC to update periodically its technical standards.
Pursuant to the Telecommunications Act of 1996, the FCC adopted regulations to
assure compatibility among televisions, VCRs and cable systems, leaving all
features, functions, protocols and other product and service options for
selection through open competition in the market. The Telecommunications Act of
1996 also prohibits states or franchising authorities from prohibiting,
conditioning or restricting a cable system's use of any type of subscriber
equipment or transmission technology.
FRANCHISE AUTHORITY. The Cable Communications Policy Act of 1984
affirmed the right of franchising authorities, which are the cities, counties or
political subdivisions in which a cable operator provides cable service, to
award franchises within their jurisdictions and prohibited non-grandfathered
cable systems from operating without a franchise in such jurisdictions. We hold
cable franchises in all of the franchise areas in which we provide service. The
Cable Television Consumer Protection and Competition Act of 1992 encouraged
competition with existing cable systems by:
o allowing municipalities to operate their own cable systems without
franchises;
o preventing franchising authorities from granting exclusive
franchises or from unreasonably refusing to award additional
franchises covering an existing cable system's service area; and
o prohibiting, with limited exceptions, the common ownership of
cable systems and co-located multichannel multipoint distribution
or satellite master antenna television systems, which prohibition
is limited by the Telecommunications Act of 1996 to cases in which
the cable operator is not subject to effective competition.
The Telecommunications Act of 1996 exempts those telecommunications
services provided by a cable operator or its affiliate from cable franchise
requirements although municipalities retain authority to regulate the manner in
which a cable operator uses the public rights-of-way to provide
telecommunications services. Franchise authorities may not require a cable
operator to provide telecommunications service or facilities, other than
institutional networks, as a condition of franchise grant, renewal, or transfer.
Similarly, franchise authorities may not impose any conditions on the provision
of such service.
FRANCHISE FEES. Although franchising authorities may impose franchise
fees under the Cable Communications Policy Act of 1984, as modified by the
Telecommunications Act of 1996, such payments cannot exceed 5% of a cable
system's annual gross revenues derived from the operation of the cable system to
provide cable services. In some areas, cable services are defined to include
Internet services. Franchise fees apply only to revenues for cable services.
Franchising authorities are permitted to charge a fee for any telecommunications
providers' use of public rights-of-way on a competitively neutral and
nondiscriminatory basis.
FRANCHISE RENEWAL. The Cable Communications Policy Act of 1984
established renewal procedures and criteria designed to protect incumbent
franchisees against arbitrary denials of renewal. These formal procedures are
mandatory only if timely invoked by either the cable operator or the franchising
authority. Even after the formal renewal procedures are invoked, franchising
authorities and cable operators remain free to negotiate a renewal outside the
formal process. Although the procedures provide substantial protection to
incumbent franchisees, renewal is by no means assured, as the franchisee must
meet certain statutory standards. Even if a franchise is renewed, a franchising
authority may impose new and more onerous requirements such as upgrading
facilities and equipment, although the municipality must take into account the
cost of meeting such requirements.
The Cable Television Consumer Protection and Competition Act of 1992
made several changes to the process which may make it easier in some cases for a
franchising authority to deny renewal. The cable operator's timely request to
commence renewal proceedings must be in writing and the franchising authority
must commence renewal proceedings not later than six months after receipt of
such notice. Within a four-month period beginning with the submission of the
renewal proposal, the franchising authority must grant or deny the renewal.
Franchising authorities may consider the "level" of programming service provided
by a cable operator in deciding whether to renew. Franchising authorities
currently may deny renewal based on failure to substantially comply with the
material terms of the franchise, even if the franchising authority has
"effectively acquiesced" to such past violations. The franchising authority is
stopped only if, after giving the cable operator notice and opportunity to cure,
the authority fails to respond to a written notice from the cable 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.
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CHANNEL SET-ASIDES. The Cable Communications Policy Act of 1984 permits
local franchising authorities to require cable operators to set aside certain
channels for public, educational and governmental access programming. The Cable
Communications Policy Act of 1984 further requires cable television systems with
36 or more activated channels to designate a portion of their channel capacity
for commercial leased access by unaffiliated third parties. The Cable Television
Consumer Protection and Competition Act of 1992 requires leased access rates to
be set according to a FCC-prescribed formula.
OWNERSHIP. The Telecommunications Act of 1996 eliminates the Cable
Communications Policy Act of 1984 provisions prohibiting local exchange carriers
from providing video programming directly to customers within their local
exchange telephone service areas, except in rural areas or by specific waiver.
Under the Telecommunications Act of 1996, local exchange carriers may provide
video programming by radio-based systems, common carrier systems, open video
systems, or cable systems. Local telephone companies that elect to provide open
video systems must allow others to use up to two-thirds of their activated
channel capacity. These local telephone companies are relieved of regulation as
common carriers, and are not required to obtain local franchises, but are still
subject to many other regulations applicable to cable systems. Local telephone
companies operating as cable systems are subject to all rules governing cable
systems, including franchising requirements.
The Telecommunications Act of 1996 prohibits local telephone companies
or its affiliate from acquiring more than a 10% financial or management interest
in any cable operator providing cable service in its telephone service area. It
also prohibits a cable operator or its affiliate from acquiring more than a 10%
financial or management interest in any local telephone companies providing
telephone service in its franchise area. A local telephone companies and cable
operator whose telephone service area and cable franchise area are in the same
market may not enter into a joint venture to provide telecommunications services
or video programming. There are exceptions to these limitations for rural
facilities, very small cable systems, and small local telephone companies in
non-urban areas, and such restrictions do not apply to local exchange carriers
that were not providing local telephone service prior to January 1, 1993.
POLE ATTACHMENTS. The Telecommunications Act of 1996 requires
utilities, defined as all local telephone companies and electric utilities
except those owned by municipalities and co-ops, to provide cable operators and
telecommunications carriers with nondiscriminatory access to poles, ducts,
conduit and right-of-way. The right to mandatory access is beneficial to
facilities-based providers such as our company. The Telecommunications Act of
1996 also establishes principles to govern the pricing of such access.
Presently, the rates charged to cable and telecommunications providers are the
same. Starting in 2001, telecommunications providers will be charged a higher
rate than cable operators for pole attachments. Companies that provide both
cable and telecommunications services over the same facilities, such as us, may
be required to pay the higher telecommunications rate.
INSIDE WIRING OF MULTIFAMILY DWELLING UNITS. The FCC has adopted rules
to promote competition among multichannel video program distributors in
multifamily dwelling units. The rules provide generally that, in cases where the
program distributor owns the wiring inside a multifamily dwelling unit but has
no right of access to the premises, the multifamily dwelling unit owner may give
the program distributor notice that it intends to permit another program
distributor to provide service there. The program distributor then must elect
whether to remove the inside wiring, sell the inside wiring to the multifamily
dwelling unit owner at a price not to exceed the replacement cost of the wire on
a per-foot basis, or abandon the inside wiring.
PRIVACY. The Cable Communications Policy Act of 1984 imposes a number
of restrictions on the manner in which cable system 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 operator is found to have violated the customer
privacy provisions of the Cable Communications Policy Act of 1984, it could be
required to pay damages, attorneys' fees and other costs. Under the Cable
Television Consumer Protection and Competition Act of 1992, the privacy
requirements are strengthened to require that cable operators take such actions
as are necessary to prevent unauthorized access to personally identifiable
information.
FRANCHISE TRANSFER. The Telecommunications Act of 1996 repeals most of
the anti-trafficking restrictions imposed by the Cable Television Consumer
Protection and Competition Act of 1992, which prevented a cable operator from
selling or transferring ownership of a cable system within 36 months of
acquisition. However, a local franchise may still require prior approval of a
transfer or sale. The Cable Television Consumer Protection and Competition Act
of 1992 requires franchising authorities to act on a franchise transfer request
within 120 days after receipt of all information required by FCC regulations and
the franchising authority. Approval is deemed granted if the franchising
authority fails to act within such period.
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COPYRIGHT. Cable television systems are subject to federal compulsory
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 operators obtain a statutory license to
retransmit broadcast signals. The amount of the 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 system with respect to
over-the-air television stations. Adjustments in copyright royalty rates are
made through an arbitration process supervised by the U.S. Copyright Office.
Various bills have been introduced in Congress in the past several
years that would eliminate or modify the cable television compulsory license.
Without the compulsory license, cable operators might need to negotiate rights
from the copyright owners for each program carried on each broadcast station
retransmitted by the cable system.
Copyrighted music performed in programming supplied to cable television
systems by pay cable networks, such as HBO, and cable programming networks, such
as USA Network, has generally been licensed by the networks through private
agreements with the American Society of Composers and Publishers and BMI, Inc.,
the two major performing rights organizations in the United States. The American
Society of Composers and Publishers and BMI, Inc. 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 subscribers.
INTERNET SERVICE PROVIDERS. A number of Internet service providers have
requested that the FCC and state and local officials adopt rules requiring cable
operators to provide unaffiliated Internet service providers with direct access
to the operators' broadband facilities on the same terms as the operator makes
those facilities available to affiliated Internet service providers. To date the
FCC has rejected these unbundling proposals, but a number of local franchising
authorities have imposed this type of requirement on cable operators. Litigation
regarding these unbundling requirements is pending. AT&T recently announced that
it would open its systems to competing Internet service providers, including
EarthLink, with which it already has entered into an agreement. At this time it
is uncertain whether these requirements lawfully may be imposed on cable
operators, or how pervasive they ultimately may be if upheld in court.
REGULATORY FEES AND OTHER MATTERS. The FCC requires payment of annual
regulatory fees by the various industries it regulates, including the cable
television industry. In 1997, cable television systems were required to pay
regulatory fees of $0.54 per subscriber. In 1998, the fee was $0.44 per
subscriber. In 1999, the fee was $0.48 per subscriber. Per-subscriber regulatory
fees may be passed on to subscribers as external cost adjustments to rates for
basic cable service. Fees are also assessed for other FCC licenses, including
licenses for business radio, cable television relay systems and earth stations.
These fees, however, may not be collected directly from subscribers as long as
the FCC's rate regulations remain applicable to the cable system.
In December 1994, the FCC adopted new cable television and broadcast
technical standards to support a new emergency alert system. Cable system
operators were required to install and activate equipment necessary to implement
the new emergency broadcast system by December 31, 1998 or October 1, 2002,
depending on the size of the system.
FCC regulations also address the carriage of:
o local sports programming;
o restrictions on origination and cablecasting by cable system
operators;
o application of the rules governing political broadcasts;
o customer service standards; and
o limitations on advertising contained in nonbroadcast children's
programming.
REGULATION OF TELECOMMUNICATIONS SERVICES
Our telecommunications services are subject to varying degrees of
federal, state and local regulation. Pursuant to the Communications Act of 1934,
as amended by the Telecommunications Act of 1996, the FCC generally exercises
jurisdiction over the facilities of, and the services offered by,
telecommunications carriers that provide interstate or international
communications services. State regulatory authorities retain jurisdiction over
the same facilities to the extent that they are used to provide intrastate
communications services. Various international authorities may also seek to
regulate the provision of certain services.
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FEDERAL REGULATION OF TELECOMMUNICATIONS SERVICES
TARIFFS AND DETARIFFING. KNOLOGY Holdings is classified by the FCC as a
non-dominant carrier with respect to both its domestic interstate and
international long distance carrier services and its competitive local exchange
carrier services. As a non-dominant carrier, its rates presently are not
regulated by the FCC. All telecommunications carriers that provide domestic
interstate and international long distance services must file tariffs with the
FCC prescribing rates, terms and conditions of service. Carriers must also file
so-called informational tariffs with the FCC describing their operator services.
KNOLOGY Holdings has filed tariffs with the FCC for our domestic interstate and
international long distance services, interstate access services and interstate
operator services.
Valley Telephone and Interstate Telephone are regulated by the FCC as
dominant, rather than non-dominant carriers. As dominant carriers, Valley
Telephone and Interstate Telephone must file tariffs with the FCC and must
provide the FCC with notice prior to changing their rates, terms or conditions
of interstate services. Valley Telephone concurs in tariffs filed by the
National Exchange Carrier Association, while Interstate Telephone has its own
tariffs on file with the FCC.
INTERCONNECTION. The Telecommunications Act of 1996 establishes local
telephone competition as a national policy. This Act preempts laws that prohibit
competition for local telephone services and establishes uniform requirements
and standards for local network interconnection, local network unbundling and
local service resale. The Telecommunications Act of 1996 also requires incumbent
local telephone carriers to enter into mutual compensation arrangements with new
local telephone companies for transport and termination of local calls on each
others' networks. Most state public utility commissions have ruled that traffic
to Internet service providers is covered by this requirement. The FCC recently
decided that calls to Internet service providers could be jurisdictionally
interstate, although the FCC did not preempt these state decisions. The
Telecommunications Act of 1996's interconnection, unbundling and resale
standards have been developed initially by the FCC and have been, and will
continue to be, implemented by the states in numerous proceedings and through a
process of negotiation and arbitration.
In August 1996, the FCC adopted a wide-ranging decision regarding the
statutory interconnection obligations of the local telephone carriers. Among
other things, the order established pricing principles, for use by the states to
determine rates for unbundled local network elements and to calculate discounts.
In July 1997, the United States Court of Appeals for the Eighth Circuit struck
down the pricing rules established by the FCC. The court ruled that the FCC did
not have jurisdiction under the Telecommunications Act of 1996 to establish
pricing rules to be applied by the states. In January 1999, the Supreme Court
reversed the Eighth Circuit decision, finding that the FCC had jurisdiction to
implement the pricing provisions of the Act. The Eighth Circuit is expected, on
remand, to rule on the merits of the FCC's pricing rules.
The Supreme Court also upheld the FCC's rule requiring local telephone
carriers to provide a platform that includes all of the network elements
required by a competitor to provide a retail telecommunications service.
Competitors using such platforms may be able to provide retail local services
entirely through the use of the local telephone carriers' facilities at lower
discounts than those available for local resale. The availability of such
platforms could benefit our local competitors who, unlike us, do not operate
their own facilities. The pricing of these platforms is still subject to a
pending FCC proceeding.
The Telecommunications Act of 1996 includes an exemption from
interconnection requirements for rural telephone companies. Under this
exemption, a competitor is not entitled to interconnect with a rural telephone
company absent a finding by the appropriate state commission that the request is
not unduly economically burdensome. Both Valley Telephone and Interstate
Telephone are considered rural telephone companies under the Telecommunications
Act of 1996, and the Alabama Public Service Commission has determined that these
companies should be exempt from the interconnection requirements of the
Telecommunications Act of 1996 at least through June 2001.
NUMBER PORTABILITY. Another new federal statute requires that all local
telephone service carriers provide customers with the ability to retain, at the
same location, existing telephone numbers without impairment of quality,
reliability or convenience. This number portability will remove one barrier to
entry faced by new competitors, which would otherwise have to persuade customers
to switch local service providers despite having to change telephone numbers.
The FCC ordered permanent number portability to be made available in the 100
largest metropolitan areas by December 31, 1998. Number portability is available
in all of our required markets. While number portability benefits our
competitive local exchange carrier operations, it represents a burden to Valley
Telephone and Interstate Telephone. At this time, we are unable to predict the
impact, if any, of possible number portability delays or complications in our
service territories.
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UNIVERSAL SERVICE AND ACCESS CHARGE REFORM. The FCC has adopted rules
implementing the universal service requirements of the Telecommunications Act of
1996. Pursuant to those rules, all telecommunications providers must contribute
a small percentage of their telecommunications revenues to a newly established
Universal Service Fund. There is an exemption for providers whose contribution
would be less than $10,000 in a particular year. Interstate Telephone and Valley
Telephone presently contribute to the fund, and we expect that KNOLOGY Holdings
will be required to start contributing in 2000. We can not be certain whether we
will be able to either recover the costs of fund contributions from our
customers or to receive offsetting fund disbursements.
The FCC presently is in the process of reducing access charges imposed
by telephone companies for origination and termination of long distance traffic.
In those areas where we use our own or our affiliated cable facilities for our
comprehensive local telephone operations, we are largely unaffected by local
telephone carriers' access charge fluctuations. However, overall decreases in
local telephone carriers' access charges as contemplated by the FCC's access
reform policies would likely put downward pricing pressure on our charges to
domestic interstate and international long distance carriers for comparable
access. Over time, statutory universal service funding obligations, coupled with
the FCC's new access charge regime, could adversely affect us by limiting our
ability to offset our fund contributions through higher charges to domestic
interstate and international long distance carriers for originating and
terminating interstate traffic over our cable facilities.
REGIONAL BELL OPERATING COMPANY ENTRY INTO LONG DISTANCE. The
Telecommunications Act of 1996 also establishes standards for regional Bell
operating companies and their affiliates to provide long distance
telecommunications services between a local access and transport area, or LATA,
and points outside that area. Local access and transport areas are geographical
regions in the United States within which a local telephone company may offer
local telephone service. In 1997, BellSouth filed applications with the FCC for
authority to offer in-region, or interLATA services in South Carolina and
Louisiana; in 1998, BellSouth filed a second application with the FCC for
authority to offer such services in Louisiana. In December 1997, the FCC
rejected the South Carolina application. The Louisiana applications were
rejected in February 1998 and October 1998, respectively. Notwithstanding these
decisions, BellSouth likely will file additional applications to offer interLATA
services for other states in its territory, including states in which we provide
these services. Because of its existing base of local telephone service
customers and its extensive telecommunications network, we anticipate that
BellSouth will be a significant competitor in each of the states in which it
obtains in-region, interLATA authority from the FCC.
ADDITIONAL REQUIREMENTS. The FCC imposes additional obligations on all
telecommunications carriers, including obligations to:
o interconnect with other carriers and not to install equipment that
cannot be connected with the facilities of other carriers;
o ensure that their services are accessible and usable by persons
with disabilities;
o provide telecommunications relay service either directly or
through arrangements with other carriers or service providers,
which service enables hearing impaired individuals to communicate
by telephone with hearing individuals through an operator at a
relay center;
o comply with verification procedures in connection with changing a
customer's carrier;
o protect the confidentiality of proprietary information obtained
from other carriers, manufacturers and customers;
o pay annual regulatory fees to the FCC; and
o contribute to the Telecommunications Relay Services Fund.
FORBEARANCE. The Telecommunications Act of 1996 permits the FCC to
forbear from requiring telecommunications carriers to comply with certain
regulations. Specifically, the Act permits the FCC to forbear from applying
statutory provisions or regulations if the FCC determines that:
o enforcement is not necessary to protect consumers;
o a carrier's terms are reasonable and nondiscriminatory;
o forbearance is in the public interest; and
o forbearance will promote competition.
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The FCC has exempted certain carriers from tariffing and reporting requirements
pursuant to this provision of the Telecommunications Act of 1996. The FCC may
take similar action in the future to reduce or eliminate other requirements.
Such actions could free us from regulatory burdens, but also might increase the
pricing flexibility of our competitors.
ADVANCED SERVICES AND COLLOCATION. Section 706 of the
Telecommunications Act of 1996 requires the FCC to encourage the deployment of
advanced telecommunications capabilities to all Americans through the promotion
of local telecommunications competition. Recently, the FCC adopted rules
designed to improve competitor access to incumbent local telephone carriers
collocation space and to reduce the delays and costs associated with
collocation. Collocation is the placement of equipment by another telephone
company alongside another telephone company's equipment along a network. The FCC
has taken future steps to facilitate competitors' access to lines connecting
customer premises to the operator for purposes of digital subscriber line
deployment. Specifically, the FCC required incumbent local exchange carriers
like Bell South, to permit unaffiliated providers of digital subscriber line
services to use a portion of the lines connecting customer premises to the
operator used for basic telephone service rather that purchasing new lines (the
so-called "Line Sharing Order"). In related proceedings, the FCC adopted rules
requiring incumbent carriers to offer competing carriers access to a number of
listed network elements, including local loops, sub loops, and local circuit
switching (the so-called "UNE proceeding"), and rules requiring incumbent
carriers to allow competing carriers to access space in the incumbent's central
office, which will enable competitors to collocate all equipment necessary for
interconnection or access to unbundled network elements (the so-called
"Collocation proceeding"). Some of the rules established in the UNE proceeding
will not be effective until May 2000. Additionally, portions of these
proceedings are currently on remand from a U.S. Court of Appeals, and petitions
for reconsideration are pending before the FCC concerning the Collocation and
Line Sharing proceedings. Hence, the FCC is reviewing these rules, and these
rules are subject to change. Having better collocation arrangements at incumbent
local exchange carriers' main facilities housing telephone network equipment
benefits our competitive local exchange operations. However, the FCC's advanced
services proceeding, inasmuch as it primarily benefits digital subscriber line
providers who compete directly with our broadband communications service
offerings, may prove on balance to have an adverse competitive effect on us.
STATE REGULATION OF TELECOMMUNICATIONS SERVICES
The Telecommunications Act of 1996 contains provisions that prohibit
states and localities from adopting or imposing any legal requirement that may
prohibit, or have the effect of prohibiting, market entry by new providers of
interstate or intrastate telecommunications services. The FCC is required to
preempt any such state or local requirement to the extent necessary to enforce
the Telecommunications Act of 1996's open market entry requirements. State and
localities may, however, continue to regulate the provision of intrastate
telecommunications services and require carriers to obtain certificates or
licenses before providing service.
Alabama, Georgia, Florida, and South Carolina each have adopted
statutory and regulatory schemes that require us to comply with
telecommunications certification and other regulatory requirements. To date, we
are authorized to provide intrastate local telephone, long distance telephone
and operator services in Alabama, Georgia, Florida and South Carolina. In
addition, we have executed local network interconnection agreements with
BellSouth for the transport and termination of local telephone traffic. These
agreements have been filed with, and approved by, the applicable regulatory
authority in each state in which we conduct our operations. As a condition of
providing intrastate telecommunications services, we are required, among other
things:
o to file and maintain intrastate tariffs or price lists describing
the rates, terms and conditions of our services;
o to comply with state regulatory reporting, tax and fee
obligations; and
o to comply with, and to submit to, state regulatory jurisdiction
over consumer protection policies, complaints, transfers of
control and certain financing transactions.
Generally, state regulatory authorities can condition, modify, cancel, terminate
or revoke certificates of authority to operate in a state for failure to comply
with state laws or the rules, regulations and policies of the state regulatory
authority. Fines and other penalties may also be imposed for such violations.
Valley Telephone and Interstate Telephone are subject to additional
requirements under state law, including rate regulation and quality of service
requirements. In Alabama, both Valley Telephone and Interstate Telephone are
subject to a price cap form of rate regulation. Under price caps, the companies
have limited ability to raise rates for intrastate telephone services, but the
Alabama Public Service Commission does not regulate the rate of return earned by
the companies.
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LOCAL REGULATION
Occasionally we are required to obtain street use and construction
permits and franchises to install and expand our interactive broadband network
using state, city, county or municipal rights-of-way. Some municipalities where
we have installed or anticipate constructing networks require the payment of
license or franchise fees which are based upon a percentage of gross revenues or
on a per linear foot basis. The Telecommunications Act of 1996 requires
municipalities to manage public rights-of-way in a competitively neutral and
non-discriminatory manner.
RISK FACTORS
WE HAVE LOST MONEY ON OUR OPERATIONS TO DATE, AND WE EXPECT TO LOSE MORE MONEY
DURING THE NEXT SEVERAL YEARS.
As of December 31, 1999, we had an accumulated deficit of $79.6
million. We expect to incur net losses and negative cash flow during the next
several years as we build our networks. Our ability to generate profits and
positive cash flow will depend in large part on our abilities to obtain enough
subscribers for our services to offset the costs of constructing and operating
our networks. If we cannot achieve operating profitability or positive cash
flows from operating activities, our business, financial condition and operating
results will be adversely affected.
THE SIGNIFICANT AMOUNT OF DEBT WE HAVE COULD HARM OUR BUSINESS.
As of December 31, 1999, we had $331 million of debt, including accrued
interest, and our stockholders' equity was $37.9 million. We anticipate that we
will incur more debt as we expand our existing networks and move into new
markets in the future.
Our debt could adversely affect our business in a number of ways, as:
o we have to spend a significant amount of our available funding to
pay interest and repay principal on debt;
o we may have trouble obtaining future financing;
o we may have limited flexibility in planning for or reacting to
changes in our business;
o we may have more debt relative to our competitors, which may place
us at a disadvantage; and
o we may be more vulnerable to any economic downturn.
Our earnings were not sufficient to cover our fixed charges in 1999. We
will need to grow and generate profits in order to generate the cash to repay
our debt. If we cannot meet our debt payments, we may need to seek additional
financing or sell some of our assets, which would adversely affect our business,
operations and the value of our company.
RESTRICTIONS ON OUR BUSINESS IMPOSED BY OUR DEBT AGREEMENTS COULD LIMIT OUR
GROWTH OR ACTIVITIES.
Our indenture and credit facility agreements place operating and
financial restrictions on us and our subsidiaries. These restrictions affect our
and our subsidiaries' ability to:
o incur additional debt;
o create liens on our assets;
o use the proceeds from any sale of assets; and
o make distributions on or redeem our stock.
In addition, our credit facility requires us to maintain certain financial
ratios. These limitations may affect our ability to finance our future
operations or to engage in other business activities that may be in our
interest. If we violate any of these restrictions, we could be in default under
one or both of these agreements and be required to repay our debt immediately
rather than at the maturity of the debt.
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FAILURE TO OBTAIN ADDITIONAL FUNDING WOULD LIMIT OUR ABILITY TO EXPAND OUR
BUSINESS.
We expect to spend approximately $200 million during the next three
years to expand or upgrade our Panama City, Augusta, Charleston and Huntsville
networks. In addition we plan to expand into new cities where we do not
currently have networks. If we expand to these new cities, we estimate the cost
of constructing and implementing networks in additional cities at approximately
$75 million to $100 million per 100,000 homes. Actual costs may exceed this
estimate. We will need significant additional financing to complete this
expansion and upgrade, to expand into additional cities, for new business
activities and for any additional acquisitions. If we cannot obtain sufficient
funds we may be required to defer or abandon our expansion plans, which could
limit our growth and prospects.
WE MAY ENCOUNTER DIFFICULTIES EXPANDING INTO ADDITIONAL MARKETS.
To expand into additional cities we will have to obtain pole attachment
agreements, construction permits, franchises and other regulatory approvals.
Delays in receiving the necessary construction permits and in conducting the
construction itself have adversely affected our schedule in the past and could
do so again in the future. Further, we may face resistance from competitors who
are already in these markets. A competitor may oppose or delay our franchise
application or our request for pole attachment space. These difficulties could
harm the development of our business in new markets.
COMPETITION FROM OTHER TELEVISION PROVIDERS COULD CAUSE US TO LOSE SUBSCRIBERS.
To be successful, we will need to attract cable television subscribers
away from our competitors. We often are not the first cable television provider
in our markets, and we have to compete with other companies that have
long-standing customer relationships with the residents in these areas. Some of
our competitors have other competitive advantages over us, such as greater
experience, resources, marketing capabilities and name recognition. In addition,
a continuing trend toward business combinations and alliances in the cable
television area and in the telecommunications industry as a whole may create
significant new competitors for us. In providing television service, we
currently compete with AT&T Cable Services, Comcast Cable Communications, Time
Warner Cable, Mediacom and Charter Communications, Inc. We also compete with
satellite television providers DirecTV and Echostar. Our other competitors
include:
o other cable television providers;
o broadcast television stations;
o other satellite television companies;
o wireless cable services; and
o private satellite dishes.
We expect in the future to compete with telephone companies providing cable
television service within their service areas.
New legislation will allow satellite providers to offer local
programming. This could reduce our current advantage over satellite providers in
this area and hurt our ability to attract and maintain subscribers.
COMPETITION FROM OTHER TELEPHONE SERVICE PROVIDERS COULD CAUSE US TO LOSE
CUSTOMERS.
In providing local and long distance telephone services, we compete
with the incumbent local phone company in each of our markets. We are not the
first provider of telephone services in most of our markets, and we have to
convince people in our markets to switch from other telephone companies to us.
BellSouth is the incumbent local phone company and is a particularly strong
competitor in our current markets and throughout the southeastern United States
where we hope to expand. We also compete with long distance phone companies such
as AT&T, MCI WorldCom and Sprint. Our other competitors include:
o independent or competitive local exchange carriers, which are
local phone companies other than the incumbent phone company that
provide local telephone services and access to long distance
services over their own networks or over networks leased from
other companies;
o regional Bell operating companies other than BellSouth;
o wireless telephone carriers; and
o utility companies.
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COMPETITION FROM OTHER PROVIDERS OF INTERNET SERVICES COULD CAUSE US TO LOSE
SUBSCRIBERS OR HINDER THE GROWTH OF OUR INTERNET SERVICES.
Providing Internet access services is a rapidly growing business and
competition is increasing in each of our markets. Some of our competitors have
competitive advantages over us, such as greater experience, resources, marketing
capabilities and stronger name recognition.
In providing Internet access services, we compete with:
o traditional dial-up Internet service providers;
o providers of satellite-based Internet services;
o other long distance telephone companies; and
o cable television companies.
Other technologies also offer high-speed, high capacity connections to
the Internet. We will compete with companies offering broadband connections such
as DirecPC, one of the principal providers of satellite-based Internet services
in the United States; long distance telephone companies such as AT&T and MCI
WorldCom; traditional dial-up Internet service providers; and cable modem
services such as Excite@Home, a joint venture among several major cable
companies.
OUR PROGRAMMING COSTS ARE INCREASING, WHICH COULD REDUCE OUR CASH FLOW AND
OPERATING MARGINS.
Programming has been our largest single operating expense item and we
expect this to continue. In recent years, the cable industry has experienced a
rapid increase in the cost of programming, particularly sports programming. This
increase may continue and we may not be able to pass programming costs increases
on to our customers. In addition, as we increase the channel capacity of our
systems and add programming to our basic and expanded basic programming tiers,
we may face additional market constraints on our ability to pass programming
costs on to our customers. The inability to pass programming cost increases on
to our customers would have an adverse impact on our cash flow and operating
margins.
PROGRAMMING EXCLUSIVITY IN FAVOR OF OUR COMPETITORS COULD ADVERSELY AFFECT THE
DEMAND FOR OUR CABLE SERVICES.
We obtain our programming by entering into contracts or arrangements
with cable programming vendors. A cable programming vendor may enter into an
exclusive arrangement with one of our cable television competitors. This would
create a competitive advantage for the cable television competitor by
restricting our access to programming. Each of AT&T Cable Services, Comcast
Cable Communications and Time Warner Cable has entered into exclusivity
arrangements with the WeB channel, which is the distribution channel for WB
programming, in different markets. We provide programming in each of these
markets as well, and these exclusivity arrangements restrict our access to
programming. Limiting our ability to offer certain programming on our cable
television systems may adversely affect the demand for our cable services.
IF WE ARE NOT ABLE TO MANAGE OUR GROWTH, OUR BUSINESS WILL BE HARMED.
Our ability to grow will depend, in part, upon our ability to:
o successfully implement our strategy;
o evaluate markets;
o secure financing;
o construct facilities;
o obtain any required government authorizations; and
o hire and retain qualified personnel.
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In addition, as we increase our service offerings and expand our targeted
markets, we will have additional demands on our customer support, sales and
marketing, administrative resources and network infrastructure. If we cannot
effectively manage our growth, our business and results of operations will be
harmed.
ACQUISITIONS AND JOINT VENTURES COULD STRAIN OUR BUSINESS AND RESOURCES.
If we acquire existing companies or networks, or enter into joint
ventures, we may be subject to:
o miscalculation of the value of the acquired company or joint
venture;
o diversion of resources and management time;
o difficulties in integration of the acquired business or joint
venture with our operations;
o relationship issues as a result of changes in management;
o additional liabilities or obligations as a result of the
acquisition or joint venture; and
o additional financial burdens or dilution incurred with the
transaction.
Additionally, ongoing consolidation in the telecommunications industry
may be shrinking the number of attractive acquisition targets.
WE OPERATE OUR NETWORKS UNDER FRANCHISES THAT ARE SUBJECT TO NON-RENEWAL OR
TERMINATION, EITHER OF WHICH COULD ADVERSELY AFFECT OUR BUSINESS.
Our networks generally operate pursuant to franchises, permits or
licenses typically granted by a municipality or other state or local government
controlling the public rights-of-way. Often, franchises are terminable if the
franchisee fails to comply with material terms of the franchise order or the
local franchise authority's regulations. Further, franchises generally have
fixed terms and must be renewed periodically. Local franchising authorities may
resist granting a renewal if they consider either past performance or the
prospective operating proposal to be inadequate. Our franchises for Montgomery,
Columbus, Panama City, Augusta, Charleston, Huntsville and the Georgia/Alabama
border area will expire in March 2005, March 2009, July 2007, January 2013,
April 2013, March 2001 and January 2013, respectively. If one of our franchises
is not renewed or terminated, our business will be harmed.
IF WE ARE NOT ABLE TO OBTAIN AND RENEW OUR FRANCHISES IN A TIMELY MANNER AND ON
ACCEPTABLE TERMS AND CONDITIONS, OUR BUSINESS WILL BE HARMED.
Our business depends on our ability to obtain and renew our franchises
in a timely manner and on acceptable terms and conditions. We cannot predict
whether we will obtain franchises in new cities on terms that will make
construction of a network and provision of broadband communications services
economically attractive for us.
SINCE WE OPERATE OUR SYSTEMS UNDER FRANCHISES THAT ARE NON-EXCLUSIVE, LOCAL
FRANCHISING AUTHORITIES CAN GRANT ADDITIONAL FRANCHISES AND CREATE MORE
COMPETITION FOR US IN OUR MARKETS.
Our franchises are non-exclusive. The local franchising authorities can
grant franchises to competitors who may build networks in our market areas. This
could adversely affect our growth and our profitability.
LOCAL FRANCHISE AUTHORITIES HAVE THE ABILITY TO IMPOSE REGULATORY CONSTRAINTS OR
REQUIREMENTS ON OUR BUSINESS, WHICH COULD INCREASE OUR EXPENSES.
Local franchise authorities can impose regulatory constraints by local
ordinance or as part of a grant or renewal of a franchise. They also may impose
customer service or other requirements. This would increase our expenses in
operating our business.
LOSS OF ACCESS TO OTHER COMPANIES' NETWORKS COULD IMPAIR OUR TELEPHONE SERVICE.
We rely on other companies to provide:
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o communications capacity between our facility that switches
telephone calls and our local networks;
o long distance telephone services;
o space at areas along our network or in switching centers to locate
equipment. Since for efficiency reasons our equipment needs to be
located near and often connected to similar equipment operated by
other providers, which is called co-location, available space can
be quite limited;
o special network services for internet transport requirements.
We purchase these services from two primary vendors, Business Telecom,
Inc. and ITC DeltaCom, both of which compete with us. We have a minimum annaul
purchase commitment of $50,000 with Business Telecom. We do not have a minimum
purchase commitment with ITC DeltaCom. If we lost services from either of these
companies, we would have to find another entity who could provide these services
for us and may have to pay more for the same services or meet a higher minimum
purchase commitment. Further, if either of these companies reduced our access to
its facilities because that company did not have the capacity to provide these
services to us, our business would be harmed.
LOSS OF INTERCONNECTION ARRANGEMENTS COULD IMPAIR OUR TELEPHONE SERVICE.
We rely on other companies to connect with users of telephone service
who are not our customers. We presently have access to BellSouth's telephone
network under a nine-state interconnection agreement. This agreement may not be
renegotiated on favorable terms or at all, since BellSouth is our competitor. If
our interconnection agreement is not renewed, we will have to negotiate another
interconnection agreement with BellSouth. The renegotiated agreement could be on
terms less favorable than our current terms.
It is generally expected that the Telecommunications Act of 1996 will
continue to undergo considerable interpretation and implementation over the next
several years, which could have a negative impact on our interconnection
agreement with BellSouth. Our ability to compete successfully in the provision
of services will depend on the timing of such implementing regulations and
whether they are favorable to us.
CHANGES IN DEMAND FOR OUR TELEPHONE SERVICES COULD HARM OUR BUSINESS.
We could be affected by changes in demand for our local and long
distance telephone services, including:
o traditional telephone services;
o premium telephone services;
o additional access lines per household;
o billing and collection services; and
o local competition in the Georgia/Alabama border area.
Any downturn in demand will harm our business, profitability and growth
prospects. In addition, recent price decreases and promotional activities by
major long distance carriers could have a material adverse impact on our cash
flow and margins.
WE DO NOT KNOW THE DEMAND FOR OUR BUNDLED COMMUNICATIONS SERVICES.
Our plan to provide bundled broadband communications services is fairly
new and untested. It could be unsuccessful due to:
o competition;
o pricing;
o regulatory uncertainties; or
o operating and technical difficulties.
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In addition, the demand for some of our planned broadband communications
services, either alone or as part of a bundle, cannot readily be determined. Our
business could be adversely affected if demand for bundled services is
materially lower than we expect.
FUTURE TECHNOLOGICAL DEVELOPMENTS MAY HURT OUR BUSINESS.
Future technological developments may reduce our network's
competitiveness or require expensive and time-consuming upgrades or additional
equipment. In addition, we may be required to select in advance one technology
over another and may not choose the technology that turns out to be the most
economic, efficient or attractive to customers.
WE DEPEND UPON A VERY SMALL NUMBER OF SUPPLIERS FOR OUR CABLE EQUIPMENT.
Since the cable equipment industry is a consolidated industry, there
are relatively few manufacturers of cable equipment. We purchase digital cable
equipment from a supplier who has informed us that it may decide not to sell
equipment to us in some new markets. If we are unable to resolve this issue, or
if we are unable to secure an alternate source of digital cable equipment on
equivalent terms, our ability to expand into these markets may be impaired.
WE HAVE EXPERIENCED DIFFICULTY ENGAGING SUFFICIENT CONSTRUCTION CONTRACTORS AND
OUR CONSTRUCTION COSTS ARE INCREASING.
The expansion and upgrade of our existing networks and the development
of future networks require us to hire construction contractors. We could have
difficulty hiring experienced contractors because of increases in demand for
cable construction services. Our construction costs may increase significantly
over the next few years as demand for cable construction services continues to
grow.
WE COULD BE DAMAGED BY THE LOSS OF OUR KEY PERSONNEL.
Our business is currently managed by a small number of key management
and operating personnel. We do not have any employment agreements with, nor do
we maintain "key man" insurance on, these or any other employees. As we have
numerous new employees resulting from our recent growth, we are particularly
dependent upon our management and longer-term employees who are familiar with
our company and our needs and can train our new hires.
SINCE OUR BUSINESS IS CONCENTRATED IN SPECIFIC GEOGRAPHIC LOCATIONS, OUR
BUSINESS COULD BE HURT BY A DEPRESSED ECONOMY IN THESE AREAS.
We provide our services to areas in Alabama, Georgia, Florida and South
Carolina, which are all in the southeastern United States. Our networks are
built in small to mid-sized markets. A stagnant or depressed economy in the
southeastern United States could affect all of our markets, and our entire
business and profitability would be damaged.
OUR SERVICE NETWORK OR OTHER FACILITIES COULD BE DAMAGED BY NATURAL CATASTROPHE.
Our success depends on the efficient and uninterrupted operation of our
communications services. Our networks are attached to poles and other structures
in our service areas, and our ability to provide service depends on the
availability of electric power. A tornado, hurricane, flood or other
catastrophic event in one of these areas could damage our network, interrupt our
service and harm our business in the affected area. In addition, many of our
markets are close together, and a single natural disaster could damage several
of our networks.
WE COULD BE HURT BY FUTURE INTERPRETATION OR IMPLEMENTATION OF REGULATIONS.
The current communications and cable legislation is complex and in many
areas sets forth policy objectives to be implemented by regulation.
There are proposals before the United States Congress and the Federal
Communications Commission to require all cable operators to make a portion of
their cable systems' capacity available to other Internet service providers,
such as telephone companies. AT&T recently announced that it would open its
systems to competing Internet service providers, including EarthLink, with which
it already has entered into an agreement. Certain local franchising authorities
are considering or have already approved similar open access requirements. If
regulators decide to require us to provide competing telephone or Internet
service providers with access to our broadband networks, much of the competitive
advantage we have from owning our own networks could be eliminated. Competing
Internet service providers could stream video over their systems, in direct
competition with our programming services. Our interconnection agreements, which
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we depend on to reach users who are not our customers, are subject to regulation
by the FCC and state authorities. Unfavorable regulation that delays
interconnection or increases the cost of interconnection would hurt our
business.
As stated earlier, it is generally expected that the Telecommunications
Act of 1996 will continue to undergo considerable interpretation and
implementation over the next several years. Our ability to compete successfully
will depend on the timing of such implementing regulations and whether they are
favorable to us.
OUR RELATIONSHIPS WITH ITC HOLDING'S COMPANIES AND CERTAIN VENTURE FUNDS MAY
CAUSE CONFLICTS OF INTERESTS.
We have relationships with several of ITC Holding's subsidiaries and
affiliated companies. Some of our directors are directors, stockholders, and/or
officers of various ITC Holding companies. Certain venture funds are significant
stockholders and also have representatives on our board of directors. When the
interests of ITC Holding, other ITC Holding companies or these venture funds
differ from ours, the ITC Holding companies and the venture funds act in their
own respective best interests, which could be adverse to our interests.
SOME OF OUR MAJOR STOCKHOLDERS OWN STOCK IN OUR COMPETITORS AND MAY HAVE
CONFLICTS OF INTEREST WITH RESPECT TO THOSE COMPANIES AND US.
Campbell B. Lanier, the chairman of our board of directors and one of
our major stockholders, owns approximately 16% of the outstanding stock of
ITC DeltaCom. South Atlantic Venture Funds, another one of our major
stockholders, owns approximately 4.4% of ITC DeltaCom. When the interests of one
of our competitors differs from ours, these stockholders may support our
competitor or take other actions that could adversely affect our interests.
A SMALL NUMBER OF STOCKHOLDERS CONTROL A SIGNIFICANT PORTION OF OUR STOCK.
Approximately 19.5% of our outstanding voting stock is beneficially
owned by Campbell B. Lanier, the chairman of our board of directors, and members
of Mr. Lanier's family. Our directors and executive officers as a group
beneficially own 36.6% of our outstanding voting stock. Further, AT&T venture
funds, SCANA Communications Holdings, Inc., J. H. Whitney, the Blackstone Group
and South Atlantic funds beneficially own approximately 6.8%, 10.5%, 12.2%, 9.1%
and 7.4% of our outstanding voting stock, respectively. As a result, these
stockholders will have a dominant voting position with respect to the ability
to:
o elect our directors;
o amend our certificate of incorporation or bylaws; or
o effect a merger, sale of assets or other corporate transaction.
The extent of ownership by these stockholders may also discourage a potential
acquirer from making an offer to acquire us. This could reduce the value of our
stock.
WE HAVE ENTERED INTO A STOCKHOLDERS AGREEMENT WITH OUR SERIES B PREFERRED
STOCKHOLDERS AND SOME OUR SERIES A PREFERRED STOCKHOLDERS THAT GIVES THEM RIGHTS
OF FIRST REFUSAL AND PREEMPTIVE RIGHTS WHICH MAY IT MAKE IT MORE FOR DIFFICULT
FOR US TO ISSUE OUR SECURITIES TO NEW INVESTORS.
We have entered into a stockholders' agreement with our Series B
preferred stockholders and some of our Series A preferred stockholders. This
stockholders' agreement gives those stockholders rights of first refusal to and
rights to subscribe when we offer additional stock in the future. The
subscription right may inhibit our ability to conduct sales of our securities to
strategic investors and limit our ability to dilute the interests of the Series
B stockholders.
OUR TAX SEPARATION AGREEMENT WITH ITC HOLDING MAY LIMIT OUR ABILITY TO RAISE
EQUITY FUNDING OR CONDUCT ACQUISITIONS FOR STOCK, AND BREACH OF THIS AGREEMENT
COULD SUBJECT US TO SUBSTANTIAL DAMAGES.
In connection with our spin-off by ITC Holding, which was completed on
February 7, 2000, we entered into a tax separation agreement with ITC Holding.
In the agreement, we made representations and covenants that impose limitations
on our future actions. Because we could have substantial liability, up to $50
million, under the tax separation agreement if we breach our representations and
covenants, we could be discouraged from entering into transactions that might
result in a breach. We might not pursue any transaction that would be presumed
to be part of a plan or series of related transactions which results in any
cumulative 50% change of ownership within the four-year period beginning two
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years before the date of our spin-off by ITC Holding. Transactions that could
involve a possible breach include an actual or constructive change of control,
exceeding limits on the raising of equity capital or the use of our stock to
acquire other companies. We may have to forego some growth opportunities that
may occur during the two years subsequent to the spin-off, until February 7,
2002, because of our representations and covenants.
WE ARE NO LONGER ABLE TO RELY ON ITC HOLDING FOR ACCESS TO CAPITAL.
When we were a subsidiary of ITC Holding, we had access to capital that
we may not have as a stand-alone company. Since the spin-off was completed on
February 7, 2000, we no longer have access to capital through ITC Holding, and
it is less likely that ITC Holding will be willing to provide financing to us or
enter into other transactions with us. In the past, ITC Holding has contributed
equity to us and has lent money to us. We can no longer rely on financing from
ITC Holding, and we must depend on our own resources.
ANTI-TAKEOVER PROVISIONS IN DELAWARE LAW AND OUR CHARTER DOCUMENTS COULD MAKE IT
HARD FOR A THIRD PARTY TO ACQUIRE US.
As a Delaware company we are subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law. Section 203 could delay or
prevent a third party or a significant stockholder from acquiring control of us.
In addition, our charter and bylaws may have the effect of discouraging,
delaying or preventing a merger, tender offer or proxy contest involving our
company. Any of these anti-takeover provisions could lower the market price of
our stock. No active market for our stock exists.
NO TRADING MARKET EXISTS FOR OUR SECURITIES, AND OUR SECURITIES ARE SUBJECT TO
TRANSFER RESTRICTIONS.
Our stock is not traded on any stock exchange or quoted on the Nasdaq
Stock Market, or any other established trading market, and no market makers
currently make a market in our stock. We do not expect that an active public
market for our stock will develop. In addition, all shares of our stock are
subject to transfer restrictions. If one of our stockholders decides to sell his
shares of our stock, he must first offer those shares to us to purchase before
he can offer the shares to a third party. With the lack of an active public
market for our stock and our rights of first refusal on the sale of our stock,
our stockholders' ability to sell our securities is limited.
IF WE ISSUE MORE STOCK IN FUTURE OFFERINGS, THE PERCENTAGE OF OUR STOCK THAT OUR
STOCKHOLDERS OWN WILL BE DILUTED.
As of February 29, 2000, we had 6,476 shares of common stock,
48,462,499 shares of Series A preferred stock and 21,180,131 shares of Series B
preferred stock outstanding. We also had outstanding on that date options to
purchase 7,138,104 shares of common stock and 5,830,446 shares of Series A
preferred stock as well as warrants to purchase 994,962 shares of Series A
preferred stock. Future stock issuances also will reduce the percentage
ownership of our current stockholders.
ALTHOUGH OUR STOCK IS NOT PUBLICLY TRADED, THE VALUE OF OUR STOCK COULD BE HURT
BY SUBSTANTIAL PRICE FLUCTUATIONS.
The value of our capital stock could be subject to sudden and material
increases and decreases, even though it is not publicly traded. The value of our
stock could fluctuate in response to:
o our quarterly operating results;
o changes in our business;
o changes in the market's perception of our bundled services;
o changes in the businesses or market perceptions of our
competitors; and
o changes in general market or economic conditions.
In addition, the stock market has experienced extreme price and volume
fluctuations in recent years that have significantly affected the value of
securities of many companies. The changes often appear to occur without regard
to specific operating performance. The value of our capital stock could increase
or decrease based on change of this type, even though our stock is not publicly
traded. These fluctuations could materially reduce the value of our stock.
FORWARD-LOOKING STATEMENTS SHOULD BE READ WITH CAUTION.
This annual report on Form 10-K contains certain forward-looking
statements regarding our operations and business. Statements in this document
that are not historical facts are "forward-looking statements." Such
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forward-looking statements include those relating to:
o future business developments;
o projected or anticipated expansion or construction;
o possible acquisitions and alliances; and
o projected revenues, working capital, liquidity, capital needs,
interest costs and income.
The words "estimate," "project," "intend," "expect," "believe," "may,"
"could" and similar expressions are intended to identify forward-looking
statements. Wherever they occur in this annual report on Form 10-K or in other
statements attributable to us, forward-looking statements are necessarily
estimates reflecting our best judgment. However, these statements still involve
a number of risks and uncertainties that could cause actual results to differ
materially from those suggested by the forward-looking statements. We caution
you not to place undue reliance on these forward-looking statements, which speak
only as of today's date.
EMPLOYEES
At February 29, 2000 we had 759 full-time employees. We consider our
relations with our employees to be good, and we structure our compensation and
benefit plans in order to attract and retain high caliber personnel. We will
need to recruit additional employees in order to implement our expansion plan,
including general managers for each new city and additional personnel for
installation, sales, customer service and network construction. We recruit from
several major industries for employees with skills in voice, video and data
technologies. We do not believe we will have problems retaining personnel with
the necessary qualifications.
ITEM 2. PROPERTIES
We own or lease property in the following locations:
<TABLE>
<CAPTION>
LOCATION ADDRESS LEASE/OWN PRIMARY USE
---------------- ---------------------- ---------- -------------------
<S> <C> <C> <C>
West Point, GA 1241 O.G. Skinner Drive Own Corporate Admin. Offices
West Point, GA 206 West 9th Street Lease Network Operations Center
Montgomery, AL 1450 Ann Street Lease Headend & Technical Offices
Columbus, GA 1701 Boxwood Place Lease Admin. Offices & Headend
Panama City, FL 13200 P.C.B. Pkwy. Lease Admin. Offices & Headend
Augusta, GA 3714 Wheeler Road Own Admin. Offices & Headend
Charleston, SC 4506 Dorchester Road Own Admin. Offices and Headend
Huntsville, AL 2401 10th Street Own Admin. Offices and Headend
</TABLE>
In addition to these properties, we also hold operating leases for hub
sites along our network in each market. Our principal physical assets consist of
fiber optic and coaxial broadband network and equipment, located either at the
equipment site or along the network. Our distribution equipment along the
network is generally attached to utility poles we own or use under standard pole
rental agreements with local public utilities, although in some areas the
distribution cable is buried in underground ducts or trenches. Under our pole
attachment agreements, local public utilities and other pole owners rent us
space on utility poles to attach our network cables and equipment. The rate a
pole owner charges us for space varies, but the rate is generally based upon the
amount of space we rent. See "Business--Legislation and Regulation" for a
discussion of the FCC's regulation of pole attachment rates. Our franchises give
us rights of way for our network. The physical components of the networks
require maintenance and periodic upgrading to keep pace with technological
advances. We believe that our properties, taken as a whole, are in good
operating condition and are suitable for our business operations.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, we are subject to litigation.
However, in our opinion, there is no legal proceeding pending against us which
would have a material adverse effect on our financial position, results of
operations, or liquidity. We are also party to regulatory proceedings affecting
the relevant segments of the communications industry generally.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 22, 1999, the sole stockholder of KNOLOGY, Inc. approved by written
consent the following:
o adoption of an Amended and Restated Certificate of Incorporation;
o an Exchange offer to exchange new shares of KNOLOGY, Inc. for
shares of KNOLOGY Holdings, Inc., Interstate Telephone Company,
Inc., Valley Telephone Company, Inc., Globe Telecommunications,
Inc., ITC Globe, Inc., shares of ClearSource, Inc, cash and a line
of credit note; and
o adoption of the KNOLOGY, Inc. Long Term Incentive Plan.
On December 22, 1999, the stockholders of KNOLOGY, Inc. approved by written
consent a further Amendment and Restatement of the Amended and Restated
Certificate of Incorporation and a stock option plan for the grant of options to
be used in connection with the spin-off of KNOLOGY, Inc. options and shares to
the ITC Holding Company's stockholders and option holders.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Our stock is not traded on any exchange or quoted on the Nasdaq Stock
Market or any other established trading market. No market makers currently make
a market in our stock and we do not plan to engage a market maker. Therefore,
there is no established public trading market and no high and low bid
information or quotations available.
As of February 29, 2000, we had 6,476 shares of common stock
outstanding held of record by approximately 4 stockholders, 48,462,499 shares of
Series A preferred stock outstanding held of record by approximately 331
stockholders and 21,180,131 shares of Series B preferred stock outstanding held
of record by approximately 27 stockholders.
DIVIDENDS
We have never declared or paid any cash dividends on our capital stock
and do not anticipate paying cash dividends on our capital stock in the
foreseeable future. It is the current policy of our board of directors to retain
earnings to finance the expansion of our operations. Future declaration and
payment of dividends, if any, will be determined based on the then-current
conditions, including our earnings, operations, capital requirements, financial
condition, and other factors the board of directors deems relevant. In addition,
our ability to pay dividends is limited by the terms of the indenture governing
our outstanding notes and by the terms of our credit facility.
RECENT SALES OF UNREGISTERED SECURITIES
In November 1999, we completed an exchange with KNOLOGY Holdings
stockholders, including AT&T venture funds and SCANA Communications, in which we
exchanged our common stock and Series A preferred stock for KNOLOGY Holdings
common stock and preferred stock. Through this exchange offering, we acquired
7,113 shares of preferred stock of KNOLOGY Holdings from AT&T venture funds for
4,267,800 shares of our Series A preferred stock and 753 shares of preferred
stock of KNOLOGY Holdings from SCANA Communications for 451,800 shares of our
Series A preferred stock. In November 1999, we also issued 43,211,531 shares of
our Series A preferred stock to ITC Holding in exchange for ITC Holding
contributing to us:
o stock representing 85% of the outstanding equity of KNOLOGY
Holdings;
o stock representing 100% of each of Interstate Telephone, Valley
Telephone, Globe Telecommunications and ITC Globe, which together
provide telephone, cable and Internet access services in western
Georgia and eastern Alabama;
o a note of KNOLOGY Holdings in the amount of $9,641,189; and
o 272,832 shares of preferred stock of ClearSource, Inc., and
subscription rights to purchase an additional 810,501 shares of
preferred stock of ClearSource in future ClearSource financings,
together with cash in the amount of $5.6 million to be used to
make the subscription payments. ClearSource is a company planning
to operate broadband systems in Texas and other southern or
mid-western states similar to our services in the southeast.
Currently, our investment in ClearSource represents approximately
18% ownership interest in this company.
The shares of Series A preferred stock are convertible into shares of
our common stock at any time at the option of the holder and automatically upon
the completion of a public offering in which (1) the per share price to the
public is at least $6.00, (2) the gross proceeds to us are at least $50 million
and (3) the common stock sold in the offering is listed on the Nasdaq National
Market or on a national securities exchange. The shares are convertible into
shares of common stock on a one-to-one basis, subject to customary anti-dilution
adjustments.
In November 1999 we also completed the exchange of warrants to purchase
shares of KNOLOGY Holdings preferred stock for warrants to purchase 994,961
shares of our Series A preferred stock. The warrants may be exercised at any
time at an exercise price of $.01 per share. The warrants expire on October 21,
2007.
The issuances of securities described above were made in reliance on
exemptions from registration provided by Section 4(2) or Regulation D of the
Securities Act, as amended, as transactions by an issuer not involving any
public offering. The persons and entities exchanging securities in the
transactions represented their intention to acquire the securities for
investment only and not with a view to or for distribution in connection with
such transactions, and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access to
information about our company, through their relationship with us or through
information about us made available to them.
35
<PAGE> 38
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected consolidated financial
data. The selected financial data as of and for the years ended December 31,
1995, 1996, 1997, 1998, and 1999 have been derived from our audited financial
statements. The selected financial data set forth below should be read in
conjunction with our section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations", our financial statements and
related notes, and other financial data included elsewhere in this report. See
note 1 to our financial statements regarding the reorganization.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1998(a) 1999
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues .................... $ 18,929,279 $ 17,527,208 $ 17,633,313 $ 45,132,522 $ 66,720,929
Operating expenses:
Cost of services ...................... 5,593,083 2,991,412 3,121,108 16,796,593 26,964,519
Selling, operations and
administrative ....................... 8,740,090 8,331,795 9,498,461 33,266,292 45,960,263
Depreciation and amortization ......... 3,185,901 3,022,056 2,781,800 17,326,895 40,970,149
------------- ------------- ------------- ------------- -------------
Total operating expenses .............. 17,519,074 14,345,263 15,401,369 67,389,780 113,894,931
------------- ------------- ------------- ------------- -------------
Operating income (loss) ............... 1,410,205 3,181,945 2,231,944 (22,257,258) (47,174,002)
------------- ------------- ------------- ------------- -------------
Other expense, net .................... (362,331) (379,889) (2,048,506) (18,645,199) (32,837,223)
------------- ------------- ------------- ------------- -------------
Income (loss) before minority interest,
income tax (provision) benefit and
cumulative effect of a change in
accounting principle ................. 1,047,874 2,802,056 183,438 (40,902,457) (80,011,225)
Minority interest ..................... 667,038 -- -- 13,294,079 3,267,653
Income tax (provision) benefit ........ (573,327) (1,371,865) (1,010,779) 5,631,618 19,697,270
Cumulative effect of a change in
accounting principle ................. -- -- -- (582,541) --
------------- ------------- ------------- ------------- -------------
Net income (loss) ..................... 1,141,585 1,430,191 (827,341) (22,559,301) (87,046,302)
Subsidiary preferred stock dividends .. -- -- (4,193,276) (1,424,222) (1,744,703)
------------- ------------- ------------- ------------- -------------
Net income (loss) attributable to
common stockholders .................. $ 1,141,585 $ 1,430,191 $ (5,020,617) $ (23,983,523) $ (58,791,005)
============= ============= ============= ============= =============
PER SHARE DATA:
Basic and diluted net income (loss)
attributable to common stockholders... $ 11,415.85 $ 14,301.91 $ (50,206.17) $ (239,835.23) $ (11.45)
Basic and diluted weighted average
number of common shares
outstanding .......................... 100 100 100 100 5,132,653
OTHER FINANCIAL DATA:
Capital expenditures .................. $ 3,079,108 $ 995,320 $ 1,727,079 $ 120,227,057 $ 87,386,231
Cash provided by (used in) operating
activities ........................... 94,418 4,770,730 3,680,116 23,035,488 2,235,335
Cash (used in) provided by investing
activities ........................... (3,544,192) (197,362) (22,223,940) (34,586,803) (29,316,194)
Cash (used in) provided by financing
activities ........................... 1,535,595 (4,457,176) 18,726,407 16,083,187 (29,740,547)
EBITDA(b) ............................. 5,565,993 5,640,550 2,509,854 8,564,129 (2,829,134)
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1998 1999
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ....................... $ 832,057 $ 2,977,835 $ (1,240,180) $ 49,978,838 $ 15,664,483
Property and equipment, net ........... 20,406,060 11,374,950 11,260,846 211,885,668 273,896,831
Total assets .......................... 38,544,328 22,883,276 30,196,492 374,680,811 400,333,810
Long-term debt, including accrued
interest ............................. 11,075,698 -- -- 276,178,820 331,012,181
Total liabilities ..................... 22,034,469 7,235,555 6,656,317 314,414,049 357,684,385
Minority interest ..................... 2,981,968 -- -- 3,267,653 --
Retained earnings (accumulated deficit) 8,168,034 9,598,225 3,181,179 (20,802,344) (79,593,349)
Total stockholders' equity ............ 13,527,891 15,647,721 23,540,175 54,512,149 37,923,360
</TABLE>
- ----------
(a) See note 9 to the financial statements, Cable Alabama acquisition, for
further information regarding presentation.
(b) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. While EBITDA should not be construed as a
substitute for operating income (loss) as a measure of performance or as a
better measure of liquidity than cash flows from operating activities, which
are determined in accordance with generally accepted accounting principles,
it is a measure commonly used in our industry and is included herein because
we believe EBITDA provides relevant and useful information to our investors.
Since the elements of EBITDA are determined using the accrual basis of
accounting and EBITDA excludes the effects of capital and financing related
costs, investors should use it to analyze and compare companies on the basis
of operating performance. We utilize and have disclosed EBITDA to provide
additional information with respect to our ability to meet future debt
service, capital expenditures and working capital requirements; to incur
additional indebtedness; and to fund continuing growth. EBITDA may not
necessarily be calculated comparably with similarly titled measures for
other companies. Additionally, we do not currently believe that there are
any legal or functional requirements that limit management's discretionary
use of funds depicted by EBITDA.
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<PAGE> 40
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This annual report on Form 10-K contains certain forward-looking
statements that involve risks and uncertainties. In addition, members of our
senior management may, from time to time, make certain forward-looking
statements concerning our operations, performance and other developments. Our
actual results could differ materially from those anticipated in such
forward-looking statements as a result of various factors, Including those set
forth under the caption "Business--Risk Factors" and elsewhere in this annual
report on Form 10- K, as well as factors which may be identified from time to
time in our other filings with the Securities and Exchange Commission or in
documents where such forward-looking statements appear.
The following is a discussion of our consolidated financial condition
and results of operations for the three years ended December 31, 1999 and
certain factors that are expected to affect our prospective financial condition.
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto and other financial data included
elsewhere in this Form 10-K.
You should read the following discussion together with our "Selected
Consolidated Financial Data" section and our financial statements and related
notes elsewhere in this prospectus. The following discussion contains, in
addition to historical information, forward-looking statements that involve
risks and uncertainties. Our actual results may differ significantly from the
results discussed in the forward-looking statements.
Our historical financial statements include the assets, liabilities and
results of operations of our subsidiaries which have been majority-owned by ITC
Holding during each year. Accordingly, our financial statements include the
assets, liabilities and results of operations of all of our subsidiaries for the
years 1997, 1998 and 1999.
OVERVIEW
We are a newly formed holding company that owns 100% of KNOLOGY
Holdings, Inc., Interstate Telephone Company, Valley Telephone Company, Globe
Telecommunications, Inc. and ITC Globe, Inc.
We acquired these interests in November 1999 from ITC Holding Company,
Inc. and other stockholders of KNOLOGY Holdings. Our structure is as follows:
o Interstate Telephone, Valley Telephone and Globe
Telecommunications are our direct subsidiaries.
o KNOLOGY Holdings is a direct subsidiary of Valley Telephone.
o ITC Globe is a direct subsidiary of Globe Telecommunications.
In November 1999, InterCall, Inc., a subsidiary of ITC Holding, contributed to
us:
o stock representing 85% of the outstanding equity of KNOLOGY
Holdings;
o stock representing 100% of each of Interstate Telephone, Valley
Telephone, Globe Telecommunications and ITC Globe, which together
provide telephone, cable and Internet access services in western
Georgia and eastern Alabama;
o a note of KNOLOGY Holdings in the principal amount of up to $13
million; and
o 272,832 shares of preferred stock of ClearSource, Inc., and
subscription rights to purchase an additional 810,501 shares of
preferred stock of ClearSource in future ClearSource financings,
together with cash in the amount of $5.6 million to be used to
make the subscription payments. ClearSource is a company planning
to operate broadband systems in Texas and other southern or
mid-western states similar to our services in the southeast.
Currently, our investment in ClearSource (including shares and
subscription rights previously owned by KNOLOGY Holdings)
represents approximately 17% ownership interest in this company.
We also completed the exchange of warrants to purchase shares of
KNOLOGY Holdings preferred stock for warrants to purchase 994,961 shares of our
Series A preferred stock. Concurrent with this contribution, we completed the
exchange of other KNOLOGY Holdings common stock and preferred stock for our
common stock and Series A preferred stock. We now hold, through Valley
Telephone, 100% of the outstanding stock of KNOLOGY Holdings.
38
<PAGE> 41
The November 1999 transactions were effected primarily to combine the
businesses of KNOLOGY Holdings, Interstate Telephone, Valley Telephone, Globe
Telecommunications and ITC Globe. Together with ITC Holding, we determined that
KNOLOGY Holdings and these other companies have parallel growth in the broadband
market, and that combining the businesses would enhance their ability to take
advantage of the opportunities in that market. Although Interstate Telephone and
Valley Telephone primarily have been telephone companies, they have recently
through ITC Globe begun offering cable television and Internet access services
in the same geographic area in which they provide telephone service. Combining
these businesses under KNOLOGY is expected to allow all of the companies to
benefit from KNOLOGY Holdings' experience as a provider of cable television
services and as a provider of a bundle of broadband services. It also permits
KNOLOGY Holdings to take advantage of the more than 100 years of experience of
Interstate Telephone and Valley Telephone as telephone companies.
Since ClearSource proposes to conduct a similar broadband business in
southern or mid-western states, ITC Holding and we determined that the
ClearSource investments also should be under KNOLOGY. The KNOLOGY Holdings note
was contributed to KNOLOGY to terminate the lender-borrower relationship between
ITC Holding and KNOLOGY Holdings.
In December 1999, after the contribution and exchange discussed above,
we entered into a loan agreement and a promissory note with InterCall, Inc., a
subsidiary of ITC Holding. This subsidiary loaned us approximately $29.7
million. The proceeds of this loan are to be used for construction of the
network by KNOLOGY Holdings and for working capital. This loan accrued interest
at a rate of 11 7/8% per year and had a maturity date of March 31, 2000. The
note issued under the loan agreement provided that InterCall could elect, in
lieu of repayment, to convert the amount outstanding under the note into options
to purchase shares of our Series A preferred stock. In February 2000 the entire
amount of the note was converted into options to purchase 6,258,036 shares of
our Series A preferred stock. These options were distributed to ITC Holding
option holders in February 2000.
In connection with the conversion we issued to ITC Holding a residual
note which provides that KNOLOGY will pay to ITC Holding any proceeds of option
exercises received by KNOLOGY. In the event of a cashless exercise of any of the
KNOLOGY options, KNOLOGY must pay to ITC Holding in cash an amount equal to the
exercise price.
SIGNIFICANT ACCOUNTING POLICIES
The reorganization described above has been accounted for in a manner
similar to a pooling of interest for Interstate Telephone, Valley Telephone,
Globe Telecommunications and ITC Globe, our telephone operations group. KNOLOGY
Holdings and subsidiaries have been treated as an equity investment in
subsidiary in 1996 and 1997 in relation to our 24% and 29% ownership interest,
respectively. KNOLOGY Holdings and subsidiaries have been consolidated with us
in 1998 and 1998 in relation to the 85% controlling interest obtained in July
1998 which was recorded at ITC Holding's historical cost. For the period from
August 1998 to December 1998, the 15% of KNOLOGY Holdings that we did not own
has been reflected as minority interest and the pro-rata losses attributed to
the minority holders to the extent that their investment was greater than zero
(which it was for the period discussed here) in accordance with Financial
Accounting Standards Board Current Text on Consolidation and Statement of
Financial Accounting Standards No. 94. Because a controlling interest in KNOLOGY
Holdings was acquired in August 1998, the financial statements for the year
ended December 31, 1998 include the accounts of KNOLOGY Holdings for the entire
year and the minority interest in losses includes the 58% share of KNOLOGY
Holdings' losses for the period January 1998 to July 1998.
The exchange of the remaining 15% of KNOLOGY Holdings for shares of our
stock was accounted for as an acquisition of a minority interest of a
subsidiary. The stock issued in the exchange was valued at $22.4 million and was
recorded as goodwill since the book value of net assets acquired (which
approximated fair value) was less than zero. We had recorded 100% of KNOLOGY
Holdings' losses since KNOLOGY Holdings' equity was less than zero.
In June 1998, KNOLOGY Holdings acquired TTE Inc., a non-facilities
based reseller of local, long distance and operator services to small and
medium-sized business customers throughout South Carolina. This acquisition was
accounted for as a purchase.
In October 1998, KNOLOGY Holdings acquired the Cable Alabama cable
television system serving the Huntsville, Alabama area, this acquisition was
accounted for as a purchase. The existing Cable Alabama plant is being upgraded
to an interactive broadband network which will be completed by 2001.
39
<PAGE> 42
REVENUES AND EXPENSES
We can group our revenues into four categories: video revenues,
telephone revenues, Internet revenues and other revenues.
o VIDEO REVENUES. Our video revenues consist of fixed monthly fees
for basic, premium and digital cable television services, as well
as fees from pay-per-view movies and events such as boxing matches
and concerts, that involve a charge for each viewing. Video
revenues accounted for approximately 50% and 53% of our
consolidated revenues for the years ended December 31, 1998 and
December 31, 1999, respectively.
o TELEPHONE REVENUES. Our telephone revenues consist primarily of
fixed monthly fees for local service, enhanced services such as
call waiting and voice mail, and usage fees for long distance
service. Telephone revenues accounted for approximately 49% and
43% of our consolidated revenues for the years ended December 31,
1998 and December 31, 1999, respectively.
o INTERNET REVENUES AND OTHER REVENUES. Our Internet revenues
consist primarily of fixed monthly fees for Internet access
service and rental of cable modems. Other revenues resulted
principally from broadband carrier services and video production
services. These combined revenues accounted for approximately 1%
and 4% of our consolidated revenues for the years ended December
31, 1998 and December 31, 1999, respectively.
Our operating expenses include cost of services expenses, selling,
operations and administrative expenses, and depreciation and amortization
expenses.
Cost of services expenses include:
o VIDEO COST OF SERVICES. Video cost of services consist primarily
of monthly fees to the National Cable Television Cooperative and
other programming providers, and are generally based on the
average number of subscribers to each program. Programming costs
accounted for approximately 12.5% and 13.4% of our operating
expenses for the years ended December 31, 1998 and December 31,
1999, respectively. Programming costs is our largest single cost
and we expect this to continue. Since this cost is based on
numbers of subscribers, it will increase as we add more
subscribers.
o TELEPHONE AND INTERNET ACCESS SERVICES. Cost of services related
to our telephone and Internet access services include costs of
Internet transport and telephone switching, and interconnection
and transport charges payable to local and long distance carriers.
Selling, operations and administrative expenses include:
o SALES AND MARKETING COSTS. Sales and marketing costs include the
cost of sales and marketing personnel and advertising and
promotional expenses.
o NETWORK OPERATIONS AND MAINTENANCE EXPENSES. Network operations
and maintenance expenses include payroll and departmental costs
incurred for network design and maintenance monitoring.
o CUSTOMER SERVICE EXPENSES. Customer service expenses include
payroll and departmental costs incurred for customer service
representatives and management.
o GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses consist of corporate and subsidiary general management
and administrative costs.
Depreciation and amortization expenses include depreciation of our interactive
broadband networks and equipment, and amortization of cost in excess of net
assets and other intangible assets related to acquisitions.
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<PAGE> 43
RESULTS OF OPERATIONS
The following table sets forth financial data as a percentage of
operating revenues for the years ended December 31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
--------- --------- -------
<S> <C> <C> <C>
Operating revenues...................... 100% 100% 100%
--- --- ---
Operating expenses:
Cost of services..................... 18 28 40
Selling, operating and administrative 54 83 69
Depreciation and amortization........ 16 38 61
--- --- ---
Total....................... 88 149 170
--- --- ---
Operating income (loss)................. 12 (49) (70)
Other income and expenses............... (12) (41) (49)
--- --- ---
Income (loss) before minority interest,
income tax (provision) benefit and
cumulative effect of a change in
accounting principle.................... 0 (90) (120)
Minority interest....................... 0 29 5
Income tax (provision) benefit.......... (6) 12 30
Cumulative effect of change in accounting
principle............................ 0 (1) 0
--- --- ---
Net income (loss)....................... (6) (50) (85)
Subsidiary preferred stock dividends.... (24) (3) 0
--- --- ---
Net income (loss) attributable to
stockholders......................... (30)% (53)% (88)%
=== === ===
</TABLE>
The following table sets forth certain operating data as of December
31, 1997, 1998 and 1999. The information provided in the table reflects
revenue-generating connections. Because we deliver multiple services to our
customers, we report the total number of our various revenue generating service
connections for local telephone, cable programming and Internet access, rather
than the total number of customers.
AS OF DECEMBER 31,
-----------------------------
1997 1998 1999
---------- -------- -------
Connections(1)
Video .................. 37,716 80,600 89,937
Telephone
On-net(2) ............ 19,518 24,343 35,879
Off-net(3) ........... 0 5,982 7,908
Internet ............... 0 908 4,989
------- ------- -------
Total Connections ........ 57,234 111,833 138,713
======= ======= =======
Marketable Homes Passed(4) 124,773 256,271 305,773
======= ======= =======
(1) Connections represent revenue-generating connections. For video and
high-speed Internet, connections represent the number of customers
subscribing to the service. For telephone, connections represent the number
of lines connected. For example, a telephone customer that has two lines
would be counted as two connections.
(2) On-net refers to lines provided over our broadband networks. It includes
19,518, 21,369 and 23,538 lines as of December 31, 1997, 1998 and 1999,
respectively, provided using traditional copper telephone lines.
(3) Off-net consists of all telephone connections provided within our broadband
network area over telephone lines leased from third parties.
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<PAGE> 44
(4) Marketable homes passed are the number of living units, such as single
residence homes, apartments and condominium units, passed by our cable
television distribution network.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES. Operating revenues increased 47.8% from $45.1 million for the
year ended December 31, 1998 to $66.7 million for the year ended December 31,
1999. Our increased revenues are primarily due to a higher number of connections
during the year ended December 31, 1999 compared to the same period in 1998. The
additional connections resulted primarily from:
o the extension of our broadband networks in the Montgomery,
Columbus and Panama City markets;
o the continued growth of broadband services in the Augusta and
Charleston markets; and
o the acquisition of the TTE and Cable Alabama systems in June 1998
and October 1998, respectively.
Particularly in the cable industry, there is a trend towards
consolidation, exclusivity arrangements and other forms of competition. If the
level of competition continues to increase, due to consolidation, exclusivity
arrangements or otherwise, our ability to attract and retain customers and to
increase revenues could suffer.
EXPENSES. Our operating expenses, excluding depreciation and
amortization, increased 45.7%, from $50.0 million for the year ended December
31, 1998 to $72.9 million for the year ended December 31, 1999. The cost of
services component of operating expenses increased 60.5%, from $16.8 million for
1998 to $27.0 for 1999. Our selling, operations, and administration expenses
increased 38.3%, from $33.3 million for 1998 to $46.0 million for 1999. The
increase in our cost of services and other operating expenses is consistent with
the growth in revenues and is a result of the expansion of our operations and
the increase in the number of subscribers and the number of employees associated
with such expansion and growth into new markets. We expect our cost of services
to continue to increase as we add more revenue generating units. Our selling,
operations and administration expenses will increase as we expand into
additional markets. Programming costs, which are our largest single expense
item, have been increasing over the last several years, and we expect this trend
to continue. We may not be able to pass these higher costs on to customers,
which would adversely affect our cash flow and operating margins.
Our depreciation and amortization expenses increased 137.0% from $17.3
million for the year ended December 31, 1998 to $41.0 million for the year ended
December 31, 1999. Approximately $12.0 million of the increase in depreciation
and amortization is due to the amortization of the excess of the purchase price
of Cable Alabama over the fair value of net assets acquired. Approximately $10.6
million of the increase is due to depreciation expense related to network
capital expenditures, with the remaining $1.1 million of the increase primarily
due to depreciation expense related to the purchase of buildings, computers and
office equipment at the corporate and subsidiary locations. We expect our
depreciation and amortization expense to continue to increase as we make capital
expenditures to extend our existing networks and build additional networks.
OTHER INCOME AND EXPENSE. Our interest income was $9.6 million for the
year ended December 31, 1998, compared to $1.5 million for the year ended
December 31, 1999. The interest income reflects the interest earned from the
investment of certain proceeds received from the issuance of the senior discount
notes in October 1997. The decrease in interest income is due to the draw down
of marketable securities to fund planned expansion and acquisitions.
Our interest expense increased from $29.1 million for the year ended
December 31, 1998 to $34.4 million for the year ended December 31, 1999. The
increase in interest expense reflects the accrual of the interest attributable
to the senior discount notes issued in October 1997.
INCOME TAX (PROVISION) BENEFIT. We recorded an income tax benefit of
$5.6 million for the year ended December 31, 1998 compared to an income tax
benefit of $19.7 million for the year ended December 31, 1999. The income tax
benefit in 1999 resulted from our utilizing net tax losses under a tax sharing
agreement with ITC Holding. The tax sharing agreement was effective August 1998
upon the acquisition by ITC Holding of its majority-owned interest of KNOLOGY
Holdings, Inc. With the completion of the spin-off of KNOLOGY, Inc. by ITC
Holding, we will no longer participate in the tax sharing agreement. Therefore,
we will not receive any payments from ITC Holding related to income tax benefits
for periods subsequent to the distribution. As a stand alone entity after the
spin-off, we will record a full valuation allowance against any income tax
benefit until taxable income is generated, at which time a tax benefit will be
realized.
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<PAGE> 45
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS. We incurred a net loss of
$24.0 million for the year ended December 31, 1998 compared to a net loss of
$58.8 million for the year ended December 31, 1999. The increase in net loss is
a result of the expansion of our operations and the increase in the number of
employees associated with such expansion and growth into new markets. We expect
net losses to continue to increase as we proceed with the expansion of our
business.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
As explained above, our results for the year ended December 31, 1998
include the results of all of our current subsidiaries. However, our 1997
results do not include the results of KNOLOGY Holdings, which was not
majority-owned by ITC Holding during 1997 and therefore, was accounted for as an
equity method investment in 1997.
REVENUES. Our operating revenues increased $27.5 million, or 156.3%,
from $17.6 million for the year ended December 31, 1997 to $45.1 million for the
year ended December 31, 1998. Excluding operating revenues of $25.8 million of
KNOLOGY Holdings in 1998, our operating revenues increased $1.7 million, or
9.7%, due primarily to the addition of a competitive local telephone and
broadband services operations in the Georgia/Alabama border area.
EXPENSES. Our operating expenses, excluding depreciation and
amortization, increased $37.5 million, or 297.6%, from $12.6 million for the
year ended December 31, 1997 to $50.1 million for the year ended December 31,
1998. Excluding operating expenses of $37.3 million of KNOLOGY Holdings in 1998,
our operating expenses increased $195,000, or 1.5%.
Our depreciation and amortization expenses increased from $2.8 million
for the year ended December 31, 1997 to $17.3 million for the year ended
December 31, 1998, an increase which primarily reflects the inclusion of $12.4
million of KNOLOGY Holdings' depreciation and amortization for the 1998 period
which was consolidated in our 1998 results.
Our interest income and interest expense increased $9.6 million and
$29.0 million, respectively, from 1997 to 1998, primarily due to the inclusion
of KNOLOGY Holdings' results in the 1998 period. The interest expense and
interest income reported in the 1998 period reflects the accrual of the interest
attributable to the senior discount notes issued in October 1997 and the
interest income from the investment of the proceeds of the notes into marketable
securities.
Equity in losses of subsidiary decreased $2.4 million from the year
ended December 31, 1997 compared to the same period in 1998. The decrease
represents the acquisition of the majority of KNOLOGY Holdings stock in 1998
which acquisition required us to consolidate the operations of KNOLOGY Holdings
in 1998.
OTHER INCOME AND EXPENSE. Other income (expense) changed from $(59,000)
for the year ended December 31, 1997 to $783,000 for the year ended December 31,
1998 and is primarily due to the 1997 period reflecting a gain on the sale of an
investment.
MINORITY INTERESTS. Minority interests in losses of subsidiary
increased from $0 in 1997 to $13.3 million in 1998. Minority interests in 1998
reflects the minority stockholders' share of the losses and the pre-acquisition
losses in connection with the acquisition of KNOLOGY Holdings in 1998. In
accordance with Accounting Principles Board Opinion No. 16, the reorganization
of KNOLOGY Holdings was recorded at ITC Holding's historical cost for the 85%
controlling interest obtained. The remainder was treated as an acquisition of
minority interest at fair value.
INCOME TAX (PROVISION) BENEFIT. We recorded an income tax benefit of
$5.6 million for the year ended December 31, 1998 compared to a provision of
$1.0 million for the year ended December 31, 1997. The income tax benefit in
1998 resulted from our utilizing net tax losses under a tax sharing agreement
with ITC Holding. The provision in 1997 reflects the tax expense of all of our
subsidiaries. The change in the amount of $6.6 million resulted from the
consolidation of KNOLOGY Holdings due to the acquisition of majority interest by
ITC Holding in 1998, in which period KNOLOGY Holdings' taxable losses result in
a tax benefit. As a stand alone entity after spin-off by ITC Holding, we will
record a full valuation allowance against any income tax benefit until taxable
income is generated, at which time a tax benefit will be realized.
PREFERRED DIVIDENDS. Preferred dividends in the amount of $4.2 million
in 1997 and $1.4 million in 1998 represent profits of Interstate Telephone and
Valley Telephone distributed to ITC Holding Company. The decrease in 1998 as
compared to 1997 relates to the increased capital deployed to launch operations
of Globe Telecommunications and ITC Globe in 1998.
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS. We incurred a net loss of
$827,000 for the year ended December 31, 1997 compared to a net loss of $22.6
million for the year ended December 31, 1998. The increase in net loss is a
result of the expansion of our operations and the increase in the number of
employees associated with such expansion and growth into new markets. We expect
net losses to continue to increase as we proceed with the expansion of our
business.
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LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had net working capital of $15.7 million,
compared to $50.0 million at December 31, 1998.
Net cash provided by operations totaled $3.7 million, $23.0 million and
$2.2 million for the years ended December 31, 1997, 1998 and 1999, respectively.
The net cash flow activity related to operations consists primarily of changes
in operating assets and liabilities and adjustments to net income for non-cash
transactions including:
o depreciation and amortization;
o loss on disposition of assets;
o cumulative effect of an accounting change;
o deferred income taxes;
o deferred investment tax credit;
o equity in net loss of subsidiary; and
o minority interest in subsidiaries' net loss.
Net cash used for investing activities was $22.2 million, $34.6 million
and $29.3 million for the years ended December 31, 1997, 1998 and 1999,
respectively. Our investing activities in 1997 consisted primarily of $1.7
million of capital expenditures, $14.3 million for the purchase of the Panama
City cable system, $4.2 million of dividends paid by Interstate Telephone and
Valley Telephone to ITC Holding and a $2.1 million increase in
construction-related payables. In 1998, our investing activities consisted
primarily of $120.2 million of capital expenditures, $67.7 million for the
acquisition of the Huntsville, Alabama cable system, $6.2 million for the
purchase of equity interests in KNOLOGY Holdings, net of cash acquired of $6.1
million, $1.4 million of dividends paid by Interstate Telephone to ITC Holding
and $0.8 million for an investment in ClearSource, Inc. These investing
activities are offset by $162.3 million in proceeds from the sale of short-term
investments. Our investing activities for the year ended December 31, 1999
consisted of $87.4 million of capital expenditures principally funded by $66.2
million in proceeds from the sale of short-term investments.
Net cash flow from financing activities was cash provided of $18.7
million, cash provided of $16.1 million and cash provided of $29.7 million for
the years ended December 31, 1997, 1998 and 1999, respectively. Cash flow from
financing activity in 1997 consisted of $14.3 million of additional infusion of
equity and $4.4 million of reimbursement of advances previously made to an
affiliate. Financing activities in 1998 primarily consisted of $15.6 million of
additional infusion of equity and $2.0 million repayment from an affiliate,
offset by $1.5 million in expenditures related to the issuance of debt. These
numbers do not include $242.4 million raised by KNOLOGY Holdings in 1997, as
KNOLOGY Holdings was not majority-owned by ITC Holding during 1997. Financing
activities in 1999 primarily consisted of $28.6 million of short-term borrowings
through the credit facility and affliates, $8.1 million from the issuance of
warrants, contribution of Clearsource and the exercise of options, partially
offset by $6.1 million in repayments to affiliates.
FUNDING TO DATE
We have required equity infusions and debt proceeds to finance a
significant portion of our operating, investing and financing activities in the
development of our business. On October 22, 1997, KNOLOGY Holdings received net
proceeds of approximately $242.4 million from the offering of units consisting
of senior discount notes due 2007 and warrants to purchase preferred stock. The
notes were sold at a substantial discount from their principal amount at
maturity and there will not be any payment of interest on the notes prior to
April 15, 2003. The notes will fully accrete to face value of $444.1 million on
October 15, 2002. From and after October 15, 2002, the notes will bear interest,
which will be payable in cash, at a rate of 11 7/8% per annum on April 15 and
October 15 of each year, commencing April 15, 2003. The indenture contains
covenants that affect, and in certain cases significantly limit or prohibit, the
ability of KNOLOGY Holdings to:
o incur indebtedness;
o pay dividends;
o prepay subordinated indebtedness;
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o redeem capital stock;
o make investments;
o engage in transactions with stockholders and affiliates;
o create liens;
o sell assets; and
o engage in mergers and consolidations.
If KNOLOGY Holdings fails to comply with these covenants, KNOLOGY
Holdings' obligation to repay the notes may be accelerated. However, these
limitations are subject to a number of important qualifications and exceptions.
In particular, while the indenture restricts KNOLOGY Holdings' ability to incur
additional indebtedness by requiring compliance with specified leverage ratios,
it permits KNOLOGY Holdings and its subsidiaries to incur an unlimited amount of
indebtedness to finance the acquisition of equipment, inventory and network
assets and to secure such indebtedness, and to incur up to $50 million of
additional secured indebtedness. Upon a change of control of KNOLOGY Holdings,
as defined in the indenture, KNOLOGY Holdings would be required to make an offer
to purchase the notes at a purchase price equal to 101% of their accreted value,
plus accrued interest. The spin-off did not constitute a change of control under
the Indenture.
Each unit in the 1997 units offering also included a warrant to
purchase 0.003734 shares of preferred stock of KNOLOGY Holdings at an exercise
price of $0.01 per share. In November 1999, we completed an exchange in which we
received the KNOLOGY Holdings warrants, issued in connection with the senior
discount notes in 1997, in exchange for warrants to purchase shares of our
Series A preferred stock, which new warrants contain substantially identical
terms as the KNOLOGY Holdings' warrants.
In connection with the 1997 units offering, KNOLOGY Holdings completed
an equity private placement, in which KNOLOGY Holdings issued approximately
21,400 additional shares of preferred stock at $1,500 per share to ITC Holding,
Century Telephone Enterprises, Inc., SCANA Communications, Inc., South Atlantic
Venture Fund III, Limited Partnership and AT&T venture funds for aggregate
proceeds of approximately $32.2 million. A portion of the proceeds from this
private placement were used to repay approximately $11.0 million in borrowings
from SCANA and an additional $11.0 million of debt incurred by KNOLOGY Holdings
to finance the purchase of its cable television systems in Montgomery, Alabama
and Columbus, Georgia in 1995. ITC Holding subsequently repurchased all shares
of KNOLOGY Holdings' preferred stock owned by Century Telephone, South Atlantic
and SCANA during 1998.
On December 22, 1998, KNOLOGY Holdings entered into a $50 million
four-year senior secured credit facility with First Union National Bank and
First Union Capital Markets Corp. The credit facility allows KNOLOGY Holdings to
borrow up to five times a certain individual subsidiary's annualized
consolidated adjusted cash flow, as defined in the credit facility agreement.
The credit facility may be used for working capital and other purposes,
including capital expenditures and permitted acquisitions. At KNOLOGY Holdings'
option, interest will accrue based on either the prime or federal funds rate
plus applicable margin or the LIBOR rate plus applicable margin. The applicable
margin may vary from .50% to 2.50% based on the leverage ratio of KNOLOGY
Holdings. The credit facility contains a number of covenants including, among
others, covenants limiting the ability of KNOLOGY Holdings and its subsidiaries
to:
o incur debt;
o create liens;
o pay dividends;
o make distributions or stock repurchases;
o make certain investments;
o engage in transactions with affiliates;
o sell assets; and
o engage in mergers and acquisitions.
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The credit facility also includes covenants requiring compliance with
certain operating and financial ratios on a consolidated basis, including the
number of revenue generating units and average revenue per subscriber. KNOLOGY
Holdings is currently in compliance with these covenants, however, there are no
assurances that KNOLOGY Holdings will remain in compliance. Should KNOLOGY
Holdings not be in compliance with the covenants, KNOLOGY Holdings would be in
default and would require a waiver from the lender. In the event the lender
would not provide a waiver, amounts outstanding against the facility could be
payable to the lender on demand. A change of control of KNOLOGY Holdings, as
defined in the credit facility agreement, would constitute a default under the
covenants. The distribution does not constitute a change of control of KNOLOGY
Holdings under the credit facility agreement.
The maximum amount currently available under the credit facility at
December 31, 1999 was approximately $23 million, assuming compliance with all of
the operating and financial covenants. As of December 31, 1999, $19 million of
the $23 million currently available had been drawn against the credit facility.
We obtained an aggregate of approximately $39.4 million from ITC
Holding and its subsidiary InterCall during November 1999 and January 2000.
Approximately $9.6 million of these advances was advanced to us in November
1999. This loan was converted into 2,029,724 shares of Series A preferred stock
in November 1999. Another $29.7 million loan was made in January 2000. In
February 2000, the loan was converted into options to purchase up to 6,258,036
shares of our Series A preferred stock. The loan bore interest at an annual rate
of 11.875% and had a maturity date of March 31, 2000.
In February 2000, we issued to qualified investors in an equity private
placement, 21,180,131 shares of our Series B preferred stock at a purchase price
of $4.75 per share, for aggregate proceeds of approximately $100.6 million. The
investors included current stockholders, new institutional investors and certain
officers of our Company in the amounts of $10,499,997, $89,500,000 and $605,625,
respectively.
In connection with our spin-off by ITC Holding, which was completed on
February 7, 2000, we entered into a tax separation agreement with ITC Holding.
In the agreement, we made representations and covenants that impose limitations
on our future actions. Because we could have substantial liability, up to $50
million, under the tax separation agreement if we breach our representations and
covenants, we could be discouraged from entering into transactions that might
result in a breach. We might not pursue any transaction that would be presumed
to be part of a plan or series of related transactions which results in any
cumulative 50% change of ownership within the four-year period beginning two
years before the date of our spin-off by ITC Holding. Transactions that could
involve a possible breach include an actual or constructive change of control,
exceeding limits on the raising of equity capital or the use of our stock to
acquire other companies. We may have to forego some growth opportunities that
may occur during the two years subsequent to the spin-off, until February 7,
2002, because of our representations and covenants.
FUTURE FUNDING
Our business requires substantial investment to finance capital
expenditures and related expenses, to expand and/or upgrade the interactive
broadband networks, to fund subscriber equipment and to maintain the quality of
our networks. We currently expect to spend approximately $9 million to fund
operating losses and approximately $131 million for capital expenditures during
2000. The $131 million includes approximately $70 million related to the
construction of networks in our existing markets. The remainder primarily
relates to the purchase of equipment for customer premises, such as cable boxes,
information systems and the commencement of the construction of networks in
additional markets. Failure to have access to additional funds during 2000 could
require us to delay some of our construction plans, delay preliminary efforts in
new markets and possibly require us to restrict or reduce the level of
operations in some markets.
We presently estimate the cost to complete construction of the networks
in our existing markets to be approximately $170 million, of which approximately
$70 million would be expended during 2000. We currently expect that if
sufficient funds are raised, the construction of our networks in our existing
markets would be substantially completed during 2002.
We presently expect that present cash reserves, cash flow from
operations, funding obtained through the existing KNOLOGY Holdings credit
facility and the private offering discussed below will be sufficient to fund our
2000 capital expenditures. We will need additional capital to complete
construction of our networks through 2002. We expect to raise this capital
through private and public debt offerings and private and public equity
offerings, although there is no assurance that this financing will be available
on terms favorable to us. If we are not successful in raising additional
capital, we may not be able to complete the construction of our networks
throughout our current markets. This may cause us to violate our franchise
agreements, which could adversely affect us, or may just limit our growth within
these markets.
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We plan to expand to additional cities in the southeastern United
States. We estimate the cost of constructing networks and funding initial
subscriber equipment in additional new cities at approximately $75 to $100
million per 100,000 homes. The actual costs of each new market may vary
significantly from this range and will depend on the number of miles of network
to be constructed, the geographic and demographic characteristics of the city,
costs associated with the cable franchise in each city, the number of
subscribers in each city, the mix of services purchased, the cost of subscriber
equipment we pay for or finance and other factors. We will need additional
financing to expand into additional cities, for new business activities or in
the event we decide to make additional acquisitions. We expect to raise this
capital through private and public debt offerings and private and public equity
offerings, although there is no assurance that this financing will be available
on terms favorable to us. If we are not successful in raising additional
capital, we will not be able to expand to additional cities as planned. The
schedule for our planned expansion will depend upon the availability of
sufficient capital. Definitive decisions on which cities will be chosen for
expansion are not expected to be made until this capital has been raised.
THE YEAR 2000 ISSUE
RESULTS SINCE JANUARY 1, 2000
To date, year 2000 problems have had a minimal effect on our business.
However, we may not have identified and remediated all significant year 2000
problems.
Further remediation efforts may involve significant time and expense,
and unremediated problems may have a material adverse effect on our business.
Also, we sell telecommunications products to companies in a variety of
industries, each of which is experiencing different year 2000 issues. Customer
difficulties with year 2000 issues might require us to devote additional
resources to resolve underlying problems. Finally, although we have not been
made a party to any litigation or arbitration proceeding to date involving our
products or services and related to year 2000 compliance issues, we may in the
future be required to defend our products or services in such proceedings, or to
negotiate resolutions of claims based on year 2000 issues. The costs of
defending and resolving year 2000-related disputes, regardless of the merits of
such disputes, and any liability for year 2000 related damages, including
consequential damages, would negatively affect our business, results of
operations, financial condition and liquidity, perhaps materially.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates. We manage
our exposure to this market risk through our regular operating and financing
activities. Derivative instruments are not currently used and, if utilized, are
employed as risk management tools and not for trading purposes.
We have no derivative financial instruments outstanding to hedge
interest rate risk. Our only borrowings subject to market conditions are our
borrowings under our credit facility which are based on either a prime or
federal funds rate plus applicable margin or LIBOR plus applicable margin. Any
changes in these rates would affect the rate at which we could borrow funds
under our bank credit facility. A hypothetical 10% increase in interest rates on
our variable rate bank debt for a duration of one year would increase interest
expense by an immaterial amount.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8 is incorporated by reference to pages F-1 through F-18 and S-1
through S-2 herein.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information regarding our directors and
executive officers. These individuals include most of the members of management
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of KNOLOGY Holdings who became our management when we became the holding company
for KNOLOGY Holdings and other companies. Our board is divided into three
classes, with members serving for the periods indicated.
NAME AGE POSITION
---- --- --------
Rodger L. Johnson ........... 52 President, Chief Executive
Officer and Director (term on
board expiring 2002)
Robert K. Mills ............. 36 Chief Financial Officer, Vice
President and Treasurer
Felix L. Boccucci, Jr ....... 42 Vice President of Business
Development
Anthony J. Palermo, Jr ...... 45 Vice President of Operations
Chad S. Wachter ............. 33 Vice President, General
Counsel and Secretary
Thomas P. Barrett ........... 53 Vice President of Information
Technology
Marcus R. Luke, Ph.D ........ 44 Chief Technology Officer
James T. Markle ............. 40 Vice President of Network
Operations
Bret T. McCants ............. 40 Vice President of Network
Construction and Maintenance
Peggy B. Warner ............. 48 Vice President of Marketing
and Carrier Sales
Campbell B. Lanier, III(1) .. 49 Chairman of the Board
(term expiring 2002)
Richard Bodman .............. 61 Director (term expiring 2000)
Alan A. Burgess(1) .......... 64 Director (term expiring 2001)
Donald W. Burton(2) ......... 55 Director (term expiring 2001)
L. Charles Hilton, Jr.(1) ... 68 Director (term expiring 2000)
William H. Scott, III(2) .... 52 Director (term expiring 2001)
Donald W. Weber(2) .......... 63 Director (term expiring 2002)
- -----------------------------
(1) Member of the audit committee.
(2) Member of the compensation and stock option committee.
RODGER L. JOHNSON was named as our President and Chief Executive
Officer and as a director in October 1999. He has served as the President of
KNOLOGY Holdings and as a director since April 1999 and as its Chief Executive
Officer since June 1999. Prior to joining KNOLOGY Holdings, Mr. Johnson had
served as President and Chief Executive Officer, as well as a Director, of
Communications Central Inc., a provider of coin-operated and inmate telephones,
since November 1995. Prior to joining Communications Central, Mr. Johnson served
as the President and Chief Executive Officer of JKC Holdings, Inc., a consulting
company providing advice to the information processing industry. In that
capacity, Mr. Johnson also served as the Chief Operating Officer of Infomed
Systems, Inc., a publicly-held medical software manufacturer. Before founding
JKC Holdings, Inc., Mr. Johnson served for approximately eight years as the
President and Chief Operating Officer and as the President and Chief Executive
Officer of Brock Control Systems, Inc., a publicly-held sales and marketing
software provider.
ROBERT K. MILLS has served as our Chief Financial Officer, Vice
President and Treasurer since November 1, 1999. He has worked for ITC Holding
since September 1999 as Vice President of Corporate Development. From 1994 to
September 1999, Mr. Mills served as Vice President -- Treasurer and Strategic
Planning of Powertel, Inc., which provides wireless communications services.
From 1987 to 1994, Mr. Mills practiced accounting at Arthur Andersen LLP and
Company, LLP. Mr. Mills received an MBA from Tulane University in 1987 and is a
certified public accountant.
FELIX L. BOCCUCCI, JR. has served as our Vice President of Business
Development since October 1999. He has served as Vice President of Business
Development of KNOLOGY Holdings since August 1997. He served as our Chief
Financial Officer, Treasurer and Secretary from November 1995 through August
1997. In addition, he currently serves as the Chief Financial Officer for
Interstate and Valley Telephone Companies. From October 1994 until December
1995, Mr. Boccucci served as Vice President Finance Broadband of ITC Holding.
Prior to such time, Mr. Boccucci worked for GTE Corporation, a
telecommunications company, which merged with Contel Corporation in March 1991.
From May 1993 to October 1994, he served as a Senior Financial Analyst for GTE.
From 1991 to 1993, Mr. Boccucci served as Financial Director for GTE's Central
Area Telephone Operations. From 1987 to 1991, he was the Assistant Vice
President controller in charge of Contel's Eastern Region Telephone Operations
comprising 13 companies in twelve states.
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ANTHONY J. PALERMO, JR. has served as our Vice President of Operations
since July 1999. Prior to joining KNOLOGY, Mr. Palermo served as a consultant to
Nokia and Optima Technologies from November 1998 through July 1999. From
November 1995 to November 1998, Mr. Palermo was employed at Communications
Central, Inc., where he served as Vice President of Sales, Marketing, and
Operations. Prior to Communications Central, Inc. he spent six years at Brock
Control Systems as Vice President of Operations and Chief Operating Officer. Mr.
Palermo has also spent eleven years in the communications industry with AT&T
Long Lines and RCA-Cylix.
CHAD S. WACHTER has served as our Vice President, General Counsel and
Secretary since October 1999. He joined KNOLOGY Holdings as its General Counsel
and Secretary in August 1998. From April 1997 to August 1998, Mr. Wachter served
as Assistant General Counsel of Powertel, Inc., an affiliate of ITC that
operates cellular and PCS businesses. From May 1990 until April 1997, Mr.
Wachter was an associate and then a partner with Capell, Howard, Knabe & Cobbs,
P.A. in Montgomery, Alabama.
THOMAS P. BARRETT has served as our Vice President of Information
Technology since October 1999. Prior to joining us, from July 1998 to September
1999, Mr. Barrett served as the President of Quintiles Americas. Quintiles
Americas is a division of Quintiles Inc., a pharmaceutical research company.
From January 1993 to June 1998, Mr. Barrett was employed by Perot Systems as an
account manager. He also served as the human resources director for a period of
time while at Perot Systems. From October 1992 to January 1993, Mr. Barrett
worked for General Research Corporation as an account manager for a software
development project. From August 1963 to September 1999, Mr. Barrett served in
the U.S. Army in a number of command and staff positions and achieved the rank
of Brigadier General.
MARCUS R. LUKE, PH.D. has served as our Chief Technology Officer since
October 1999. He has served as the Chief Technology Officer of KNOLOGY Holdings
since August 1997. Prior to this he served as the Vice President of Network
Construction of KNOLOGY Holdings from November 1995 until August 1997, and
Director of Engineering of Cybernet Holding, L.L.C., from May 1995 until
November 1995. Prior to joining KNOLOGY Holdings, Dr. Luke served as Southeast
Division Construction Manager for TCI from July 1993 to May 1995. From July 1987
to June 1993, he served as Area Technical Manager for TCI's southeast area,
which included Montgomery. Dr. Luke worked for Storer Communications Inc. from
1985 to 1987 as Vice President of Engineering. Prior to 1985, he spent 12 years
in various engineering and management positions with Storer Communications Inc.
JAMES T. MARKLE joined us in October 1999 as our Vice President of
Network Operations. He has served as Vice President of Network Operations for
KNOLOGY Holdings since March 1999. Prior to joining KNOLOGY Holdings, Mr. Markle
was employed by MindSpring Enterprises, Inc. where he served as the Executive
Vice President of Network Operations from March 1998 and as Vice President of
Network Operations from April 1995. Prior to joining MindSpring, from April 1994
until April 1995, Mr. Markle served as the Director of Technical Support for
Concert Communications Co., a telecommunications company. From August 1990 to
April 1994, Mr. Markle served as Senior Manager of Network Operations for MCI
Communications, a telecommunications company. Mr. Markle served in various
operation positions at SouthernNet/Telecom*USA, including Director of Operations
for a multistate region, from July 1985 until July 1990.
BRET T. MCCANTS has served as our Vice President of Network Services
since October 1999. He has served as the Vice President of Network Services of
KNOLOGY Holdings since April 1997. Prior to joining KNOLOGY Holdings, Mr.
McCants was a co-founder of CSW Communications. From January 1996 to April 1997
he served as CSW Communications, Director of Operations, and from 1994 to 1996,
he participated in the development and managed the deployment of voice, data and
interactive energy management equipment to homes in Laredo, Texas. Prior to
joining CSW Communications, Mr. McCants served in various capacities with
Central Power and Light Company including as Corporate Manager of Commercial and
Small Industrial Marketing from 1992 to 1994, and as Business Manager from 1990
to 1992. From 1982 to 1990, Mr. McCants held several positions in the Sales,
Marketing and Engineering departments at Central Power and Light Company.
PEGGY B. WARNER joined us as our Vice President of Marketing and
Carrier Sales in October 1999. She has been the Vice President of Marketing and
Carrier Sales of KNOLOGY Holdings since January 1998. Prior to joining KNOLOGY
Holdings, from February 1995 to December 1997, Ms. Warner held various positions
at SCANA Communications, Inc., including Manager Sales, Marketing and Customer
Service and General Manager. While at SCANA Communications, Inc., Ms. Warner was
responsible for the company's fiber optic carriers' carrier and 800 MHz trunked
radio lines of business. Prior to that time, from December 1993 to January 1994,
she was an Executive National Accounts Manager with MCI Telecommunications
Corporation where she developed and managed a nationwide Government Systems
regional sales organization. Ms. Warner also held various other sales and
marketing management positions with MCI between May 1986 and January 1995. She
was an Account Manager with AT&T Information Systems between January 1983 and
April 1986, and she held various sales positions with BellSouth prior to 1983.
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CAMPBELL B. LANIER, III has been one of our directors and our Chairman
of the Board since our inception. He has served as a director of KNOLOGY
Holdings since November 1995. Mr. Lanier serves as Chairman of the Board and
Chief Executive Officer of ITC Holding and has served as a director of ITC
Holding since the company's inception in 1989. In addition, Mr. Lanier is an
officer and director of several ITC Holding subsidiaries. Mr. Lanier also is
Chairman of the Board and a director of ITC*DeltaCom, Inc., which provides
wholesale and retail telecommunications services; Powertel, Inc., which provides
wireless communications services; EarthLink, Inc., an Internet services
provider; and Vista Eyecare, Inc., a full service optical retailer. Mr. Lanier
has served as a Managing Director of South Atlantic Private Equity Fund, IV,
Limited Partnership since July 1997. He has also served as a director of Helen
Keller Eye Research Foundation since June 1997 and as Chairman since January
2000.
RICHARD BODMAN has been one of our directors since December 1999. He
has been a director of KNOLOGY Holdings since June 1996. Mr. Bodman was elected
to KNOLOGY Holdings' board of directors pursuant to a stockholders' agreement
under which AT&T Venture Fund I, L.P. had the right to elect one director to
KNOLOGY Holdings' board. This stockholders' agreement terminated prior to the
distribution. Mr. Bodman is currently the Managing General Partner of AT&T
Venture Fund I L.P. From August 1990 to May 1996, Mr. Bodman served as Senior
Vice President of Corporate Strategy and Development for AT&T. Mr. Bodman also
is currently a director of the following public companies: Internet Security
Systems, Inc., Tyco International Inc. and Young and Rubicam Inc.
ALAN A. BURGESS has been one of our directors since December 1999. He
has served as a director of KNOLOGY Holdings since January 1999. From 1967 until
his retirement in 1997, Mr. Burgess was a partner with Andersen Consulting. Over
his thirty-year career he held a number of positions as Managing Partner,
including Managing Partner of Regulated Industries from 1974 to 1989. In 1989 he
assumed the role of Managing Partner of the Communications Industry Group. In
addition, he served on Andersen Consulting's Global Management council and was a
member of the Partner Income Committee. Mr. Burgess is also the Chief Financial
Officer of Seventh Wave Technologies, Inc.
DONALD W. BURTON has been one of our directors since December 1999. He
has been a director of KNOLOGY Holdings since January 1996. Since January 1981,
he has served as Managing General Partner of South Atlantic Venture Fund I, II
and III, Limited Partnerships and Chairman of South Atlantic Private Equity Fund
IV, Limited Partnership. Mr. Burton has been the general partner of The Burton
Partnership, Limited Partnership since October 1979. Since January 1981, he has
served as President of South Atlantic Capital Corporation. Mr. Burton also
serves on the board of directors of several ITC companies, including ITC
Holding, ITC*DeltaCom, Inc. and Powertel, Inc. He is a director of the Heritage
Group of Mutual Funds and several private companies. Mr. Burton also serves as a
director of the National Venture Capital Association.
L. CHARLES HILTON, JR. has been one of our directors since December
1999. He has served as a director of KNOLOGY Holdings since KNOLOGY Holdings
acquired the beach cable system in Panama City, Florida in December 1997. Mr.
Hilton was the founder and sole stockholder of Beach Cable, Inc., and served as
its Chief Executive Officer from 1991 to December 1997. Since 1958, Mr. Hilton
has served as Chairman and Chief Executive Officer of Gulf Asphalt Corporation,
a general construction firm. Mr. Hilton has been a partner in the law firm of
Hilton, Hilton, Kolk & Roesch since 1984, and currently serves as Chief
Executive Officer of Hilton, Inc., a family corporation which owns and operates
various commercial buildings in Bay County, Florida. He also is a member of the
board of directors of several private companies.
WILLIAM H. SCOTT, III has been one of our directors since our
inception, and he has served as a director of KNOLOGY Holdings since November
1995. He has served as President of ITC Holding since December 1991 and has been
a director of ITC since May 1989. He also is an officer and director of several
other ITC Holding subsidiaries. In addition, Mr. Scott is a director of Powertel
Inc., ITC*DeltaCom, Inc., EarthLink, Inc., Innotrac Corporation, which provides
customized technology-based marketing support services, HeadHunter.NET, Inc., a
company providing online recruiting services to employers, recruiters, and
job-seekers, and NFront, Inc., a provider of full-service Internet banking
solutions for community banks.
DONALD W. WEBER has been one of our directors since December 1999. He
has served as a director of KNOLOGY Holdings since August 1998. Since 1997, Mr.
Weber has been a consultant and private investor. Since 1995, Mr. Weber served
as President and Chief Executive Officer of ViewStar Entertainment Services,
Inc., a digital satellite services company. From 1987 to 1991, Mr. Weber held
various executive positions, including President and Chief Executive Officer,
and served as a director of Contel Corporation, a telecommunications company.
Currently, Mr. Weber serves as director of Powertel, Inc., HeadHunter.NET, Inc.,
Pegasus Communications Corporation, a media and communications company and HIE,
Inc., a health care software provider.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board currently has two committees, the audit committee and the
compensation and stock option committee.
The audit committee, among other things:
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o recommends the firm to be appointed as independent accountants to
audit our financial statements;
o discusses the scope and results of the audit with the independent
accountants, reviews with management and the independent
accountants our interim and year-end operating results;
o considers the adequacy of our internal accounting controls and
audit procedures; and
o reviews the non-audit services to be performed by the independent
accountants.
The members of the audit committee are Messrs. Hilton, Burgess and Lanier.
The compensation and stock option committee reviews and recommends the
compensation arrangements for management and administers our stock option plans.
The members of the compensation and stock option committee are Messrs. Scott,
Weber, and Burton.
COMPENSATION OF DIRECTORS
Our directors do not receive directors' fees. Directors are reimbursed
for their reasonable out-of- pocket travel expenditures. Our directors are also
eligible to receive grants of stock options under our stock option plan.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Not applicable.
ITEM 11. EXECUTIVE COMPENSATION
Our executive officers were appointed in October and November 1999.
However, as most of our executive officers were executive officers of KNOLOGY
Holdings, Inc. immediately prior to our formation, we have set forth below the
compensation received by our executive officers from KNOLOGY Holdings for the
fiscal years ended December 31, 1999, 1998 and 1997.
The following table provides compensation information for our chief
executive officer and former chief executive officer and the most highly
compensated other executive officers whose total annual salary and bonus exceed
$100,000. We will use the term "named executive officers" to refer to these
people later in this Form 10-K.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
YEAR (1) SALARY ($) BONUS ($) OPTIONS (2) COMPENSATION (3)
-------- ---------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Rodger L. Johnson...... 1999 139,617 -- 2,000,000 3,181
President & Chief 1998 -- -- -- --
Executive Officer(4) 1997 -- -- -- --
William E. Morrow...... 1999 160,577 36,877 600,000 5,186
Former President & 1998 134,539 76,800 420,000 --
Chief Executive Officer 1997 102,462 22,602 180,000 --
Felix L. Boccucci, Jr.. 1999 111,252 23,949 34,120 5,061
Vice President of 1998 98,250 33,385 30,000 --
Business Development(5) 1997 92,430 9,473 -- --
</TABLE>
51
<PAGE> 54
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Bret T. McCants........ 1999 115,962 25,198 94,824 4,308
Vice President of 1998 101,494 29,926 120,000 --
Network Construction 1997 58,847 21,177 42,000 --
And Maintenance
Marcus R. Luke......... 1999 107,309 23,925 28,120 2,202
Chief Technology Officer 1998 97,307 31,275 90,000 --
1997 90,292 6,102 -- --
Peggy B. Warner........ 1999 110,963 23,502 34,120 5,734
Vice President of 1998 106,396 8,775 150,000 --
Marketing and Sales 1997 -- -- -- --
</TABLE>
- ----------
(1) As noted above, all of the named executive officers were initially employed
by KNOLOGY Holdings, Inc. The compensation table reflects the compensation
earned from KNOLOGY Holdings.
(2) All options are exercisable for shares of our common stock and reflect the
4:1 exchange ratio of the exchange of KNOLOGY Holdings capital stock for our
capital stock in November 1999.
(3) For fiscal year 1999, includes premiums on term life insurance ($643, $186,
$239, $263, $236, and $375 for Messrs. Johnson, Morrow, Boccucci, McCants,
Luke and Ms. Warner, respectively) and employer matching contributions to
our 401(k) plan ($2,538, $5,000, $4,822, $4,045, $1,966, and $4,999 for
Messrs. Johnson, Morrow, Boccucci, McCants, Luke and Ms. Warner,
respectively).
(4) Mr. Johnson has served as the president of KNOLOGY Holdings since May 1999
and as its chief executive officer since June 1999.
(5) Mr. Boccucci served as chief financial officer, treasurer and secretary of
KNOLOGY Holdings from November 1995 through August 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information about option awards made to
the named executive officers during 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1) POTENTIAL REALIZABLE
------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE ---------------------
NAME GRANTED FISCAL YEAR PRICE EXPIRATION DATE 5% 10%
---- ---------- ------------ -------- ----------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Rodger L. Johnson.......... 1,020,000 23.04% $2.8325 February 3, 2009 $4,709,314 $7,482,899
President & Chief 980,000 22.15% $2.8325 August 4, 2009 4,524,636 7,189,452
Executive Officer
William E. Morrow.......... 600,000 13.56%. $2.8325 February 3, 2009 2,770,185 4,401,705
Former President and Chief
Executive Officer
Felix L. Boccucci, Jr...... 14,120 0.32% $2.8325 February 3, 2009 65,192 103,586
Vice President of Business 20,000 0.45% $2.8325 August 4, 2009 92,340 146,724
Development
Bret T. McCants............ 14,824 0.33% $2.8325 February 3, 2009 68,442 108,751
Vice President of Network 80,000 1.80% $2.8325 August 4, 2009 369,358 586,894
Construction and
Maintenance
Marcus R. Luke............. 14,120 0.32% $2.8325 February 3, 2009 65,192 103,586
Chief Technology Officer 14,000 0.32% $2.8325 August 4, 2009 64,638 102,706
Peggy B. Warner............ 14,120 0.32% $2.8325 February 3, 2009 65,192 103,586
Vice President of Sales 20,000 0.45% $2.8325 August 4, 2009 92,340 146,724
and Marketing
</TABLE>
52
<PAGE> 55
- ----------
(1) All options are exercisable for shares of common stock and are granted under
the stock option plan. All option share numbers reflect the 4:1 exchange
ratio of the exchange of KNOLOGY Holdings capital stock for our capital
stock in November 1999. Such options generally vest over five years unless
such person's employment is terminated, in which case options that have not
vested at that time will terminate.
(2) Values shown are the result of calculation at assumed 5% and 10%
appreciation rates called for by the Securities and Exchange Commission and
are not intended to forecast possible future appreciation in the market
price of our common stock.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth the number of shares covered by both exercisable
and unexercisable options as of December 31, 1999 and the year-end value of
exercisable options as of December 31, 1999 for the named executive officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
SHARES UNEXERCISED OPTIONS AT OPTIONS AT
ACQUIRED DECEMBER 31, 1999 DECEMBER 31, 1999 (1)
ON VALUE ----------------------------- --------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Rodger Johnson.... -- -- 0 2,000,000 $0 $3,840,000
William E. Morrow. -- -- 90,000 1,110,000 $247,500 $2,344,500
Felix L. Boccucci. -- -- 52,854 77,334 $145,348 $171,349
Brett McCants..... -- -- 21,000 235,824 $57,750 $509,812
Marcus R. Luke.... 4,000 $19,000 16,496 123,244 $45,364 $268,019
Peggy B. Warner... -- -- 0 184,120 $0 $403,010
</TABLE>
- ----------
(1) The value of the unexercised in-the-money options at December 31, 1999 was
calculated using a market price of $4.75 per share.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of February 29,
2000 regarding beneficial ownership of our voting capital stock by:
o each person known by us to beneficially own more than 5% of our
outstanding voting capital stock,
o each of our executive officers,
o each of our directors, and
o all of our directors and executive officers as a group.
53
<PAGE> 56
<TABLE>
<CAPTION>
------------------------- ------------------------ ------------------------ ------------------------
SERIES A PREFERRED SERIES B PREFERRED COMMON AS CONVERTED (3)
------------------------- ------------------------ ------------------------ ------------------------
(1) (1)
AMOUNT (1) AMOUNT (1)
AND NATURE (2) AMOUNT AND (2) AND (2) AMOUNT AND (2)
OF PERCENT NATURE OF PERCENT NATURE OF PERCENT OF NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OF SERIES BENEFICIAL OF SERIES BENEFICIAL COMMON BENEFICIAL COMMON
BENEFICIAL OWNER(1) OWNERSHIP A STOCK OWNERSHIP B STOCK OWNERSHIP STOCK OWNERSHIP STOCK
- --------------------- ---------- --------- ---------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5% SHAREHOLDERS
SCANA Communications,
Inc.................... 7,234,271 14.0% -- -- -- -- 7,234,271 9.9%
AT&T Venture Funds(4)....... 4,267,800 8.2 421,052 2.0% -- -- 4,688,852 6.4
American Water Works
Company, Inc.(5).......... 3,820,943 7.4 -- -- -- -- 3,820,943 5.2
South Atlantic Private
Equity Funds(6)........... 3,356,443 6.5 1,578,947 7.5 -- -- 4,935,390 6.7
J. Smith Lanier............. 2,781,761 5.4 -- -- -- -- 2,781,761 3.8
J.H. Whitney IV, L.P........ -- -- 8,421,053 39.8 -- -- 8,421,053 11.5
The Blackstone Group........ -- -- 6,315,789 29.8 -- -- 6,315,789 8.6
First Union Investors, Inc.. -- -- 2,105,263 9.9 -- -- 2,105,263 2.9
EXECUTIVE OFFICERS
Felix L. Boccucci, Jr....... 22,921 * 4,200 * 81,068 9.3% 108,189 *
Marcus R. Luke.............. 18,878 * 1,600 * 70,620 8.1 91,098 *
James T. Markle............. -- -- 10,000 * -- -- 10,000 *
Bret McCants................ 5,454 * 9,000 * 81,000 9.3 95,454 *
Peggy A. Warner............. -- -- 64,000 * 45,000 5.1 109,000 *
Robert K. Mills............. 3,929 * 8,200 * -- -- 12,129 *
Thomas Patrick Barrett...... -- -- -- -- -- -- -- --
Rodger L. Johnson........... -- -- 10,000 * -- -- 10,000 *
Anthony J. Palermo.......... -- -- 10,000 * -- -- 10,000 *
Chad S. Wachter............. -- -- 10,500 * -- -- 10,500 *
DIRECTORS
Campbell B. Lanier.......... 9,231,310 17.8 -- -- -- -- 9,231,310 12.6
Richard Bodman(4)........... 4,267,800 8.2 -- -- -- -- 4,267,800 5.8
Donald W. Weber............. 46,811 -- -- -- -- -- 46,811 *
Donald W. Burton(6)........ 3,523,563 6.8 1,789,473 8.4 -- -- 5,313,036 7.2
L. Charles Hilton, Jr....... 377,197 * -- -- -- -- 377,197 *
William H. Scott, III....... 1,203,138 2.3 -- -- -- -- 1,203,138 1.6
Alan A. Burgess............. -- -- -- -- -- -- -- --
Rodger L. Johnson........... -- -- -- -- -- -- -- --
-------------- ---------- ------------- ---------- ----------- ------------ -------------- ---------
All Named Executive Officers
and Directors as a Group
(18 persons)............. 18,701,001 36.1% 1,916,973 9.1% 277,688 31.7% 20,895,662 28.3%
============== ========== ============= ========== =========== ============ ============== =========
</TABLE>
- ----------
* Less than 1%
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
be a "beneficial owner" of a security if he or she has or shares the power
to vote or direct the voting of such security or the power to dispose or
direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities of which that person has the right to
acquire beneficial ownership within 60 days from February 29, 2000. More
than one person may be deemed to be a beneficial owner of the same
securities. All persons shown in the table above have sole voting and
investment power, except as otherwise indicated.
(2) For the purpose of computing the percentage ownership of each beneficial
owner, any securities which were not outstanding but which were subject to
options, warrants, rights or conversion privileges held by such beneficial
owner exercisable within 60 days were deemed to be outstanding in
determining the percentage owned by such person, but were not deemed
outstanding in determining the percentage owned by any other person.
(3) As converted amounts assume that the Series A Preferred and Series B
Preferred shares are converted to Common Stock.
(4) The address of each of the AT&T venture funds and of Mr. Bodman is 2
Wisconsin Circle, #610, Chevy Chase, Maryland 20815.
(5) The address of American Water Works Company, Inc. is 1025 Laurel Oak Road,
P. O. Box 1770, Voorhees, NJ 08043,
(6) The address of Mr. Burton and of each entity comprising South Atlantic is
614 West Bay Street, Tampa, Florida 33606.
54
<PAGE> 57
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We were formed in 1998 by ITC Holding Company, Inc. We own 100% of KNOLOGY
Holdings, and 100% of certain other companies, including Interstate Telephone
Company, Valley Telephone Company Globe Telecommunications and ITC Globe. Before
we owned them, each of these companies was owned separately by ITC Holding. ITC
Holding determined that KNOLOGY Holdings and these other companies have parallel
growth in the same markets and that combining their businesses would enhance
their ability to take advantage of the opportunities in these markets. To
accomplish this, ITC Holding formed us and, in November 1999, contributed these
companies to us along with certain other related assets.
KNOLOGY Holdings is our principal subsidiary. ITC Holding formed KNOLOGY
Holdings in 1995. ITC Holdings' percentage ownership in KNOLOGY Holdings fell
below 50% in 1996, but it subsequently reacquired stock in the company, and by
November 1999, it owned 85% of KNOLOGY Holdings which it contributed to us. At
approximately the same time, we offered to exchange our stock for the remaining
stock of KNOLOGY Holdings, as a result of which we now own 100% of KNOLOGY
Holdings. These transactions are described in greater detail below.
ITC Holding is a diversified telecommunications company that owns interests
in many companies that have businesses similar to ours. Because of our
relationship with ITC Holding, we are affiliated with certain of these
companies. Some of them, such as ITC*DeltaCom, Inc. and EarthLink, Inc., provide
us with and/or receive from us services and products. We have described the
nature and amount of the business that we do with affiliated companies in
greater detail below.
We have adopted a policy requiring that any material transactions between us
and others affiliated with our officers, directors or principal stockholders be
on terms no less favorable to us than reasonably could have been obtained in
arm's-length transactions with independent third parties.
TRANSACTIONS WITH ITC COMPANIES
Certain of our directors and officers hold or held the following positions
with companies that are affiliated with us:
o Campbell B. Lanier, III, who serves as the Chairman of our board
of directors, also serves as Chairman of the Board and Chief
Executive Officer of ITC Holding Company and all of its
subsidiaries including InterCall, and is also a director of
companies that were formerly subsidiaries of ITC Holding, such as
ITC*DeltaCom, EarthLink and Powertel.
o William H. Scott, III, one of our directors, serves as President,
Chief Operating Officer and a director of ITC Holding and all of
its subsidiaries including InterCall, and is also a director of
companies that were formerly subsidiaries of ITC Holding, such as
ITC*DeltaCom, EarthLink and Powertel.
o Donald W. Burton, one of our directors, is a director of ITC
Holding, ITC*DeltaCom and Powertel.
o Donald W. Weber, one of our directors, is a director of Powertel.
o Richard Bodman, one of our directors, is the managing general
partner of AT&T Ventures, which controls the AT&T venture funds
that own approximately 8.9% and 2.0% of our Series A preferred
shares and Series B preferred shares, respectively.
o Felix Boccucci, our Vice President of Business Development, served
as an executive officer of ITC Holding prior to October 1997.
We are affiliated with all of these companies by reason of our common
stockholder bases and common directorships, and we have a business relationship
with some of them, as described in detail below.
As of February 7, 2000, Campbell B. Lanier, III beneficially owned
approximately 23% of the common stock of ITC Holding, and William Scott and
Donald Burton beneficially owned approximately 1% and 8%, respectively, of the
common stock of ITC Holding. Most of our other officers, directors and
stockholders also owned stock in ITC Holding and, as such, they all received the
same amount of stock on a pro rata basis in the distribution as the rest of the
ITC Holding stockholders.
55
<PAGE> 58
Certain affiliated companies provide us with various services and/or receive
services provided by us. We feel that our transactions with these affiliated
companies are representative of arms' length transactions.
ITC*DeltaCom provides us with wholesale long-distance and related services
and leases capacity to us on certain of its fiber routes. In 1997, 1998 and
1999, these services were worth $589,011, $1,213,533 and $1,769,174,
respectively. During those years, our company provided ITC*DeltaCom with local
and long distance telephone, programming and other services worth $386,842,
$639,568 and $698,332, respectively. We received these services from
ITC*DeltaCom pursuant to an agreement which expires in May 2000. As of February
29, 2000, Mr. Lanier owned approximately 16% of ITC*DeltaCom. Messrs. Lanier and
Scott serve as executive officers and directors of ITC*DeltaCom and Mr. Burton
serves as a director of ITC*DeltaCom.
We received cellular services from Powertel in 1997, 1998 and 1999 worth
$118,064, $342,696 and $525,664, respectively, and we leased fiber cables to
Powertel during this time worth $519,956, $593,221 and $704,912, respectively.
We lease these fiber cables to Powertel pursuant to a fiber lease agreement
which expires in April 2000. As of February 29, 2000, ITC Holding owned
approximately 25% of Powertel. Messrs. Lanier, Scott and Burton are directors of
Powertel.
We provided services to InterCall, our parent company prior to the
distribution and a wholly owned subsidiary of ITC Holding, in 1997, 1998 and
1999 worth $477,405, $737,204 and $983,310, respectively. We provide these
services to InterCall pursuant to an agreement which expires in July 2004.
In 1997, 1998 and 1999, we provided local Internet transport services to
EarthLink, a national Internet access provider, worth $132,524,$216,049 and
$325,535, respectively. We provide these services to EarthLink pursuant to an
Internet transport agreement which expires in July 2001. As of February 29,
2000, ITC Holding, through InterCall, owned approximately 8% of EarthLink.
Messrs. Lanier and Scott are directors of EarthLink.
We lease pole space from South Carolina Electric & Gas Co., an affiliate of
SCANA Communications which is one of our stockholders and was a principal
investor in KNOLOGY Holdings in the past, as discussed below. We lease this pole
space pursuant to an annual pole attachment agreement. In 1999, we paid $30,952
under this agreement. In 1998, we purchased fiber optic cables from SCANA
Communications for a total purchase price of $306,530. We lease fiber optic
cables from SCANA Communication pursuant to two operating leases agreement
entered into in the fourth quarter of 1998. The terms of the leases are 15 and
20 years. In 1999, we paid $87,600 under these agreements.
In November 1999, we entered into a services agreement and a related support
agreement with a wholly-owned subsidiary of ITC Holding named ITC Service
Company under which we agreed to provide human resources, information technology
and other services to ITC Service Company and under which ITC Service Company
agreed to lease storage space as needed and provide certain administrative
services to us. We expect to be paid approximately $60,000 per year for services
provided by us, and we expect to pay a substantially smaller amount for services
that ITC Service Company provides to us, under these agreements. The agreements
have no expiration date, but may be terminated on 30 days' notice by either
party.
ITC Holding occasionally provides certain administrative services, such as
legal and tax-planning services, for us. The costs of these services are charged
to us based primarily on the salaries and related expenses for certain ITC
Holding executives and an estimate of their time spent on projects for us. For
the year ended December 31, 1999, KNOLOGY Holdings recorded $2,574,000 in
selling, operations, administrative and rent expenses related to these services.
We feel that the methodology used to calculate the amounts charged was
reasonable.
Our insurance provider is J. Smith Lanier & Co. Mr. Lanier's brother and
uncle are principal owners of this insurance placement company, both of whom, as
stockholders in ITC Holding, received the same pro rata amount of our Series A
preferred stock in the distribution as the other ITC Holding stockholders. In
1997, 1998 and 1999 this company charged us approximately $221,000, $628,000 and
$977,419, respectively, for insurance services.
We leased office space in 1998 and part of 1999 to ITC*DeltaCom, for which
we received $122,000 and $40,000, respectively, in lease payments. We no longer
lease space to ITC*DeltaCom.
We lease space to Powertel pursuant to a 10-year lease which expires in
2005. In 1998 and 1999, we received $112,200 in lease income under this
agreement.
In 1997, our subsidiaries Interstate Telephone and Valley Telephone paid
$4.2 million in dividends to ITC Holding. In 1998 and 1999, Interstate Telephone
paid $1.4 million and $1.7 million, respectively, in dividends to ITC Holding.
56
<PAGE> 59
Effective August 1998, upon the acquisition by ITC Holding if its majority
interest in KNOLOGY Holdings, we participated in a tax sharing agreement with
ITC Holding. The tax sharing agreement allowed ITC Holding to include our
results in a consolidated federal income tax return. Based upon our taxable
losses being included in the consolidated tax return, we recorded income tax
benefits for $5.6 million and $19.7 million for the years ended December 31,
1998 and 1999, respectively. Upon completion of the spin-off on February 7,
2000, this tax-sharing agreement was terminated.
The tax separation agreement that we entered into with ITC Holding will
continue after the spin-off. The purpose of the tax separation agreement is to
allocate the risk of potential adverse tax consequences stemming from the
spin-off. We do not anticipate any adverse tax consequences, but any adverse tax
consequences that do occur could be material.
In October 1999, a subsidiary of ITC Holding agreed to lend up to $13
million to KNOLOGY Holdings under a line of credit which matured on the earlier
of November 16, 2002 or one day after the commitment under KNOLOGY Holdings'
existing credit facility is reduced to zero. Interest accrued on the loan at a
rate of 11 3/4% per year. This loan was subordinate to the senior secured credit
facility KNOLOGY Holdings has with First Union National Bank and First Union
Capital Markets. In November 1999, we borrowed $9.6 million under this line of
credit. In accordance with the terms of the loan, the ITC Holding subsidiary
immediately converted this loan into shares of our Series A preferred stock at a
price per share of $4.75, at which time the line of credit terminated.
In November 1999, we acquired KNOLOGY Holdings, Interstate Telephone, Valley
Telephone, Globe Telecommunications and ITC Globe from ITC Holding. ITC Holding
contributed to us stock representing approximately 85% of the outstanding equity
of KNOLOGY Holdings, stock representing 100% of each of Interstate Telephone,
Valley Telephone, Globe Telecommunications and ITC Globe, 272,832 shares of
preferred stock of ClearSource, Inc., subscription rights to purchase an
additional 810,501 shares of preferred stock of ClearSource, approximately $5.6
million in cash to be used for the subscription payments to ClearSource and a
note of KNOLOGY Holdings in the principal amount of up to $13 million.
Concurrently with this November 1999 acquisition, we completed an exchange with
other KNOLOGY Holdings stockholders in which we received KNOLOGY Holdings common
stock and preferred stock in exchange for our common stock and Series A
preferred stock. We now hold 100% of the outstanding capital stock of KNOLOGY
Holdings.
In December 1999, after the contribution and exchange discussed above, a
subsidiary of ITC Holding agreed to lend us up to $30.4 million under a line of
credit. The proceeds of this loan are to be used for construction of the network
by KNOLOGY Holdings and for working capital. This loan accrued interest at a
rate of 11 3/4% per year and had a maturity date of March 31, 2000. Under the
terms of this loan, the ITC Holding subsidiary converted all of the principal
and interest of the loan into options to purchase shares of our Series A
preferred stock at a price per option of $4.75. InterCall paid $4.75 for each
share subject to a KNOLOGY option, which is the value placed on the shares
underlying the options for purposes of the distribution, as discussed above. The
parties agreed as part of the conversion transaction that KNOLOGY would pay the
option exercise prices to ITC Holding when they were received by KNOLOGY. A
residual note evidences this agreement. Under the residual note no amount is due
to ITC Holding from KNOLOGY in the event of an option expiring or terminating.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of our compensation and stock option committee are
Messrs. Scott, Weber and Burton. Each of these members serves as a director or
executive officer of ITC Holding. We have engaged in several transactions with
ITC Holding or its affiliates, as discussed above.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) The following Consolidated Financial Statements of the Company
and independent auditor's report are included in Item 8 of this Form
10-K.
Report of Independent Public Accountants.
Company's Consolidated Balance Sheets as of December 31,
1998 and 1999.
Consolidated Statements of Operations for the Years
Ended December 31, 1997, 1998 and 1999.
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1998 and 1999.
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<PAGE> 60
Consolidated Statements of Stockholders' (Deficit) Equity for
the Years Ended December 31, 1997, 1998 and 1999.
Notes to Consolidated Financial Statements.
(a)(2) The following financial statement schedule is filed as part of
this report and is attached hereto as pages S-1 and S-2.
Independent Auditor's Report on the Financial Statement
Schedules.
Schedule II--Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission either have been included
in the Consolidated Financial Statements of the Company or the notes thereto,
are not required under the related instructions or are inapplicable, and
therefore have been omitted.
(a)(3) The following exhibits are either provided with this Form 10-K
or are incorporated herein by reference:
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
2.1 Purchase Agreement between Cable Alabama Corporation and
KNOLOGY of Huntsville, Inc., dated as of October 19, 1998
(Incorporated herein by reference from Exhibit 2.2 to KNOLOGY
Holdings, Inc.'s Annual Report on Form 10-K in the year ended
December 31, 1998).
3.1 Amended and Restated Certificate of Incorporation of KNOLOGY,
Inc. (Incorporated herein by reference for Exhibit 3.1 to
KNOLOGY, Inc.'s Registration Statement on Form S-1 (File
No. 333-89179)).
3.2 Bylaws of KNOLOGY, Inc. (Incorporated herein by reference for
Exhibit 3.2 to KNOLOGY, Inc.'s Registration Statement on
Form S-1 (File No. 333-89179)).
4.1 Indenture dated as of October 22, 1997 between KNOLOGY
Holdings, Inc. and United States Trust Company of New York, as
Trustee, relating to the 11 7/8% Senior Discount Notes Due 2007
of KNOLOGY Holdings, Inc. (Incorporated herein by reference
from Exhibit 4.1 to KNOLOGY Holdings, Inc.'s Registration
Statement on Form S-4 (File No. 333-43339)).
4.2 Form of Senior Discount Note (contained in Exhibit 4.1).
4.3 Form of Exchange Note (contained in Exhibit 4.1).
10.1 Unit Purchase Agreement, dated as of October 16, 1997 between
KNOLOGY Holdings, Inc. and SCANA Communications, Inc.
(Incorporated herein by reference from Exhibit 10.1 to KNOLOGY
Holdings, Inc.'s Registration Statement on Form S-4 (File No.
333-43339)).
10.2 Lease Agreement dated April 15, 1996 by and between D.L. Jordan
and American Cable Company, Inc. (Incorporated herein by
reference from Exhibit 10.5 to KNOLOGY Holdings, Inc.'s
Registration Statement on Form S-4 (File No. 333-43339)).
10.3 Pole Attachment Agreement dated January 1, 1998 by and between
Gulf Power Company and Beach Cable, Inc. (Incorporated herein
by reference from Exhibit 10.7 to KNOLOGY Holdings, Inc.'s
Registration Statement on Form S-4 (File No. 333-43339)).
10.4 Telecommunications Facility Lease and Capacity Agreement, dated
September 10, 1996, by and between Troup EMC Communications,
Inc. and Cybernet Holding, Inc. (Incorporated herein by
reference from Exhibit 10.16 to KNOLOGY Holdings, Inc.'s
Registration Statement on Form S-4 (File No. 333-43339)).
10.5 Master Pole Attachment Agreement dated January 12, 1998 by and
between South Carolina Electric and Gas and KNOLOGY Holdings,
Inc. d/b/a/ KNOLOGY of Charleston (Incorporated herein by
reference from Exhibit 10.17 to KNOLOGY Holdings, Inc.'s
Registration Statement on Form S-4 (File No. 333-43339)).
58
<PAGE> 61
10.6 Lease Agreement, dated December 5, 1997 by and between The
Hilton Company and KNOLOGY of Panama City, Inc. (Incorporated
herein by reference from Exhibit 10.25 to KNOLOGY Holdings,
Inc.'s Registration Statement on Form S-4 (File No.
333-43339).
10.7 Certificate of Membership with National Cable Television
Cooperative, dated January 29, 1996, of Cybernet Holding, Inc.
(Incorporated herein by reference from Exhibit 10.34 to KNOLOGY
Holdings, Inc.'s Registration Statement on Form S-4 (File No.
333-43339).
10.8 Ordinance No. 99-16 effective March 16, 1999 between Columbus
consolidated Government and KNOLOGY of Columbus Inc.
(Incorporated herein by reference from Exhibit 10.18 to KNOLOGY
Holdings, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1998).
10.9 Ordinance No. 16-90 (Montgomery, Alabama) dated March 6, 1990
(Incorporated herein by reference from Exhibit 10.44 to KNOLOGY
Holdings, Inc.'s Registration Statement on Form S-4 (File No.
333-43339).
10.10 Ordinance No. 50-76 (Montgomery, Alabama) (Incorporated herein
by reference from Exhibit 10.45 to KNOLOGY Holdings, Inc.'s
Registration Statement on Form S-4 (File No. 333-43339).
10.11 Ordinance No. 9-90 (Montgomery, Alabama) dated January 16, 1990
(Incorporated herein by reference from Exhibit 10.45.1 to
KNOLOGY Holdings, Inc.'s Registration Statement on Form S-4
(File No. 333-43339).
10.12 Resolution No. 58-95 (Montgomery, Alabama) dated April 6, 1995
(Incorporated herein by reference from Exhibit 10.46 to KNOLOGY
Holdings, Inc.'s Registration Statement on Form S-4 (File No.
333-43339).
10.13 Resolution No. 97-22 (Panama City Beach, Florida) dated
December 3, 1997 (Incorporated herein by reference from Exhibit
10.49 to KNOLOGY Holdings, Inc.'s Registration Statement on
Form S-4 (File No. 333-43339).
10.14 Ordinance No. 5999 (Augusta, Georgia) dated January 20, 1998
(Incorporated herein by reference from Exhibit 10.53 to KNOLOGY
Holdings, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997).
10.15 Ordinance No. 1723 (Panama City, Florida) dated March 10, 1998
(Incorporated herein by reference from Exhibit 10.54 to KNOLOGY
Holdings, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997).
10.16 Franchise Agreement (Charleston County, South Carolina) dated
December 15, 1998 (Incorporated herein by reference from
Exhibit 10.31 to KNOLOGY Holdings, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1998).
10.17 Ordinance No. 1998-47 (North Charleston, South Carolina) dated
May 28, 1998 (Incorporated herein by reference from Exhibit
10.32 to KNOLOGY Holdings, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1998).
10.18 Ordinance No. 1998-77 (Charleston, South Carolina) dated April
28, 1998 (Incorporated herein by reference from Exhibit 10.33
to KNOLOGY Holdings, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1998).
10.19 Ordinance No. 98-5 (Columbia County, Georgia) dated August18,
1998 (Incorporated herein by reference from Exhibit 10.34 to
KNOLOGY Holdings, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1998).
10.20 Network Access Agreement dated July 1, 1998 between SCANA
Communications, Inc., f/k/a MPX Systems, Inc. and KNOLOGY
Holdings, Inc. (Incorporated herein by reference from Exhibit
10.36 to KNOLOGY Holdings, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1998).
10.21 Internet Access Contract dated September 1, 1998 between
ITC DeltaCom, Inc. and KNOLOGY Holdings, Inc. (Incorporated
herein by reference from Exhibit 10.37 to KNOLOGY Holdings,
Inc.'s Annual Report on Form 10-K for the year ended December
31, 1998).
59
<PAGE> 62
10.22 Collocation Agreement for Multiple Sites dated on or about June
1998 between Interstate FiberNet, Inc. and KNOLOGY Holdings,
Inc. (Incorporated herein by reference from Exhibit 10.38 to
KNOLOGY Holdings, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1998).
10.23 Lease Agreement dated October 12, 1998 between Southern Company
Services, Inc. and KNOLOGY Holdings, Inc. (Incorporated herein
by reference from Exhibit 10.39 to KNOLOGY Holdings, Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1998).
10.24 Facilities Transfer Agreement dated February 11, 1998 between
South Carolina Electric and Gas Company and KNOLOGY Holdings,
Inc., d/b/a KNOLOGY of Charleston (Incorporated herein by
reference from Exhibit 10.40 to KNOLOGY Holdings, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1998).
10.25 License Agreement dated March 3, 1998 between BellSouth
Telecommunications, Inc. and KNOLOGY Holdings, Inc.
(Incorporated herein by reference from Exhibit 10.41 to KNOLOGY
Holdings, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1998).
10.26 Pole Attachment Agreement dated February 18, 1998 between
KNOLOGY Holdings, Inc. and Georgia Power Company (Incorporated
herein by reference from Exhibit 10.44 to KNOLOGY Holdings,
Inc.'s Annual Report on Form 10-K for the year ended December
31, 1998).
10.27 Assignment Agreement dated March 4, 1998 between Gulf Power
Company and KNOLOGY of Panama City, Inc. (Incorporated herein
by reference from Exhibit 10.46 to KNOLOGY Holdings, Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1998).
10.28 Adoption Agreements dated March 1, 1999 between KNOLOGY
Holdings, Inc. and BellSouth Telecommunications, Inc.
(Incorporated herein by reference from Exhibit 10.47 to KNOLOGY
Holdings, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1998).
10.29 Carrier Services Agreement dated September 30, 1998 between
Business Telecom, Inc. and KNOLOGY Holdings, Inc. (Incorporated
herein by reference from Exhibit 10.50 to KNOLOGY Holdings,
Inc.'s Annual Report on Form 10-K for the year ended December
31, 1998).
10.30 Reseller Services Agreement dated September 9, 1998 between
Business Telecom, Inc. and KNOLOGY Holdings, Inc. (Incorporated
herein by reference from Exhibit 10.51 to KNOLOGY Holdings,
Inc.'s Annual Report on Form 10-K for the year ended December
31, 1998).
10.31 Private Line Services Agreement dated September 10, 1998
between BTI Communications Corporation and KNOLOGY Holdings,
Inc. (Incorporated herein by reference from Exhibit 10.52 to
KNOLOGY Holdings, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1998).
10.32 Credit Facility Agreement between First Union National Bank,
First Union Capital Markets Corp. and KNOLOGY Holdings, Inc.
dated December 22, 1998 (Incorporated herein by reference from
Exhibit 10.53 to KNOLOGY Holdings, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1998).
10.33 Tax Separation Agreement between ITC Holding and KNOLOGY, Inc.
(Incorporated herein by reference for Exhibit 10.59 to
KNOLOGY, Inc.'s Registration Statement on Form S-1
(File No. 333-89179)).
10.34 Right of First Refusal and Option Agreement, dated November 19,
1999 by and between KNOLOGY of Columbus, Inc. and ITC Service
Company, Inc. (Incorporated herein by reference from Exhibit
10.60 to KNOLOGY, Inc.'s Registration Statement on Form S-1
(File No. 333-89179)).
60
<PAGE> 63
10.35 Services Agreement dated November 2, 1999 between KNOLOGY, Inc.
and ITC Service Company, Inc. (Incorporated herein by reference
from Exhibit 10.61 to KNOLOGY, Inc.'s Registration Statement on
Form S-1 (File No. 333-89179)).
10.36 Support Agreement, dated November 2, 1999 between Interstate
Telephone Company, Inc. and ITC Service Company, Inc.
(Incorporated herein by reference from Exhibit 10.62 to
KNOLOGY, Inc.'s Registration Statement on Form S-1 (File No.
333-89179)).
10.37 1995 KNOLOGY Holdings, Inc. Stock Option Plan, assumed by
KNOLOGY, Inc. as of November 23, 1999 (Incorporated herein by
reference from Exhibit 10.63 to KNOLOGY, Inc.'s Registration
Statement on Form S-1 (File No. 333-89179)).
10.38 KNOLOGY, Inc. Long Term Incentive Plan (Incorporated herein by
reference from Exhibit 10.64 to KNOLOGY, Inc.'s Registration
Statement on Form S-1 (File No. 333-89179)).
10.39 Warrant Agreement, dated as of December 3, 1999, between
KNOLOGY, Inc. and United States Trust Company of New York
(including form of Warrant Certificate) (Incorporated herein by
reference from Exhibit 10.65 to KNOLOGY, Inc.'s Registration
Statement on Form S-1 (File No. 333-89179)).
10.40 Warrant Registration Rights Agreement, dated as of December 3,
1999, between KNOLOGY, Inc. and United States Trust Company of
New York (Incorporated herein by reference from Exhibit 10.66
to KNOLOGY, Inc.'s Registration Statement on Form S-1 (File No.
333-89179)).
10.41 Registration Rights Agreement, dated October 22, 1997, between
KNOLOGY Holdings, Inc., the Placement Agents and SCANA
Communications, Inc. (Incorporated herein by reference from
Exhibit 4.2 to KNOLOGY Holdings, Inc.'s Registration Statement
on Form S-4, (File No. 333-43339)).
10.42 Section 351 Agreement by and among KNOLOGY, Inc., InterCall,
Inc., Valley Telephone Company and Globe Telecommunications,
Inc., dated November 1, 1999 (Incorporated herein by reference
from Exhibit 10.67 to KNOLOGY, Inc.'s Registration Statement on
Form S-1 (File No. 333-89179)).
10.43 Amendment to Section 351 Agreement by and among KNOLOGY, Inc.,
InterCall, Inc., Valley Telephone Company and Globe
Telecommunications, Inc., dated November 22, 1999 (Incorporated
herein by reference from Exhibit 10.68 to KNOLOGY, Inc.'s
Registration Statement on Form S-1 (File No. 333-89179)).
10.44 KNOLOGY, Inc. Spin-Off Plan (Incorporated herein by reference
from Exhibit 10.71 to KNOLOGY, Inc.'s Registration Statement on
Form S-1 (File No. 333-89179)).
10.45 Loan Agreement between InterCall, Inc. and KNOLOGY, Inc. dated
December 22, 1999 (Incorporated herein by reference from
Exhibit 10.72 to KNOLOGY, Inc.'s Registration Statement on Form
S-1 (File No. 333-89179)).
10.46 Line of Credit Note from KNOLOGY, Inc. to InterCall, Inc. dated
December 22, 1999 (Incorporated herein by reference from
Exhibit 10.73 to KNOLOGY, Inc.'s Registration Statement on Form
S-1 (File No. 333-89179)).
10.47 Form of Residual Note from KNOLOGY, Inc. to ITC Holding
Company, Inc. (Incorporated herein by reference from Exhibit
10.74 to KNOLOGY, Inc.'s Registration Statement on Form S-1
(File No. 333-89179)).
10.48 Joint Ownership Agreement dated as of December 8, 1998, among
ITC Service Company, Powertel, Inc., ITC DeltaCom
Communications, Inc. and Knology Holdings, Inc.
10.49* On/Line Operating and License Agreement dated March 18, 1998
between Knology Holdings, Inc. and CableData, Inc.
10.50* Dedicated Capacity Agreement between DeltaCom and Knology
Holdings, Inc. dated August 22, 1997.
61
<PAGE> 64
10.51* Agreement for Telecommunications Services dated April 28, 1999
between ITC*DeltaCom Communications, Inc. and Knology Holdings,
Inc.
10.52* Amendment to Master Capacity Lease dated November 1, 1999
between Interstate Fibernet, Inc. and Knology Holdings, Inc.
10.53 Duct Sharing Agreement dated July 27, 1999 between Knology
Holdings, Inc. and Interstate Fiber Network.
10.54 Assumption of Lease Agreement dated November 9, 1999 between
Knology Holdings, Inc. ITC Holding Company, Inc. and J. Smith
Lanier II.
10.55 Assumption of Lease Agreement dated November 9, 1999 among
Knology Holdings, Inc. ITC Holding Company, Inc. and Midtown
Realty, Inc.
10.56* Contract for Centrex Switching Services dated January 4, 1999
between Interstate Telephone Company and InterCall, Inc.
21.1 Subsidiaries of KNOLOGY, Inc.
27.1 Financial Data Schedule for year ended 1999 (for SEC use only).
- -----------------
* Confidential treatment has been requested pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended. The copy on file as an exhibit
omits the information subject to the confidentiality request. Such omitted
information has been filed separately with the Commission.
(b) REPORTS ON FORM 8-K.
None.
(c) EXHIBITS
We hereby file as part of this Form 10-K the Exhibits listed in the
Index to Exhibits.
(d) FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule is filed herewith:
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are
inapplicable or the information required to be set forth therein is provided in
our Consolidated Financial Statements or notes thereto.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
The registrant has not sent an annual report or proxy materials to its
security holders.
62
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of the 27th day of
March, 2000.
KNOLOGY, INC.
By: /s/ Roger L. Johnson
-------------------------------------
Roger L. Johnson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
Chairman of the Board and Director March 27, 1999
/s/ Campbell B. Lanier, III
- --------------------------------------
Campbell B. Lanier, III
/s/ Rodger L. Johnson President, Chief Executive Officer March 27, 1999
- -------------------------------------- and Director (Principal executive officer)
Rodger L. Johnson
/s/ Robert K. Mills Chief Financial Officer, Vice President March 27, 1999
- -------------------------------------- and Treasurer (Principal financial officer
Robert K. Mills and principal accounting officer)
/s/ Donald W. Burton Director March 27, 1999
- --------------------------------------
Donald W. Burton
/s/ William H. Scott, III Director March 27, 1999
- --------------------------------------
William H. Scott, III
/s/ Donald W. Weber Director March 27, 1999
- --------------------------------------
Donald W. Weber
Director
- --------------------------------------
Richard Bodman
</TABLE>
63
<PAGE> 66
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ L. Charles Hilton, Jr. Director March 27, 1999
- --------------------------------------
L. Charles Hilton, Jr.
/s/ Alan A. Burgess Director March 27, 1999
- --------------------------------------
Alan A. Burgess
</TABLE>
64
<PAGE> 67
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
KNOLOGY, INC.
Report of Independent Public Accountants.................................................................................... F-1
Consolidated Balance Sheets--December 31, 1998 and 1999..................................................................... F-2
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997.................................. F-3
Consolidated Statements of Stockholders' Equity and Comprehensive Loss for the Years Ended
December 31, 1999, 1998 and 1997............................................................................................ F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997.................................. F-5
Notes to Consolidated Financial Statements.................................................................................. F-7
</TABLE>
65
<PAGE> 68
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To KNOLOGY, Inc.:
We have audited the accompanying consolidated balance sheets of KNOLOGY,
INC. (a Delaware corporation) AND SUBSIDIARIES as of December 31, 1998 and 1999
and the related consolidated statements of operations, stockholders' equity and
comprehensive loss and cash flows for each of the three years in the period
ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of KNOLOGY,
Inc. and subsidiaries as of December 31, 1998 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. As discussed in Note 1 to the financial statements,
effective August 1998, the Company acquired a majority ownership interest in
KNOLOGY Holdings, Inc. in a business combination accounted for as a purchase. As
a result of this acquisition, the financial information for 1998 includes the
accounts of KNOLOGY Holdings, Inc. and, therefore, is not comparable to periods
prior to the acquisition.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 25, 2000
F-1
<PAGE> 69
KNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
-------------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 5,158,774 $ 7,818,462
Marketable securities ................................................ 66,231,397 6,069,461
Accounts receivable, net of allowance for doubtful accounts
of $418,499 and $695,067 as of December 31, 1998 and 1999,
respectively ....................................................... 8,774,536 9,037,451
Accounts receivable -- affiliates .................................... 6,785,691 18,244,232
Prepaid expenses ..................................................... 500,022 796,708
------------- -------------
Total current assets ........................................... 87,450,420 41,966,314
------------- -------------
PROPERTY, PLANT, AND EQUIPMENT:
System and installation equipment .................................... 188,753,702 274,010,824
Test and office equipment ............................................ 8,539,784 15,273,068
Automobiles and trucks ............................................... 3,777,458 5,286,638
Production equipment ................................................. 857,028 869,264
Land ................................................................. 2,750,244 2,750,244
Buildings ............................................................ 10,902,460 12,775,054
Inventory ............................................................ 32,417,006 21,769,689
Leasehold improvements ............................................... 1,145,184 1,689,656
------------- -------------
249,142,866 334,424,437
Less accumulated depreciation and amortization ....................... (37,257,198) (60,527,606)
------------- -------------
Property, plant, and equipment, net ............................ 211,885,668 273,896,831
------------- -------------
OTHER LONG-TERM ASSETS:
Intangible and other assets, net ..................................... 65,192,185 73,185,779
Deferred issuance costs, net ......................................... 8,733,803 7,878,034
Investments .......................................................... 825,072 3,249,056
Other ................................................................ 593,663 157,796
------------- -------------
Total assets ................................................... $ 374,680,811 $ 400,333,810
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable ..................................... $ 12,174 $ 12,174
Accounts payable ..................................................... 19,651,228 15,138,408
Accounts payable-- affiliates ........................................ 248,306 337,964
Accrued liabilities .................................................. 12,303,038 7,033,444
Advances from affiliates ............................................. 2,025,604 0
Unearned revenue ..................................................... 3,231,232 3,779,841
------------- -------------
Total current liabilities ...................................... 37,471,582 26,301,831
NONCURRENT LIABILITIES:
Notes payable ........................................................ 122,070 19,110,520
Accrued interest payable ............................................. 21,036,541 41,082,791
Unamortized investment tax credits ................................... 441,989 370,373
Deferred income taxes ................................................ 321,658 0
Bonds payable, net of discount ....................................... 255,020,209 270,818,870
------------- -------------
Total liabilities .............................................. 314,414,049 357,684,385
------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
MINORITY INTEREST ..................................................... 3,267,653 0
------------- -------------
WARRANTS (NOTE 3) ..................................................... 2,486,960 4,726,065
------------- -------------
STOCKHOLDERS' EQUITY:
Series A preferred stock, $.01 par value per share;
75,000,000 shares authorized, 0 and 48,035,531 shares
issued and outstanding at December 31, 1998 and
1999, respectively ................................................ 0 480,355
Series B preferred stock, $.01 par value per share; 50,000,000
shares authorized, 0 shares issued and
outstanding at December 31, 1998 and 1999 (Note 11) ................ 0 0
Common stock, $.01 par value per share; 200,000,000 shares
authorized, 100 and 6,476 shares issued and outstanding
at December 31, 1998 and 1998, respectively ........................ 1 65
Additional paid-in capital ........................................... 75,312,104 117,066,988
Accumulated deficit .................................................. (20,802,344) (79,593,349)
Unrealized gains (losses) ............................................ 2,388 (30,699)
------------- -------------
Total stockholders' equity ..................................... 54,512,149 37,923,360
------------- -------------
Total liabilities and stockholders' equity ..................... $ 374,680,811 $ 400,333,810
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-2
<PAGE> 70
KNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING REVENUES:
Telephone .................................... $ 17,633,313 $ 22,318,344 $ 28,774,150
Video ........................................ 0 22,527,403 35,165,411
Internet services and other .................. 0 286,775 2,781,368
------------- ------------- -------------
Total operating revenues ............... 17,633,313 45,132,522 66,720,929
------------- ------------- -------------
OPERATING EXPENSES:
Cost of services ............................. 3,121,108 16,796,593 26,964,519
Selling, operations, and administrative ...... 9,498,461 33,266,292 45,960,263
Depreciation and amortization ................ 2,781,800 17,326,895 40,970,149
------------- ------------- -------------
Total operating expenses ............... 15,401,369 67,389,780 113,894,931
------------- ------------- -------------
OPERATING INCOME (LOSS) ........................ 2,231,944 (22,257,258) (47,174,002)
------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest income .............................. 0 9,639,050 1,478,998
Interest expense ............................. (12,431) (29,033,088) (34,308,742)
Affiliate interest income (expense), net ..... 467,815 (34,115) (114,545)
Equity losses in subsidiary .................. (2,444,706) 0 0
Other (expense) income, net .................. (59,184) 782,954 107,066
------------- ------------- -------------
Total other expense .................... (2,048,506) (18,645,199) (32,837,223)
------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY
INTERESTS, AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE ......................... 183,438 (40,902,457) (80,011,225)
MINORITY INTERESTS ............................. 0 13,294,079 3,267,653
------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ..... 183,438 (27,608,378) (76,743,572)
INCOME TAX (PROVISION) BENEFIT ................. (1,010,779) 5,631,618 19,697,270
------------- ------------- -------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE ...................... (827,341) (21,976,760) (57,046,302)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (NOTE 2) ........................... 0 (582,541) 0
------------- ------------- -------------
NET LOSS ....................................... (827,341) (22,559,301) (57,046,302)
SUBSIDIARY PREFERRED STOCK DIVIDENDS ........... (4,193,276) (1,424,222) (1,744,703)
------------- ------------- -------------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS ................................. $ (5,020,617) $(23,983,523) $(58,791,005)
============= ============= =============
BASIC AND DILUTED NET LOSS PER SHARE
ATTRIBUTABLE TO COMMON STOCKHOLDERS .......... $ (50,206.17) $ (239,835.23) $ (11.45)
============= ============= =============
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING ........................... 100 100 5,132,653
============= ============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
F-3
<PAGE> 71
KNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 ...... 0 $ 0 100 $ 1
Comprehensive Loss:
Net loss attributable to common
stockholders ................ 0 0 0 0
Comprehensive Loss ...... 0 0 0 0
Acquisition of subsidiary stock 0 0 0 0
Merger of subsidiary out of
consolidated group .......... 0 0 0 0
---------- ------------- ----- -------------
BALANCE, December 31, 1997 ...... 0 0 100 1
Comprehensive Loss:
Net loss attributable to common
stockholders ................ 0 0 0 0
Unrealized gain on marketable
securities .................. 0 0 0 0
Comprehensive Loss ...... 0 0 0 0
Issuance of subsidiary common
stock ....................... 0 0 0 0
Acquisition of minority
interests ................... 0 0 0 0
Additional infusion of equity . 0 0 0 0
---------- ------------- ----- -------------
BALANCE, December 31, 1998 ...... 0 0 100 1
Comprehensive Loss:
Net loss attributable to common
Stockholders ................ 0 0 0 0
Unrealized loss on marketable
securities .................. 0 0 0 0
Comprehensive Loss ...... 0 0 0 0
Exercise of stock options ....... 0 0 6,476 65
Reorganization (Note 1) ......... 48,035,531 480,355 (100) (1)
Acquisition of minority interest 0 0 0 0
Additional infusion of equity ... 0 0 0 0
Exercise of SCANA warrants ...... 0 0 0 0
---------- ------------- ----- -------------
BALANCE, December 31, 1999 ...... 48,035,531 $ 480,355 6,476 $ 65
========== ============= ===== =============
</TABLE>
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS UNREALIZED TOTAL
PAID-IN (ACCUMULATED GAINS STOCKHOLDERS'
CAPITAL DEFICIT) (LOSSES) EQUITY
------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 ...... $ 6,049,495 $ 9,598,225 $ 0 $ 15,647,721
Comprehensive Loss:
Net loss attributable to common
stockholders ................ 0 (5,020,617) 0 (5,020,617)
-------------
Comprehensive Loss ...... 0 0 0 (5,020,617)
-------------
Acquisition of subsidiary stock 14,310,000 0 0 14,310,000
Merger of subsidiary out of
consolidated group .......... (500) (1,396,429) 0 (1,396,929)
------------- ------------- ------------- -------------
BALANCE, December 31, 1997 ...... 20,358,995 3,181,179 0 23,540,175
Comprehensive Loss:
Net loss attributable to common
stockholders ................ 0 (23,983,523) 0 (23,983,523)
Unrealized gain on marketable
securities .................. 0 0 2,388 2,388
-------------
Comprehensive Loss ...... 0 0 0 (23,981,135)
-------------
Issuance of subsidiary common
stock ....................... 3,152 0 0 3,152
Acquisition of minority
interests ................... 51,916,884 0 0 51,916,884
Additional infusion of equity . 3,033,073 0 0 3,033,073
------------- ------------- ------------- -------------
BALANCE, December 31, 1998 ...... 75,312,104 (20,802,344) 2,388 54,512,149
Comprehensive Loss:
Net loss attributable to common
Stockholders ................ 0 (58,791,005) 0 (58,791,005)
Unrealized loss on marketable
securities .................. 0 0 (33,087) (33,087)
-------------
Comprehensive Loss ...... 0 0 0 (58,824,092)
-------------
Exercise of stock options ....... 1,317,659 0 0 1,317,724
Reorganization (Note 1) ......... (480,354) 0 0 0
Acquisition of minority interest 36,967,307 0 0 36,967,307
Additional infusion of equity ... 2,025,604 0 0 2,025,604
Exercise of SCANA warrants ...... 1,924,668 0 0 1,924,668
------------- ------------- ------------- -------------
BALANCE, December 31, 1999 ...... $ 117,066,988 $ (79,593,349) $ (30,699) $ 37,923,360
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
F-4
<PAGE> 72
KNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .............................................. $ (827,341) $ (22,559,301) $ (57,046,302)
------------- ------------- -------------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization ....................... 2,781,800 17,326,895 40,970,149
Amortization of bond discount ....................... 0 13,651,778 15,798,661
Gain (loss) on disposition of assets ................ 0 71,378 (7,086)
Loss on sale of investments ......................... (13,315) (515,903) 0
Cumulative effect of change in accounting
principle ......................................... 0 582,541 0
Deferred income taxes ............................... (764,802) (238,815) (321,658)
Interest related to exercise of warrants ............ 0 0 795,168
Cash surrender value of life insurance .............. 92,604 11,764 386,663
Amortization of deferred investment tax credit ...... (71,616) (71,616) (71,616)
Equity in net loss of subsidiary .................... 2,444,706 0 0
Minority interest in net loss of subsidiary ......... 0 (13,294,079) (3,267,653)
Changes in operating assets and liabilities:
Accounts receivable ............................... (811,787) (10,292,009) (5,622,525)
Prepaid expenses .................................. 5,580 (408,164) (296,686)
Accounts payable .................................. 2,111,164 10,693,014 (4,423,162)
Accrued liabilities and interest .................. (1,283,101) 26,664,142 14,776,656
Unearned revenue .................................. 59,934 1,514,093 548,609
Other ............................................. (43,710) (100,230) 16,117
------------- ------------- -------------
Total adjustments ............................... 4,507,457 45,594,789 59,281,637
------------- ------------- -------------
Net cash provided by operating
activities .................................... 3,680,116 23,035,488 2,235,335
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .................................. (1,727,079) (120,227,057) (87,386,231)
Purchase of investments and acquisitions, net of
cash acquired ....................................... (14,310,000) (73,920,617) 0
Organizational cost expenditures ...................... 0 (251,815) 0
Proceeds from sale of investments ..................... 118,711 162,264,322 60,161,936
Dividends from affiliate/return of capital ............ (4,193,276) (1,424,222) (1,744,703)
Accounts payable-capital related ...................... (2,112,296) 0 0
Investment in ClearSource.............................. 0 (825,072) (586,992)
Proceeds from sale of property ........................ 0 32,075 75,357
Other ................................................. 0 (234,417) 164,439
------------- ------------- -------------
Net cash used in investing
activities .................................... (22,223,940) (34,586,803) (29,316,194)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt and short-term
borrowings .......................................... 0 (11,654) (11,550)
Expenditures related to issuance of debt and credit
facility ............................................ 0 (1,498,817) (51,616)
Proceeds from credit facility ......................... 0 0 19,000,000
Proceeds from affiliate loan .......................... 0 0 9,641,189
Proceeds from the issuance of subsidiary common stock . 0 3,152 9,760
Proceeds from the issuance of warrants ................ 0 0 1,129,500
Proceeds from the contribution of ClearSource ......... 0 0 5,663,006
Stock options exercised ............................... 0 0 1,307,964
Expenditures related to reorganization ................ 0 0 (848,775)
Additional infusion of equity ......................... 14,310,000 15,564,902 0
Repayments from (advances to) affiliate ............... 4,416,407 2,025,604 (6,098,931)
------------- ------------- -------------
Net cash provided by financing activities ....... 18,726,407 16,083,187 29,740,547
------------- ------------- -------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS ........................................... 182,583 4,531,872 2,659,688
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR ................................................... 444,319 626,902 5,158,774
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ............... $ 626,902 $ 5,158,774 $ 7,818,462
============= ============= =============
</TABLE>
F-5
<PAGE> 73
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for interest................. $ 12,431 $ 46,162 $ 669,968
============ ============= =============
Cash paid (received) during the period for income taxes $ 1,145,805 $ 1,742,947 $ (9,273,563)
============ ============= ==============
Merger of subsidiary out of consolidated group......... $ 108,108 $ 0 $ 0
============ ============= =============
Subsidiary preferred stock dividends................... $ 4,193,276 $ 1,424,222 $ 1,744,703
============ ============= =============
Detail of investments and acquisitions:
Cash acquired........................................ $ 0 $ (6,144,581) $ 0
Property, plant, and equipment....................... 0 30,133,876 0
Intangible assets.................................... 0 55,009,395 0
Minority interest.................................... 0 20,912,251 0
Common and/or Preferred Stock received (issued)...... 14,310,000 (34,532,324) 0
Bond discount........................................ 0 8,542,000 0
------------ ------------- -------------
Net cash paid for acquisitions....................... $ 14,310,000 $ 73,920,617 $ 0
============ ============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
F-6
<PAGE> 74
KNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998, AND 1999
1. ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION
ORGANIZATION
KNOLOGY, Inc. (the "Company"), a wholly owned subsidiary of ITC Holding
Company, Inc. ("ITC Holding"), was incorporated under the laws of the State of
Delaware in September 1998. The purpose of incorporating the Company was to
enable ITC Holding to complete a reorganization of certain of its wholly owned
and majority-owned subsidiaries on November 23, 1999 (the "Reorganization"), as
follows:
a. ITC Holding contributed all of the outstanding capital stock of
Interstate Telephone, Inc; Valley Telephone, Inc.; Globe Telecom, Inc.; and
ITC Globe, Inc. to the Company (collectively, the "Telephone Operations
Group").
b. ITC Holding contributed its 85% interest in KNOLOGY Holdings, Inc.
("KNOLOGY Holdings") to the Company.
c. ITC Holding contributed its 6% interest in ClearSource, Inc.
("ClearSource"), $5.7 million in cash to purchase additional ClearSource
shares, and subscription rights to purchase ClearSource shares to the
Company.
d. Other minority shareholders exchanged the remaining 15% of KNOLOGY
Holdings for shares of stock of the Company.
As a result of the Reorganization, the Telephone Operations Group and
KNOLOGY Holdings and subsidiaries are now wholly owned subsidiaries of the
Company. Following the Reorganization, ITC Holding held a 90% interest in the
Company. ITC Holding currently does not own any capital stock of the Company
following the distribution of the Company's shares to ITC Holding's shareholders
(Note 11) which was completed February 7, 2000.
The Reorganization has been accounted for in a manner similar to a pooling
of interest for the Telephone Operations Group. KNOLOGY Holdings and
subsidiaries have been treated as an equity investment in subsidiary in 1997 in
relation to the Company's 29% ownership interest. KNOLOGY Holdings and
subsidiaries have been consolidated with the Company in 1998 and 1999 in
relation to the 85% controlling interest obtained in July 1998 (Note 9) which
was recorded at ITC Holding's historical cost. For the period from August 1998
to December 1999, the 15% of KNOLOGY Holdings that the Company did not own has
been reflected as minority interest and the pro-rata losses attributed to the
minority holders to the extent that their investment was greater than zero in
accordance with Financial Accounting Standards Board Current Text on
Consolidation and Statement of Financial Accounting Standards No. 94. Because a
controlling interest in KNOLOGY Holdings was acquired in August 1998, the
financial statements for the year ended December 31, 1998 include the accounts
of KNOLOGY Holdings for the entire year and the minority interest in losses
includes the 58% share of KNOLOGY Holdings' losses for the period from January
1998 to July 1998.
The exchange of the remaining 15% of KNOLOGY Holdings for shares of stock of
the Company was accounted for as an acquisition of a minority interest of a
subsidiary. The stock issued in the exchange was valued at $22.4 million and was
recorded as goodwill since the book value of net assets acquired (which
approximated fair value) was less than zero. The Company had recorded 100% of
KNOLOGY Holdings' losses since KNOLOGY Holdings' equity was less than zero.
NATURE OF BUSINESS
The Telephone Operations Group is wholly owned and provides a full line of
local telephone and related services and broadband services. Certain of the
Telephone Operations Group subsidiaries are subject to regulation by state
public service commissions of applicable states for intrastate
telecommunications services. For applicable interstate matters related to
telephone service, certain Telephone Operations Group subsidiaries are subject
to regulation by the Federal Communications Commission.
KNOLOGY Holdings and its subsidiaries own and operate advanced hybrid
fiber-coaxial networks and provide residential and business customers broadband
communications services, including analog and digital cable television, local
and long-distance telephone, high-speed Internet access, and broadband carrier
services to various markets in the southeastern United States.
F-7
<PAGE> 75
The Company has experienced operating losses as a result of the expansion of
the advanced broadband communications networks and services into new and
existing markets. The Company expects to continue to focus on increasing its
customer base and expanding its broadband operations. Accordingly, the Company
expects that its operating expenses and capital expenditures will continue to
increase as it extends its broadband communications networks in the existing and
new markets in accordance with its business plan. On December 22, 1998, KNOLOGY
Holdings entered into a $50 million four-year senior secured credit facility,
which may be used for working capital and other purposes, including capital
expenditures and permitted acquisitions (Note 3). On February 7, 2000, the
Company completed a private placement of Series B preferred stock to a small
group of institutional investors and certain officers of the Company for
approximately $100 million to provide additional funds for its expansion plans
(Note 11). While management expects its expansion plans will result in
profitability, there can be no assurance that growth in the Company's revenue or
customer base will continue or that the Company will be able to achieve or
sustain profitability and/or positive cash flow.
BASIS OF PRESENTATION
The consolidated financial statements are prepared on the accrual basis of
accounting and include the accounts of the Company and its wholly owned and
majority-owned subsidiaries. Investments in which the Company does not exercise
significant control are accounted for using the cost method of accounting.
Investments in which the Company does exercise significant control and owns less
than 50% are accounted for using the equity method. All significant intercompany
balances have been eliminated. Certain prior year amounts have been reclassed to
be consistent with current year presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED PRO FORMA NET LOSS AND NET LOSS PER SHARE
Following the proposed distribution (Note 11), the Company will become a
separate taxable entity. Accordingly, the pro forma income taxes reflect income
taxes as if the Company were a separate taxable entity. In addition, the pro
forma earnings per share reflect the distribution as if it had occurred at the
beginning of each year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
------------- ------------ ------------
<S> <C> <C> <C>
UNAUDITED PRO FORMA DATA:
Pro forma income tax (provision)
benefit.............................. $(1,010,779) $ 2,382,644 $ 0
============= ============ ============
Pro forma net loss
attributable to common
stockholders......................... $(5,020,617) $(27,232,497) $(78,488,275)
=========== ============ ============
Pro forma basic and diluted net
loss attributable to
common stockholders per share........ $(50,206.17) $(272,324.97) $ (15.29)
=========== ============ ============
</TABLE>
CASH AND CASH EQUIVALENTS
The Company considers all short-term, highly liquid investments with an
original maturity date of three months or less to be cash equivalents. Cash and
cash equivalents are stated at cost, which approximates fair value.
MARKETABLE SECURITIES
The Company's marketable securities are categorized as available-for-sale
securities, as defined by Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
Unrealized holding gains and losses are reflected as a net amount in a separate
component of stockholders' equity until realized. For the purpose of computing
realized gains and losses, cost is identified on a specific identification
basis. Securities available for sale at December 31, 1998 and 1999 are primarily
comprised of commercial paper.
F-8
<PAGE> 76
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation and
amortization are calculated using the straight-line method over the estimated
useful lives of the assets, commencing when the asset is installed or placed in
service. Maintenance, repairs, and renewals are charged to expense as incurred.
The cost and accumulated depreciation of property and equipment disposed of are
removed from the related accounts, and any gain or loss is included in or
deducted from income. Depreciation and amortization (excluding telephone plant)
are provided over the estimated useful lives as follows:
YEARS
-----
Buildings..................... 25
System and installation
equipment..................... 7-10
Production equipment.......... 7
Test and office equipment..... 3-7
Automobiles and trucks........ 5
Leasehold improvements........ 5
Depreciation of telephone plant is provided on a straight-line method, using
class or overall group rates acceptable to regulatory authorities. Such rates
range from 2% to 24%.
Inventories are valued at the lower of cost or market (determined on a
weighted average basis) and include customer premise equipment and certain plant
construction materials. These items are transferred to system and installation
equipment when installed.
Interest is capitalized in connection with the construction of the Company's
broadband networks. The capitalized interest is recorded as part of the asset to
which it relates and is amortized over the asset's estimated useful life.
Approximately $2,469,000 and $3,040,000 of interest cost was capitalized in 1998
and 1999, respectively.
INTANGIBLE ASSETS
Intangible assets include the excess of the purchase price of acquisitions
over the fair value of net assets acquired as well as various other acquired
intangibles. Intangible assets and the related useful lives and accumulated
amortization at December 31, 1998 and 1999 are as follows:
AMORTIZATION
PERIOD
1998 1999 (YEARS)
---- ---- -------
Goodwill................... $33,377,468 $ 56,291,468 10-40
Subscriber base............ 34,863,072 34,429,332 3
Noncompete agreement....... 1,500,000 1,500,000 3
Other...................... 102,978 405,202 10-15
----------- ------------
69,843,518 92,626,002
Less accumulated amortization 4,651,333 19,440,223
----------- ------------
Intangibles, net........... $65,192,185 $ 73,185,779
=========== ============
During 1998, the Company adopted the provisions of AICPA Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities," which requires
that all nongovernmental entities expense costs of start-up activities,
including pre-operating, preopening, and organization activities, as the costs
are incurred. Adoption of this statement resulted in a cumulative effect of
change in accounting principle of $582,541.
DEFERRED ISSUANCE COSTS
Deferred issuance costs include costs associated with the issuance of debt
and the consummation of a credit facility (Note 3). Deferred issuance costs and
the related useful lives and accumulated amortization at December 31, 1998 and
1999 are as follows:
AMORTIZATION
PERIOD
1999 1998 (YEARS)
---- ---- -------
Deferred issuance costs.... $9,382,124 $9,433,742 4-10
Accumulated amortization... (648,321) (1,555,708)
--------- -----------
Deferred issuance costs, net $8,733,803 $ 7,878,034
========= ===========
F-9
<PAGE> 77
LONG-LIVED ASSETS
In 1995, the Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and cost in excess of net assets acquired
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. The effect of adopting SFAS
No. 121 was not material to the Company's consolidated financial statements.
The Company reviews its long-lived assets such as property and equipment,
goodwill, and other intangible assets for impairment at each balance sheet date
or whenever events or changes in circumstances indicate that the carrying amount
of an asset should be assessed. Management evaluates the tangible and intangible
assets related to each acquisition individually to determine whether an
impairment has occurred. An impairment is recognized when the undiscounted
future cash flows estimated to be generated by the assets are not sufficient to
recover the unamortized balance of the asset. Estimates of future cash flows are
based on many factors, including current operating results, expected market
trends, and competitive influences. If an impairment has occurred, a loss equal
to the difference between the carrying value of the asset and its fair value is
recognized. The resulting reduced carrying amount of the asset is accounted for
as its new cost and depreciated over the asset's remaining useful life.
Management believes that the long-lived assets in the accompanying consolidated
balance sheets are appropriately valued.
INVESTMENTS
Investments and equity ownership in associated companies consisted of the
following at December 31, 1998 and 1999:
1998 1999
--------- --------
Nonmarketable investments, at cost:
ClearSource common and preferred
stock, 333,444 and 817,386 shares in
1998 and 1999, respectively......... $ 825,072 $ 3,249,056
========= ============
At December 31, 1999, KNOLOGY, Inc., through its wholly-owned subsidiaries,
owned approximately 18% of ClearSource. ClearSource was formed during 1998 to
build and operate advanced broadband networks offering a bundle of
communications services to residential and business customers. The Company's
investment in ClearSource is accounted for under the cost method of accounting.
The following summarizes the results of operations for the year ended
December 31, 1997 of associated companies in which the Company's investments
were accounted for by the equity method.
YEAR ENDED DECEMBER 31,
1997
-----------------------
RESULTS OF OPERATIONS:
Operating revenues...... $ 10,355,068
Operating loss.......... (5,511,386)
Net loss....... (9,091,533)
REVENUE RECOGNITION
The Company's revenues are recognized when services are provided,
regardless of the period in which they are billed. Fees billed in advance are
included in the accompanying consolidated balance sheets as unearned revenue
and are deferred until the month the service is provided.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Approximately
$9,000, $587,000, and $1,476,000 of advertising expense are recorded in the
Company's consolidated statements of operations for the years ended December
31, 1997, 1998, and 1999, respectively.
INSTALLATION FEES
The Company recognizes installation revenue when the customer is initially
billed for the connection of services as the installation direct costs exceed
installation revenue on a per customer basis.
F-10
<PAGE> 78
SOURCES OF SUPPLIES
The Company purchases customer premise equipment and plant materials from
outside vendors. Although numerous suppliers market and sell customer premise
equipment and plant materials, the Company currently purchases each customer
premise component from a single vendor and has several suppliers for plant
materials. If the suppliers are unable to meet the Company's needs as it
continues to build out its network infrastructure, then delays and increased
costs in the expansion of the Company's network could result, which would
adversely affect operating results.
CREDIT RISK
The Company's accounts receivable potentially subject the Company to credit
risk, as collateral is generally not required. The Company's risk of loss is
limited due to advance billings to customers for services and the ability to
terminate access on delinquent accounts. The potential for material credit loss
is mitigated by the large number of customers with relatively small receivable
balances. The carrying amount of the Company's receivables approximates their
fair values.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes, as
set forth in SFAS No. 109, "Accounting for Income Taxes." Under the liability
method, deferred taxes are determined based on the difference between the
financial and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse. Deferred
tax benefit represents the change in the deferred tax asset and liability
balances (Note 6).
For the years ended December 31, 1998 and 1999, the Telephone Operations
Group was included in the consolidated tax returns of the Company's parent
company, ITC Holding. Effective August 1998, KNOLOGY Holdings was included in
the consolidated federal income tax return of ITC Holding. The Company and its
subsidiaries file separate state income tax returns. Under a tax sharing
arrangement, the Company recorded an income tax benefit of $5,631,618 and
$19,697,270 and an affiliate receivable in the amount of $6,785,691 and
$12,205,546 at December 31, 1998 and 1999, respectively, for the utilization of
net operating losses included in the consolidated tax return of ITC Holding. For
the period from January 1, 1998 to July 31, 1998, KNOLOGY Holdings filed a
separate federal income tax return.
Investment tax credits related to telephone plant have been deferred and are
being amortized as a reduction of federal income tax expense over the estimated
useful lives of the assets giving rise to the credits.
COMPREHENSIVE LOSS
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive loss and its components in a full set of general purpose financial
statements. The Company has chosen to disclose comprehensive loss, which
consists of net loss and unrealized gains (losses) on marketable securities, in
the consolidated statements of stockholders' equity and comprehensive loss.
Prior years have been restated to conform to the SFAS No. 130 requirements.
NET LOSS PER SHARE
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." That
statement requires the disclosure of basic net loss per share and diluted net
loss per share. Basic net loss per share is computed by dividing net loss
available to common stockholders by the weighted-average number of common shares
outstanding during the period. As the Company has no significant common stock
outstanding, the convertible preferred stock is assumed to be converted for
purposes of this calculation. Diluted net loss per share gives effect to all
potentially dilutive securities. The effect of the Company's stock options
(using the treasury stock method) was not included in the computation of
diluted EPS as their effect was anti-dilutive.
3. LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1999 consists of the following:
<TABLE>
<CAPTION>
1998 1999
------------- ---------
<S> <C> <C>
Senior Discount Notes, with a face value of
$444,100,000, bearing interest at 11.875%
beginning October 15, 2002, payable
semiannually beginning April 15, 2003
with principal and any unpaid interest due
October 15, 2007.............................. $ 255,020,209 $270,818,870
Senior secured credit facility, at a rate of
LIBOR plus 2.5%, interest payable quarterly
with principal and any unpaid interest
due November 15, 2002......................... 0 19,000,000
Capitalized lease obligation, at a rate of
10% payable in quarterly installments
of $6,304 through December 2006, secured.... 134,244 122,694
------------- ------------
255,154,453 289,941,564
Less current maturities.......................... 12,174 12,174
------------- ------------
$ 255,142,279 $289,929,390
============= ============
</TABLE>
F-11
<PAGE> 79
Following are maturities of long-term debt for each of the next five years
as of December 31, 1999:
2000........... $ 12,174
2001........... 16,098
2002........... 19,016,374
2003........... 18,074
2004........... 19,950
Thereafter..... 444,140,024
-------------
Total.......... $ 463,222,694
=============
The fair values of the Senior Discount Notes at December 31, 1999 are
estimated to be approximately $297,547,000, based on the closing bond price at
year-end.
On December 22, 1998, KNOLOGY Holdings entered into a $50 million four-year
senior secured credit facility with First Union National Bank and First Union
Capital Markets Corp., which may be used for working capital and other purposes,
including capital expenditures and permitted acquisitions. At KNOLOGY Holdings'
option, interest will accrue based on either the Alternate Base Rate plus
applicable margin or the LIBOR rate plus applicable margin as defined.
Obligations under the credit facility will be secured by substantially all
tangible and intangible assets of KNOLOGY Holdings and its current and future
subsidiaries. The credit facility includes a number of covenants, including,
among others, covenants limiting the ability of KNOLOGY Holdings and its
subsidiaries and their present and future subsidiaries to incur debt, create
liens, pay dividends, make distributions or stock repurchases, make certain
investments, engage in transactions with affiliates, sell assets, and engage in
certain mergers and acquisitions. The credit facility also includes covenants
requiring compliance with certain operating and financial ratios on a
consolidated basis. The credit facility allows KNOLOGY Holdings to borrow up to
five times certain individual subsidiary's "consolidated adjusted cash flow" as
defined in the credit facility. In connection with the initiation of the
revolving credit facility, KNOLOGY Holdings incurred approximately $1,256,000 in
related costs which are being amortized on a straight-line basis over the
five-year term.
In the fourth quarter of 1997, KNOLOGY Holdings issued units consisting of
senior discount notes due in 2007 and warrants to purchase Preferred Stock for
gross proceeds of approximately $250 million. The notes were offered at a
substantial discount from face value, with no interest payable for the first
five years. Approximately $2.5 million of the gross proceeds has been allocated
to the warrants. Each warrant allowed the holder to purchase .003734 shares of
KNOLOGY Holdings' preferred stock. The warrants have been exchanged for warrants
to purchase KNOLOGY, Inc. Series A preferred stock. KNOLOGY Holdings incurred
approximately $7.9 million in costs to issue the senior discount notes. These
costs are being amortized at an effective rate over the life of the notes. The
indenture relating to the notes contains certain covenants that, among other
things, limit the ability of KNOLOGY Holdings to incur indebtedness, pay
dividends, prepay subordinated indebtedness, repurchase capital stock, make
investments, engage in transactions with stockholders and affiliates, create
liens, sell assets, and engage in mergers and consolidations. The proceeds from
the offering of the units have been, and will be, used to repay certain
indebtedness of KNOLOGY Holdings, to fund expansion of KNOLOGY Holdings'
business, and for additional working capital and general corporate purposes.
4. OPERATING LEASES
The Company leases office space, utility poles, and other assets for varying
periods. Leases that expire are generally expected to be renewed or replaced by
other leases.
Future minimum rental payments required under the operating leases that have
initial or remaining noncancelable lease terms in excess of one year as of
December 31, 1999 are as follows:
2000................................ $ 499,863
2001................................ 273,477
2002................................ 198,158
2003................................ 154,071
2004................................ 134,044
Thereafter.......................... 457,747
---------
Total minimum lease payments.. $1,717,360
==========
Total rental expense for all operating leases was approximately $0,
$435,000, and $745,000 for the years ended December 31, 1997, 1998, and 1999,
respectively.
F-12
<PAGE> 80
5. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
The Company has entered into contracts with various entities to provide
programming to be aired by KNOLOGY Holdings. The Company pays a monthly fee as
cost for the programming services, generally based on the number of average
subscribers to the program, although some fees are adjusted based on the total
number of subscribers to the system and/or the system penetration percentage.
Certain contracts have minimum monthly fees. The Company estimates that it will
pay approximately $19 million in programming fees under these contracts during
2000.
LEGAL PROCEEDINGS
In the normal course of business, the Company is subject to various
litigation; however, in management's opinion, there are no legal proceedings
pending against the Company which would have a material adverse effect on the
financial position, results of operations, or liquidity of the Company.
6. INCOME TAXES
The (provision) benefit for income taxes from continuing operations
consisted of the following for the years ended December 31, 1997, 1998, and
1999:
1997 1998 1999
------------ ------------- --------
Current............ $(1,775,581) $ 5,392,803 $19,375,611
Deferred........... 1,596,002 10,662,185 9,276,376
Increase in valuation
allowance....... (831,200) (10,423,370) (8,954,717)
----------- ------------ ------------
Income tax (provision)
benefit......... $(1,010,779) $ 5,631,618 $19,697,270
=========== ============ ===========
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
The significant components of deferred tax assets and liabilities as of
December 31, 1998 and 1999 are as follows:
1998 1999
---- ----
Deferred tax assets:
Net operating loss
carryforwards............ $ 8,923,583 $10,916,459
Equity in losses of
subsidiaries.............. 1,188,958 1,188,958
Deferred bond interest...... 12,919,184 26,117,681
Deferred revenues........... 190,918 194,901
Other....................... 1,841,404 877,914
Valuation allowance......... (15,777,328) (24,732,047)
------------ -----------
Total deferred tax
assets........... 9,286,719 14,563,866
Deferred tax liabilities:
Depreciation and amortization 9,608,377 14,563,866
------------ -----------
Net deferred income taxes...... $ 321,658 $ 0
============ ===========
The Company has available, at December 31, 1999, unused net operating loss
carryforwards of approximately $85,211,735 expiring in various years from 2005
to 2019, unless utilized. Management has recorded a total valuation allowance of
$24,732,047 in 1999 on these operating loss carryforwards, the majority of which
contain limitations on utilization, and the equity losses of subsidiaries.
A reconciliation of the income tax provision computed at statutory tax rates
to the income tax provision for the years ended December 31, 1997, 1998, and
1999 is as follows:
1997 1998 1999
------- ------ -----
Income tax (provision) benefit at
statutory rate....................... (34)% 34% 34%
State income taxes, net of federal
benefit.............................. (4) 4 3
Other................................ (60) 1 0
Increase in valuation allowance...... (453) (25) (12)
---- ----- ----
Income tax (provision) benefit....... (551)% 14% 25%
==== ===== ====
F-13
<PAGE> 81
7. EQUITY INTERESTS
CAPITAL TRANSACTIONS
The Company has authorized 200,000,000 shares of $.01 par value common
stock, 75,000,000 shares of $.01 par value Series A convertible preferred stock,
and 50,000,000 shares of $.01 par value Series B convertible preferred stock.
In connection with the Reorganization (Note 1), the Company's warrant
holders elected to exchange the Bond Warrants of the Company for warrants in
KNOLOGY, Inc.'s preferred stock. The Company's Bond Warrants were subsequently
cancelled.
In October 1999, KNOLOGY Holdings issued to SCANA warrants to purchase 753
shares of the KNOLOGY Holdings' preferred stock in connection with certain loan
agreements between the two parties. SCANA exercised these warrants in November
1999. The weighted average exercise price of the warrant was $1,500 per share of
preferred stock. KNOLOGY Holdings received net proceeds of $1.1 million and
recorded the fair value of the warrants, as determined by the Black-Scholes
option pricing model, of $1.9 million to additional paid in capital. Related
interest expense of $0.8 million was recorded in the accompanying consolidated
statements of operations, SCANA elected to exchange its 753 shares of KNOLOGY
Holdings preferred stock for 451,800 shares of KNOLOGY, Inc.'s preferred stock
in connection with the reorganization (Note 1).
KNOLOGY HOLDINGS' STOCK OPTION PLAN
Under KNOLOGY Holdings' 1995 stock option plan (the "Stock Option Plan"), as
adopted in December 1995 and amended in February 1998, 8,000,000 shares of
KNOLOGY Holdings' common stock are reserved and authorized for issuance upon the
exercise of the options. All employees of KNOLOGY Holdings are eligible to
receive options under the Stock Option Plan. The Stock Option Plan is
administered by the compensation and stock option committee of the board of
directors. Options granted under the Stock Option Plan are intended to qualify
as "incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended. All options were granted at an exercise price equal to the
estimated fair value of the common stock at the dates of grant as determined by
the board of directors based on equity transactions and other analyses. The
options expire ten years from the date of grant.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which defines a fair value-based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation cost for those plans using the method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees." Entities electing to remain with the accounting
methodology required by APB Opinion No. 25 must make pro forma disclosures of
net income and, if presented, earnings per share as if the fair value-based
method of accounting defined in SFAS No. 123 had been applied.
The Company accounts for KNOLOGY Holdings' stock-based compensation plans
under APB Opinion No. 25, under which no compensation cost has been recognized
by the Company. However, the Company has computed, for pro forma disclosure
purposes, the value of all options for shares of KNOLOGY Holdings' common stock
to employees of KNOLOGY Holdings using the Black-Scholes option pricing model
and the following weighted average assumptions in 1997, 1998, and 1999:
1997 1998 1999
------------ ------------ --------
Risk-free interest rate 6.43% 5.42% 5.78%
Expected dividend yield 0% 0% 0%
Expected lives........ Seven years Seven years Seven years
Expected volatility... 30% 30% 30%
The total fair value of options for KNOLOGY Holdings' stock granted to
employees of KNOLOGY Holdings during 1997, 1998, and 1999 was computed as
approximately $304,000, $1,832,000 and $5,735,000, respectively, which would be
amortized on a pro forma basis over the five-year vesting period of the options.
A summary of the status of KNOLOGY Holdings' stock option plan at December
31, 1999 is presented in the following table:
WEIGHTED
AVERAGE
EXERCISE
PRICE PER
SHARES SHARE
------ -----------
Outstanding at December 31, 1996:. 211,188 2.00
Granted........................ 505,536 2.11
Forfeited...................... (63,756) 2.00
---------
Outstanding at December 31, 1997:. 652,968 2.07
Granted........................ 2,261,504 2.55
Forfeited...................... (144,224) 2.38
Exercised...................... (1,576) 2.00
---------
Outstanding at December 31, 1998:. 2,768,672 2.42
Granted........................ 4,625,376 2.85
Forfeited...................... (816,604) 2.48
Exercised...................... (6,400) 2.05
---------
Outstanding at December 31, 1999.. 6,571,044 2.71
=========
Exercisable shares as of December 31:
1999........................... 281,700 2.07
=========
F-14
<PAGE> 82
TELEPHONE OPERATIONS GROUP STOCK OPTION PLAN
The Company's parent, ITC Holding, sponsors a stock option plan which
provides for the granting of stock options to substantially all employees of the
Telephone Operations Group. Options are generally granted at a price
(established by ITC Holding's board of directors based on equity transactions
and other analyses) equal to at least 100% of the fair market value of ITC
Holding's common stock on the option grant date. Options granted generally
become exercisable 40% after two years and 20% per annum for the next three
years and remain exercisable for ten years after the option grant date.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
ITC Holding accounts for its stock-based compensation plans under APB
Opinion No. 25, under which no compensation cost has been recognized by the
Company. However, the Company has computed, for pro forma disclosure purposes,
the value of all options for shares of ITC Holding's common stock granted to
employees of the Telephone Operations Group using the Black-Scholes option
pricing model prescribed by SFAS No. 123 and the following weighted average
assumptions:
1997 1998 1999
---------- ---------- -------
Risk-free interest rate 6.0% 5.3% 5.8%
Expected dividend yield 0% 0% 0%
Expected lives........ Ten years Ten years Ten years
Expected volatility... 60% 50% 50%
The total fair value of options for ITC Holding's stock granted to employees
of the Telephone Operations Group during 1997, 1998, and 1999 was computed as
approximately $744,000, $602,000 and $755,000, respectively, which would be
amortized on a pro forma basis over the five-year vesting period of the options.
A summary of the status of the Telephone Operations Group's portion of ITC
Holding's stock option plan at December 31, 1999 is presented in the following
table:
WEIGHTED
AVERAGE
EXERCISE
PRICE PER
SHARES SHARE
------ -----------
Outstanding at December 31, 1996: 479,756 $0.15-$3.36
Granted..................... 188,732 $3.36-$7.75
Forfeited................... (33,800) $0.49-$7.75
Exercised................... (31,000) $0.28-$2.73
--------
Outstanding at December 31, 1997: 603,688 $0.15-$7.75
Granted..................... 86,968 $8.38-$12.50
Forfeited................... (93,172) $1.26-$12.50
Exercised................... (149,372) $0.28-$3.36
--------
Outstanding at December 31, 1998: 448,112 $0.15-$12.50
Granted..................... 60,132 $15.89-$21.65
Forfeited................... (69,953) $1.96-$18.85
Exercised................... (84,814) $1.58-$3.50
--------
Outstanding at December 31, 1999 353,477 $0.15-$21.65
========
Exercisable shares as of
December 31, 1999............... 231,062 2.52
=======
PRO FORMA NET LOSS
If the Company had accounted for these plans in accordance with SFAS No.
123, the Company's net loss for the periods presented would be as follows:
<TABLE>
<CAPTION>
AS
REPORTED PRO FORMA
-------- ---------
<S> <C> <C>
Net loss attributable to common Stockholders for
the years ended December 31:
1997.................................... $ (5,020,617) $ (7,113,134)
1998.................................... (23,983,523) (24,642,829)
1999.................................... (58,791,005) (60,348,055)
Net loss per share attributable to common
Stockholders for the years ended December 31:
1997.................................... $ (50,206.17) $ (71,134.34)
1998.................................... (239,835.23) (246,428.29)
1999.................................... (11.45) (11.76)
</TABLE>
F-15
<PAGE> 83
8. RELATED-PARTY TRANSACTIONS
ITC Holding occasionally provides certain administrative services, such as
legal and tax planning services, for the Company. The costs of these services
are charged to the Company based primarily on the salaries and related expenses
for certain of the ITC Holding executives and an estimate of their time spent on
projects specific to the Company. For the years ended December 31, 1997, 1998,
and 1999, the Company recorded approximately $3,459,000, $3,230,000, and
$2,574,000, respectively, in selling, operations, and administrative expenses
related to these services. In the opinion of management, amounts charged to the
Company are consistent with costs that would be incurred from third party
providers.
Certain of ITC Holding's affiliates provide the Company with various
services and/or receives services provided by the Company. These entities
include InterCall, Inc., which provides conference calling services. In
addition, the Company receives services from ITC*DeltaCom, Inc., an affiliate of
ITC Holding, which provides wholesale long-distance and related services and
which leases capacity on certain of its fiber routes. ITC Holding also holds
equity investments in the following entities which do business with the Company:
Powertel, Inc., which provides cellular services, and EarthLink, Inc., which is
a national provider of Internet access. In management's opinion, the Company's
transactions with these affiliated entities are representative of arm's-length
transactions.
For the years ended December 31, 1997, 1998, and 1999, the Company received
services from these affiliated entities in the amounts of approximately $707,000
$1,570,000, and $2,344,000, respectively, which are reflected in cost of
services and selling, operations, and administrative expenses in the Company's
consolidated statements of operations.
The Company also provides switching, programming, and other services for
various affiliated companies on a contracted or time and materials basis. Total
amounts paid by the affiliated companies for these services approximated
$1,517,000, $2,186,000, and $1,795,000, respectively, for the years ended
December 31, 1997, 1998, and 1999, and are reflected in operating revenues in
the Company's consolidated statements of operations.
During 1998 and 1999, the Company leased office space to ITC*DeltaCom, Inc.
and Powertel, Inc. Approximately $234,000 and $152,000 of lease income related
to these transactions is recorded as other income in the Company's consolidated
statements of operations for the years ended December 31, 1998 and 1999,
respectively.
Relatives of the stockholders of ITC Holding are stockholders and employees
of the Company's insurance provider. The costs charged to the Company for
insurance services were approximately $221,000, $628,000, and $977,000 for the
years ended December 31, 1997, 1998, and 1999, respectively.
9. BUSINESS ACQUISITIONS
KNOLOGY HOLDINGS ACQUISITIONS
In January 1998, the Company acquired an additional 6,747 shares of KNOLOGY
Holdings preferred stock, representing an approximate 13% ownership interest in
KNOLOGY Holdings, in exchange for cash of $10,177,234. The acquisition of the
additional interest was accounted for as a step acquisition. The fair value of
net assets acquired totaled $6,775,879, resulting in goodwill of $3,401,355.
Effective July 1998, the Company acquired an additional 42,565 shares,
representing approximately 43% of KNOLOGY Holdings' outstanding stock. The
Company recorded its acquisition of this additional ownership interest under the
purchase method of accounting as a step acquisition. Accordingly, the Company
recorded the pro rata share of net assets acquired at fair value. The Company
determined that the book value of the pro rata share of assets and trade
liabilities acquired approximated fair value. The fair value of KNOLOGY
Holdings' senior discount notes (Note 3) was determined to be less than book
value at the date of acquisition based on quoted market prices. As a result, a
debt discount of approximately $8,542,000 was recorded to adjust the book value
of the pro rata share of senior notes acquired to fair value (Note 3).
The total value paid by the Company was $36,687,424, including cash of
$2,155,100 and common and preferred stock valued at $34,532,324. The fair value
of net assets acquired totaled $22,678,372, resulting in goodwill of
$14,009,052. Prior to the acquisition, the Company owned more stock than any
other single KNOLOGY Holdings stockholder, owning approximately 42% of the
outstanding stock. As a result of the acquisition, the Company owned
approximately 85% of the outstanding stock of KNOLOGY Holdings at December 31,
1998.
F-16
<PAGE> 84
The goodwill and debt discount created upon the acquisition of KNOLOGY
Holdings is amortized over 10 years on a straight line basis and the term of the
senior notes on the effective interest method, respectively.
CABLE ALABAMA ACQUISITION
On October 30, 1998, KNOLOGY Holdings acquired substantially all of the
assets of Cable Alabama Corporation ("Cable Alabama") for approximately
$60,733,000 in cash and also purchased for $5,000,000 in cash certain real
property located in Huntsville, Alabama. Cable Alabama owned and operated a
cable television system serving the Huntsville, Alabama area. KNOLOGY Holdings
plans to upgrade the existing Cable Alabama plant to provide local and
long-distance telephone service and high-speed Internet access services. The
acquisition has been accounted for under the purchase method of accounting.
TTE, INC. ACQUISITION
On June 1, 1998, KNOLOGY Holdings acquired TTE, Inc., a non-facilities based
reseller of local, long distance, and operator services to small and
medium-sized business customers throughout South Carolina, for a purchase price
of $1.3 million. The acquisition has been accounted for under the purchase
method of accounting.
UNAUDITED PRO FORMA RESULTS OF OPERATIONS
The assets of TTE, Inc. and Cable Alabama have been included in the
Company's consolidated financial statements effective June 1, 1998 and September
1, 1998, respectively. The following unaudited pro forma results of operations
for the year ended December 31, 1998 assume that the acquisitions occurred on
January 1, 1998. The unaudited pro forma information is presented for
informational purposes only and may not be indicative of the actual results of
operations had the acquisitions occurred on the assumed date, nor is the
information necessarily indicative of future results of operations.
1998
----
Operating revenues............................. $ 55,359,204
Loss before extraordinary items................ (37,454,927)
Net loss attributable to common stockholders... (33,830,072)
Net loss per share attributable to common
stockholders (a)........................... (338,300.72)
- ----------
(a) Loss per share is computed using 100 as the number of shares outstanding in
1998.
10. SEGMENT INFORMATION
Effective January 1998, the Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which established revised
standards for the reporting of financial and descriptive information about
operating segments in financial statements. Management has identified the
reportable segments based on broadband services offered.
While management of the Company monitors the revenue generated from each of
the various broadband services, operations are managed and financial performance
is evaluated based upon the delivery of a multiple of the services to customers
over a single network. As a result of multiple services being provided over a
single network, there are many shared expenses and shared assets related to
providing the various broadband services to customers. Management believes that
any allocation of the shared expenses or assets to the broadband services would
be arbitrary and impractical.
The Company owns and operates advanced hybrid fiber-coaxial networks and
provides residential and business customers broadband communications services,
including video analog and digital cable television and local and long-distance
telephone. Internet services include high-speed Internet access via cable
modems, local transport services, such as local Internet transport, special
access, local private line, and local exchange transport services.
F-17
<PAGE> 85
<TABLE>
<CAPTION>
INTERNET SERVICES
VIDEO TELEPHONE AND OTHER
----- --------- -----------------
<S> <C> <C> <C>
1997
Operating revenues $ 0 $ 17,633,313 $ 0
Cost of services. 0 3,121,108 0
----------- ------------ ----------
Gross margin..... $ 0 $ 14,512,205 $ 0
=========== ============ ==========
1998
Operating revenues $22,527,403 $ 22,318,344 $286,775
Cost of services. 8,750,858 7,947,852 97,883
----------- ------------ ----------
Gross margin..... $13,776,545 $ 14,370,492 $188,892
=========== ============ ==========
1999
Operating revenues $35,165,411 $ 28,774,150 $2,781,368
Cost of services. 15,066,574 11,601,064 296,881
----------- ------------ ----------
Gross margin..... $20,098,837 $ 17,173,086 $2,484,487
=========== ============ ==========
</TABLE>
11. SUBSEQUENT EVENTS
DISTRIBUTION AND PRIVATE PLACEMENT
On February 4, 2000, ITC Holding Company distributed to its option holders
options to purchase 6,258,036 shares of our Series A preferred stock. On
February 7, 2000, ITC Holding distributed to its shareholders all of its
43,211,531 shares of our Series A preferred stock. On February 7, 2000 the
Company completed a private placement of its Series B preferred stock to a small
group of institutional investors and certain officers of the Company for
approximately $100.6 million.
F-18
<PAGE> 86
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing
standards, the financial statements of KNOLOGY, Inc. included in this Annual
Report on Form 10-K and have issued our report thereon dated February 25, 2000.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplemental Schedule II--Valuation and
Qualifying Accounts ("Schedule II") is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not a part of the basic financial statements.
The Schedule II has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth in relation to
the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 25, 2000
S-1
<PAGE> 87
SCHEDULE II
KNOLOGY, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Allowance for doubtful accounts,
balance at beginning of year ....... $ 30,524 $ 110,528 $ 418,499
Addition charged to cost and expense 432,256 1,395,384 1,415,697
Deductions ......................... (352,252) (1,087,413) (1,139,129)
----------- ----------- -----------
Allowance for doubtful accounts,
balance at end of year ............. $ 110,528 $ 418,499 $ 695,067
=========== =========== ===========
</TABLE>
S-2
<PAGE> 1
EXHIBIT 10.48
JOINT OWNERSHIP AGREEMENT
This Joint Ownership Agreement, is made and entered into as of 12/8,
1998, by and between the parties listed as Co-Owners on Exhibit A, attached
hereto, (collectively referred to herein as the "Co-Owners"), and ITC Service
Company ("ITC"), as Agent.
WITNESSETH:
WHEREAS, the Co-Owners are the registered joint owners of the following
civil aircraft, hereinafter "Aircraft:"
A. Beechcraft King Air B200 bearing manufacturer Serial No.
BB1439 and Federal Aviation Administration Registration
No. N583AT; and
B. Beech Jet 400A bearing manufacturer Serial No. RK-157 and
Federal Aviation Administration Registration No. N397AT.
and intend to own and operate the Aircraft as tenants-in-common;
WHEREAS, the Co-Owners desire to enter into an agreement to operate
the Aircraft with flight crew on a Joint Ownership basis as defined in Section
91.501(c)(3) of the Federal Aviation Regulations (FAR); and
WHEREAS, the Co-Owners desire to appoint ITC to act as their Agent in
undertaking certain duties and responsibilities of operating the aircraft and
administering the terms of this Joint Ownership Agreement;
NOW, THEREFORE, the Co-Owners, declaring their intention to enter into
and be bound by this Joint Ownership Agreement, and for the good and valuable
consideration set forth below, hereby covenant and agree as follows:
ARTICLE 1
RELATIONSHIP AMONG CO-OWNERS
The Co-Owners shall own the Aircraft as tenants-in-common. The
percentage ownership interests of the Co-Owners in the Aircraft are set forth
on Exhibit B hereto. Each such interest and all of the rights and obligations
associated with each Co-Owner's tenant-in-common interest in the Aircraft shall
be known as an "Interest." Each Interest shall be entitled to equal
-1-
<PAGE> 2
rights and privileges and subject to equal duties and obligations with every
other Interest, and each Interest shall be subject to all of the terms and
conditions hereof.
ARTICLE 2
APPOINTMENT AND REMOVAL OF AGENT
The Co-Owners hereby appoint ITC to act as their Agent (the "Agent")
with respect to certain aspects of the ownership and operation of the Aircraft
as more fully set forth in this Agreement. The Co-Owners may, at any time, by a
majority vote of the Interests in the Aircraft, remove ITC as Agent and appoint
another of the Co-Owners as Agent; provided, that any such removal and
replacement shall become effective only upon the replacement Co-Owner executing
and delivering a copy of this Agreement, as Agent, as evidence of its agreement
to be bound by the provisions hereof applicable to the Agent.
ARTICLE 3
SCHEDULING USE OF AIRCRAFT
3.01 Final Authority in Scheduling. The Agent shall have final
authority over the scheduling of the Aircraft, provided, however, that the
Agent will use its best efforts to accommodate the needs of the Co-Owners, and
to avoid conflicts in scheduling. As a general matter, the Agent will schedule
the Aircraft on a first come, first serve basis, except that in the event of
scheduling conflicts, priority will be given to the Co-Owner with the larger
percentage ownership interest in the Aircraft.
3.02 Scheduling Procedure. Each Co-Owner shall provide the Agent with
requests for flight time and proposed flight schedules as far in advance of any
given flight as possible, and in any case, at least 24 hours in advance of the
Co-Owner's planned departure except in case of an emergency, as determined in
the sole discretion of the Agent, in which case the Agent shall use all
reasonable efforts to make the Aircraft available. Requests for flight time
shall be in a form, whether oral or written, mutually convenient to, and agreed
upon by, the parties. A Co-Owner shall provide the following scheduling and
flight time information for each proposed flight, as required by the Agent or
the flight crew:
1. proposed departure point;
2. destination;
3. date and time of departure or arrival;
4. the number of anticipated passengers;
5. the nature and extent of luggage and/or cargo
to be carried;
6. the date and time of a return flight, if any;
7. any other information concerning the proposed
-2-
<PAGE> 3
flight that may be pertinent or required by the Agent or the
flight crew.
ARTICLE 4
MAINTENANCE OF AIRCRAFT
The Agent, on behalf of and at the expense of the Co-Owners, shall be
solely responsible for securing maintenance, preventive maintenance and
required or otherwise necessary inspections on the Aircraft. No period of
maintenance, preventive maintenance or inspection shall be delayed or postponed
for the purpose of scheduling the Aircraft, unless said maintenance or
inspection can be safely conducted at a later time in compliance with all
applicable laws and regulations, and within the sole discretion of the pilot in
command.
ARTICLE 5
AIRCRAFT SAFETY
5.01 Provision of Flight Crew. The Agent shall employ on behalf of
the Co-Owners and furnish a fully qualified flight crew for all operations of
the Aircraft for the duration of this Agreement. Each Co-Owner shall have the
right to request that the Agent employ and furnish a particular fully
qualified flight crew with respect to a particular flight taken by such
Co-Owner and the Agent shall use its best efforts to comply with such request,
provided that such flight crew or member of a flight crew meets the
requirements of the FAR and such other safety standards established by the
Agent in its reasonable discretion.
5.02 Flight Crew Control. The flight crew shall have full and
exclusive authority to exercise all of its duties and responsibilities in
regard to the safety of each flight conducted hereunder in accordance with
applicable FAR. Each Co-Owner shall be considered and, in fact, will be in
operational control of the Aircraft when that Co-Owner uses the Aircraft. Each
Co-Owner specifically agrees that the flight crew, in its sole discretion, may
terminate any flight, refuse to commence any flight, or take other action which
in the considered judgment of the pilot in command is necessitated by
considerations of safety. No such action of the pilot in command shall create
or support any liability for loss, injury, damage or delay to any Co-Owner or
any other person. The Co-Owners further agree that no party shall be liable for
delay or failure to furnish or return the Aircraft or crew pursuant to this
Joint Ownership Agreement when such failure is caused by government regulation
or authority, mechanical difficulty, war, civil commotion, strikes or labor
disputes, weather conditions, or acts of God.
-3-
<PAGE> 4
ARTICLE 6
EXPENSES
6.01 Payment of Expenses. The Agent, on behalf of the Co-Owners, shall
pay promptly when due and payable all bills and assessments for services or
supplies and other expenses incurred in connection with the maintenance,
operation, supervision and management of the Aircraft.
6.02 Invoices.
(a) Annually, the Agent shall furnish to each Co-Owner an
invoice ("Annual Invoice") for the Indirect Operating Cost Charge applicable
to such Co-Owner such period which sets forth the amount of indirect
operating costs ("Indirect Operating Costs") and Other Charges to be paid by
each Co-Owner as determined pursuant to Section 7.01 hereof.
(b) Each month, the Agent shall furnish to each Co-Owner an
invoice ("Monthly Invoice") for flights taken by such Co-Owner during such
period which sets forth the amount of direct operating expenses ("Direct
Operating Expenses") to be paid by each Co-Owner for that invoiced period as
determined pursuant to Section 7.02 hereof, and any additional charges to be
paid by each Co-Owner for the invoiced period as determined pursuant to Section
7.03 hereof ("Line Item Charges"). In the event of substantial unanticipated
maintenance expenses, the Agent shall furnish to each Co-Owner an invoice
("Special Maintenance Invoice") for the Special Maintenance Charge applicable
to such Co-Owner determined pursuant to Section 7.02 hereof.
(c) The Agent shall have the authority in its reasonable
discretion to bill the Co-Owners in advance to cover future and anticipated
expenses in connection with the Aircraft.
6.03 Maintenance of Books and Records. The Agent shall maintain
separate books and records for the operation and use of the Aircraft, including
records relating to the calculation of the Indirect Operating Costs and Other
Charges and the Direct Operating Expenses and the Line Item Charges. Such books
and records shall be open to inspection by the Co-Owners during normal business
hours.
ARTICLE 7
ALLOCATION AND PAYMENT OF AIRCRAFT EXPENSES
7.01 Sharing and Allocating Indirect Operating Costs and Other Charges
(a) Each calendar year, the Agent will prepare an estimate of
the
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<PAGE> 5
Indirect Operating Costs attributable to each of the Aircraft. The estimates of
Indirect Operating Costs shall be determined in the reasonable discretion of the
Agent and shall include, but are not limited to:
1. taxes;
2. pilot expenses not directly attributable to a
particular flight;
3. passenger amenities, landing & aircraft RON
fees not directly attributable to a particular
flight;
4. flight crew salaries & benefits;
5. contract pilots;
6. training;
7. legal and professional fees;
8. insurance;
9. hangar rental;
10. communications;
11. supplies; and
12. miscellaneous.
(b) Each calendar year, the Agent, in its reasonable
discretion, will determine appropriate charges (the "Other Charges") to
reflect the annual wear and tear to the Aircraft resulting from the
Co-Owners' use of the Aircraft.
(c) Each Co-Owner shall be responsible for its allocable
share of the Indirect Operating Costs and the Other Charges attributable to
the Aircraft during an annual invoice period. Each Co-Owner's allocable
share of such costs for the Aircraft shall be determined by multiplying
total amount of Indirect Operating Costs and Other Charges for the invoice
period by the percentage of the total use of the Aircraft during the
invoice period attributable to that Co-Owner (based on miles of operation).
(d) Amounts paid by the Co-Owners for Indirect Operating
Costs shall be used to reimburse the Agent for the payment of such Indirect
Operating Costs. Other Charges paid by the Co-Owners shall be credited to
each of the Co-Owners in proportion to their relative ownership interests
in the Aircraft.
7.02 Sharing and Allocating of Direct Operating Expenses.
(a) Each Co-Owner shall be responsible for its allocable
share of the Direct Operating Expenses attributable to the Aircraft during
an invoice period. Each Co-
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<PAGE> 6
Owner's allocable share of such expenses shall be determined by multiplying the
number of miles such Co-Owner operated the Aircraft during the invoice period
by an amount estimated by the Agent to cover Direct Operating Expenses. However,
this amount may be adjusted in the reasonable discretion of the Agent such that
the amount will approximate the Direct Operating Expenses incurred by the use of
the Aircraft. The Agent shall base its estimate of Direct Operating Expenses on
the following factors, but is not limited to considering only these factors:
1. fuel, oil, lubricants, and other additives used; during
and by reason of a flight;
2. engine, thrust reverser, and propeller reserve
allowances, as applicable;
3. hot section reserve allowances;
4. air frame and systems maintenance;
5. a ten (10) percent vectoring fee; and
6. a charge of $150 for any flight of less than 250
nautical miles taken in the Beech Jet 400A
bearing manufacturer Serial No. RK-157 and
Federal Aviation Administration Registration
No. N397AT to cover certain higher costs of
short flights.
(b) Each Co-Owner shall be responsible for its allocable share
of any substantial, unanticipated maintenance expenses attributable to the
Aircraft during any calendar year. Each Co-Owner's allocable share of such
expenses shall be determined by multiplying the number of miles such Co-Owner
operated the Aircraft during that calendar year by an amount estimated by the
Agent to cover such unanticipated maintenance expenses.
(c) Each Co-Owner will be invoiced monthly for Direct
Operating Expenses based on the number of nautical miles actually flown by each
Co-Owner. Each Co-Owner will be invoiced annually for Direct Operating Expenses
incurred as substantial unanticipated maintenance expenses based on the number
of nautical miles actually flown by each Co-Owner.
7.03 Sharing and Allocating of Line Item Charges. Each Co-Owner shall
be responsible for Line Item Charges relating to the ownership, operation, and
maintenance of the Aircraft attributable to such Co-Owner during each month.
Line Item Charges shall be determined in the reasonable discretion of the Agent
and shall include, but are not limited to:
1. tie down expenses;
2. catering expenses;
3. customs fees;
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<PAGE> 7
4. landing fees, ramp fees, and parking fees; and
5. applicable pilot expenses directly attributable to such
flight
The amount of Line Item Charges allocated to and to be paid by each Co-Owner
shall be determined by the Agent.
7.04 Procedure for Payment of Expenses by Co-Owners. Within fifteen
(15) days after the date of an invoice described in Section 6.02 hereof, each
Co-Owner shall pay to the Agent such Co-Owner's share of applicable charges as
set forth in the invoice. Any Co-Owner who is more than thirty (30) days in
arrears in payment of an invoice prepared pursuant to this Agreement, shall not
be permitted to use the Aircraft.
7.05 Depreciation. For each calendar year, each Co-Owner shall be
allocated its allocable share of the depreciation attributable to the Aircraft.
Each Co-Owner's allocable share of such depreciation shall be determined by
multiplying the total depreciation for the calendar year by each Co-Owner's
Interest.
7.06 Tax Liabilities and Benefits. For each calendar year, each
Co-Owner shall be entitled to a pro rata percent share of the gain, loss,
deduction, credit, or any tax benefits or liabilities with respect to the
Aircraft.
ARTICLE 8
BUDGET
For each calendar year, the Agent shall prepare a budget ("Budget")
for the expenses attributable to the operation, use and occupancy of the
Aircraft. The Budget shall set forth an estimate of the total Indirect
Operating Costs per aircraft for such calendar year (including any applicable
reserves), the total Direct Operating Expenses for such calendar year
(including any applicable reserves), and the total estimated number of flight
miles for such calendar year. The Budget shall also set forth itemized estimates
of the Indirect Operating Costs and Direct Operating Expenses for such
calendar year. The Budget for each invoice period shall be the estimated total
Indirect Operating Costs and Direct Operating Expenses for such calendar year
allocated equally to each applicable invoice period. The Budget shall become
final when approved by the Co-Owners, with such changes as they may require, in
accordance with Section 9.02 or Section 9.03 hereof.
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<PAGE> 8
ARTICLE 9
RIGHTS AND OBLIGATIONS OF CO-OWNERS.
9.01 Meetings. Upon the request of any Co-Owner, the Agent shall, and
any Co-Owner may, call a meeting of the Co-Owners to consider and act upon any
matter which may properly be the subject of such consideration and action
including, but not limited to, actions required pursuant to Section 9.04 hereof,
by giving notice thereof to all Co-Owners at least one (1) day prior to the date
of such meeting, which notice shall contain the date, time and place of the
meeting, as well as the subject matter or matters to be considered and acted
upon by the Co-Owners. Only such matters as shall have been specified in such
notice shall be considered and acted upon at the meeting unless otherwise
unanimously agreed by all Co-Owners entitled to notice. A written waiver of
notice, signed before or after a meeting by a Co-Owner entitled to notice of
such meeting, or the presence of the Co-Owner at the meeting (which shall be
deemed to be a waiver of notice) shall be deemed equivalent to notice.
9.02 Voting. At any meeting of the Co-Owners, each Co-Owner shall be
entitled to vote in accordance with such Co-Owner's Interest and such votes may
be cast either in person or by Agent or proxy duly authorized in writing. Except
as otherwise provided herein, the vote of the Co-Owners owning at least a
majority of all the Interests voting, in person or by proxy, shall decide all
questions properly submitted for a vote of the Co-Owners.
9.03 Action by Written Consent. Any action which the Co-Owners are
authorized to take at a meeting may be taken without a meeting and without
notice if a consent in writing setting forth the action so taken shall be signed
by Co-Owners owning at least a majority of the Interests, and such consent shall
have the same force and effect as a unanimous vote of the Co-Owners.
9.04 Signature of Co-Owners Required. Any legal document or agreement
relating to the ownership, operation, or use of the Aircraft shall be executed
by each of the Co-Owners, provided, however, that agreements between the Agent
and any flight crew employed by the Agent pursuant to Article 2 hereof and
agreements with third parties related to maintenance of the Aircraft and safe
operation of the Aircraft pursuant to Articles 3, 4 and 5 hereof, shall be
executed solely by the Agent on behalf of the Co-Owners, provided, further, that
each of the Co-Owners may grant to the Agent a power of attorney to execute any
legal documents or agreements relating to the ownership, operation or use of the
Aircraft by and for the benefit of such Co-Owner.
9.05 Waiver of Partition. The Co-Owners hereby waive whatever rights
they may have to demand the partition, or sale for partition, of the Aircraft
under the laws of the State of Georgia, or any other law.
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<PAGE> 9
9.06 Termination of Co-Owner's Interest. A Co-Owner's Interest may
be terminated at any time upon the affirmative vote of Co-Owners owning at least
a majority of all of the Interests in accordance with Section 9.02 and Section
9.03. Upon the termination of a Co-Owner's Interest, the terminated Co-Owner's
Interest shall be purchased for the fair market value of the Interest by those
Co-Owners affirmatively voting to terminate such Interest, pro rata in
accordance with their Interests or as they may otherwise agree. For purposes of
this Section 9.06, the Agent, in its reasonable discretion, shall be responsible
for determining the fair market value of a terminated Co-Owner's Interest.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
Each Co-Owner represents and warrants that:
(a) It will use the Aircraft, consistent with FAR Part
91.501, for and on account of its own business only, (including without
limitation, with respect to itself, its subsidiaries, and its affiliates), and
will not use the Aircraft for the purposes of providing transportation of
passengers or cargo in air commerce for compensation or hire:
(b) It will refrain from incurring any mechanic's or other
lien in connection with inspection, preventative maintenance, maintenance or
storage of the Aircraft, whether permissible or impermissible under this Joint
Ownership Agreement, not will it make any attempt to convey, mortgage, assign,
lease or any way alienate the Aircraft or create any kind of lien or security
interest involving the Aircraft or do anything or take any action that might
mature into such a lien;
(c) During the term of this Joint Ownership Agreement, it
will abide by and conform to all such laws, governmental and airport orders,
rules and regulations, as shall from time to time be in effect relating in any
way to the operation and use of the Aircraft under this Joint Ownership
Agreement; and
(d) It will comply with and take (or cause to be taken)
all such actions as may reasonably be required to assure compliance with the
terms and conditions of any insurance policies obtained by the Co-Owners.
ARTICLE 11
ASSIGNMENT OF INTERESTS
Neither this Joint Ownership Agreement nor any party's interest herein
shall be assignable to any other party whatsoever. This Joint Ownership
Agreement shall inure to the benefit of and be binding upon the parties hereto,
their heirs, representatives and successors.
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<PAGE> 10
ARTICLE 12
TAX ELECTION
12.01 Election. If, for federal income tax purposes, this Joint
Ownership Agreement, the relationship established hereby, and the operations
conducted hereunder are regarded as a partnership, as that term is defined by
the Internal Revenue Code of 1986, as amended, then the Co-Owners hereby elect
not to be treated as a partnership and elect to be excluded from the
application of all of the provisions of Subchapter K, Chapter 1, Subtitle A, of
the Internal Revenue Code of 1986, as amended. In making this election, each
Co-Owner acknowledges that any income derived by it by reason of its ownership
of an Interest can be adequately determined without the necessity for any
computation of partnership taxable income, and each Co-Owner agrees not to give
any notices or take any other action inconsistent with the election hereby made.
12.02 Evidence. The Agent is hereby authorized and directed to execute
such evidence of the foregoing election, or to make such an election if the
election herein contained is insufficient for any reason, as may be required by
the Secretary of the Treasury of the United States or the Internal Revenue
Service. Each Co-Owner agrees to execute such documents and to furnish such
other evidences as may be required to evidence such election.
ARTICLE 13
MISCELLANEOUS
13.01 Notice. Any notice, demand, request or report required or
permitted to be given or made to a Co-Owner under this Joint Ownership
Agreement shall be in writing and shall be deemed given or made when delivered
in person or when sent by first class United States mail or by other means of
written communication to the Co-Owner at its address set forth on EXHIBIT A
attached hereto.
13.02 Governing Law: Separability of Provisions. The laws of the State
of Georgia (excluding the conflicts of laws rules thereof) shall govern the
validity of this Joint Ownership Agreement, the construction of its terms and
interpretation of the rights and duties of the parties. If any provision of this
Joint Ownership Agreement shall be held to be invalid, the remainder of this
Joint Ownership Agreement shall not be affected thereby.
13.03 Entire Agreement. This constitutes the entire agreement among
the parties; it supersedes any prior agreement or understandings among them,
oral or written, all of which are hereby canceled.
13.04 Headings, etc. The headings in this Joint Ownership Agreement are
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<PAGE> 11
inserted for convenience of reference only and shall not affect interpretation
of this Joint Ownership Agreement. Wherever from the context it appears
appropriate, each term stated in either the singular or the plural shall include
the singular and the plural, and pronouns stated in either the masculine, the
feminine, or the neuter gender shall include the masculine, feminine and the
neuter.
13.05 Binding Provisions. The covenants and agreements
contained herein shall be binding upon and inure to the benefit of the heirs,
executors, administrators, and successors of the respective parties hereto.
13.06 No Waiver. The failure of any Co-Owner to seek redress
for violation, or to insist on strict performance or, any covenant or condition
of this Joint Ownership Agreement shall not prevent a subsequent act which would
have constituted a violation from having the effect of an original violation.
130.7 Further Action. The parties shall execute and deliver
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Joint Ownership
Agreement.
13.08 Insurance Provisions. Aviation insurance shall be
maintained at all times by Agent through insurance carriers reasonably
acceptable to Co-Owners and shall include each of the Co-Owners as Joint Named
Insureds for Bodily Injury and Property Damage liability, including passengers,
for limits not less than $100,000,000 Combined Single Limits per occurrence. The
aircraft shall be insured against loss by Physical Damage for 100% of its
current value. Such Physical Damage insurance shall be structured on a "Stated
Value" basis, and all such losses shall be adjusted exclusively through Agent.
The conditions of insurance shall be maintained in accordance with the actual
use and territory of operations of the Aircraft. The amount and type of
insurance carried may be changed from time to time by Agent as it deems
reasonably necessary to protect the interest of the Co-Owners and to adhere to
then current aviation insurance standards.
13.09 Indemnification. (a) Each party to this Agreement will
indemnify the others including, without limitation, stockholders, or any of its,
or their directors, officers, agents, employees, partners and protect, defend
and hold one another harmless from and against any and all loss, cost, damage,
injury or expense ("Loss"), incurred by reason of any breach by the indemnifying
party of any of its representations of obligations set forth in this Agreement.
(b) Each of the parties also hereby indemnifies and shall hold
the others harmless against any Loss incurred as the direct result of or arising
out of the imposition
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<PAGE> 12
on the Aircraft of any Federal or other tax lien or the foreclosure thereof by
virtue of the failure to pay or underpayment by the indemnifying party of the
Federal or other taxes payable by such indemnifying party.
(c) In all cases, the Co-Owners agree that the proceeds of
any insurance to which they are entitled herein shall be deemed to be accepted
as the Co-Owners' sole recourse against Agent for any Loss incurred by the
Co-Owner with respect to ownership or operation of the Aircraft or otherwise in
connection with this Agreement, except to the extent cause by the gross
negligence or willful misconduct of Agent.
13.10 Counterparts. This Joint Ownership Agreement may be
executed simultaneously in two or more counterparts, any one of which need not
contain the signatures of more than one party, but all such counterparts taken
together will constitute one and the same Joint Ownership Agreement.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused the signatures of
their authorized representatives to be affixed below to be effective on the day
and year first above written. The persons signing below warrant their authority
to sign.
AGENT:
ITC Service Company
By: /s/
------------------------
Chief Pilot
ATTEST:
/s/
- ---------------------------
Secretary
CO-OWNERS:
ITC Service Company
By: /s/
------------------------
President
ATTEST:
/s/
- ---------------------------
Secretary
Powertel, Inc.
By: /s/
------------------------
ATTEST:
/s/
- ---------------------------
Assistant Secretary
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<PAGE> 14
ITC*DeltaCom Communications, Inc.
By: /s/
------------------------------------
ATTEST:
/s/
- -----------------------------
Secretary
KNOLOGY Holding, Inc.
By: /s/
------------------------------------
ATTEST:
/s/
- -----------------------------
Secretary
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<PAGE> 15
EXHIBIT A
CO-OWNERS
IC Service Company
1239 O. G. Skinner Drive
West Point, GA 31833
Powertel, Inc.
1233 O. G. Skinner Drive
West Point, GA 31833
ITC*DeltaCom Communications, Inc.
1241 O. G. Skinner Drive
West Point, GA 31833
KNOLOGY Holdings, Inc.
1241 O. G. Skinner Drive
West Point, GA 31833
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<PAGE> 16
EXHIBIT B
Percentage of Interest Owned
<TABLE>
<S> <C>
ITC Service Company 97%
1239 O. G. Skinner Drive
West Point, GA 31833
Powertel, Inc. 1%
1233 O. G. Skinner Drive
West Point, GA 31833
ITC*DeltaCom Communications, Inc. 1%
1241 O. G. Skinner Drive
West Point, GA 31833
KNOLOGY Holdings, Inc. 1%
1241 O. G. Skinner Drive
West Point, GA 31833
</TABLE>
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<PAGE> 1
EXHIBIT 10.49
[*] Confidential treatment has been requested for the information indicated
pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
The copy on file as an exhibit omits the information subject to the
confidentiality request. Such omitted information has been filed separately
with the Commission.
CableData, Inc.
On/Line Op & Lic
Corp No. 027-00
-------
MSO Code ZKN
-------
Rev. 14 (09/97)
ON/LINE OPERATING & LICENSE AGREEMENT
between
CABLEDATA, INC.
2969 Prospect Park Drive
Rancho Cordova, California 95670
and
Customer KNOLOGY HOLDINGS, INC.
------------------------------------------------------------------------
Principal Office Address 312 WEST 8TH STREET
--------------------------------------------------------
City WEST POINT State GA Zip 31833
------------------------------------------------- --------- --------
CableData, Inc. (hereinafter called "CableData"), a California corporation,
agrees to provide Customer and Customer agrees to subscribe exclusively to the
services and products offered through CableData's proprietary DDP FINANCIALS
AND ON/LINE APPLICATIONS SOFTWARE (hereinafter collectively call "Software")
and the constituent Software, products and services (hereinafter individually
called "Product" and collectively call "Products") for all Customer Cable
Systems listed in Attachment A, subject to the following terms and conditions:
1. TERM OF AGREEMENT
1.1 The initial term of this Agreement shall be for a period of sixty
(60) months, commencing on the date of full execution of this
Agreement. After the initial term, this Agreement shall be
automatically renewed for one (1) year periods unless either
party hereto provides to the other written notice of intent not
to renew at least one hundred eighty (180) days prior to the
expiration date of the initial term or succeeding terms, if any.
2. LICENSE
2.1 For each Software Product requested by Customer, CableData grants
to Customer a non-exclusive, nontransferable license, without
right of sublicense, to use, perform, or execute such Product or
portions thereof solely for Customer's own use at the Computer
Facilities or Remote Sites designated in Attachment A of this
Agreement. Customer may, at its option from time to time by giving
CableData prior notice, request to add new Computer Facilities,
Remote Sites, or Products and services; CableData may then add
such new sites to Attachment A and such Products and services and
the prices therefor to Attachment B.
2.2 Any use of the Product at other than the designated installation
address(es) set forth in Attachment A will require the extension
of the licenses herein granted for each additional installation
address. Such extension(s) shall be made by amendment to
Attachment A upon written request by Customer and approval by
CableData of the additional installation address(es), which
approval shall not be unreasonably withheld. If Customer
temporarily is unable to use the Product at the designated
Computer Facility or Remote Site because of conditions beyond
Customer's control, the affected license may be temporarily
extended, upon prior approval by CableData, to permit Customer to
use the Product at another designated Computer Facility.
-1-
<PAGE> 2
2.3 The license granted herein for each Product specified in
Attachment B shall be effective on the installation date of, or
conversion date to, the Product and shall continue through the end
of the term, including any renewal terms as set forth in Paragraph
1.1, subject to the provisions of Section 12 and 19.
2.4 THIS AGREEMENT COVERS CABLEDATA'S APPLICATIONS SOFTWARE AND DOES
NOT COVER COMPUTER OPERATING SYSTEM SOFTWARE. NO WARRANTY, EXPRESS
OR IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, IS MADE WITH
RESPECT TO TANDEM OR OTHER OPERATING SYSTEM SOFTWARE. WITH RESPECT
TO ANY TANDEM SOFTWARE PROVIDED TO CUSTOMER BY CABLEDATA, CUSTOMER
IS EXPRESSLY BOUND BY THE TANDEM SUBLICENSE TERMS AND CONDITIONS
ATTACHED HERETO.
3. PRE-CONVERSION TRAINING
3.1 CableData will provide the standard initial training program for
Customer's employees at CableData's Education Center. The initial
training is included in the Conversion Fee and will consist of the
following classes required by CableData, or such other classes as
CableData may require in connection with the initial conversion to
CableData's Software: Fundamentals, System Management, Special
Money Processing, On-line Reports, DDP Financial Parameters, DDP
Financial Reports and, if applicable, Operations. The standard
initial training program will be provided as part of the
Conversion Fee to no more than two (2) of Customer's employees per
class and must be completed no later than four (4) months after
Customer's first bills on CableData. Equipment and materials used
in the instruction are provided by CableData.
3.2 Customer is responsible for all transportation to and from
CableData's Education Center, lodging and food for Customer's
employees that attend the CableData training.
3.3 Customer agrees to send qualified employees who will be
fulfilling System-related job roles to those classes designed for
their job roles before the conversion, in accordance with the job
roles and the required classes defined by CableData. In the event
the employee does not fulfill the requirements of the class,
Customer agrees to provide a replacement and said replacement
will attend the required class(es) before conversion.
4. CONVERSION TO THE SOFTWARE
4.1 For Exclusive systems, CableData will install the Software
Products requested by Customer on Customer's equipment in
consideration of Customer's payment of the relevant conversion fee
and reasonable travel and expense reimbursement. For Inclusive
systems, Software Products are installed on CableData equipment.
4.2 CableData will provide, at time of conversion, a standard on-site
orientation program for Customer's employees at the designated
Computer Facility(ies) as set forth in Attachment A. The on-site
orientation is included in the Conversion Fee. In the event
Customer requests on-site training at Remote Sites, such
additional training will be provided at then current price.
4.3 CableData will convert Customer's data and initialize data on the
Software. In the event data is not in a defined computer format
and available on magnetic tape, 9-track 1600/6250 bpi, then an
additional charge is applicable. CableData's services to convert
and initialize Customer's data shall include all reasonable
actions necessary to make such data compatible with the Software
and the Product, including reformatting of such data if needed.
4.4 CableData will provide one complete set of reference
documentation at no charge. Customer can purchase additional
copies at then current prices.
-2-
<PAGE> 3
5. CABLEDATA'S CUSTOMER SUPPORT FOR CABLEDATA APPLICATIONS SOFTWARE
5.1 CableData will provide telephone Software support for Customer
for the duration of this Agreement.
5.2 Customer support telephone calls to CableData's service center
will be handled immediately or returned within sixty (60) minutes
by a qualified CableData employee. Customer must provide
qualified individuals in Customer's Cable System(s) who have
attended CableData's relevant classes, with whom CableData will
deal. Customer will be required to maintain a level of expertise
to properly utilize the Software during the term of this
Agreement.
5.3 Excluded from Software support under this Agreement for Exclusive
systems are (a) operational procedures for loading and shutting
down the computer system; (b) setting computer operating system
command parameters; (c) nightly procedures for database backup and
file maintenance; (d) defining whether any problems are hardware
or Software-based; (e) database recovery necessitated by an
operating system software or operational problem; (f) balancing
file allocation and disk space management; (g) operational
procedures to support lockbox, cutoff, and Transmit-X; and (h)
conducting performance analysis of the computer system. These
operational support services are available at CableData's then
current prices.
5.4 The telephone Software support provided under this Agreement
covers only CableData applications Software licensed hereunder
and does not include support of any computer operating system
software (such as Tandem's operating software).
6. USE OF THE SOFTWARE BY CUSTOMER
6.1 Customer will be responsible for determining the appropriate uses
to be made of the Products and establishing the features through
the setting of Product parameters.
6.2 Customer will utilize the Software as set forth in the Software
documentation.
6.3 Customer is not authorized to make modifications to the Software.
Should Customer make such modifications, CableData will not be
responsible for repair of database, support of any Software as
modified, or for the compatibility of such modified Software with
any equipment, with the unmodified Software or with any future
Software releases.
6.4 CableData is not responsible for any changes to Customer's
database caused by Customer or any third party. Any repair or
regeneration of database damaged by Customer or third party will
be undertaken by CableData upon request at CableData's
then-current rates, but CableData does not warrant that such
repair or regeneration will be successful.
7. ON-GOING TRAINING
7.1 Customer can purchase additional instruction at then current
prices for all classes taught at CableData's Education Center.
Customer can also purchase customized on-site training at then
current prices. Customer is responsible for all transportation to
and from CableData's Education Center, lodging and food for
Customer's employees that attend the CableData training.
8. CHANGES TO THE SOFTWARE BY CABLEDATA
8.1 CableData reserves the right to make changes, updates and
enhancements to the existing Software as determined by
developments in the industry. CableData may modify its charges to
Customer to reflect the new services, updates and enhancements
and the cost thereof. It is understood that Customer shall not,
without its prior written approval, be obligated to convert to
such modified Product if such conversion would substantially
increase Customer's obligations under this Agreement.
-3-
<PAGE> 4
8.2 CableData may, during the term of this Agreement, add new
Products at prices to be published at the time of introduction.
Customer may elect such new Products as set forth in Section 2.
8.3 CableData is not responsible for the inability of any software or
other product purchased or licensed from third parties to
function because of changes to CableData Software.
8.4 At Customer's request, custom modification to the Software will
be made by CableData at the discretion of CableData and at
Customer's expense. Such custom modifications shall belong
exclusively to CableData. If such modification(s) increases
CableData's processing costs, Customer agrees that the prices for
the Products may be increased because of such modification(s).
8.5 Customer agrees that CableData will have the right to levy
charges for services resulting from Customer's modification of
the Software or for Customer's failure to utilize current
procedures.
8.6 CUSTOMER AGREES THAT CABLEDATA WILL HAVE THE RIGHT TO LEVY A
SOFTWARE SUPPORT SURCHARGE (ADDITIONAL CHARGE) IN THE EVENT
CUSTOMER IS TWO OR MORE MAJOR SOFTWARE RELEASES BEHIND THE
CURRENT SOFTWARE RELEASE. As used herein, a "Major Software
Release" means release by CableData to its customer base of a
version of the Software which contains (i) a major revision in
database structure or design; or (ii) modification of more than
50 application programs; or (iii) changes made pursuant to 100 or
more SARs (Software Assistance Requests) or DCRs (Database Change
Requests); or (iv) addition or modification of two or more major
components or schemes (i.e. rate codes, collections).
9. DATA PROCESSING, REPORTS AND STATEMENT PRODUCTION SERVICES
9.1 WITHIN THIRTY (30) DAYS OF EXECUTION OF THIS AGREEMENT, CUSTOMER
MUST PROVIDE TO CABLEDATA A CUTOFF SCHEDULE AGREEABLE TO
CABLEDATA FOR THE SUCCEEDING TWELVE (12) MONTH PERIOD FOR EACH
CUSTOMER CABLE SYSTEM UNDER THIS AGREEMENT, AND CUSTOMER MUST
UPDATE SUCH SCHEDULE(S) EACH NOVEMBER FOR THE FOLLOWING CALENDAR
YEAR.
9.2 Transmission of all data to and from CableData shall be via
telecommunications (including, but not limited to Transmit-X) or
shipment of tape(s) and shall be at Customer's expense.
9.3 The normal turnaround time for a processing cycle of any file
update at the billing facility used by CableData (International
Billing Services, Inc.), defined as the elapsed time between the
complete receipt of usable data transmission, or tape(s), and the
return transmission of processed data, or tape(s), is an average
of sixty (60) hours over twelve (12) consecutive processing
cycles.
Statement production will be completed within twenty-four (24)
hours of the successful completion of the cycle update and
transmission of processed data back to the customer and the
approval to proceed with statement production by the customer.
9.4 In the event Customer requests special processing, CableData may,
at its discretion, increase this turnaround time by an additional
twenty-four (24) to forty-eight (48) hours. In no event should
turnaround time exceed one hundred eight (108) hours except in
the case of force majeure or delays caused by Customer.
9.5 Customer reports and Customer billing statements and other
products shall be provided in accordance with options selected by
Customer.
-4-
<PAGE> 5
10. PRICE
10.1 The Price Schedule for utilizing the Software and Products
selected by Customer is set forth in Attachment B. Such prices
(exclusive of any discounts) shall be subject to increase upon
forty-five (45) days' prior notice, provided however that the
percentage of such increase or increases shall not exceed the
percentage increase in the Consumer Price Index for All Urban
Consumers (CPI-U) published by the U.S. Department of Labor
(a) from the date of last general price increase upon which
the prices in Attachment B were based (b) to the date of price
increase under this Agreement. Prices for all CableData
products and services ordered and used by Customer but not set
forth in Attachment B shall be the prices in effect on the
date of use of the product or service, including any
adjustments to such prices that CableData may from time to
time make.
10.2 Current prices for the paper component of forms and envelopes
are set forth in Attachment B. These prices will be adjusted
monthly to reflect fluctuations in the actual price index for
relevant paper products. The initial invoice will reflect
cumulative changes in paper prices from the date on which
Customer's contractual pricing was established, as set forth
in Attachment B (the "Base Date and Index(es)"), to the first
date of production of Customer's statements. On an ongoing
basis, each month's changes in paper pricing will be applied
to the following month's invoices.
Paper prices will increase or decrease on the basis of a
monthly aggregated index that reflects, on a weighted basis,
Customer's usage of paper products (i.e., forms and
envelopes). The index, which will be provided to CableData by
its statement production vendor, will compare weighted daily
averages of the appropriate indexes, based on the published
prices of the leading paper mills, to the weighted daily
averages for the preceding month. The applicable indexes for
forms and envelopes, and the relative weight given to each
index for the purpose of calculating the monthly aggregated
index, are set forth in Attachment B. In the event that there
is a change in the availability, or Customer's usage, of paper
products, CableData reserves the right to modify the indexes
to reflect such changed circumstances.
10.3 In order to be eligible for Inclusive Bundled Price and
Inclusive Package Bundled Price, the Cable System must have
not less than 20,000 Subscribers.
10.4 The following definitions are applicable to, and incorporated
in, Attachment B:
a. "Computer Facility" means a single Customer cable property
location where the Processors are located.
b. "Remote Site" means a Customer cable system(s) operating
by telecommunications from Customer's or CableData's
Computer Facility.
c. "Corp(s)" means Customer cable system(s) identified by a
unique corp-city number as set forth in Attachment A.
d. "Subscribers" or "Subs" means the number of historical
ledger records produced (including all active and inactive
subscribers with a balance or a transaction).
e. "Update" means the processing of Customer's DDP Financials
master file for the purpose of updating some or all of the
Subscriber records on that master file.
f. "Processor" means the central processing unit, memory and
addressable peripherals on which the Software functions.
g. "Multiple System Operator" or "MSO" means a cable operator
owning or managing not less than four (4) cable systems
using CableData with an aggregate Subscriber count on
CableData in excess of one hundred thousand (100,000).
10.5 Printing and graphics, inserts, supplies and other materials
and services not listed in Attachment B shall be available at
then current CableData prices. Said prices are subject to
change without notice. Customer may purchase such forms,
supplies, and materials from other vendors, provided materials
which impact the statement production process (including
inserts) or the Software meet CableData's reasonable
specifications necessary to ensure proper operation.
10.6 Customer agrees that CableData will have the right to charge
in accordance with the CableData's then current prices for
special projects requested by Customer and performed for
Customer by CableData that are outside the scope of day-to-day
customer service.
-5-
<PAGE> 6
11. TAXES
11.1 Customer shall pay, or reimburse, CableData for any tax or
assessment, including but not limited to, all sales, use, rental,
property, gross receipts, excise, or other taxes, duties, or
charges imposed by any government body or agency or subdivision
thereof (collectively "governmental body") by virtue of
CableData's sale of tangible or intangible property or the
provision of services pursuant to the terms of this Agreement.
Customer shall pay to CableData appropriate governmental
body, as the case may be, such tax or assessment within thirty
(30) calendar days of the date of the invoice by CableData or the
date on which Customer received notice of such requirement from
the applicable governmental body, whichever is earlier. Customer
shall be responsible for any fines, penalties, or interest
assessed if such charges are the result of actions taken by
CableData at the written direction of the Customer.
11.2 Notwithstanding the provisions of Section 11.1, Customer shall
not be responsible for paying or reimbursing CableData for
corporate franchise tax, capital tax, net worth tax, or taxes
measured by reference to CableData's net income.
12. PAYMENT TERMS
12.1 CableData shall invoice Customer monthly for services and
products, postage prepayment, taxes and other charges. Postage
prepayment will be billed as set forth in Section 13. All other
fees and charges for products and services, unless otherwise
noted, shall be billed in arrears.
12.2 Standard payment terms are net cash, without discount, due and
payable within thirty (30) days from the date of the invoice. In
the event that Customer does not render full payment of all
undisputed amounts within thirty (30) days of the date payable,
CableData may, after notifying Customer, cease any and all
services until such account is brought to current status.
12.3 If Customer fails to pay any charges when due and payable,
Customer agrees that CableData will have the right to invoice
and Customer will pay a late payment service charge of 1.5
percent per month, but not in excess of the lawful maximum, on
the past due balance, excluding bona fide disputed charges.
12.4 In the event that Customer should dispute a particular charge,
Customer will notify CableData's Accounting Department in
writing of the disputed charge and the reason of the dispute.
CableData will attempt to resolve such dispute as soon as
possible. In all events, Customer is obligated to pay all
undisputed charges on each invoice when due. Charges not
disputed by Customer in writing within three (3) months of
invoice date shall be final and non-disputable.
13. POSTAGE
13.1 Customer agrees to prepay Customer's postage for billing
statements no later than one (1) week prior to Customer's cutt
off date. Customer shall remit to CablaData an amount equal to
the number of Customer's current month Subscribers multiplied by
an average postage rate. This amount will be adjusted to actual
postage on the following month's invoice. This amount will be
indicated on the postage invoice mailed to Customer at least
fifteen (15) days prior to the due date. In the event Customer
does not prepay postage, as set forth above, CableData reserves
the right to hold Customer's billing statements until sufficient
postage prepayment is received.
13.2 In the event of an increase in U.S. postage rates, postage
prepayment shall be increased by the amount of such postage rate
increase.
13.3 Customer's postage payments may be subject to audit by the U.S.
Postal Service. In the event that such an audit reveals a
discrepancy between amounts paid and amounts actually due for
postage, Customer will reimburse CableData for any payment
deficiencies for which it is liable ad CableData will refund any
excess payments due to Customer.
-6-
<PAGE> 7
14. NON-DISCLOSURE OBLIGATIONS
14.1 CableData agrees that all information disclosed by Customer
during performance of this Agreement shall be considered
proprietary, to be held in confidence and used only in
performance of this Agreement. No information provided by
Customer under this Agreement shall be duplicated or
furnished to another party without prior written consent of
Customer except as required by law. CableData will exercise
the same standard of care to protect Customer's proprietary
data as is used to protect its own proprietary data from
unauthorized disclosure.
14.2 Customer understands the proprietary nature of the Software
designed and developed solely by CableData. Customer agrees
to exercise similar care to prevent unauthorized disclosure
of any information that could be injurious to the business
operations and welfare of CableData. Customer further
acknowledges that the Software and Products of CableData
are provided in confidence and are trade secrets of
CableData and will be so protected by Customer. Customer
agrees to maintain the Products in confidence and not to
disclose any portion of the Products to any third party,
and to utilize its best efforts to protect the contents of
the Products or any part thereof from unauthorized
disclosure by its agents, employees or representatives.
Customer agrees to take appropriate action, by notice to
its employees and all others who are permitted access to
the Products, to satisfy its obligations under this
Agreement.
15. TITLE
15.1 Customer recognizes and agrees that, during the term of
this Agreement and thereafter, title to, ownership of, and
all proprietary and intellectual property rights in the
Products licensed under this Agreement, and all copies and
derivative works thereof, will at all times remain in
CableData. Customer agrees to use the Products only as
provided in this Agreement. The existence of a copyright
notice shall not cause, or be construed as causing, a
Product to be a published copyrighted work or to be in the
public domain. Customer agrees that it will not make or
have made any more copies of the Products or any part(s)
thereof than are necessary for the use hereunder by
Customer and that it will cause such copies upon
reproduction to have the same copyright or proprietary
legends that appear on the Products or any part(s) thereof.
Customer recognizes that certain parts of the Products may
have been copyrighted by CableData or by third parties.
Customer agrees that it will affix to any and all
reproductions of those parts of the Products which are
copyrighted, the form of copyright notice indicated by
CableData and/or third parties.
16. LIMITATION OF REMEDY
16.1 CableData agrees that it will maintain, in machine readable
form, in off-site premises, a duplicate copy of Customer's
master file as most recently updated, to enable
regeneration of the DDP Financials master file data in the
event of loss of such items due to machine failure, conduct
of CableData's employees, fire or other calamity at
CableData's International Billing Services facility.
Customers on Exclusive systems agree to maintain duplicate
backup tapes as provided for in the Software in the event
of loss of such items due to the reasons stated above.
16.2 CableData's liability for loss of any Software data or
materials shall be limited to the replacement or
regeneration of the lost items by the method or means
deemed most suitable by CableData.
16.3 Neither CableData nor Customer shall be considered in
default due to any failure in performance of this
Agreement, in accordance with its terms, should such
failure arise out of causes beyond their control and
without their fault or negligence.
16.4 In the event of an error or omission, whether human or
mechanical, on the part of CableData or its employees,
CableData may elect to reprocess the data at no extra cost
to Customer to correct said error or omission. CableData's
liability to Customer for any losses or damages, direct or
indirect, arising out of this Agreement shall not exceed
the total amount billed or billable to Customer for the
performance of the particular task which gave rise to the
loss or damage. CableData shall not be liable for any
special or consequential damages in any event.
-7-
<PAGE> 8
16.5 EXCEPT AS PROVIDED IN THIS SECTION 16, NO WARRANTY, EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTY OR
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, IS MADE
WITH RESPECT TO THE PRODUCTS AND SERVICES PROVIDED HEREUNDER.
17. INSPECTION
17.1 It is understood that Customer may inspect all work being
performed under this Agreement to the extent practical at all
reasonable times and places. However, it is also understood that
such inspections by Customer shall not be performed in any way
that shall unduly delay the work being performed. Reasonable
facilities and assistance shall be provided for Customer's
inspection if any inspection is made by Customer on the premises
of CableData. Such facilities and assistance shall be provided
without extra charge. However, should Customer perform
inspection at a place other than the premises of CableData, such
inspection shall be at the expense of Customer.
18. INFRINGEMENT
18.1 CableData warrants that the Products and all components thereof,
and their use in the manner contemplated by this Agreement, do
not and will not infringe any United States patent or copyright.
If any action is instituted against Customer based upon a claim
that the Products or any component or use thereof infringe a
United States patent or copyright, CableData shall, for and on
behalf of Customer, defend and indemnify such action at
CableData's expense, provided Customer promptly notifies
CableData in writing of said action and CableData has sole
control of the defense and any settlement negotiations.
CableData shall have no liability to Customer for any
infringement action or claim which is based upon or arises out
of:
a. Any modification of the Products by Customer without the
express written permission of CableData; or
b. Any use of the Products in combination with any other
system, equipment or software which is not furnished by
CableData or approved by CableData in writing.
18.2 If any action is instituted against CableData based upon a claim
that any materials such as artwork or inserts provided by
Customer to CableData infringe a United States patent, copyright
or trademark, Customer shall, for and on behalf of CableData,
defend and indemnify such action at Customer's expense, provided
CableData promptly notifies Customer in writing of said action
and Customer has sole control of the defense and any settlement
negotiations.
19. TERMINATION
19.1 Notwithstanding any other provision herein, CableData will have
the right to terminate this Agreement or all or any licenses
granted herein if Customer fails to comply with any of its
material obligations under this Agreement. Should CableData
elect to exercise this right to terminate for nonperformance, it
must be done in writing specifically setting forth those items
of nonperformance. Customer will then have fifteen (15) days
from receipt of notification to remedy the items of
nonperformance. Should Customer fail to correct these items of
nonperformance, then CableData shall have the right to enter
upon Customer's premises to repossess and remove any
CableData-owned or licensed Products. In addition, CableData's
termination of this Agreement or such taking of possession shall
be without prejudice to any other remedies CableData may have,
including, without limitation, all remedies with respect to the
unperformed balance of this Agreement; provided, however, that
if Customer has not made payment of the fees or charges due
hereunder and such nonpayment continues after thirty (30) days'
prior written notice by CableData, CableData may then terminate
this Agreement or any license granted herein.
-8-
<PAGE> 9
19.2 Upon expiration of the term (including any extensions thereof)
of this Agreement or upon the termination of this Agreement or
of any license granted hereunder for any reason, all rights of
Customer to use the Products will cease and Customer will
immediately (i) grant to CableData access to its business
premises and the Products and allow CableData to remove the
Products, (ii) purge all copies of all Products from all
computer processors or storage media on which customer has
installed or permitted others to install such Products, and
(iii) when requested by CableData, certify to CableData in
writing, signed by an officer of Customer, that all copies of
the Products have been returned to CableData or destroyed and
that no copy of any Product remains in Customer's possession
or under its control.
19.3 CableData will, within ten (10) days after termination of this
Agreement, return Customer's most recent fixed master(s),
provided Customer has paid in full the fee for the fixed
master(s) and all outstanding monies owed. In the event there
are outstanding balance due, CableData may withhold master
file data until said balance are paid in full.
19.4 Any termination pursuant to this Section 19 shall be in
writing to the address of the other party as indicated on the
first page of this Agreement or to such other address as the
other party may, by prior written notice, have specified.
20. GENERAL
20.1 The parties agree that in the event it is necessary to employ
attorneys to enforce the terms of this Agreement, the
prevailing party in any lawsuit shall be entitled to an award
of reasonable attorneys' fees and court costs.
20.2 This Agreement may not be assigned without prior written
mutual consent of Customer and Cable Data.
20.3 this Agreement may be amended only by an instrument in
writing, executed by Customer and CableData.
20.4 No failure on the part of either party to this Agreement to
exercise its rights hereunder shall be, or operate as, a
waiver, release or relinquishment of any rights or powers
conferred under this Agreement. No provision of this Agreement
shall be deemed waived, amended or modified unless such
waiver, amendment or modification is in writing and signed by
the party against whom it is sought to enforce the waiver,
amendment or modification.
20.5 This Agreement will be governed in all respects by the laws of
the State of California and Customer hereby agrees to the
venue and jurisdiction of the courts in Sacramento,
California.
20.6 The headings of the several paragraphs are for convenience of
reference only and are not intended to be part of, or affect
the meaning or interpretation of, this Agreement.
20.7 This Agreement and Attachments represent the entire agreement
between the parties and supersede and replace all prior oral
and written proposals, communications and agreements with
regard to the subject matter hereof between Customer and
CableData.
20.8 Section 14 (Nondisclosure), Section 15 (Title), and Section 16
(Limitation of Remedy) shall survive the termination of this
Agreement.
20.9 Except for invoices and billing related communications, any
notice required or permitted to be given hereunder by either
party to the other shall be in writing and shall be deemed
given when addressed as set forth on the first page of this
Agreement to the attention of an officer of the party and (1)
hand delivered or (2) sent by facsimile transmission or (3)
sent by first class or certified, postage prepaid United
States Mail or (4) sent by overnight carrier (such as Federal
Express or DHL). If either party changes its address, it shall
so advise the other party in writing and any notice thereafter
required to be given shall be sent as specified herein to such
new address.
-9-
<PAGE> 10
20.10 Publicity. CableData will draft a press release within two (2)
weeks of the execution of this Agreement for distribution to the
Business Wire and/or to domestic, international and local trade
press and analysts, as deemed appropriate by CableData and its
parent company USCS International, Inc. Customer agrees to
cooperate in reviewing and releasing an approved version of the
press release, with customer quote, to CableData or its PR agency
within seventy-two (72) hours of its receipt by Customer.
20.11 The individuals signing below represent that each is authorized
to bind his or her party to this Agreement.
20.12 The terms of this Agreement are valid until March 5, 1998.
Failure of Customer to sign by such date will render these terms
void.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date last set forth below.
KNOLOGY HOLDING, INC. CABLEDATA, INC.
By: /s/ James K. McCormick By: /s/ Arthur O. Hawkins
_______________________________ _______________________________
James K. McCormick Arthur O. Hawkins
_______________________________ _______________________________
(typed name) (typed name)
CFO & Secretary Vice President
_______________________________ _____________________________
(title-must be an officer) (title-must be an officer)
March 5, 1998 March 18, 1998
_______________________________ _______________________________
(date) (date)
-10-
<PAGE> 11
Cabledata, Inc.
Date: March 5, 1998
Main Contract No. 027-00
MSO Code ZKN
ON/LINE OPERATING & LICENSE AGREEMENT
ATTACHMENT A
CUSTOMER'S COMPUTER FACILITIES AND REMOTE SITES
Corp. Primary/
No.: 027-00 Remote Site: Primary Exc/Inc: Inclusive TBOL/SQL: SQL
-------- ------- --------- ---
Scheduled Conversion
Date/Effective Date: 7-31-98 Current No. of Subscribers: Call Center
-------------- -----------
Name: KNOLOGY HOLDINGS, INC.
--------------------------------------------------------------------------
Address: 312 WEST 8TH STREET
-----------------------------------------------------------------------
City: WEST POINT County: WEST POINT State: GA Zip: 31833
----------------- ----------------- -------- ------
Corp. Primary/
No.: 027-00 Remote Site: Primary Exc/Inc: Inclusive TBOL/SQL: SQL
-------- ------- --------- ---
Scheduled Conversion
Date/Effective Date: 7-31-98 Current No. of Subscribers: 21,000
-------------- -----------
Name: KNOLOGY OF MONTGOMERY
--------------------------------------------------------------------------
Address: 3173 TAYLOR ROAD
-----------------------------------------------------------------------
City: MONTGOMERY County: MONTGOMERY State: AL Zip: 36116
----------------- ----------------- -------- ------
Corp. Primary/
No.: 027-02 Remote Site: Remote Exc/Inc: Inclusive TBOL/SQL: SQL
------- ------- --------- ---
Scheduled Conversion
Date/Effective Date: 7-31-98 Current No. of Subscribers: 0
-------------- -----------
Name: KNOLOGY
--------------------------------------------------------------------------
Address: 1450 ANN STREET
-----------------------------------------------------------------------
City: MONTGOMERY County: MONTGOMERY State: AL Zip: 36107
----------------- ---------------- -------- ------
-11-
<PAGE> 12
Corp. Primary/
No.: 027-03 Remote Site: Primary Exc/Inc: Inclusive TBOL/SQL: SQL
-------- ------- --------- ---
Scheduled Conversion
Date/Effective Date: 6-30-98 Current No. of Subscribers: 13,000
-------------- -----------
Name: KNOLOGY OF COLUMBUS
--------------------------------------------------------------------------
Address: 1701 BOXWOOD PLACE
-----------------------------------------------------------------------
City: COLUMBUS County: MUSCOGEY State: GA Zip: 31906
----------------- ----------------- -------- ------
Corp. Primary/
No.: 027-04 Remote Site: Remote Exc/Inc: Inclusive TBOL/SQL: SQL
-------- ------- --------- ---
Scheduled Conversion
Date/Effective Date: 7-31-98 Current No. of Subscribers: 4,000
-------------- -----------
Name: KNOLOGY OF PANAMA CITY
--------------------------------------------------------------------------
Address: NOT AVAILABLE -- WILL PROVIDE AT FUTURE DATE
-----------------------------------------------------------------------
City: PANAMA CITY County: State: FL Zip:
----------------- ----------------- -------- ------
-12-
<PAGE> 13
ON/LINE OPERATING & LICENSE AGREEMENT
ATTACHMENT B
SELECTED PRODUCTS AND SERVICES
DDP/SQL INCLUSIVE PRICING:
<TABLE>
<CAPTION>
Item Selling
Code Description Price Minimum
- ---- ----------- ------- -------
<S> <C> <C> <C>
5763 Inclusive DDP/SQL Bundled:* $ [*]/sub/mo $ [*]
includes:
5410 DDP/SQL License & Maintenance Fees
0442 DDP/SQL Customer Support Fee
0207 DDP Financials Package
5502 Computer Access (1,750 sub/port)**
Cutoff & Update (4 cycles per month)
0560 House Disk Storage
5601 Subscriber Disk Storage
0594 Transmit-X Handling Charges (2 cycles)
0348 Benchmark Statement Processing/Bill Production (one/sub/month)
Network Managed Data Line (35 Ports Per Line)
Maintenance Charges
- CRT Maintenance or Emulator Maintenance (1/1,750 subs)
- Printer Maintenance (50,000 subs/printer)
- Modem/Multiplexer Maintenance
5423 DDP/SQL Support Surcharge*** $ [*]/sub/mo
Inclusive DDP/SQL Optional Modules
5730 Addressable Package-One Way $ [*]/sub/mo $ [*]
Includes: Addressable License & Maintenance Fees
Addressable Customer Support
Additional two (2) ports needed for Addressability
Digital Addressability
5745 Digital Addressability (HITS) $ [*]/sub/mo
Includes: License, Maintenance and Support
5157 Digital Addressability Conversion Fee (excludes on-site travel & expenses) $ [*]/corp
5159 Digital Addressability Format Change (excludes on-site travel & expenses) $ [*]/corp
5750 PPV (Pay Per View) Package $[*]/PPV $ [*]/corp
transaction/
corp/mo
Includes: PPV License Fee & Maintenance Fee
PPV Customer Support
PPV Analysis Module
Event Scheduler License & Maintenance Fee
</TABLE>
* In order to qualify for Inclusive DDP/SQL, the cable system must
have at least 20,000 subscribers and commit to a minimum contract
of 36 months.
** A per port charge will assessed for each port over the limit.
*** Assessed at the discretion of CableData (Sr. VP of Operations)
when a corp remains more than two major software releases behind the
current general release.
NOTE: Bundle price is on a per corp city basis. No discount of the
bundled price will be given for non-use of products or
services included.
-13-
<PAGE> 14
<TABLE>
<CAPTION>
Item Selling
Code Description Price Minimum
- ---- ----------- ------- -------
<S> <C> <C> <C>
5707 ARU
Package $ [*]/sub/mo $ [*]/corp
Includes: ARU Interface License & Maintenance Fee
Electronic Funds Transfer (EFTS) Package
0471 EFTS Package Handling Fee $ [*]/mo/corp
0472 EFTS Package Transaction Batch Fee $ [*]/transaction batch
5005 EFTS Package License Fee $ [*]/mo/corp
5608 EFTS Package MaintenanceFee $ [*]/sub/mo
Lockbox Transmission/Tape Handling Charges
0470 Handling Fee $ [*]/mo/corp
5806 Transaction Batch Fee $ [*]/transaction batch
DDPF Support
On-Line Type 30 Users Only:
0500 DDPF Update Processing Hold (22 hold) $ [*]/day/request/corp
0503 DDPF Processing Discrepancy Hold (25 hold) $ [*]/day/request/corp
0520 Reprocess Consulting Fee $ [*]/hour 2 hr. minimum
0525 Reprocess On-Line Type 30s Corp [*]/reprocess
0526 Reprocess On-Line Type 30s Corp, Records Passed $ [*]/record
Non On-Line Type 30 Users:
0521 Type 30 Key-in Fee $ [*]/corp/month
Computer Access On-Line Type 30 Users Only:
5505 Port Charge (leased line) $ [*]/port/month
5507 Port Charge (dial-up) $ [*]/port/month
Software License
0102 Payment Card Interface $ [*]/sub/mo $[*]/corp
5261 QuickScreen Plus Emulator - 1st-9th copy sold to corp $ [*]/license/one time
5261A QuickScreen Plus Emulator - 10th-24th copy sold to corp $ [*]/license/one time
5261B QuickScreen Plus Emulator - 25th-49th copy sold to corp $ [*]/license/one time
5263A TCP/IP Emulator Upgrade (Windows, Macintosh)-1-50 units $ [*] license/one time per unit
5263B TCP/IP Emulator Upgrade (Windows, Macintosh)-51-100 units $ [*]/license/one time per unit
Software Maintenance
0102 Payment Card Interface $ [*]/sub/mo
5262 QuickScreen Plus Emulator [*]/mo/license
5263M TPC/IP Emulator [*]/mo/license
5502 Region Access - over and above Inclusive Package
Computer Access: (Monday-Saturday 8AM - 12AM $ [*]/mo/port
& Sunday 8AM - 5PM
Ports are available during all other hours if system is not being used
by Region for software or hardware maintenance.
Disk Storage
0556 Extender Ledger Records $ [*]/1,000 customer records
Pay Per View Auto Load (PAL)
0413 Pay Per View Auto Load (PAL) Services $ [*]/PPV vendor/mo/corp
0421 PAL Reload Fee $ [*]/occurrence
5326 PAL Specification Fee $ [*]
Includes: File Layout and four hours of technical support
0416 PAL File Formatting $ [*]/hour
</TABLE>
-14-
<PAGE> 15
<TABLE>
<CAPTION>
Item Selling
Code Description Price
- ---- ----------- ---------------------------
<S> <C> <C>
DDP/SQL Implementation:
0798A 0-25,000 Subscribers $ [*] *
File Conversion:
0797A 0-25,000 Subscribers $ [*] *
Conversion - New Build
0808 New Build Conversion $ [*]/corp*
Conversion - Addressable
0814 One-Way Addressable Conversion $ [*]/corp/interface
Conversion - PPV
5156 PPV Conversion $ [*]/corp
Conversion - ARU
0821 ARU Conversion - Inclusive $ [*]/corp
Set-Up- EFTS
0809 EFTS Set-up $ [*]/corp
Set-up - Payment Card Interface
0112 Payment Card Interface Set-up - Inclusive $ [*]/corp
Standard DDP/SQL Training:
At CableData Education Center $ [*]/day/student
At Customer Site [*]/day**
</TABLE>
* Price does not include travel and expenses
** Customer will be billed for all travel expenses
in addition to course charges.
-15-
<PAGE> 16
DDP FINANCIALS PRICING:
<TABLE>
<CAPTION>
Item Selling
Code Description Price Minimum
- ---- ----------- ------- -------
<S> <C> <C> <C>
DDP Financials
0561 Historical Ledger Retention - More Than Current Period (ie., Not Trimmed) $ [*]/subscriber/update
0228 Historical Ledger Retention - Not Meeting DDPF Package Criteria $ [*]/subscriber/update
0248 Pay Per View Ledger Detail $ [*]/subscriber/update
0251 Expanded Ledger $ [*]/subscriber/update
0252 Dynamic Ledger $ [*]/subscriber/update
DDP Financials - Optional & Duplicate Reports
0257 Detail Report Transactions, over Pay80 $ [*]/report key
0258 Summary Report Transactions $ [*]/report key
0276 Report Lines Printed $ [*]/line
0277 Report Pages Printed $ [*]/page
0261 Laser Report Pages Produced $ [*]/page
0275 Record Sort $ [*]/item sorted
0260 Paper Report - Pages Printed (Laser, 8 1/2" X 12", one side) $ [*]/page printed
0278 Fiche Report - Frames Produced $ [*]/frame
0279 Fiche Report - Original Fiche Produced $ [*]/fiche
0314 Fiche Report - Duplicate Fiche Produced $ [*]/fiche
DDP Financials - Report Writers
0271 Use Free $ [*]/use of report (cycle)
0272 Inventory Fee $ [*]/month
0273 Program or Change - Simple $ [*]/report
0274 Program or Change - Simple With Totals $ [*]/report
0280 Program or Change - Complex $ *
0281 Activate Existing With No Changes $ [*]/report
0275 Sort $ [*]/item sorted
0276 Paper - Lines Printed $ [*]/line printed
0278 Fiche - Frames Produced $ [*]/frame
0279 Fiche - Original Fiche Produced $ [*]/fiche
0314 Fiche - Duplicate Fiche Produced $ [*]/fiche
DDP Financials - Sales Tools
0271 Use Fee $ [*]/use of report (cycle)
0371 Processing Charge - Records Passed $ [*]/record $[*]
0365 Reel Tape (2400 Feet, 9 track, 1600 bpi) $ [*]/each
Cycle Select
0271 Cycle Select - Use Fee $ [*]/use of report (cycle)
0505 Cycle Select Programming - New or Change $ [*]/cycle
0507 Cycle Select Programming - Reactivate Existing $ [*]/cycle
0509 Cycle Select Processing $ [*]/subscribers selected
Message Select
0271 Message Select - Use Fee $ [*]/use of report (cycle)
0506 Message Select Set Up Charge $ [*]/each
0573 Message Select Programming/Processing $ [*]/each
0508 Message Select Programming - Activate $ [*]/each
0510 Message Printing Charge $ [*]/message printed
</TABLE>
* Price may vary depending on time required to program report writer.
-16-
<PAGE> 17
<TABLE>
<CAPTION>
Item Selling
Code Description Price Minimum
- ---- ----------- ------- -------
<S> <C> <C> <C>
Statement Select
0271 Statement Select - Use Fee $ [*]/use of report (cycle)
Supercompress
0574 Supercompress Programming $ [*]/plan $[*]/plan
Statement Image
0554 Statement Image Pull to Tape - INCLUSIVE $ [*]/statement
MSO Data Tape
0373 MSO Data Tape Transaction Transfer Fee $ [*]/summary report key
0365 MSO Data Tape Computer Tape $ [*]/tape
INCLUSIVE
0594 Transmit-X Processing Fee* $ [*]/corp/cutoff
0292 Transmit-X Transmission Fee $ [*]1/10th of a minute
Tape Handling
0467 Cutoff (Not Charged if Transmit-X) $ [*]/cutoff
0468 Update (Not Charged if Transmit-X) $ [*]/cutoff
Miscellaneous Output Products
0311 Original Microfiche Produced $ [*]/fiche
0314 Fiche Duplicates $ [*]/fiche
0398 Sample Statements** $ [*]/plan
0355 Postcard $ [*]/each
0356 Coupon $ [*]/each
0357 Sales Call Card $ [*]/each
0360 3-Line label - Plain $ [*]/each $ [*]
0361 4-Line label - Plain $ [*]/each $ [*]
0362 3-Line label - Gum $ [*]/each $ [*]
0363 4-Line label - Gum $ [*]/each $ [*]
0358 Address Card - Inserted $ [*]/each $ [*]
0354 Index Card $ [*]/each $ [*]
Tape Archiving
0557 Archiving $ [*]/tape/month
Standalone Fiche Expedite Fees
0313 Standalone Fiche Expedite Fees Request - 48 Hour Processing $ [*]/request
0313A Standalone Fiche Expedite Fees Request - By 0700 Next Day $ [*]/request
0313B Standalone Fiche Expedite Fees Request - Within 8 Hours $ [*]/request
0313C Standalone Fiche Expedite Fees Request - Within 4 Hours $ [*]/request
0313D Standalone Fiche Expedite Fees Request - ASAP $ [*]/request
</TABLE>
* Inclusive systems receive two(2) cutoffs at no charge in the bundled fee.
Shared systems are charged per cutoff.
**Maximum 20 statement samples per plan.
-17-
<PAGE> 18
<TABLE>
<CAPTION>
Item Selling
Code Description Price Minimum
- ---- ----------- ------- -------
<S> <C> <C> <C>
Carrier Route/ZIP+4 Module
0422 Carrier Route/Zip+4 Module Set Up Fee - Corp Size of 10,000 $ [*]/corp
Subscribers or Less
0423 Carrier Route/Zip+4 Module Set Up Fee - Corp Size of $ [*]/corp
10,001 to 50,000
0424 Carrier Route/Zip+4 Module Set Up Fee - Corp Size of $ [*]/corp
50,001 to 100,000 Subscribers
0425 Carrier Route/Zip+4 Module Set Up Fee - Crop Size of $ [*]/corp
100,001 Subscribers or More
0989 Postage Presort Processing Fee (in addition to applicable postage) $ [*]/subscriber
0988 Postal Automation Fee $ [*]/statement/month/corp
STATEMENT PROCESSING - BILL PRODUCTION SERVICES
0328 Benchmark III Panel $ [*]/statement/over Benchmark II
0333 Benchmark IV Panel $ [*]/statement/over Benchmark II
0329 Spectrum II - Front Print Only, 1 or 2 colors* $ [*]/statement/over Benchmark II
0330 Spectrum II - Front and Back Print* $ [*]/statement/over Benchmark II
0331 Spectrum III - Front Print Only, 1 or 2 colors* $ [*]/statement/over Benchmark II
0332 Spectrum III - Front and Back Print* $ [*]/statement/over Benchmark II
0334 Spectrum IV - Front Print Only, 1 or 2 colors* $ [*]/statement/over Benchmark II
0335 Spectrum IV - Front and Back Print* $ [*]/statement/over Benchmark II
0350 CableGram** $ [*]/each
STATEMENT - PAPER COMPONENT ***
0341 Benchmark II Panel/Spectrum II $ [*]/statement
0342 Benchmark III Panel/Spectrum III $ [*]/over II Panel
0343 Benchmark IV Panel/Spectrum IV $ [*]/over II Panel
0344 CableGram $ [*]/each
NOTE: Statement - Paper Component prices will change monthly
based on composite index but will not be effected by CPI-U.
***Base Date: February, 1998
Base Index: Benchmark II/Spectrum II=.771520
Benchmark III/Spectrum III=.773117
Benchmark IV/Spectrum IV=.775468
CableGram=.700787
Statement Logo
0336 Statement Logo Set Up Charge $ [*]/each
0345 Statement Logo Programming Charge - New or Change $ [*]/each
</TABLE>
*Subject to a disposal fee.
**In addition to applicable postage.
-18-
<PAGE> 19
ONLINE OPERATING & LICENSE AGREEMENT
INCLUSIVE DDP/SQL 2.7
System
The Inclusive System is designed for a medium to large sized franchise and
is priced with the following limitations:
1) All the programs listed below can be run at any time on the Inclusive
System.
<TABLE>
<S> <C> <C> <C>
Program # Description Program # Description
DP00127 DDP Menu DP32027 PPV Charging Run*
DP00827 Keyboard Training DP32227 PPV Analysis*
DP10027 Order Processing DP32527 PPV Maintenance*
DP10527 Bulletin Board Maintenance DP32827 Event Scheduler Slave Process*
DP11027 Quota Maintenance DP32927 Event Scheduler*
DP11527 Queue File Maintenance DP33027 Event Upload*
DP12527 Operator Performance DP34227 ARU Update*
DP13027 Director Maintenance DP34527 ARU Driver*
DP13527 Director Maintenance Print DP37027 OLVQ Call Receive*
DP14027 Personnel Maintenance DP37127 OLVQ Edit & Autho*
DP14527 Cycle Scheduling DP37227 OLVQ Order Server*
DP15027 Complex Maintenance DP37327 OLVQ Upload*
DP16027 Format Builder DP37427 OLVQ Event Queue*
DP17027 Report Parameter Maintenance DP37527 OLVQ Parameter Maintenance*
DP19027 ARU Parameter Maintenance* DP38027 Box Driver Startup*
DP20027 Route Select DP38X27 Box Driver (X varies by vendor format)*
DP21127 Route Assign DP57027 Spooler
DP22027 Work Orders DP60027 Payments and Adjustments
DP28027 Print Statement Image* DP60727 Lockbox Processing
DP30027 Box Maintenance DP61027 Post/Print Batches
DP31027 Addressable Parameter Maintenance* DP63027 Collections Manager
MENU System Menu
</TABLE>
2) The following programs must be run during 5:00 p.m. to 8:00 a.m., Monday
through Friday. All hours Saturday and Sunday.
<TABLE>
<S> <C> <C> <C>
Program # Description Program # Description
DP01027 Database Maintenance DP72827 Hot Moves Report
DP41527 House/Customer Maintenance DP73027 Magazine Labels
DP60627 Equip-Service Write-Off Report DP73527 Migration Report
DP60927 EFTS Processing* DP74027 House/Customer Select
DP62027 Collections Run DP75027 Box Select
DP62527 Collections Loading Report DP75127 Supplier Activity
DP62727 Collections Group Change of Events DP75227 Sales Commission
DP62827 Print Aged Balance Customers DP75427 Status Summary
DP64027 Product Manager DP75527 Performance Reports
DP69027 Yearly Interest Run DP75827 Report Key Manager
DP70027 Universal Select DP77027 History Select
DP70227 DDPF Report Print DP78027 Event Select
DP70727 Unreturned Converter Report DP79027 Form Server
DP72027 WIP Select DP79527 Job Scheduler
DP72527 Capitalized Drops Report
</TABLE>
3) The following programs need advanced scheduling and must be run 5:00 p.m.
to 8:00 a.m., Monday through Friday:
<TABLE>
<S> <C> <C> <C>
Program # Description Program # Description
DP01427 Delete Pointer Processing DP43027 Cycle Update
DP02027 Database Analyzer DP44027 Customer Purge
DP03727 Recalculate Rates DP44727 History Purge
DP04127 Recreate Locators DP45027 Geocode Download
DP05327 Box File Recalculation DP46027 Zip + 4 Maintenance*
DP42027 Cutoff DP47027 MSO Data Tape Manager
DP42527 Rate Increase Run DP47127 MSO Data Tape Maintenance
</TABLE>
4) Access to these programs is restricted by option. For example, batch
processing options are delayed until after hours while key-in options are
kept available between 8:00 a.m. and 5:00 p.m., Monday through Friday. The
time restrictions for these programs are internal; that is, they are built
into the individual program. NOTE: Key-in procedures can be accomplished at
any time.
<TABLE>
<S> <C> <C> <C>
Program# Description Program # Description
DP60527 Write Off Run DP71027 Not Dones/Cancels Report
DP68027 Refunds Run DP71527 CDW Daily/Monthly Performance Report
</TABLE>
*Available if Appropriate Software License is purchased.
Subject to modification for future releases.
-19-
<PAGE> 20
CABLEDATA, INC.
REV. 1 (01/97)
CERTIFICATE OF INCUMBENCY
The undersigned hereby certifies that he or she is the duly elected, qualified
and acting [Assistant] Secretary of Knology Holdings, Inc., a Delaware
corporation ("Customer") and, with respect to that certain Operating and
License Agreement of an even date herewith, including any amendments thereto
and other associated agreements (collectively, the "Agreement"), between
Customer and CableData, Inc., a California corporation, hereby further
certifies as follows:
(a) Set forth below are the names and titles of the duly elected, qualified and
acting officers of Customer, each such person holds the office set forth
opposite his or her name, and the signatures appearing opposite the respective
names of those officers who are executing the Agreement on behalf of Customer
are genuine signatures of such officers:
<TABLE>
<CAPTION>
Corporate
Signature Office Held Name
- --------- ----------- ----
<S> <C> <C>
/s/ James K. McCormick CFO & Secretary James K. McCormick
- -------------------------- ---------------------- ----------------------
/s/ Ancel A. Hamilton, Jr. V.P. Operations Ancel A. Hamilton, Jr.
- -------------------------- ---------------------- ----------------------
- -------------------------- ---------------------- ----------------------
- -------------------------- ---------------------- ----------------------
</TABLE>
(b) Each such officer who signs or has signed the Agreement or any other
documents delivered pursuant to the Agreement is or has been duly authorized
and empowered to do so in the name and on behalf of Customer.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this 5th day
of March, 1998.
/s/ James K. McCormick
- ---------------------------
Secretary
-20-
<PAGE> 21
AMENDMENT
TO
ON/LINE OPERATING & LICENSE AGREEMENT
WHEREAS, CABLEDATA, INC., a California corporation (hereinafter "CableData"),
and KNOLOGY HOLDINGS, INC. (hereinafter "Customer") have entered into that
ON/LINE OPERATING & LICENSE AGREEMENT (hereinafter called the "Agreement") of
an even date herewith; and
WHEREAS, CableData and Customer desire to modify the Agreement such that
wherever language contained in this Amendment conflicts with the terms of the
Agreement, the language contained in this Amendment shall control;
NOW, THEREFORE, the parties agree as follows:
1. Paragraph 1.1 of the Agreement is deleted in its entirety and replaced with
the following:
1.1 The term of this Agreement will be for a minimum period of twelve
(12) months. Prior to the end of the initial twelve (12) months,
Customer will have the option to provide sixty (60) days' written
notice of intent to terminate the Agreement based on an evaluation
of CableData's then current products and services and their
ability to address Customer's business requirements. If Customer
does not exercise the foregoing option, the term of this Agreement
will automatically continue for an additional period of twelve
(12) months, at the end of which it shall be automatically renewed
for one (1) year periods unless either party hereto provides to
the other written notice of intent not to renew at last sixty days
(60) days prior to the expiration date of the initial term or
succeeding terms, if any."
2. Paragraphs 2.2 and 2.3 of the Agreement are deleted in their entirety and
replaced with the following:
2.2 Any use of the Product at other than the designated
installation address(es) set forth in Attachment A will require
the extension of the licenses herein granted for each additional
installation address. Such extension(s) shall be made by
amendment to Attachment A upon written request by Customer and
approval by CableData of the additional installation address(es),
which approval shall not be unreasonably withheld. If Customer
temporarily is unable to use the Product at the designated
Computer Facility or Remote Site because of conditions beyond
Customers' control, the affected license may be temporarily
extended or CableData will make appropriate adjustments to
applicable license fees, upon prior approval by CableData, to
permit Customer to use the Product at another designated Computer
Facility.
2.3 The license granted herein for each Product specified in
Attachment B shall be effective on the installation date of, or
conversion date to, the Product and shall continue through the
end of the term, including any renewal terms as set forth in
Paragraph 1.1 and pricing shall also continue throughout all
contract periods, subject to the provisions of Sections 10, 12,
and 19.
3. Paragraphs 4.3 and 4.4 of the Agreement are deleted in their entirety and
replaced with the following:
4.3 CableData will convert Customer's data and initialize date on
the Software. In the event data is not in a defined computer
format and available on magnetic tape, 9-track 1600/6250 bpi,
then an additional charge maybe applicable. CableData's services
to convert and initialize Customer's data shall include all
reasonable actions necessary to make such data compatible with
the Software and the Product and exert all due diligence that the
data is accurate, including reformatting of such data if needed.
4.4 CableData will provide one complete set of reference
documentation at no charge. Customer can purchase additional
copies at then current prices. Customer can also make a
reasonable number of copies of insubstantial portions of the
documentation for internal reference only. CableData will provide
appropriate updates to the reference documentation with each new
upgrade.
4. New Paragraph 4.5 is added to the Agreement as follows:
4.5 CableData agrees to waive fifty percent (50%) of the conversion
charges for any business brought on to the CableData software
during the term of the Agreement.
-21-
<PAGE> 22
5. Paragraphs 5.1 and 5.2 of the Agreement are deleted in their
entirety and replaced with the following:
5.1 CableData will provide 24 hours x 7 day telephone Software
support for Customer for the duration of this Agreement.
5.2 Customer support telephone calls to CableData's service center
will be handled immediately or returned within sixty (60) minutes
by a qualified CableData employee. Customer must provide
qualified individuals in Customer's Cable System(s) who have
attended CableData's relevant classes or demonstrate an
appropriate amount of knowledge of the Software, with whom
CableData will deal. Customer will be required to maintain a
level of expertise to properly utilize the Software during the
term of this Agreement.
6. Paragraphs 8.3, 8.4, and 8.5 of the Agreement are deleted in their
entirety and replaced with the following:
8.3 CableData is not responsible for the inability of any software
or other product purchased or licensed from third parties to
function because of changes to CableData Software unless
CableData recommended and Customer relied upon the version of the
third party product referenced in CableData's then current
software compatibility matrix.
8.4 At Customer's request, custom modification to the Software will
be made by CableData at the discretion of CableData and at
Customer's expense. Such custom modifications shall be pre-
approved in writing by both parties, including cost and
ownership. If such modification(s) increases CableData's
processing costs, Customer agrees that the prices for the
Products may be increased because of such modification(s).
8.5 Customer agrees that CableData will have the right to levy
charges for services resulting from Customer's modification of
the Software or for Customer's failure to utilize current
procedures, as provided by CableData to Customer.
7. Paragraph 10.1 of the Agreement is deleted in its entirety and
replaced with the following:
10.1 The Price Schedule for utilizing the Software and Products
selected by Customer is set forth in Attachment B. Such prices
(exclusive of any discounts) shall be subject to increase one (1)
year after the effective date of this Agreement and annually
thereafter, upon sixty (60) days' prior notice, provided however
that the percentage of such increase or increases shall not
exceed the percentage increase in the Consumer Price Index for
All Urban Consumers (CPI-U) published by the U.S. Department of
Labor (a) from the date of last general price increase upon which
the prices in Attachment B were based (b) to the date of price
increase under this Agreement. Prices for all CableData products
and services ordered and used by Customer but not set forth in
Attachment B shall be the prices in effect on the date of use of
the product or service, including any adjustments to such prices
that CableData may from time to time make.
8. The following definitions are added to Paragraph 10.4 of the Agreement:
(h) "Exclusive" system means a system that is running the
CableData software at the Customer's own data center.
(i) "Inclusive" system means one running off of CableData's
data service center in a service bureau environment.
9. Paragraph 12.2 of the Agreement is deleted in its entirety and replaced
with the following:
12.2 Standard payment terms are net cash, without discount, due and
payable within forty-five (45) days from the date of the invoice.
In the event that Customer does not render full payment of all
undisputed amounts within forty-five (45) days of the date
payable, CableData may, 15 days after written notification to the
Customer and opportunity to cure, cease any and all services until
such account is brought to a current status.
10. New Paragraph 12.5 is added to the Agreement as follows:
12.5 CableData shall bill all of the conversion fees when the
conversion is complete.
-22-
<PAGE> 23
11. Paragraph 16.1 and 16.2 of the Agreement are deleted in their entirety and
replaced with the following:
16.1 CableData agrees that it will maintain daily, in machine
readable form, in off-site premises, a duplicate copy of
Customer's master file as most recently updated, to enable
regeneration of the DDP Financials master file data in the
event of loss of such items due to machine failure, conduct of
CableData's employees, fire or other calamity at CableData's
International Billing Services facility. Regeneration will be
done in a prompt and reasonable manner or and will be
completed within the next business day following request by
customer for regeneration of data that impacts Customer's day
to day operations. In the event that the data loss does not
impact Customer's ongoing operations, CableData shall use all
reasonable commercial efforts to complete regeneration as
promptly as practicable.
16.2 CableData's liability for loss of any Software data or
materials shall be limited to the timely replacement or
regeneration of the lost items by the method or means deemed
most suitable by CableData and will be done in a prompt and
reasonable manner, minimizing the disruption to Customer's
business operations. "Prompt and reasonable" replacement or
regeneration shall mean completion of the process within 2
business days following request by customer for replacement or
regeneration of data that impacts Customer's day to day
operations; in all other cases, CableData shall use all
reasonable commercial efforts to complete the process as
promptly as practicable.
12. Paragraph 16.4 of the Agreement is deleted in it entirety and replaced with
the following:
16.4 In the event of an error or omission, whether human or
mechanical, on the part of CableData or its employees,
CableData may elect to reprocess the data at no extra cost to
Customer to correct said error or omission. CableData's
liability to Customer for any losses or damages, direct or
indirect, arising out of this Agreement shall not exceed the
total amount billed or billable to Customer for the
performance of the particular task which gave risk to the loss
or damage. Neither CableData nor Customer shall be liable for
any special or consequential damages in any event. CableData
will correct any such errors or omissions in a prompt and
reasonable manner. "Prompt and reasonable" correction shall
mean completion of the process within 2 business days
following request by Customer for correction or CableData
becoming aware of the need for correction (whichever comes
first) where such errors or omissions impact Customer's
business operations, in all other cases, CableData shall use
all reasonable commercial efforts to complete the process as
promptly as practicable.;
13. Paragraph 18.1 of the Agreement is deleted in its entirety and replaced with
the following:
18.1 CableData warrants that the Product and all components
thereof, and their use in the manner contemplated by this
Agreement, do not and will not infringe any United States
patent or copyright. If any action is instituted against
Customer based upon a claim that the Products or any component
or use thereof infringe a United States patent or copyright,
CableData shall, for and on behalf of Customer, defend and
indemnify such action at CableData's expense and shall pay the
costs of any final judgement or settlement, provided Customer
promptly notifies CableData in writing of said action and
CableData has sole control of the defense and any settlement
negotiations.
CableData shall have no liability to Customer for any
infringement action or claim which is based upon or arises out
of:
a. Any modification of the Products by Customer without the
express written permission of CableData; or
b. Any use of the Products in combination with any other
system, equipment or software which is not furnished by
CableData or approved by CableData in writing.
-23-
<PAGE> 24
14. Paragraphs 19.1, 19.2 and 19.3 of the Agreement are deleted in their
entirety and replaced with the following:
19.1 Notwithstanding any other provision herein, either party will
have the right to terminate this Agreement or all or any
licenses granted herein if the other fails to comply with any
of its material obligations under this Agreement. Should the
non-breaching party elect to exercise this right to terminate
for nonperformance, it must be done in writing specifically
setting forth those items of nonperformance. The other party
will then have fifteen (15) days from receipt of notification
to remedy the items of nonperformance. Any termination of this
Agreement shall be without prejudice to any other remedies
such party may have, including, without limitation, all
remedies with respect to the unperformed balance of this
Agreement; provided, however, that if Customer has not made
payment of the fees or charges due hereunder and such
nonpayment continues after thirty (30) days' prior written
notice by CableData, CableData may then terminate this
Agreement or any license granted herein.
19.2 Upon expiration of the term (including any extensions thereof)
of this Agreement or upon the termination of this Agreement or
of any license granted hereunder for any reason, all rights of
Customer to use the Products will cease and Customer will
immediately (i) purge all copies of all Products from all
computer processors or storage media on which Customer has
installed or permitted others to install such Products and
(ii) when requested by CableData, certify to CableData in
writing, signed by an officer of Customer, that all copies of
the Products have been returned to CableData or destroyed and
that no copy of any Product remains in Customer's possession
or under its control.
19.3 CableData will, within ten (10) days after termination of this
Agreement, return Customer's most recent fixed master(s),
provided Customer has paid in full the fee for the fixed
master(s) and all outstanding undisputed monies owed. In the
event there are outstanding undisputed balances due, CableData
may withhold master file data until said balances are paid in
full.
15. Paragraph 20.2 of the Agreement is amended by adding the following at the
end thereof:
", which consent shall be unreasonably withheld and CableData
agrees to sign a reasonably standard consent document to be
provided by customer's bank in connection with its impending
revolver financing.
16. Paragraph 20.5 of the Agreement is deleted in its entirety and the following
is substituted therefor:
20.5 Customer hereby agrees that this Agreement will be governed by
the laws of the State of California and will be subject to
venue and jurisdiction of the courts in Sacramento, California
in the event suit is brought against Customer by CableData.
CableData agrees that this Agreement will be governed by the
laws of the State of Georgia and will be subject to venue and
jurisdiction of the courts in Georgia in the event of an
action brought against CableData by Customer.
17. Paragraph 20.9 and 20.10 of the Agreement are deleted in their entirety and
replaced with the following:
20.9 Except for invoices and billing related communications, any
notice required or permitted to be given hereunder by either
party to the other shall be in writing and shall be deemed
given when addressed as set forth on the first page of this
Agreement to the attention of an officer of the party and (1)
hand delivered or (2) sent by first class or certified,
postage prepaid United State Mail or (3) sent by overnight
carrier (such as Federal Express or DHL). If either party
changes its address, it shall so advise the other party in
writing and any notice thereafter required to be given shall
be sent as specified herein to such new address.
18. New Paragraph 20.13 is added to the Agreement as follows:
20.13 YEAR 2000 COMPLIANCY
CableData represents that its DDP/SQL subscriber management
software will be Year 2000 compliant by December 31, 1998.
CableData will, upon request by the Customer, provide Customer
with a system demonstration test no later than December 31,
1998. The test shall demonstrate the system's Year 2000
compliance by showing: 1) processing and date calculation
execution using a two and/or four digit year; 2) forward and
backward date calculation for two centuries without loss of
current functionality of CableData's software; and 3) on-line
and batch functionality supporting four digit year processing.
-24-
<PAGE> 25
19. New Section 21 is added to the Agreement as follows:
21. SHARED SYSTEM RESPONSE TIME
21.1 CableData warrants that Customer Cable Systems will experience an
average terminal response time of six (6) seconds for all On/Line
order entry transactions. Terminal response time will be measured
and defined as the time subsequent to depressing the "enter" key
on the CRT terminal through the "now processing" to the "task
complete" screen message in the Order Entry module.
21.2 The above notwithstanding, at no time will CableData be
responsible for system performance if:
a. Customer fails to adhere to system use guidelines
b. Customer fails to follow policy and procedures established by
CableData for Software and Equipment operations, maintenance,
and utilization.
21.3 In the event that system performance does not meet the above
criteria, Customer shall notify CableData in writing. If CableData
fails to meet the criteria to Customer's satisfaction within sixty
(60) days of its receipt of written notice from Customer, then
commencing on the sixty-first (61st) day, CableData shall take
terminal shared response time measurements twice per day between
the hours of 9 am and 4 pm, local time, at the CableData Data
Center on a random sample basis and submit the results of such
measurements to Customer weekly until system performance meets the
above guidelines. In the event that system performance does not
meet the above criteria by the earlier of thirty (30) days of the
commencement of measurements or ninety (90) days from the date of
notification by Customer, then Customer shall receive a credit
equal to $.01 per Subscriber per month until the average terminal
response time is again within guidelines.
The terms of this Amendment are valid until March 5, 1998. Failure of Customer
to sign by such date will render these terms void. All other terms and
conditions of the Agreement shall remain in full force and effect unchanged.
The individuals signing below represent that each is authorized to bind his or
her party to this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date last set forth below.
<TABLE>
<CAPTION>
KNOLOGY HOLDINGS, INC. CABLEDATA, INC.
<S> <C>
By: JAMES K. MCCORMICK By: ARTHUR O. HAWKINS
- ----------------------------- -----------------------------
James K. McCormick Arthur O. Hawkins
- ----------------------------- -----------------------------
(Print Name) (Print Name)
CFO & Secretary Vice President
- ----------------------------- -----------------------------
(Title) (Title)
March 5, 1998 March 18, 1998
- ----------------------------- -----------------------------
(Date) (Date)
</TABLE>
-25-
<PAGE> 1
EXHIBIT 10.50
[*]Confidential treatment has been requested for the information indicated
pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. The
copy on file as an exhibit omits the information subject to the confidentiality
request. Such omitted information has been filed separately with the Commission.
[DELTACOM LOGO]
DEDICATED CONTRACT
Internet Consultant: David McGirt
L.D. Rep.
1. Service Selection: [ ]56K [ ]64K [ ]128K [ ]384K [ ]512K [ ]768K
[X]T1(1.54Mb)
2. Type Service: [X] Frame [ ] Point to Point [ ] Mixed [ ] ISDN
3. CUSTOMER BUSINESS/CONTRACT CONTACT ("BILL TO"):
Organization/Division: Knology
Name/Title:
Street/PO Box: 1239 O.G. Skinner Dr.
City: West Point County: State: GA
Zip: 31833
Telephone Number: (706)645-8733 Fax Number: (706)645-1446
4. CUSTOMER TECHNICAL (24HR)/OPERATIONAL CONTACT ("SHIP TO"):
Organization/Division: Knology
Name/Title: Bradley Frye
Street/PO Box:
City: County: State:
Zip:
Telephone Number: (706)645-3942 Fax Number: (706)645-1446
Email Address: [email protected] Pager: ( ) Pin:
5. SERVICE TERM COMMITMENT: (PLEASE CHECK THE SERVICE TERM YOU REQUIRE BELOW)
INSTALLATION COST: waived
[ ] 1 Year [ ] 2 Years [X] 3 Years MONTHLY REOCCURRING COST: $[*]
6. DOMAIN NAME: Does your Organization have a currently registered Domain
Name? (e.g. viper.net, abc.com, etc.) Please check the service term you
require below.
A. [ ] NO. PLEASE REGISTER MY SUBDOMAIN THROUGH DELTACOM $50.*
Preferred Subdomain Name: .<Heirarchy>.mkt1.com
Alternate Subdomain #1:
<PAGE> 2
Alternate Subdomain #2:
*For Subdomains of the www.yourcompany.mkt1.com domain which are owned by
DeltaCom, a one-time charge of $50 with no ongoing fees is required; however,
the subdomain will remain the property of DeltaCom both during and after the
service.
B. [ ] NO. PLEASE REGISTER MY DOMAIN NAME WITH THE INTERNIC.*
Preferred Domain Name:
Alternate #1:
Alternate #2:
*For Domain names newly registered with the InterNIC, a registration tax
of $100 is charged by the InterNIC for the initial registration and
first two years of maintenance followed by a $50.00 per year Maintenance
Tax after the second year. DeltaCom will assume the administrative
responsibilities for these taxes for the customer's domain name for
which DeltaCom provides Domain names service, which will be in turn be
billed to the Customer with a one time $35.00 setup fee.
C. [X] YES. PLEASE PROVIDE DNS SERVICE FOR MY ALREADY ASSIGNED DOMAIN
NAME:
The InterNIC is now imposing a $50.00 per year Maintenance Tax
on Domain names. DeltaCom will assume the administrative
responsibilities for these taxes for the customer's domain name
for which DeltaCom provides Domain name service, which will be
in turn billed to the Customer.
6. NETWORK ADDRESSES: DeltaCom will assign DeltaCom CIDR network addresses (IP
Address).
NOTE: For additional DeltaCom CIDR network addresses, please use the
"Network Address Contract." Each additional Network Address requires an
additional one-time administrative fee to Delta Com.
How many Addresses will be required for this location:
7. HARDWARE SPECIFICS:
A. Router Hardware: 7507 Software Release: 11.1.0
Other:
(Example: Ascend Pipeline 50, Motorola BitSurfer Pro)
8. SERVICE CONFIGURATION SPECIFICS:
A. Electronic Mail: (CHECK ONE)
[X] SMTP Only [ ] SMTP w/MX'ing to receive mail when not dialed
up.
B. Do you want USENET News:
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[X] No [ ] Yes (Indicate: ____ Feed or _____ # of simultaneous
readers)
C. Which DeltaCom POP will be used: B'ham F/R ATM DS30
DELTACOM DEDICATED SERVICE CONTRACT
This Contract (the "Contract"), by and between DeltaCom with its main office at
710 Stage Road, Auburn, Alabama 36830 (DeltaCom); and Customer (as above) for
the provision by DeltaCom or its subcontractors of certain computer network
connectivity services (the "Service") for use by Customer.
1. COMPLIANCE WITH LAW AND POLICY. Any content or transmission through the
Service in violation of any local, state, Federal or international laws,
regulations or treaties or accepted Internet policy is prohibited. Any such
violations may be grounds for termination of the Service.
2. CUSTOMER EQUIPMENT AND NETWORK. DeltaCom provides no user access security
with respect to any of Customer's facilities or facilities of others. Customer
shall be responsible for user/access security and network access. DeltaCom will
assist in network security breach detection or identification at DeltaCom
standard rate, but shall not be liable for any inability, failure or mistake in
doing so.
3. CUSTOMER IDENTITY. Use of the Service will involve listing Customer's
participation in relevant directories. DeltaCom will occasionally require new
registration and account information by customer to continue this Service. In
addition, Customer shall notify DeltaCom in writing of any changes in the
account information, such as address, company name or contact.
4. OTHER NETWORKS ON THE INTERNET.
A. USAGE. If Customer provides services through other networks, DeltaCom
accepts no responsibility for their authorization on such networks. Use of
other networks may require approval of the respective network authorities and
use will be subject to any acceptable usage policies such networks establish.
B. PERFORMANCE. DeltaCom does not own or control networks outside of DeltaCom
does not own or control network outside of DeltaCom, nor is responsible for
performance (or non-performance) within them or within non- DeltaCom -operated
interconnection points between DeltaCom and other networks.
5. DeltaCom CUSTOMER SUPPORT. DeltaCom shall provide to Customer, in
accordance with the written DeltaCom policies, technical consultation and
instruction regarding network hardware, software, access techniques and
commands at DeltaCom's Standard Rates. DeltaCom is not responsible to Customer
for the cost or expense of administrative, technical, emergency and support
personnel at Customer's location necessary for dealing with DeltaCom and for
providing and maintaining Customer's own computer equipment, and DeltaCom or
other network access.
6. DOMAIN NAME.
A. QUANTITY. DeltaCom shall apply for on behalf of Customer and/or route into
DeltaCom one (1) registered domain name as part of the Service. Additional
domain names may be routed through the Service at additional monthly service
fees per domain name. Please use DeltaCom's "Change of Service Contract" to add
additional domain name.
B. INTERNIC DOMAIN NAME REGISTRATION AND MAINTENANCE TAX. The central Internet
registration authority, InterNIC, is now imposing a $50.00 per year Maintenance
Tax on each current domain name. For domain names newly registered with the
InterNIC, an initial Registration Tax of $100.00 is charged by the InterNIC for
the Initial Registration and first two years of Maintenance followed by a
$50.00 per year Maintenance Tax after the second year. DeltaCom will assume the
administrative responsibilities for InterNIC
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Registration for Customer's domain name for which DeltaCom provides name
service, which in turn will be billed to Customer. DeltaCom charges a $35.00
fee for administration and paperwork of each Domain Name registered. DeltaCom
charges a $15.00 fee for administration and paperwork of each existing Domain
Name which is renewed. For subdomains of the "www.yourcompany.mkt1.com" domain
which is owned by DeltaCom, a one time charge of $50 with no ongoing fee is
required; however, the subdomain will remain the property of DeltaCom both
during and after the Service.
C. DOMAIN NAME OWNERSHIP. Customer, not DeltaCom, is responsible for the
ownership, control and use of the domain name upon its registration.
7. NETWORK POLLING AND MONITORING. THE CUSTOMER AGREES TO GIVE DELTACOM POLLING
RIGHTS TO THEIR ROUTER FOR THE DURATION OF THIS CONTRACT. THIS INFORMATION WILL
BE KEPT IN CONFIDENCE AND USED FOR NETWORK PLANNING AND CUSTOMER CONFORMATION.
8. SERVICE FEES.
A. INITIAL COMMITMENT. Customer shall commit through its purchasing document
the one-time registration fee, initial term service fees (selected on page 1 of
this Contract) and the InterNIC Domain Name tax. The Domain Name registration
fee is nonrefundable. The Service fees guaranties the purchased bandwidth
regardless of usage or non-usage of purchased bandwidth or system access by
legitimate users at Customer's location. If Customer commits to an extended
term of Service by initialing the appropriate section on the first page of this
contract, listed discounts will apply to the monthly Service fees, but not the
registration fee or InterNIC Domain Name tax.
PLEASE INITIAL SERVICE SELECTION:
ISDN
____(1) DELTACOM 64K ISDN. The fees for DeltaCom 64K Service are a one-time
setup fee of $750.00 and monthly Service fees based on length of contract
designated in line item 5 for each DeltaCom ISDN Service ordered (billed
monthly, quarterly or annually).
____(1) DELTACOM 128K ISDN. The fees for DeltaCom 128K Service are a one-time
setup fee of $750.00 and monthly Service fees based on length of contract
designated in line item 5 for each for DeltaCom 128K Service ordered (billed
monthly, quarterly or annually).
FRAME/POINT TO POINT
____(1) DELTACOM 56K. The fees for DeltaCom 56K Service are a one-time setup
fee of $750.00 and monthly Service fees based on length of contract designated
in line item 5 for each DeltaCom 56K Service ordered (billed monthly, quarterly
or annually).
____(1) DELTACOM 64K. The fees for DeltaCom 64K Service are a one-time setup
fee of $750.00 and monthly Service fees based on length of contract designated
in line item 5 for each DeltaCom 64K Service ordered (billed monthly, quarterly
or annually).
____(1) DELTACOM 128K. The fees for DeltaCom 128K Service are a one-time setup
fee of $750.00 and monthly Service fees based on length of contract designated
in line item 5 for each for DeltaCom 128K Service ordered (billed monthly,
quarterly or annually).
____(1) DELTACOM 256K. The fees for DeltaCom 256K Service are a one-time setup
fee of $1000.00 and monthly Service fees based on length of contract designated
in line item 5 for each DeltaCom 256K Service ordered (billed monthly,
quarterly or annually).
____(1) DELTACOM 384K. The fees for DeltaCom 384K Service are a one-time setup
fee of $1500.00
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<PAGE> 5
and monthly Service fees based on length of contract designated in line item 5
for each for DeltaCom 384K Service ordered (billed monthly, quarterly or
annually).
___ (1) DELTACOM 512K. The fees for DeltaCom 512K Service are a one-time setup
fee of $2000.00 and monthly Service fees based on length of contract designated
in line item 5 for each DeltaCom 512K Service ordered (billed monthly, quarterly
or annually).
___ (1) DELTACOM 768K. The fees for DeltaCom 768K Service are a one-time setup
fee of $2000.00 (waiver) and monthly Service fees based on length of contract
designated in line item 5 for each for DeltaCom 768K Service ordered (billed
monthly, quarterly or annually).
[x] (1) DELTACOM T1. The fees for DeltaCom 1.544K Service are a one-time setup
fee of $2000.00 (waiver) and monthly Service fees based on length of contract
designated in line item 5 for each for DeltaCom T1 Service ordered (billed
monthly, quarterly or annually).
B. PURCHASE ORDERS. Customer may submit a purchase order for the initial term
costs. In the case of international, federal, state or local government orders,
Customer purchase order must contain the following language, "Notwithstanding
any provisions to the contrary on the face of this purchase order, attachments
to this purchase order, this purchase order is being used for administrative
purposes only, and this order is placed under and subject solely to the terms
and conditions of the DeltaCom Dedicated Service Contract executed between
Customer and DeltaCom.
C. INVOICING. DeltaCom's initial invoice to Customer shall be the onetime
start-up fee and first Service fee. Subsequent Service fees shall be invoiced
by DeltaCom and are payable to DeltaCom before the beginning of said Service.
9. ANNIVERSARY DATE. The "Anniversary Date" refers to the initial day in
which packets of data can be sent to the Customer's site from DeltaCom.
NOTWITHSTANDING THE ABOVE, THE ANNIVERSARY DATE SHALL BE NO LATER THAN 90 DAYS
FROM THE DATE THE SERVICE ORDER WAS PROCESSED BY DELTACOM'S SALES
ADMINISTRATION. AFTER 90 DAYS, CUSTOMER MAY TERMINATE THE SERVICE FOR
INACTIVITY WITH NO PENALTY BEYOND THE AMOUNT OF THE INITIAL REGISTRATION FEE.
10. TERM/EXTENSION/TERMINATION. This Contract shall extend from the date this
contract is signed until the end of the initial non-cancelable term of Service
as selected on Page 1 of this Contract. This Contract shall be subject to such
extensions as determined by either Customer's new purchasing document OR
continuing use of the Service. Upon completion of the term of the initial
service contract, the continued use of DeltaCom's dedicated services by the
customer will constitute a renewal of the initial service contract for another
term. This Contract may be terminated by DeltaCom, or by Customer after
expiration of the initial term, UPON THIRTY (30) DAYS' PRIOR WRITTEN NOTICE
without penalty; however, termination by Customer shall not create the right to
a refund of any Service fees previously paid or payable, except in the event
DeltaCom is unable to connect Customer to DeltaCom due to DeltaCom's
negligence. Customer cannot terminate the Service during any initial term.
11. SERVICE ADJUSTMENTS. If a DeltaCom point-of-presence fails due to its
equipment or circuit(s) between POPs failing (except in the case of fire, flood
or other act of God), and this failure results in the disruption of the
Service, then the following adjustments will be made: IF AFTER TWELVE HOURS A
DISRUPTION OF SERVICE HAS NOT BEEN RESOLVED, DELTACOM WILL PROVIDE ADDITIONAL
SERVICE DAYS TO CUSTOMER BEYOND THE SERVICE TERM FOR ANY CALENDAR DAY OR
PORTION THEREOF OF THE SERVICE DISRUPTION. ONLY ONE ADDITIONAL SERVICE DAY CAN
BE GRANTED PER CALENDAR DAY OR PORTION THEREOF OUTAGE(S). The foregoing
represents the sole remedy available to Customer for Service disruptions.
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<PAGE> 6
12. LIMITED WARRANTY. DELTACOM WARRANTS THAT THE SERVICE WILL PASS DATA PACKETS
FROM CUSTOMERS' ROUTER TO THE INTERNET. DELTACOM IS NOT RESPONSIBLE FOR THE
CUSTOMERS' LOCAL NETWORKS, WIDE AREA NETWORKS, COMPUTERS, AND/OR OTHER
HARDWARE. DELTACOM IS NOT RESPONSIBLE FOR THE RELIABILITY OF EQUIPMENT WHICH
DELTACOM DID NOT INSTALL AND/OR CONFIGURE. CUSTOMER IS RESPONSIBLE FOR
ASSESSING ITS OWN COMPUTER AND TRANSMISSION NETWORK NEEDS, AND THE RESULTS TO
BE OBTAINED THEREFROM. DELTACOM MAKES NO OTHER WARRANTIES OF ANY KIND, WHETHER
EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS OF THE SERVICE FOR A PARTICULAR PURPOSE. USE OF ANY
INFORMATION OBTAINED THROUGH THE SERVICE IS AT CUSTOMER'S RISK. DELTACOM
SPECIFICALLY DENIES ANY RESPONSIBILITY FOR THE ACCURACY OR QUALITY OF
INFORMATION OBTAINED THROUGH THE SERVICE.
13. LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
DIRECT DAMAGES GREATER THAN THE SUM TOTAL OF PAYMENTS MADE BY CUSTOMER TO
DELTACOM DURING THE THREE (3) MONTHS IMMEDIATELY PRECEDING THE EVENT FOR WHICH
DAMAGES ARE CLAIMED. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT,
INCIDENTAL, PUNITIVE OR OTHER CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT
LIMITATION, LOST PROFITS) ARISING OUT OF OR IN RELATION TO THIS CONTRACT, BUT
RECOGNIZE THAT THE SERVICE COULD NOT BE MADE AVAILABLE UNDER THESE TERMS OR
OTHER SIMILAR TERMS WITHOUT A SUBSTANTIAL INCREASE IN COST IF DELTACOM WAS TO
ASSUME A GREATER DEGREE OF LIABILITY TO CUSTOMER.
14. GENERAL TERMS. Neither party may sell, transfer, or assign this Contract,
except to entities completely controlling or controlled by that party, without
the prior written consent of the other. Any act of derogation of the foregoing
shall be null and void; provided, however, that any such assignment shall not
relieve the assigning party of its obligations hereunder. DeltaCom shall
require written notice, however, in the event of any assignment. The waiver or
failure of either party to exercise in any respect any right provided for in
this Contract shall not be deemed a waiver of any further right under this
Contract. If any provision of this Contract is held by a court of competent
jurisdiction to be contrary to law, the remaining provisions of the Contract
will remain in full force and effect. This Contract represents the complete
contract and understanding of the parties with respect to the subject matter
herein, and supersedes any other contract or understanding, written or oral. In
the event of any conflict arising between Customer's purchase order terms and
this Contract, this Contract shall take precedence. This Contract may be
modified only in writing signed by both parties. The law of the State of
Alabama shall govern this Contract.
BOTH PARTIES REPRESENT AND WARRANT THAT THEY HAVE FULL CORPORATE POWER AND
AUTHORITY TO EXECUTE AND DELIVER THIS CONTRACT AND TO PERFORM THEIR OBLIGATIONS
HEREUNDER, AND THAT THE PERSON WHOSE SIGNATURE APPEARS BELOW IS DULY AUTHORIZED
TO ENTER INTO THIS CONTRACT ON BEHALF OF THE PARTY.
IN WITNESS WHEREOF, THE PARTIES HAVE ENTERED INTO THIS CONTRACT AS OF THE DATE
SET FORTH:
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<PAGE> 7
Richard Luke CTO
- --------------------------------------------------------
AUTHORIZED CUSTOMER REPRESENTATIVE TITLE
(PLEASE TYPE OR PRINT)
/s/ RICHARD LUKE 8/22/97
- --------------------------------------------------------
CUSTOMER SIGNATURE DATE
David McGirt
- --------------------------------------------------------
AUTHORIZED DELTACOM REPRESENTATIVE
(PLEASE TYPE OR PRINT)
/s/ DAVID MCGIRT 8/22/97
- --------------------------------------------------------
DELTACOM REPRESENTATIVE SIGNATURE DATE
7
<PAGE> 1
EXHIBIT 10.51
[*]Confidential treatment has been requested for the information indicated
pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. The
copy on file as an exhibit omits the information subject to the confidentiality
request. Such omitted information has been filed separately with the Commission.
AGREEMENT FOR TELECOMMUNICATION SERVICES
THIS AGREEMENT is entered into by and between KNOLOGY HOLDINGS, INC.
with offices located in West Point, Georgia (hereinafter "Customer") and
ITC*DELTACOM COMMUNICATIONS, INC., an Alabama corporation with offices located
in West Point, Georgia, (hereinafter "ITC*DeltaCom"), collectively referred to
as the "Parties", and shall be effective on the date last appearing below.
WHEREAS, Customer desires to purchase certain telecommunication
services from DeltaCom; and
WHEREAS, ITC*DeltaCom desires to provide Customer with certain
telecommunication services.
NOW THEREFORE, in consideration of the mutual promises and covenants contained
herein, ITC*DeltaCom and Customer agree as follows:
1. TERM: The term of this Agreement shall commence on the date of
signature and continue for a period of twelve (12) consecutive months. Upon
expiration of the term hereof, this Agreement shall be continued month to month
thereafter, with either Party having the right to terminate this Agreement by
giving Sixty (60) days prior written notice to the other.
2. SERVICES PROVIDED BY ITC*DELTACOM: Subject to the terms and
conditions of this Agreement, ITC*DeltaCom shall provide certain long distance
telecommunications services (the "Services") to Customer as further described
in Attachment 1. Both parties agree that the services provided herein which are
subject to regulation by any governmental entity, agency or commission shall be
provided in accordance with the governmental entity's, agency's, or commission's
rules and regulations and ITC*DeltaCom's current approved tariff and as the
same may be amended from time to time. All charges for usage of the services to
be provided by ITC*DeltaCom, or by Customer to its customers, hereunder shall
not exceed the maximum limit charges established by order or ruling of any
governmental agency or entity from time to time, if any such limits are
established.
3. RATES: The rates applicable to the Services provided to
Customer by ITC*DeltaCom are contained in Attachment 1.1.
4. PAYMENT FOR SERVICES: A statement for Services provided to
Customer under this Agreement shall be submitted to Customer by ITC*DeltaCom on
a monthly basis and shall be due and payable on the due date stated therein
(which shall not be earlier than thirty (30) days after Customer's receipt of
the statement). The first and the final statement for Services will be for a
partial month in the event the service dates do not coincide with ITC*DeltaCom
billing dates. Payments received more than ten (10) days from the due date will
be considered delinquent and will bear interest at the rate of one and one half
percent (1.5%) per month or at the maximum rate allowed by law, whichever is
less, on any sum remaining delinquent. Customer shall be responsible for
payment to ITC*DeltaCom for all excise, sales, use and other similar taxes
which may be levied by any governing body for Service furnished under this
Agreement. All statements shall be deemed to be correct and binding upon
Customer unless written notice is provded to ITC*DeltaCom of any disputed
charges within six (6) months of the date of the statement. In no event does
such notice excuse Customer from making payment within the time provided
herein.
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<PAGE> 2
5. SUSPENSION OF SERVICE FOR NONPAYMENT: ITC*DeltaCom may suspend
Service ten (10) days after mailing or telefaxing written notice to Customer of
nonpayment of any sum fifteen (15) or more days past the statement due date (but
only if the Customer does not cure the non-payment within the ten (10) day
period). Following a suspension of Service(s), ITC*DeltaCom may terminate the
Service(s) to Customer, in whole or in part, without further notice to Customer,
if nonpayment is not corrected with five (5) days of suspension of Service.
Neither suspension nor termination of the Service will relieve Customer of any
obligation to pay ITC*DeltaCom's statement(s) for Services. Should this
Agreement be terminated by Customer prior to the expiration of the term of this
Agreement, Customer shall be responsible for payment of all reasonable costs,
charges, and expenses incurred by ITC*DeltaCom resulting from the early
termination of this Agreement.
6. SECURITY FOR PAYMENT: Upon request by ITC*DeltaCom, Customer
agrees to provide financial statements and/or other indications of financial
circumstances.
7. COMPLIANCE WITH ADMINISTRATIVE PROCEDURES: Customer shall comply
with the administrative procedures of ITC*DeltaCom which have been previously
delivered to Customer, and as the same may be amended from time to time by
mutual agreement of the parties in writing, regarding providing of
documentation and information necessary for ITC*DeltaCom to provide the
Services described herein to Customer.
8. BRANDING OF CALLS: Customer shall be responsible for assuring that
for billing purposes all Services provided hereunder shall be branded in the
name of Customer and that Customer's customers and any other end users to whom
the Services are offered by Customer are informed that the Services provided
and rates charged the customer and end user are rates established by Customer.
9. CANCELLATION: Either Party shall have the right to cancel this
Agreement without liability if ITC*DeltaCom is prohibited from furnishing the
Service or if any material rate or term contained herein is materially
adversely changed by order of the highest court of competent jurisdiction to
which the matter is appealed, the Federal Communications Commission, or any
other federal, state, or local government authority.
10. USE AND PROTECTION OF INFORMATION: The parties agree that the terms
of this Agreement or any modifications hereto and any information exchanged
between them, except information which is in the public domain, in any form, is
confidential information ("Confidential Information"). The Parties agree that
during the term of this Agreement and for a period of three (3) years
thereafter, they will not, without the prior written consent of the disclosing
Party: (i) use any portion of such Confidential Information for any purpose
other than performance pursuant to this Agreement; or (ii) disclose any portion
of such Confidential Information to a third party; provided, however, that the
recipient may disclose Confidential Information to the extent such disclosure is
required either by a governmental or regulatory authority or to enforce its
rights under this Agreement. The obligations to protect Confidential Information
shall remain in effect except to the extent that such Confidential Information
(a) becomes generally available to the public other than as a result of
unauthorized disclosure by the recipient Party, (b) has been released without
similar restriction by the disclosing Party to another person or entity, (c) was
known by the recipient Party prior to disclosure or (d) was independently
developed by or furnished by an independent third party to the recipient Party
without a breach of this Agreement. Confidential Information of a tangible
nature shall remain the property of the disclosing Party, and shall be returned
to the disclosing Party or shall be destroyed upon termination of this
Agreement. The recipient Party
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agrees to safeguard Confidential Information utilizing the same degree of care
utilized by the recipient Party in protecting its own confidential information.
11. LIMITATION OF LIABILITY AND DISCLAIMER OF WARRANTY: IN NO EVENT
SHALL ITC*DELTACOM BE LIABLE TO CUSTOMER, OR ANY END USER OR ANY OTHER PARTY,
PERSON OR ENTITY FOR DIRECT, INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL,
PUNITIVE, OR ANY OTHER FORM OF DAMAGES, OR FOR ANY LOST PROFITS OF ANY KIND OR
NATURE WHATSOEVER, ARISING OUT OF MISTAKES, ACCIDENTS, ERRORS, OMISSIONS,
INTERRUPTIONS, LOST DATA, CLAIMS OF THIRD PARTIES, OR DEFECTS IN TRANSMISSION,
OR DELAYS, INCLUDING THOSE WHICH MAY BE CAUSED BY REGULATORY OR JUDICIAL
AUTHORITIES OR OTHERWISE, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
OBLIGATIONS OF ITC*DELTACOM PURSUANT TO THIS AGREEMENT, WHETHER IN CONTRACT OR
TORT, INCLUDING NEGLIGENCE AND OTHERWISE. ITC*DELTACOM MAKES NO WARRANTY,
WHETHER EXPRESS, IMPLIED OR STATUTORY, AS TO THE DESCRIPTION, QUALITY,
MERCHANTABILITY, COMPLETENESS OR FITNESS FOR ANY PURPOSE OF THE SERVICE OR THE
LOCAL ACCESS, OR AS TO ANY OTHER MATTER ALL OF WHICH WARRANTIES BY ITC*DELTACOM
ARE HEREBY EXCLUDED AND DISCLAIMED. For purposes of this Paragraph, the term
"ITC*DeltaCom" shall be deemed to include ITC*DeltaCom Communications, Inc.,
its parent entity, affiliates, and subsidiaries.
12. NO THIRD-PARTY BENEFICIARIES: This Agreement is for the sole
benefit of the parties hereto and their respective permitted successors and
assigns, and shall not be construed as granting rights to any person or entity
other than the parties or imposing on either party obligations to any person or
entity other than a party.
13. INDEMNITY: (A) Each Party, its officers, agents or employees
engaged in performance under this Agreement shall at no time be deemed to be
performing as agents or employees of the other Party, or as joint venturers,
and any acts, errors or omissions of such officers, agents and employees shall
not be deemed to be those of the other Party. (B) Each Party shall indemnify
and hold the other and/or all of its officers, agents, servants, parent,
subsidiaries and employees ("Affiliates") or any of them, harmless from and
against any and all losses, claims, damages, liabilities, costs, and expenses
("Claims") imposed upon either Party (including without limitation damages to
property or injuries, including death, to Affiliates, employees or
subcontractors, and all other persons performing this Agreement) as a result of
a negligent act or omission on the part of the indemnifying Party, its
Affiliates, or subcontractors in connection with the performance of this
Agreement or as a result of a breach or default of any covenant of the
indemnifying Party under this Agreement.
14. FORCE MAJEURE: Except as provided in this Agreement, either Party
may delay performance hereunder due to causes beyond its reasonable control,
including but not limited to acts of God, fire, explosion, vandalism, cable
cut, storm or other similar catastrophes; any law, order, regulation,
direction, action or request of the United States government, or of any other
government, including state and local governments, having jurisdiction over
either of the parties, or of any department, agency, commission, court, bureau,
corporation or other instrumentality of any one or more of said governments, or
of any civil or military authority; national emergencies; insurrections; riots;
wars; or strikes, lock-outs, work stoppages or other labor difficulties. If
such delay in performance shall be on the part of ITC*DeltaCom and shall be for
more than thirty (30) days, then Customer may terminate this Agreement with no
liability on the part of any Party. The affected Party shall use its best
efforts to remove the cause of the delay.
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15. ASSIGNMENT: This Agreement is not assignable by either Party
without the prior written consent of the other Party, which consent shall not
be unreasonably withheld, and any attempt to assign any of the rights, duties or
obligations of this Agreement without such consent is void. Notwithstanding the
foregoing, either Party may assign any rights, duties, or obligations of this
Agreement to a parent, subsidiary or affiliate, or any successors in interest
created by merger, divestiture, or reorganization without the written consent of
the other Party. It shall be a condition precedent to any permitted assignment
that the assignee shall execute a counterpart of this Agreement, thereby
becoming a Party to this Agreement and agreeing to be bound by all of the terms
and provisions hereof. Either Party may assign and pledge its interest under
this Agreement as security for indebtedness without the other Party's written
consent.
16. ADDITIONAL PROVISIONS:
(A) The failure of either Party to give notice of default or to
enforce or insist upon compliance with any terms or conditions of this
Agreement, the waiver of any term or condition of this Agreement, or the
granting of an extension of time for performance, shall not constitute the
permanent waiver of any term or condition of this Agreement, and this Agreement
and each of its provisions shall remain at all times in full force and effect
until modified by the parties in writing.
(B) Each Party agrees to comply with, and shall require its agents,
servants, employees and contractors to comply with all applicable laws, rules,
regulations and orders of all governmental and quasi-governmental agencies
having jurisdiction over such Party or its telecommunication services and to
obtain and maintain in effect all permits, licenses, approvals, and agreements
that are needed to operate its telecommunication services and perform its
obligations under this Agreement.
(C) In event suit is brought or an attorney is retained by any Party
to this Agreement to enforce the terms of this Agreement or to collect any
moneys due hereunder or to collect money damages for breach hereof, the
prevailing Party shall be entitled to recover, in addition to any other remedy,
reimbursement for reasonable attorney's fees, court costs, costs of
investigation and other related expenses incurred in connection therewith. All
suits brought by either Party must be commenced within one (1) year of the
action on which the claim is based, or less if so required by Alabama law.
(D) No subsequent agreement between Customer and ITC*DeltaCom
concerning the Services shall be effective or binding unless it is made in
writing, and no representation, promise, inducement or statement or intention
has been made by either Party which is not embodied herein.
(E) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors or assigns; provided,
however, neither Party may assign or transfer its right or obligations under
this Agreement without prior written consent of the other Party, which consent
shall not be unreasonably withheld.
(F) Notices under this Agreement shall be in writing and delivered
by overnight express courier service or by registered or certified mail, return
receipt requested, postage paid, to the person whose names and business
addresses appear herein, or as otherwise provided by proper notice hereunder,
and the effective date of any notice under this Agreement shall be the date of
delivery or refusal of such notice, and not the date of mailing.
4
<PAGE> 5
TO DELTACOM: Susan Crane, Vice President Special Markets
ITC*DeltaCom
161 South Main Street
P.O. Box 1233
Arab, AL 35016
COPY TO: General Counsel
ITC*DeltaCom
700 Boulevard South, Suite 101
Huntsville, AL 35802
TO CUSTOMER: Chad Wachter
Knology Holdings, Inc.
1239 O.G. Skinner Drive
P.O. Box 510
West Point, GA 31833
(G) The Parties agree that in the event a decision or rating by a
regulatory authority at the federal, state or local level materially affects the
rights or obligations of either Party arising out of this Agreement, the Parties
will negotiate in good faith to modify this Agreement in light of such decision.
Should said decision or ruling prevent the continuance of these services then
either Party may terminate this Agreement with notice to the other Party without
further liability hereunder, except as may be provided in this Agreement.
(H) This Agreement sets forth the entire understanding of the
Parties and supersedes any and all prior agreements, arrangements or
understandings relating to the subject matter hereof.
(I) The section headings used herein are for convenience only,
and shall not be deemed to constitute integral provisions of this Agreement.
(J) Each of the Parties hereto warrants to the other that the
person or persons executing this Agreement on behalf of such Party has the full
right, power and authority to enter into and execute this Agreement on such
Party's behalf and that no consent from any other person or entity is required
as a condition precedent to the legal effect of this Agreement.
(K) The Attachment(s) and Exhibits(s) referenced in this Agreement,
as same may be amended from time to time in writings executed by both Parties,
shall be deemed an integral part hereof to the same extent as if fully set out
herein.
(L) To facilitate execution, this Agreement may be executed in as
many counterparts as may be required; and it shall not be necessary that the
signatures of or on behalf of each Party appear on each counterpart; but it
shall be sufficient that the signature of or on behalf of each Party appear on
one or more of the counterparts. All counterparts shall collectively constitute
a single agreement. It shall not be necessary in any proof of this Agreement to
produce or account for more than any counterpart or counterparts contain
signatures of both Parties.
(M) This Agreement and all other documents and writings associated
herewith shall be governed by the laws of the state of Alabama. If any part of
any provision of this Agreement or any other agreement, document or writing
given pursuant to or in connection with this Agreement shall
5
<PAGE> 6
be invalid or unenforceable under applicable law, said part shall be ineffective
to the extent of such invalidity only, without in any way affecting the
remaining parts of said provision or remaining provisions of this Agreement and
the Parties hereby agree to negotiate with respect to any such invalid or
unenforceable part to the extent necessary to render such part valid and
enforceable.
IN WITNESS WHEREOF, the Parties have executed this Agreement by their
duly authorized representatives in one or more counterparts, each of which shall
constitute an original, on the date indicated below.
<TABLE>
<CAPTION>
KNOLOGY HOLDINGS, INC. ITC*DELTACOM COMMUNICATIONS, INC.:
<S> <C>
By: /s/ Felix Bocucci By: /s/ Douglas Shumate
------------------------------- -------------------------------
Name: FELIX BOCUCCI Name: DOUGLAS SHUMATE
----------------------------- -----------------------------
Title: VP Title: CFO
---------------------------- ----------------------------
Date: April 26, 1999 Date: April 28, 1999
----------------------------- -----------------------------
</TABLE>
6
<PAGE> 7
ATTACHMENT 1
SERVICE DESCRIPTION
SERVICES OFFERED
ITC*DeltaCom will provide the following services to Customer consisting of, but
not be limited to, the following:
Domestic and International Outbound Dedicated Services
Domestic and International Inbound Toll Free Dedicated Services
Domestic Equal Access Outbound Switched Services
Domestic and International Toll Free Inbound Switched Services
Operator Services
Domestic Directory Assistance (411 and NPA-555-1212)
Calling Card Services
Prepaid LD Cards
"Extended" rates apply to Alaska, Hawaii, and domestic 809.
The following services will be billed in increments of 6 seconds:
Domestic Outbound Dedicated
Domestic Inbound Dedicated
International Inbound Dedicated
The following services will be billed in increments of 18 seconds for the
initial increment and 6 seconds for each additional increment thereafter:
Calling Cards
Domestic Equal Access Switched
Domestic Inbound (Toll Free) Switched
The following services will be billed in increments of 30 seconds for the
initial increment and 6 seconds for each additional increment thereafter:
International Outbound Dedicated
International Toll Free Switched
The following services will be billed per completed message:
Domestic Directory Assistance (411 and NPA-555-1212)
ACCESS
Customer will be responsible for access from its premise(s) to the ITC*DeltaCom
POP locations. Customer may obtain access, at their expense, to ITC*DeltaCom's
SS7 network.
CALL RECORDING
Customer will receive call records and billing detail from ITC/Interstate
Valley Telephone (IVTC). All call record recording from ITC*DeltaCom for
Customer is provided monthly, via magnetic tape, to IVTC for Customer bill
generation.
7
<PAGE> 8
CALLING CARD PRINTING
ITC*DeltaCom will provide batch card printing to Customer with the following
requirements:
Customer will provide the plastic card stock and is responsible for the reorder
of plastic card stock. A minimum of three (3) weeks will be required to have
cards reordered. A minimum charge of fifty dollars ($50.00) per order will be
applied which will cover up to 100 cards. Cards may only be ordered in
increments of 100. These charges only apply to printing on one side of the
card. The card stock should have the dialing instruction preprinted on the back
side of the card. Information required to print the cards must be provided to
ITC*DeltaCom on diskette. For over 100 cards, the following rates apply:
<TABLE>
<CAPTION>
# of Cards Per Card
- ---------- --------
<S> <C>
101-500 $0.25
510-1000 $0.22
1001 and over $0.20
</TABLE>
CALLING CARD SERVICE
ITC*DeltaCom will originate and terminate the calling card service for
Customer. The card numbers will reside in ITC*DeltaCom switches and will be
supplied to Customer in batch orders. Customer will be allowed two active
universal toll free numbers for calling card access. Customer will be
responsible for all calls on the card numbers issued to Customer. Customer
should notify ITC*DeltaCom immediately when Customer suspects fraudulent calls
on any of their assigned calling cards. Periodically, ITC*DeltaCom will request
Customer to deactivate calling cards that have not had usage for a period of
six (6) months.
PREPAID LD CARDS
Customized prepaid LD Cards will be provided to Customer at the following rates:
<TABLE>
<S> <C>
Production Costs: $450 per 1,000 cards
Custom voice recordings $25.00 per recording
Usage Rate: $0.17 per minute (includes inbound, outbound,
platform processing)
</TABLE>
8
<PAGE> 9
ATTACHMENT 1.1
BASE RATES
<TABLE>
<CAPTION>
DEDICATED INBOUND/OUTBOUND
Interstate Interstate Intrastate Rates
SE Off Net
Florida Alabama Georgia S. Carolina Louisiana Tennessee
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Volume
$0 - $150,000 $[*] $[*] $[*] $[*] $[*] $[*] $[*] $[*]
$150K - $300K $[*] $[*] $[*] $[*] $[*] $[*] $[*] $[*]
$300K + $[*] $[*] $[*] $[*] $[*] $[*] $[*] $[*]
</TABLE>
<TABLE>
<CAPTION>
SWITCHED INBOUND/OUTBOUND
Interstate Interstate Intrastate Rates
SE Off Net
Florida Alabama Georgia S. Carolina Louisiana Tennessee
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Volume
$0 - $150,000 $[*] $[*] $[*] $[*] $[*] $[*] $[*] $[*]
$150K - $300K $[*] $[*] $[*] $[*] $[*] $[*] $[*] $[*]
$300K + $[*] $[*] $[*] $[*] $[*] $[*] $[*] $[*]
</TABLE>
EXTENDED - $[*] per minute (includes Alaska, Hawaii and Domestic 809)
INTERNATIONAL OUTBOUND DEDICATED SERVICES:
Canada - $[*] per minute
Other countries (see attached)
TOLL FREE MONTHLY RECURRING FEE; $[*] PER TOLL FREE NUMBER/PER MONTH
PAYPHONE USER SURCHARGE FEE:
$[*] will be assessed for each toll free number dialed from a payphone when
said call terminates to a toll free (800/888) number to which customer is the
subscriber of the number from ITC*DeltaCom
CALLING CARDS:
Volume
$0 - $150,000 $[*] per minute
$150,001 - $300,000 $[*]
$300,001 and up $[*]
Customer will incur $[*] surcharge, per call, when using calling card
CUSTOMER IS RESPONSIBLE ALL FRAUD ASSOCIATED WITH CARD USAGE.
9
<PAGE> 10
DOMESTIC DIRECTORY ASSISTANCE (see EXHIBIT A TO ATTACHMENT 1.1)
OPERATOR SERVICES - (see EXHIBIT B TO ATTACHMENT 1.1)
FACILITY COST
Customer will incur transport cost from DeltaCom POPs to the IVTC DMS switch
located in West Point as follows:
Montgomery & Columbus
These charges are quoted to Customer at $[*] per DS1
Other Customer sites will require transport cost to the ITC*DeltaCom POP in
that location to the selected Customer switch site at the rate of:
<TABLE>
<CAPTION>
<S> <C>
$[*] per DS0 circuit mile for DS1 level service
$[*] per DSO circuit mile for DS3 level service
</TABLE>
These rates are applicable to the network identified by the red and dark green
lines as shown on the attached exhibit (see EXHIBIT C TO ATTACHMENT 1.1) and
which are served by multiple fiber facility based LD carriers.
These rates are for ITC*DeltaCom network facilities, POP to POP. If off-net
facilities are required, quotes will be provided to Customer on an individual
case basis.
Customer will not incur transport cost from DeltaCom POP located in West Point
to DeltaCom switch located in Birmingham.
10
<PAGE> 11
EXHIBIT A TO ATTACHMENT 1.1
DIRECTORY ASSISTANCE PRICING FOR KNOLOGY
BellSouth Territory Per Attempt $[*]
BellSouth Territory is defined as the nine states comprising the BellSouth
territory. Independent areas are not covered in this pricing category.
Other domestic NPA's 0 to 20,000 Attempts $[*]
20,001 + Attempts $[*]
Customer listings (local service) must be listed with Bell for DA service
availability. This information must be provided to Bell directly from the
customer.
11
<PAGE> 12
EXHIBIT B to Attachment 1.1
Operator Services Pricing
<TABLE>
<CAPTION>
LIVE OPERATOR:
ATTEMPTS PER MONTH PRICE PER ATTEMPT*
------------------
<S> <C>
1 - 25,000 $[*]
25,001 - 50,000 $[*]
50,001 - 100,000 $[*]
100,001 - AND UP $[*]
<CAPTION>
AUTOMATED OPERATOR: PRICE PER ATTEMPT*
ATTEMPTS PER MONTH ------------------
<S> <C>
0 - 100,000
100,001 - 200,000 $[*]
200,001 - AND UP $[*]
VALIDATION SERVICES: $[*]
PER VALIDATION QUERY $[*]
PORT UTILIZATION: $[*]
CALL RATING:
PER CALL: $[*]
TRANSMIT OUTCLEARING TO ZPDI:
PER RECORD $[*]
OUTCLEAR CREDIT CARD CALLS TO ZPDI:
PER RECORD $[*]
</TABLE>
BAD DEBT CALCULATION BEGINNING @ [*]%, TO BE TRUED UP TO ACTUAL
* pricing is based upon individual monthly volumes, with pricing
retroactive to first attempt once pricing level has been reached
for the month.
Tariff approved name for branded services by Customer must be filed and
provided to Operator Service group. Separate trunk group from Operator Service
switch to Customer's switch will be required for branding purposes. Cost of
these trunks will be Customer's responsibility.
Customized Recording for Branding
$[*] for the initial recording
$[*] for each occurrence to change the recording
Customer listings (local service) must be listed with Bell for DA service
availability. This is to be provided to Bell by Customer.
12
<PAGE> 1
*Confidential treatment has been requested for the information indicated
pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. The
copy on file as an exhibit omits the information subject to the confidentiality
request. Such omitted information has been filed separately with the Commission.
EXHIBIT 10.52
FIRST AMENDMENT TO THE
MASTER CAPACITY LEASE
THIS FIRST AMENDMENT ("Amendment") to that certain Master Capacity
Lease ("MCL") is entered into by and between Interstate FiberNet, Inc.
(hereinafter referred to as "IFN") and Knology Holdings, Inc. (formerly known
as CyberNet Holding, Inc.) hereinafter referred to as "Customer").
W I T N E S S E T H
WHEREAS Customer and IFN entered into the MCL on or about June 20,
1996; and
WHEREAS the parties to the MCL desire to amend certain terms and
conditions of the MCL;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and in the MCL, Customer and IFN agree to modify the MCL as
follows:
1. Amended and Additional Terms.
(a) The term of the MCL shall be extended until 12:01 a.m. November
1, 2002.
(b) Paragraph 3C of the MCL shall be replaced in its entirety by the
following paragraph 3C:
3C. Lessee may cancel this Lease with respect to any Service
Order, without being subject to any termination charge or
other payment, by written notice of such cancellation given to
Lessor not less than thirty (30) days prior to the date of
such cancellation, if: (i) due to no fault of Lessee, Service
between Lessor's POPs requested in such Service Order does not
become first available on or before the ninetieth (90th) day
following the Requested Service Date set forth in such Service
Order; or (ii) the Service provided under this Lease with
respect to such Service Order is the subject of Interruptions
accumulating forty-eight (48) hours or more over a period of
one hundred eighty (180) consecutive days.
(c) Paragraph 5 of the MCL shall be replaced in its entirety by the
following paragraph 5:
<PAGE> 2
5. SYSTEM MAINTENANCE: Subject to the provisions of Sections 7
and 10 hereof, Lessor represents that system maintenance
normally will not result in Interruptions, and that in the
event that system maintenance should require the Interruption
of Service, to the extent reasonably possible, it shall be
accomplished only after at least seventy two (72) hours prior
notification to Lessee and will be completed within a
reasonable period of time.
(d) Paragraph 7B of the MCL shall be replaced in its entirety by the
following paragraph 7B:
7B: When Service provided for a Route (under one or more
Service Orders) includes more than one communications path,
the Interruption allowance shall apply only to the circuit(s)
interrupted.
(e) The existing Schedule 2 to the MCL is replaced in its entirety by
the amended Schedule 2 attached hereto.
2. Effective Date. The terms and conditions of this Amendment shall become
effective on November 1, 1999.
3. Other Terms and Conditions. All other terms and conditions of the MCL
shall remain in full force and effect as if fully stated herein.
4. Conflict. If there are any conflicting terms or conditions between the
terms and conditions of this Amendment and the terms and conditions of the MCL,
the terms and conditions of this Amendment shall control.
5. Entire Agreement. Any and all prior agreement made with Customer,
whether written or oral, regarding the subject matter of this Amendment shall be
superseded by this Amendment. Once this Amendment has been executed, any
amendments hereto must be made in writing and signed by authorized
representatives of both parties.
SIGNATURE PAGE FOLLOWS
<PAGE> 3
IN WITNESS WHEREOF, IFN and Customer have executed this Amendment to
the MCL, by their duly authorized representatives, on the day and year indicated
below.
KNOLOGY HOLDINGS, INC. INTERSTATE FIBERNET, INC.
By: James T. Markle By: Douglas A. Shumate
------------------------------ -----------------------------
Name: James T. Markle Name: Douglas A. Shumate
----------------------------- ----------------------------
Title: VP Network Operations Title: CFO
----------------------------- ----------------------------
Date: Oct. 29, 1999 Date: Nov. 1, 1999
------------------------------ ----------------------------
<PAGE> 4
SCHEDULE 2
ON-NET
TIER A, TIER B, TIER C AND TIER A PRIME CITIES
<TABLE>
<CAPTION>
Tier A Tier B Tier A Prime
- ------ ------ -----------------
<S> <C> <C>
Atlanta, GA* West Point, GA*,*** Tuscaloosa, AL*
Macon, GA* LaGrange, GA* Hattiesburg, MS
Augusta, GA* Newnan, GA* Valdosta, GA*
Savannah, GA Gainesville, GA* Columbus, GA*
Birmingham, AL* Carrollton, GA Athens, GA*
Montgomery, AL* Anniston, AL*
Huntsville, AL Opelika, AL*
Panama City, FL* Auburn, AL Tier C
------
Pensacola, FL* Gadsden, AL Charleston, SC
Gainesville, FL* Pell City, AL*
Daytona, FL Dothan, AL
Orlando, FL* Vicksburg, MS
Tampa, FL* High Point, NC
Tallahassee, FL* Asheville, NC
Jacksonville, FL* Spartanburg, SC*
Gulfport, MS* St. Augustine, FL*
Meridian, MS*
Jackson, MS
Greenville, SC*
Greensboro, NC
Charlotte, NC*
Raleigh, NC
- * RING PROTECTED AS OF 8/1/99
- *** SEE SPECIAL CITY PRICING
</TABLE>
<PAGE> 5
CURRENT PRICING (PER DS0 MILE)
Tier A City Pricing
- -------------------
DS1 Base Rate $[*]
DS3 Base Rate $[*]
Tier A Prime City Pricing
- -------------------------
DS1 Base Rate $[*]
DS3 Base Rate $[*]
Tier B City Pricing
- -------------------
DS1 Base Rate $[*]
DS3 Base Rate $[*]
Tier C City Pricing
- -------------------
DS1 Base Rate $[*]
DS3 Base Rate $[*]
Special City Pricing
- --------------------
Per DS1 West Point to Montgomery $[*]
Per DS1 West Point to LaGrange $[*]
Per DS1 West Point to Newnan $[*]
West Point DS3 Base Rate (per Ds0 Mile) $[*]
<PAGE> 1
EXHIBIT 10.53
MEMORANDUM OF AGREEMENT
This Memorandum of Agreement specifies the terms that KNOLOGY Holdings Inc. and
Interstate Fiber Network (IFN) will implement to allow sharing of duct
facilities at two locations.
Location 1 involves an entrance duct into the Opelika Cell Site Equipment
building on Highway 29 in Opelika, AL. IFN owns a duct route from a riser pole
at the end of the pole route at the Cell Site into the equipment building. IFN
agrees to allow KNOLOGY Holdings Inc. to place one fiber optic cable from the
riser pole to the Opelika Cell Site equipment building through a spare IFN
innerduct. The duct route goes from the riser pole to the Cell Site Equipment
building via an underground vault.
Location 2 involves an entrance duct route to an IFN splice vault adjacent to
the new Panama City PoP building on Highway 231 near Ten Acre Rd. in Panama
City, FL. KNOLOGY owns two duct routes into two IFN splice vaults at the new
Panama City PoP -- a north duct entrance and a south duct entrance. The KNOLOGY
duct route for the north approach to the PoP contains three KNOLOGY 1 1/8"
innerducts. A KNOLOGY fiber cable will occupy one of the innerducts. KNOLOGY
will allow one innerduct to be occupied by IFN for placement of one fiber
cable. The third innerduct in KNOLOGY's north duct route to the IFN vault
adjacent to the Panama City PoP will remain vacant for KNOLOGY's future use.
This agreement does not involve the KNOLOGY duct entrance into the Panama City
POP from the south side.
KNOLOGY will place a tag that says "IFN" on each end of the KNOLOGY innerduct
into the IFN splice vault adjacent to Panama City PoP that is reserved for IFN.
The signatures below by representatives of KNOLOGY and IFN place this agreement
into immediate effect. This agreement remains in effect until both parties
decide to discontinue the agreement.
<TABLE>
<CAPTION>
KNOLOGY Holdings, Inc. Interstate Fiber Network (IFN)
- ---------------------- ------------------------------
<S> <C>
Name (printed): Bret T. McCants Name (printed): J. Wayne King
Signature: /s/ Bret T. McCants Signature: /s/ J. Wayne King
Title: VP Network Services Title: Facility Manager
Date: 7/24/99 Date: 7/27/99
</TABLE>
<PAGE> 1
EXHIBIT 10.54
ASSUMPTION AGREEMENT
This Agreement Has been entered into by ITC Holding Company, Inc. (Current
Lessee) and Knology Holdings, Inc. (Replacement Lessee) to effect the
assumption by the Replacement Lessee of the lease of the "J. Smith Lanier, II"
building which is currently under lease by the Current Lessee from J. Smith
Lanier, II (Lessor).
The Replacement Lessee agrees to assume all the rights and responsibilities of
the aforementioned lease (copy attached) effective November 1, 1999. All future
lease payments will be made by the Replacement Lessee to the Lessor consistent
with the terms of the aforementioned lease.
AGREED: AGREED:
/s/ L. H. SCOTT, III /s/ J. SMITH LANIER, II
- ------------------------- --------------------------
ITC Holding Company, Inc. J. Smith Lanier, II
AGREED: AGREED:
/s/ 11-9-99
- ------------------------- -------------------------
Knology Holdings, Inc.
<PAGE> 2
PARTIES: This Lease Indenture made and entered into this 1st day of
July 1990, by and between J. Smith Lanier, II hereinafter
referred to as "LANDLORD", P.O. Box 70, West Point, Georgia
31833 and Interstate Cellular, Inc., P.O. Box 510, West Point,
Georgia 31833, hereinafter referred to as "TENANT".
WITNESSETH
PREMISES: That LANDLORD for and in consideration of the rents reserve to
be paid and the covenants to be performed, has leased and by
these presents does lease, unto "TENANT" certain premises in
West Point, Georgia described as follows:
Office Building and premises located at 210 West Ninth Street,
West Point, Georgia - located northeast corner Second Avenue
and West Ninth Street.
RENT AND To have and to hold the said property from first day of July,
TERM: 1990, for a term of fifteen years, thence next ensuring,
TENANT to pay, therefore during said term the sum of Four
Hundred Forty-seven Thousand Seventy Five Dollars
($447,075.00) in equal monthly installments of Two Thousand
Four Hundred Eighty Three and 75/100 Dollars ($2,483.75) on
the first day of each month, beginning with the first day of
July, 1990, at the office of LANDLORD'S shown above. All
utilities and assessments will be paid by the TENANT. 5% late
charge will be added after 10th of the month.
RENEWAL: TENANT shall have the right to two - 5-year renewal options
and shall indicate to the LANDLORD his intention to renew
ninety days prior to the expiration of the original lease or
first option. If the TENANT does not desire a five-year
renewal, this lease shall continue on a month-to-month basis
at the then effective rate until 30 days written notice is
given by either party to the other of intention to terminate.
USE: Premises are to be leased to and used by TENANT for offices
and/or related cellular activities ONLY, TENANT agreeing that
he will not put the premises to any illegal or unlawful use
nor to any use which will increase the insurance thereon.
--------------------------------------------------------------
--------------------------------------------------------------
TENANT agrees to bear the expense of keeping the premises,
together with any fixtures installed therein, in good
condition, ordinary wear and tear excepted, except broken
glass which shall be replaced at TENANT'S expense regardless
of how caused, and except the expense of keeping open all
water and sewerage pipes which shall likewise be borne by the
TENANT regardless of how caused. Should the main sewer or
waste lines also serve other persons, TENANT agrees to pay his
proportionate cost. At the expiration, premises will be
returned by TENANT "broom clean" with all keys.
DAMAGES- TENANT will give LANDLORD notice in writing, specifically
INJURIES: pointing out any defects in the premises which may arise
subsequently and agrees that LANDLORD may have not less than
ten days to remedy such defects. In the absence of such notice
and until the expiration of said ten days, TENANT agrees that
LANDLORD is released of any and all liability therefrom for
injuries or damage to TENANT, his family, servants or guests,
TENANT hereby specifically waiving any law of the State of
Georgia in conflict herewith or requiring inspection by
LANDLORD. If a member of TENANT'S family, a guest or servant
recovers against LANDLORD under such circumstances, TENANT
agrees to indemnify and hold LANDLORD harmless for such loss.
TENANT for himself, his family, servants and guests releases
LANDLORD of any damage or injury from water or steam, which
risk TENANT hereby assumes.
GENERAL: Provisions with reference to remedies in case of default,
abandonment, or bankruptcy, with reference to Landlord's right
to repossess, and with reference to waiver are shown on
reverse hereof. THEY ARE A PART OF THIS AGREEMENT.
NOTICES: All notices provided for hereunder must be in writing. Such
notices mailed to or left at the within named premises shall
constitute notice to TENANT, and notice to the LANDLORD shall
be accomplished by like document to LANDLORD'S as herein
shown.
INSPECTION: Upon reasonable notice of not less than twelve hours to
TENANT, LANDLORD may enter premises for the purpose of
inspection, repair or showing to prospective purchaser or
tenant. After notice of termination of lease, LANDLORD may
place rental signs on the property.
POSSESSION: If LANDLORD is prevented by law or through no fault of his in
giving possession on the date herein provided, there shall be
no liability for damages of any kind resulting from such
failure.
ADVERTISING: All rights to advertise on premises or place signs thereon
shall be reserved to the LANDLORD.
ASSIGNMENT: The TENANT shall not be at liberty to assign this lease, or
sub-let the whole or any part of said premises for the whole
or any part of said term, or place any tenant upon said
premises without the assent of the LANDLORD, or his AGENT, in
writing.
INTEREST AND All sums due thereunder shall bear interest at 8% per annum
COSTS: after maturity and if placed with an attorney for collection,
LANDLORD may recover reasonable attorney's fees of 15% as cost
of collection.
FIRE: Should the premises be rendered untenable by fire or other
casualty, the lease is to terminate. Rent shall not abate in
case of partial damage which does not render the dwelling
untenable, in which case repairs will be promptly made.
FIXTURES: No fixtures are to be installed nor alterations and repairs
are to be made by TENANT without the written consent of
LANDLORD, but when so made shall become a part of the building
except fixtures as may be constructively attached, such as
stoves, heating units, refrigerators and like fixtures, or
others which are covered by written agreement, which shall be
removable by TENANT at the end of the term; provided, all rent
due under this lease has been paid and provided same can be
done without damage to the premises.
DAMAGE DEPOSIT: If sublet or assigned, LANDLORD may require a $2,400 damage
deposit.
SPECIAL: SPECIAL PROVISIONS OF THIS LEASE
1. This is a net/net/net lease. LANDLORD shall bill TENANT
annually for Insurance and Property Taxes.
2. Improvements and betterments will be made at expense and
liability of tenant with approval of LANDLORD.
3. TENANT has first refusal to purchase.
4. TENANT has right to sub-lease for like or similar business
office space.
5. Space may not be used for wholesale or retail liquor or
alcoholic beverage distribution or sale.
Executed under seal in duplicate on the day and year first
above written.
/s/ (L.S.) /s/ J. Smith Lanier, II (L.S.)
- ----------------------------- -----------------------------
/s/ Interstate Cellular, Inc. (L.S.) /s/ J. Smith Lanier, II (L.S.)
- ----------------------------- -----------------------------
(L.S.) (L.S.)
- ----------------------------- -----------------------------
TENANT
<PAGE> 3
ADDITIONAL PROVISIONS OF THIS LEASE
DEFAULT: Upon failure of TENANT to pay any sums hereunder promptly,
time being of the essence, or upon breach by TENANT of any of
the terms of this lease, the balance due, hereunder for the
full remainder of the term shall become due and payable at
once by TENANT. TENANT expressly represents that all
furniture, fixtures, appliances and equipment installed in
premises are his property and that no furniture, fixtures or
other property shall be removed by TENANT from the premises
while any provision of this lease is in default.
ABANDONMENT: If leased is in default and TENANT, his family and servants
have moved from the premises, LANDLORD may thereupon re-enter
and take possession of the said premises, and furniture and
other belongings of the TENANT which may be in same, without
legal process which will terminate any right of TENANT to
re-enter.
REPOSSESSION: In case of abandonment of premises by TENANT, or following
default, the surrender of possession on demand, or eviction by
law, LANDLORD may retake possession immediately and the
retaking of possession by LANDLORD, in absence of express
election in writing to do so, shall not terminate this lease.
LANDLORD shall have the right to recover immediately as
damages, rentals to the end of the lease. LANDLORD in
subletting premises shall be acting as TENANT'S agent to
reduce TENANT'S loss, any net sums received by the LANDLORD to
apply as payment on any judgement obtained of balance due.
After same is satisfied, LANDLORD is to pay anything received
to TENANT.
BANKRUPTCY: In case of bankruptcy, insolvency or receivership of TENANT,
LANDLORD is to have the right at his option to forthwith
terminate the lease and to proceed for any sum then due
hereunder and also damages for the breach of said lease.
TENANT waives and renounces for himself and family all
Homestead and Exemption rights of this State, of the United
States, or any other State, and as additional security
hereunder, assigns to LANDLORD such Homestead and/or
Exemption, authorizing LANDLORD as his attorney in fact to
file claim for Homestead and to receive and accept same in
TENANT'S name in any bankruptcy proceedings.
WAIVER: If in any instance, LANDLORD shall allow a delay or suspend
any provision in this lease, such waiver shall not prevent
LANDLORD from insisting upon a strict observance thereof at
any subsequent date.
<PAGE> 1
EXHIBIT 10.55
ASSUMPTION AGREEMENT
This agreement has been entered into by ITC Holding Company, Inc. (Current
Lessee) and Knology Holdings, Inc. (Replacement Lessee) to effect the
assumption by the Replacement Lessee of the lease of 312 West 8th Street, West
Point, GA which is currently under lease by the Current Lessee from Midtown
Realty, Inc. (Lessor).
The Replacement Lessee agrees to assume all the rights and responsibilities of
the aforementioned lease (copy attached) effective November 1, 1999. All future
lease payments will be made by the Replacement Lessee to the Lessor consistent
with the terms of the aforementioned lease.
AGREED: AGREED:
/s/ /s/
- ---------------------------- ----------------------------
ITC Holding Company, Inc. Midtown Realty, Inc.
AGREED: DATE:
/s/ 11-9-99
- ---------------------------- ----------------------------
Knology Holdings, Inc.
<PAGE> 2
PARTIES: This Lease Indenture made and entered into this 1st day of December
1998, by and between MIDTOWN REALTY, INC., 1706 Spring Road, Lanett,
AL 36863 hereinafter referred to as "LANDLORD" and ITC HOLDING
COMPANY, INC. hereinafter referred to as "TENANT".
WITNESSETH
PREMISES: That LANDLORD for and in consideration of the rents reserve to be
paid and the covenants to be performed, has leased and by these
presents does lease, unto TENANT certain premises in WEST POINT,
GEORGIA (TROUP COUNTY) described as follows:
312 WEST 8TH STREET IN THE
CITY OF WEST POINT,
TROUP COUNTY, GEORGIA.
1,740 SQUARE FEET
310 SQUARE FEET COMMON AREA
2,050 TOTAL SQUARE FOOTAGE
RENT AND To have and to hold the said property from 1st day of December 1998
TERM: for a term of THREE YEARS, thence next ensuing, TENANT to pay
therefore during said term the sum of FIVE HUNDRED NINETY-SEVEN
DOLLARS AND 92/100 ($597.92) on the first day of each month,
beginning with the first day of December 1998, at the office of
LANDLORD shown above. All utilities and assessments will be paid by
TENANT. 5% charge will be added after 10th of the month.
RENEWAL: TENANT shall have the right to two - 3-year renewal options and
shall indicate to the LANDLORD his intention to renew ninety days
prior to the expiration of the original lease or first option. If
the TENANT does not desire a three-year renewal, this lease shall
continue on a month-to-month basis at the then effective rate until
30 days written notice is given by either party to the other of
intention to terminate.
USE: Premises are to be leased to and used by TENANT for offices and/or
related business type activities ONLY, TENANT agreeing that he will
not put the premises to any illegal or unlawful use nor to any use
which will increase the insurance thereon.
<PAGE> 3
-2-
REPAIRS: TENANT has examined premises and agrees that they are in good
state of repair, except in the following particulars, which
LANDLORD agrees to repair promptly:
NONE
------------------------------------------------------------------
------------------------------------------------------------------
TENANT agrees to bear the expense of keeping the premises, together
with any fixtures installed therein, in good condition, ordinary wear
and tear excepted, except broken glass which shall be replaced at
TENANT'S expense regardless of how caused, and except the expense of
keeping open all water and sewerage pipes, electrical and heat pump
if determined to be caused by neglect of TENANT or SUBTENANT. LANDLORD
will be responsible for PLUMBING, ELECTRICAL, HEATING AND AIR as long
as it is determined to be from normal wear and tear. At the
expiration, premises will be returned by TENANT "broom clean" with all
keys.
DAMAGES- TENANT will give LANDLORD notice in writing, specifically
INJURIES: pointing out any defects in the premises which may arise subsequently
and agrees that LANDLORD may have not less than ten days to remedy
such defects. In the absence of such notice and until the expiration
of said ten days, TENANT agrees that LANDLORD is released of any and
all liability therefrom for injuries or damage to TENANT, his family,
servants or guests, TENANT hereby specifically waiving any law of the
State of Georgia in conflict herewith or requiring inspection by
LANDLORD. If a member of TENANT family, a guest or servant recovers
against LANDLORD under such circumstances, TENANT agrees to indemnify
and hold LANDLORD harmless for such loss.
GENERAL: Provisions with reference to remedies in case of default,
abandonment, or bankruptcy, with reference to LANDLORD'S right to
repossess, and with reference to waiver are shown on page 4 and 5
hereof. THEY ARE A PART OF THIS AGREEMENT.
NOTICES: All notices provided for hereunder must be in writing. Such
notices mailed to or left at the within named premises shall
constitute notice to TENANT, and notice to the LANDLORD shall be
accomplished by like document to LANDLORDS's as herein shown.
<PAGE> 4
-3-
INSPECTION: Upon reasonable notice of not less than twelve hours to TENANT,
LANDLORD may enter premises for the purpose of inspection, repair
or showing to prospective purchaser or tenant. After notice of
termination of lease, LANDLORD may place rental signs on the
property.
POSSESSION: If LANDLORD is prevented by law or through no fault of his in
giving possession on the date herein provided, there shall be no
liability for damages of any kind resulting from such failure.
ADVERTISING: All rights to advertise on premises or place signs thereon shall
be reserved to the LANDLORD.
INTEREST AND All sums due thereunder shall bear interest at 8% per annum
COSTS: after maturity and if placed with an attorney for collection,
LANDLORD may recover reasonable attorney's fees at 15% as cost of
collection.
FIRE: Should the premises be rendered untenable by fire or other
casualty, the lease is to terminate. Rent shall not abate in case
of partial damage which does not render the dwelling untenable, in
which case repairs will be promptly made.
FIXTURES: No fixtures are to be installed nor alterations and repairs are
to be made by TENANT without the written consent of LANDLORD, but
when so made shall become a part of the building including
fixtures constructively attached, such as stoves and like
fixtures, or others which are covered by written agreement, which
shall be removable by TENANT at the end of the term; provided, all
rent due under this lease has been paid and provided same can be
done without damage to the premises.
<PAGE> 5
-4-
SPECIAL: SPECIAL PROVISIONS OF THIS LEASE
1. This is a net lease. LANDLORD will be responsible for
insurance, property taxes and exterior improvements. TENANT
will be responsible for utilities, cleaning service and pest
control. TENANT will be responsible for any annual increases
over $1,200 for property taxes and will be billed by LANDLORD.
2. Interior improvements and betterments will be made at expense
and liability of tenant with approval of LANDLORD.
3. TENANT has first refusal to purchase.
4. TENANT has right to sub-lease for like or similar business or
office space.
5. Space may not be used for wholesale or retail liquor or
alcoholic beverage distribution or sale.
ADDITIONAL PROVISIONS OF THIS LEASE
DEFAULT: Upon failure of TENANT to pay any sums hereunder promptly, time
being of the essence, or upon breach by TENANT of any of the terms
of this lease, the balance due, hereunder for the full remainder
of the term shall become due and payable at once by TENANT. TENANT
expressly represents that all furniture, fixtures, appliances and
equipment installed at premises are his property and that no
furniture, fixtures or other property shall be removed by TENANT
from the premises while any provision of this lease is in default.
ABANDONMENT: If lease is in default and TENANT, his family and servants have
moved from the premises, LANDLORD may thereupon re-enter take
possession of the said premises, and furniture and other belongings
of the TENANT which may be in same, without legal process, which
will terminate any right of TENANT to re-enter.
<PAGE> 6
-5-
REPOSSESSION: In case of abandonment of premises by TENANT, or following
default, the surrender of possession on demand, or eviction by
law, LANDLORD may retake possession immediately and the retaking
of possession by LANDLORD, in absence of express election in
writing to do so, shall not terminate this lease. LANDLORD shall
have the right to recover immediately as damages, rentals to the
end of the lease. LANDLORD in subletting premises shall be
acting as TENANT'S agent to reduce TENANT'S loss, any net sums
received by the LANDLORD to apply as payment on any judgment
obtained of balance due. After same is satisfied, LANDLORD is to
pay anything received to TENANT.
BANKRUPTCY: IN case of bankruptcy, insolvency or receivership of TENANT,
LANDLORD is to have the right at his option to forthwith
terminate the lease and to proceed for any sum then due hereunder
and also damages for the breach of said lease. TENANT waives and
renounces for himself all HOMESTEAD and EXEMPTION rights of this
State, of the United States, or any other State, and as
additional security hereunder, assigns to LANDLORD as his
attorney in fact to file claim for Homestead and to receive and
accept same in TENANT'S name in any bankruptcy proceedings.
WAIVER: If in any instance, LANDLORD shall allow a delay or suspend
any provision in this lease, such waiver shall not prevent
LANDLORD from insisting upon a strict observance thereof at any
subsequent date.
Executed under seal in duplicate on the day and year first
above written:
/s/ /s/
- ------------------------------ -------------------------------
TENANT LANDLORD
ITC HOLDING COMPANY, INC. MIDTOWN REALTY, INC.
/s/ Shirley K. Cohen
- ----------------------------(L.S.) ----------------------------(L.S.)
ATTEST ATTEST
<PAGE> 1
EXHIBIT 10.56
[*]Confidential treatment has been requested for the information indicated
pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
The copy on file as an exhibit omits the information subject to the
confidentiality request. Such omitted information has been filed separately
with the Commission.
INTERSTATE/VALLEY TELEPHONE
KNOLOGY CONNECTING THE VALLEY
DIGITAL CENTREX SWITCHING SERVICE
CUSTOMER ACCEPTANCE AGREEMENT
An Agreement made this 4th day of January 1999, by and between
Interstate/Valley Telephone Company of West Point, Georgia (the "Company") and
Intercall (the "Customer") located at 1211 O.G. Skinner Drive, West Point, GA
to renew Centrex Digital Switching Service.
Centrex Digital Switching Service (the "Service") is a telecommunications
system in which the equipment controlling the switching is located in the
Company's central office. Lines connecting Customer premises to the Company's
central office are furnished by the Company as part of the service, and remain
the property of the Company.
Customer hereby subscribes to the Service on the following conditions:
A. CONTRACT TERM: Rates. Customer elects an initial contract term of 5
year(s), for service lines and with the features set forth on attached Schedule
A. The monthly rate for OPTION I PRIMARY CENTREX LINES IS $[*] PER LINE. The
monthly rate for a Centrex Virtual Facility trunk is $[*]. This rate is not
subject to company initiated changes during the initial contract term. Customer
shall also be responsible for payment of any initial nonrecurring charges,
(I.N.C.), as described on Schedule A. No portion of the I.N.C. shall be
refunded under any circumstances. Notwithstanding the foregoing, an End User
Common Line Charge, as provided in the Tariff, will be charged. This charge is
included in the per line rate and is not covered by this Agreement. Any changes
to the End User Common Line Charge shall be made in accordance with F.C.C.
Tariff. Such changes shall not be considered Company initiated changes for
purposes of this agreement.
B. SERVICE ESTABLISHMENT CHARGE. A Service Connection Charge of $N/A is
applicable to the establishment of _____ Centrex lines, and features described
in Schedule A. No portion of the Service Connection Charge shall be refunded
under any circumstances. The Service Connection Charge includes charges for the
primary service order, line connection, and central office programming. If
customer elects to add Centrex lines, Customer shall be responsible for payment
of the applicable Service Connection Charges.
C. LINE SIZE CATEGORIES. If Customer elects to reduce the number of
Centrex lines during the term of the Agreement, Customer may do so, but shall
continue to be responsible for the payment OF THE GREATER OF 75% OF THE
INITIALLY INSTALLED LINES OR THE ACTUAL NUMBER OF LINES IN SERVICE SUBSEQUENT TO
THE REDUCTION.
D. BASIC TERMINATION LIABILITY AGREEMENT. If Customer terminates this
Agreement prior to the expiration of the contract term, a termination charge
will become due immediately. The amount of the termination charge will be equal
to six (6) months billing of actual Centrex lines in service provided the
service is not in the fifty-fifth to sixtieth month of service. In this latter
event, only the remaining months' Monthly Centrex line rate shall apply.
E. CANCELLATION CHARGES. In the event Customer cancels this Agreement
prior to the establishment of the Service, the Customer shall reimburse the
Company for all costs and expenses actually incurred.
<PAGE> 2
F. RATES AND CHARGES. Rates and charges will be billed monthly
based upon pricing schedules in Schedule A. Customer agrees to pay all charges
when billed. Charges not paid within 30 days of the bill date may be assessed a
1.5% per month finance charge and may result in termination of service. Centrex
rates quoted in this contract do not include tax. The Customer will be subject
to the State and Local taxes applicable for his locality.
G. WARRANTY AND DISCLAIMER. Interstate/Valley Telephone shall use
its best efforts to ensure that the system is reliable and available to the
Customer at all times, provided however, Interstate/Valley does not make any
representations, warranties or covenants, either expressed or implied including
the implied warranty of merchantability and fitness for any purpose.
Interstate/Valley shall not be liable for incidental, special, or consequential
damages, personal injury, or commercial loss, arising in any manner out of the
performance on nonperformance of the services provided.
The State of Georgia shall govern this Service Agreement. The terms of this
Service Agreement may not be amended except in writing, signed by both parties.
INTERCALL, INC. INTERSTATE/VALLEY TELEPHONE
DATE: 4-1-99 DATE: 4-1-99
---------------------------- ----------------------------
NAME: Susan Ferguson NAME: /s/
---------------------------- ----------------------------
TITLE: VP - Finance TITLE: VP
--------------------------- ---------------------------
<PAGE> 3
SCHEDULE A
CENTREX SOFTWARE FEATURES
Call Forward - All Calls
Call Forward - Busy and No Answer
Call Hold
Call Park
Call Pick Up
Three Way/Consultation Hold/Transfer
Hunting
Intercom Dialing
Last Number Redial
Ring Again
Speed Call
Conference Calling 3 & 6 Party
Auto Dial
Message Waiting
Make Set Busy
Call Waiting
Multiple Call Appearance
Toll Restriction
Least Cost Routing
Music on Hold Software (customer provides source)
Direct Inward Dial
<PAGE> 4
SCHEDULE A (CONTINUED)
PRICING
OPTION 1 (60 MONTHS)
TO BE APPLIED TO ALL ADMINISTRATION LINES
Rate per line: (60 months)$[*] per line
Centrex Trunk: $[*]
Additional Directory Numbers: $[*] each
OPTION II (60 MONTHS)
TO BE APPLIED TO RESERVATIONS GROUP
Rate per line: (60 Months) $[*] per line
CENTREX VOICEMAIL PRICING
1 - 50 $[*] per box
51 - 100 $[*] per box
101 + $[*] per box
SERVICE CONNECTION CHARGES
Service Charges Covering Moves, Changes and New Installs:
$[*] Service Order Charge for one order or multiples placed at same time
$[*] Central Office Charge for each new or change to existing extension
$[*] Premises Termination Charge for any new line terminating at
customer premises
<PAGE> 1
EXHIBIT 21.1 SUBSIDIARIES OF KNOLOGY, INC.
KNOLOGY Holdings, Inc.,
Interstate Telephone Company,
Valley Telephone Company,
Globe Telecommunications, Inc.,
ITC Globe, Inc.,
KNOLOGY of Knoxville, Inc.,
KNOLOGY of Nashville, Inc.,
KNOLOGY of Louisville, Inc.,
KNOLOGY of Lexington, Inc.,
KNOLOGY of Kentucky, Inc.,
KNOLOGY of Tennessee, Inc.,
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF KNOLOGY, INC. AS OF DECEMBER 31, 1999 AND THE RELATED COMBINED
STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999. THIS
INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,818,462
<SECURITIES> 6,069,461
<RECEIVABLES> 27,983,487
<ALLOWANCES> 701,804
<INVENTORY> 21,769,689
<CURRENT-ASSETS> 41,966,314
<PP&E> 312,654,748
<DEPRECIATION> 60,527,606
<TOTAL-ASSETS> 400,333,810
<CURRENT-LIABILITIES> 26,301,831
<BONDS> 312,284,208
0
480,355
<COMMON> 65
<OTHER-SE> 37,442,940
<TOTAL-LIABILITY-AND-EQUITY> 400,333,810
<SALES> 66,720,929
<TOTAL-REVENUES> 66,629,408
<CGS> 26,964,519
<TOTAL-COSTS> 113,894,931
<OTHER-EXPENSES> 32,837,223
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,308,742
<INCOME-PRETAX> (76,743,572)
<INCOME-TAX> (19,697,270)
<INCOME-CONTINUING> (57,046,302)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (57,046,302)
<EPS-BASIC> (11.45)
<EPS-DILUTED> (11.45)
</TABLE>
